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t r. Ie COMMUNICATIONS SERVICES TAX (CST) '--.ue Section 12 of Chapter 2012-70, Laws of Florida, created a Communications Services Tax (CST) Working Group charged with reviewing national and state tax policies relating to the communications industry, including 1) the historical amount of tax revenue generated by the CST and determining the effect that laws passed in the past five years have had on declining CST revenues; 2) the extent to which CST revenues have been relied upon to secure bonded indebtedness; and 3)the fairness of the state's communications tax laws and the administrative burdens contained therein, including the clarity of the laws to communications services providers, retailers, customers, local government entities and state administrators. The CST Working Group was directed to provide a report indicating options both for streamlining the administrative system and for removing competitive advantages within the industry related to the state's structure without unduly reducing revenue to local governments. The loss of revenue to local governments is a significant concern. Analysis The development of the CST was a well-considered consensus effort of the state, local governments and communications service providers 12 years ago, intended to simplify the administrative burden for both the communications industry and local governments. The CST combined seven different state and local taxes and fees and employed the Florida Department of Revenue (DOR) to receive and distribute the resulting tax revenues as well as redistributing revenues which audits revealed to be paid incorrectly. This is something the DOR already does for the state's sales and gross receipts taxes. Initially, the resulting CST revenues produced a reliable, stable, bondable source of local government funding; leveled the playing field for communications service providers such that like services were taxed in a like manner, no matter the delivery method or technology employed; and provided a single entity (DOR) for the communications industry to report for collection purposes and to which to be accountable. Additionally, the nbination of the seven different state and local taxes and fees, when applied to the broader taxable base, ''Ifsulted in an overall lower tax rate on communications services. Consequently, the CST became a critical revenue source for local governments, and Communications Services Tax revenues are bonded by many jurisdictions. Legislative and technological changes that have occurred over the past few years have resulted in an erosion of CST revenues to the state and local governments, diminishing the reliability of this revenue stream for the repayment of existing debt. These changes have also resulted in like services being taxed differently depending on the service provider or method of sale, causing the very discrimination that the Communications Services Tax Simplification law was intended to prevent—such as prepaid vs contracted phones, for example. Recommendation In light of the fact that any changes to the CST revenue stream not carefully conceived could cause serious financial harm to local government, legislation aimed at reforming the Communications Services Tax should: Be developed through consensus by a working group comprised of local governments, the communications industry and the state • Allow the CST to remain a locally-controlled revenue stream Be carefully crafted to stabilize the currently diminished local government share of CST revenues and augment revenues by eliminating certain loopholes that have been realized Remove competitive advantages by providing similar tax treatment to similar services, no matter the technology utilized nor method of delivery Provide transparency, such that the tax can easily be recalculated by the customer and audited by DOR 5 228