State House Sound Bites

Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.
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What your smartphone has to do with a dip in corporate tax revenue

Written by Mary Wilson, Former Capitol Bureau Chief | Feb 17, 2012 5:43 AM

Call it a parting gift of electric deregulation – state revenue from a little-known corporate tax is expected to fall short for the second year in a row.

Customers have only been able to shop around for alternative electricity providers for the past few years.  Deregulation introduced a number of companies to the state’s tax rolls, but with their historically narrow profit margins, the amount of taxes they had to pay was low last year and will be low again this year.

The Department of Revenue expects their tax contribution to jump by about 30 percent next year, as the companies’ profits increase.

But state budget secretary Charles Zogby explained another reason for the shortfall by holding up a smartphone at a budget hearing before the state Senate this week. 

“The data plans that we all now enjoy on our phones that don’t have the same tax coverage as it used to, that’s leading to an erosion of revenues, so we are looking at a shortfall,” said Zogby. 

Federal law prohibits the taxation of Internet access and, therefore, of phone data plans.  

The resulting revenue gap in Gross Receipts Tax revenue is expected to be about $70 million this fiscal year.  The shortfall was more than $100 million last year.

Zogby said the deficit is exacerbated by the growing number of people dropping their landlines in favor of smartphones.

“As more individuals move to a so-called smartphone, that is having a negative revenue effect on the state – part of which shows up in the Gross Receipts Tax,” said Zogby.

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