Close this loophole; Telecom exemption an idea whose time is past.

COLUMN: IN OUR OPINION

In the 1920s, a special property tax exemption to spur extension of telephone service throughout Massachusetts made sense. Today, decades after the line-stringing job was completed, it's an illogical, inequitable loophole that should go the way of silent movies, flappers and bathtub gin.

Without getting too deeply entangled in the complexities of corporate tax law, a comparison of taxation as applied to the telephone corporations, electric utilities and non-corporate telephone companies makes the absurdity to the situation clear.

Consider taxation of poles owned by private companies on public ways: Those owned by electric companies are taxed, while those owned by telephone companies are exempt.

Taxation of wires is even more tangled. Electricity transmission lines are taxed, while wires and broadband owned by corporate telephone companies are exempt. Phone wires owned by telecom companies organized as partnerships are taxed.

Confused?

You should be. The system makes utterly no sense.

A tax analysis developed by the city of Boston found that about 60 percent of Verizon's property is exempt, some $2 billion in assessed value removed from the municipal tax base. The analysis also found Verizon's total state and local tax bill declined by nearly $50 million, from $100.9 million in 2003 to $54.3 million in 2005.

Verizon is the company that would be affected most by the change. In a time of rapid change in the telecommunication industry - with Internet, wireless and other competing technologies making deep inroads into the territory once occupied almost exclusively by land-line telephones - it is hardly surprising that the corporation would be loath to relinquish any financial advantage it might enjoy.

But make no mistake: The Patrick-Murray administration's proposal in no way is intended to target any individual company, but rather strives to create a more level the playing field for all.

In addition, it would give a direct boost to the revenue flow of municipalities, which are being crushed between unfunded state and federal mandates on one side and soaring operating and benefits costs on the other. Legislation that would remove the inequitable exemptions for telephone poles, wires and switching equipment reportedly would add roughly $75 million to $80 million to cities' and towns' bottom lines.

It is a correction in the Massachusetts tax structure that is long overdue.

Ending the telecom exemption, closing the "combined reporting" loophole for interstate corporations and imposing new local taxes on hotel rooms and meals might bring fiscal relief.

But here's the reality check for cities and towns: Even if the loopholes are closed and new municipal hotel and meals taxes are approved, income from them will increase, over time, at about the rate of inflation.

That means the new revenue will help for a few years, but soon will be overtaken by relentless, hyperinflationary increases in the cost of maintaining municipal services at a given level. Government spending growth at double or more the rate of inflation - even though driven in part by forces beyond the control of municipal officials - is manifestly unsustainable in the long run.

The Patrick-Murray administration's efforts to correct inequities in the tax code are welcome. Absent structural changes, however, even the best such efforts are not solutions but stopgaps.

ART: CARTOON