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FCC review of proposed municipal tax on telecommunications sought

By on June 11, 2020

Photo by Campaign Creators on Unsplash

Industry group calls levy a ‘flagrant violation’ of federal legislation to achieve universal, affordable internet services in Puerto Rico

SAN JUAN – The head of the Puerto Rican Telecommunications Alliance (APT by its Spanish initials) is urging Federal Communications Commission Chairman Ajit Pai to “take notice” and look into a clause in the Puerto Rico Senate-approved New Municipal Code that is now under House consideration and would allow municipalities to levy an additional tax on telecommunications services, contending that the tax would set back efforts to provide universal availability of affordable high-speed internet.

In a letter to Pai Wednesday, APT President Felipe Hernández says Senate Bill 1333, which he notes was passed “in the dark of night,” would, for the first time, levy taxes on internet access services, which, he added, would not only undermine the local telecommunications industry but would also be in “flagrant violation of the spirit” of the federal Internet Tax Freedom Act of 1998.

Hernández says in the letter that according to “industry experts,” the proposed levy, which would be collected by the Municipal Revenue Collection Center (CRIM by its Spanish acronym) as a property tax, would increase the tax burden on local telecommunications and broadband service providers by up to 1,000 percent.

The industry executive contends that the proposed measure is “an affront” to the FCC’s goals of universal availability of reliable high-speed internet, noting that imposition of the tax would “discourage investment, and ultimately increase the price of service” to Puerto Rico consumers of broadband internet access services.

“Senate Bill PS1333 (passed and sent to the House), and its companion bill in the House, PC2313 (both pending imminent vote), would drastically alter the way Puerto Rico’s municipal real property taxes are determined by subjecting revenue from telecommunications, broadband, and Internet Access services to taxation,” Hernández says in the letter.

“The crux of the proposed changes to Puerto Rico’s property tax laws set forth in the legislation is a dramatic shift from imposing taxes on the assessable value of a Telecommunications/Broadband company’s ‘Real Property’ to a calculus that includes the ‘Revenue’ derived from services provided to consumers which utilizes a company’s real property,” he continued. “Without question, many companies operating throughout Puerto Rico rely on a great deal of ‘real property’ to deliver broadband Internet Access to their customers, everything from fiber and other network infrastructure to the buildings they occupy.”

Hernández assures that APT will “exhaust all the available alternatives and efforts to stop the Puerto Rico legislature from taxing the Internet and, in so doing, cutting off the oxygen needed to fulfill America’s policy goals related to achieving universally available and affordable broadband Internet Access.”

While Senate Bill 1333 was passed “without hearings or any opportunity for the industry and impacted citizens of Puerto Rico to participate or file comments,” similar legislation in the form of House Bill 2313 is being considered by the lower chamber, Hernández says, noting that both bills must be passed and signed by Gov. Wanda Vázquez.

In his letter to Pai, Hernández stresses the urgency of the FCC “to evaluate whether the proposed legislation would interfere with the reconstruction of Puerto Rico’s telecommunications infrastructure or otherwise dilute, diminish, or redirect to unintended recipients the economic benefits that were bestowed upon the island by the U.S. Congress and FCC in the aftermath of Hurricanes Irma and Maria in 2017, recent earthquakes, and the on-going COVID-19 pandemic.”

“Our time to oppose both legislations is short, as the House vote is imminent,” he states in the letter.

In a statement issued Thursday, Hernández called on both House Speaker Carlos Johnny Méndez and Rep. Reinaldo Vargas, chairman of the House Municipal Committee, which is evaluating the measure, to hold a “transparent hearings process,” noting that his organization was invited by the House committee to testify in a closed-door hearing on Thursday.

“Until now the only ones who were invited to testify to the sole public hearing that the committee presided by Vargas held were the Mayors Association and [Mayors] Federation, who are the beneficiaries of this measure, and who seek to balance their budgets at the expense of telecommunications and citizens,” he said in the statement. “Now, to cover their incompetence or their bad faith, they invite us today [Thursday] to a closed door hearing, without [the presence of] the press and citizens. What do they fear or, rather, what do they hide?”

Hernández said that providers of internet, television and telephone services in Puerto Rico, which “sustained a blow from Hurricane Maria, and now the pandemic,” are making “great investments to maintain services, which allow many businesses to operate and people to study and work from their homes.”

“So, instead of encouraging us, they deal us this blow,” he said. “There is no way we can subsist if this materializes, and the consequences will be bankruptcies, the loss of thousands of jobs and increases in rates for consumers. We are aware that every business in Puerto Rico [should] pay what is just and reasonable in the appraisal of their property. But CRIM prefers to discriminate against the telecommunications industry, seeking to reap benefits from one of the few growth industries on the island.”

Last Monday, dozens of telecom business owners who collaborate closely with APT held a vehicle protest at the Capitol to demand to be heard. Hernández said at the activity that close to 100 business owners serving more than 300,000 customers may have to resort to bankruptcy due to the proposed tax.

A request for comment was left with CRIM’s chairman, Cidra Mayor Javier Carrasquillo.

Municipalities have been under pressure to find new sources of revenue, as the fiscal plan certified by the Financial Oversight & Management Board (FOMB) seeks to make towns depend less on the commonwealth government and make them self-sufficient.

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