Local Taxation

Exclusion of Cellular Services from the Utility Gross Receipts Tax

The Mandate: Cities and villages are authorized to impose a gross receipts tax (GRT) on the sale of utility services. Authorized by General City Law § 20-b and Village Law § 5-530, the tax is equal to 1% of the gross income of utilities operating within their boundaries. (The cities of Rochester, Buffalo and Yonkers are authorized to impose this tax at rate not to exceed 3%.)

Cities first received the authority to impose the tax in 1937 when the State imposed its own gross receipts tax pursuant to § 186-a of the Tax Law. In fact, it is this section of the Tax Law that provides the framework for the local gross receipts tax as both General City Law § 20-b and Village Law § 5-530 state that "...any city (village) is hereby authorized and empowered to adopt and amend local laws imposing in any such city (village), a tax such as was imposed by section 186-a of the Tax Law in effect on January first, nineteen hundred and fifty nine, except that the rate shall not exceed one per centum of gross income or of gross operating income....”

Section 186-a defines utility as "any person ... subject to the supervision of the state department of public service . . . who sells gas, electricity, steam, water or refrigeration delivered through mains, pipes or wires ...."   When the law governing the imposition of this tax was first enacted, wireless technology was not considered. Consequently, even though cellular companies -- for all intents and purposes -- are considered utilities, cities and villages are currently prohibited from imposing the utility gross receipts tax on cellular service providers since they do not fall within the legal definition. In recognition of the new wireless technology and to promote equity in the tax treatment of various types of telecommunications providers, both the State and New York City made amendments to the Tax Law and the Administrative Code of the City of New York, respectively, to include cellular services as taxable for purposes of the State's tax on telecommunication services and the City's gross receipts tax.

The Cost:  Approximately 360 villages and 61 cities currently impose the utility gross receipts tax.  According to the NYS Division of the Budget, extending the utility gross receipts tax to mobile telecommunications would generate an additional $12.5 million annually in non-property tax revenue for cities and villages outside of New York City.

The Solution: Local governments are continually trying to control expenses while expanding their limited non-property tax revenue options. The utility gross receipts tax is one of these options, but many municipalities have, and will likely continue to experience declines as more and more consumers move from land line to wireless phone service. Given that cellular companies are, for all practical purposes, considered utilities, and to ensure that all telecommunications providers are treated equally, General City Law and Village Law should be amended to include mobile telecommunications services within the scope of the local gross receipts tax.