The U.S. House of Representatives recently gave CWA a major victory by closing a tax loophole that allowed giant companies like Verizon to avoid federal taxes. Most notably, Verizon used the Reverse Morris Tax (RMT) loophole when it sold its northern New England landline operations to FairPoint Communications last year.
Verizon is currently attempting to use the same loophole in a proposed sale with Frontier.
The tax change was included in the Small Business and Infrastructure Jobs Tax Act of 2010. House leaders in the campaign to close the RMT loophole included Rep. Paul Hodes (D-NH), Rep. Louise Slaughter (D-NY) and Rep Chris Van Hollen (D-MD).
The Reverse Morris trust lets companies spin-off subsidiaries that merge into smaller companies tax free.
Verizon avoided $300 million in taxes when it sold off its northern New England operations to FairPoint Communications, leaving the new company in severe debt. Eventually FairPoint filed for Chapter 11 Bankruptcy protection late last year.
The new Frontier deal would also be bad for consumers - overburdening the Frontier network with $3.3 billion in new debt, while Verizon walks away with the proceeds, avoiding $600 million in taxes.
In passing the Small Business and Infrastructure Jobs Act (H.R. 4849), the House closed the loophole and also invested in local infrastructure projects. Under the new law, small businesses also receive tax credits for creating local, sustainable jobs.
While the House bill does not retroactively apply to the Verizon-Frontier deal, that could be remedied in the Senate. At a minimum, closing the loophole will have an impact on future deals. Large companies will have less incentive to spin-off debt riddled subsidiaries at the detriment of consumers.
"The House vote, and hopefully a similar vote by the Senate, should encourage the West Virginia Public Service Commission to deny this tax-driven deal," said CWA District 2 Vice President Ron Collins. "The RMT was designed by Wall Street for Wall Street, not West Virginians. We're happy Congress shares our view that the RMT is a tax break for corporations, not a job-creating tool."