August 1, 2003

Today the Department of Revenue held a workshop on its proposed rule to implement the communications services tax on substitute communications systems.

The workshop confirmed the substance of Associated Industries previous reports on this rule; in its present form it imposes a costly tax burden on virtually every business in the state. Any company with a computer network or an in-house telephone system falls into the grasp of the communications services tax collector.

The workshop drew more than 100 participants, ranging from telephone company executives to accounting professionals to business owners. The comments were unanimously critical of the rule as it was developed by the department, and largely zeroed in on two defects: the definition of the word “substitute” and the definition of the term “switched service.”

Participants suggested that the Legislature contemplated that a substitute communications system would be taxable if it were a switched system by which a dealer provided the communication path. The department has interpreted it to mean any system that allows communications system, including a group of computers and printers linked together in an office.

Another problem the department has encountered in developing the rule is with the definition of “switched service,” a term that, in telecommunications, means something that completes a circuit, thereby linking two nodes together.

This is a deeply complex issue that requires a precise blending of tax policy and engineering, adaptable to rapidly changing technology, while adhering to the stringent guidelines of statute and the procedures for adopting agency rules. Clearly the rule, as it exists now, it a violation of legislative intent if only because the communications services tax was intended to be revenue neutral, while the department’s interpretation of this portion of the tax would provide a huge revenue boost for state and local governments. One participant at the workshop said that his company’s annual tax burden alone would rise by an estimated $2 million.

The workshop panel, composed of Department of Revenue staff members, assured the participants that they were a long way from adopting a final rule, and that they were eager to receive comments that would help them bring the rule closer in line with legislative intent and intelligent tax policy.

Anyone who would like to submit a written comment on the rule may do so by communicating via fax, e-mail, or postal service to:

Mr. Gary Gray

Department of Revenue 

Tax Policy and Dispute Resolution

PO Box 7443Tallahassee, Florida 32314-7443

Fax: (850) 922-9252 or (850) 921-2983

E-mail: grayg@dor.state.fl.us

Comments must be received by the close of business on September 3.