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A bill that would tax all telephone calls at the same 4.5 percent rate won bipartisan support in the state House on Tuesday despite protests that it would be an unfair burden on big businesses and members of rural telephone cooperatives.
The bill, tentatively approved 87-26, would cut the tax on local and in-state long distance calls and tax, for the first time, out-of-state phone calls. The state would receive about the same revenue, but consumers' tax costs could rise or fall depending on whether they make more out-of-state calls or more local and in-state long distance calls.
Local calls are now taxed at 6.22 percent, in-state long distance calls at 6.5 percent. Both would drop to 4.5 percent under the bill. The state would also collect 4.5 percent on the out-of-state calls it does not now tax.
House members who supported the bill said it would repair an unfair and outmoded tax policy and cut costs to residential and small-business phone customers.
"The current tax structure discriminates against consumers and businesses that make most of their calls to individuals and businesses inside North Carolina," said Rep. Gordon Allen, a Roxboro Democrat.
The North Carolina Consumers Council and North Carolina Citizens for a Sound Economy, a group that pushes for smaller government, wrote letters supporting the bill.
Opponents said the bill was bad for businesses that make frequent long-distance calls and members of nine telephone cooperatives.
The Carolina Utility Customers Association, whose members include dozens of companies such as Eaton, R.J. Reynolds and GlaxoSmithKline, wrote legislators last week asking them to vote against the bill because it would penalize companies that create jobs and increase costs for some rural residents.
"This revenue neutrality is all going to fall on big business," said Rep. Rex Baker, a King Republican. These are the same companies the state will rely on to "bring us out of recession," he said.
The debate foreshadowed possible battles over the budget and taxation.
A commission Gov. Mike Easley appointed to study tax loopholes and cost savings recommended taxing all calls at 6 percent, which would raise $ 37.5 million in the first year and $ 90 million in the second year.
Easley has not yet endorsed the Efficiency and Loophole Closing Commission recommendations.
But if the House gives its final approval to the 4.5 percent rate and Easley recommends the 6 percent rate, Senate budget writers could get caught in the squeeze.
Sen. Aaron Plyler, a Monroe Democrat and a co-chairman of the Senate Appropriations Committee, said he didn't know yet how senators would handle the phone tax.
"We're going to have to deal with it," he said. "At what percent, I can't tell you."
But some House members who supported the 4.5 percent tax on all calls said they would fight a proposal to increase it to 6 percent.
Rep. Art Pope, a Raleigh Republican, said in an interview that he supports proposals that make taxes "simple, uniform and fair."
"If the call for tax fairness is simply an excuse to pass a tax increase, I will oppose it," he said.
Triangle legislators voting in favor were: Pope; Republican David Miner and Democrat Jennifer Weiss, both of Cary; Raleigh Democrats Dan Blue and Bob Hensley; Garner Republican Sam Ellis; Chapel Hill Democrats Joe Hackney and Verla Insko; and Durham Democrats Mickey Michaux, Paul Luebke and Paul Miller.
Raleigh Republicans Russell Capps and Rick Eddins were opposed.