UPDATED: CenturyLink sues Portland, Ore. over new wireline phone tax

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CenturyLink (NYSE: CTL), one of the incumbent service providers in Oregon, has filed a lawsuit against the City of Portland over a new wireline phone service tax that went into effect on Tuesday.

The lawsuit comes after Portland's City Council in November voted to approve the expanded tax, which is designed to raise up to $5 million in revenue for police department reforms.

In the suit, which was filed last Friday in the Multnomah County Circuit Court, the telco said that the tax "undermines its ability to compete with other telecommunication providers and violates both state and federal law."

"CenturyLink believes that this change in how the city taxes local telephone companies is in conflict with applicable state and federal restrictions on the taxes and fees that cities may charge consumers for local telephone service," CenturyLink said in a prepared statement provided to FierceTelecom. "For this reason, CenturyLink filed an injunction in Multnomah County Circuit Court to obtain a definitive resolution of this issue and to protect its customers' interests."

CenturyLink said that the tax is unfair because it does not include wireless operators. Like other U.S. cities, wireless has become the dominant voice service in Portland, with 3.4 million subscribers versus only 949,000 traditional PSTN service subscribers.

At this point, the telco said that it "is not passing through the increased tax as we believe the city tax conflicts with both state and federal limits on how cities can tax local telephone service," but "this may change if the city tax is upheld."

Before this new tax went into place, CenturyLink and Frontier Communications (Nasdaq: FTR)--which also opposes the new tax--were required to pay 7 percent of their local voice service revenues to the city. Now, CenturyLink and Frontier are required to pay the city 5 percent of their gross revenues.

Frontier, which said it does not have a significant presence in Portland, has not filed a lawsuit with the city and would not comment on the issue. 

This new tax is a positive for competitive providers such as cable MSO Comcast (Nasdaq: CMCSA) and CLEC Integra, both of which are required to pay 5 percent of their gross revenues to Portland.  

Tax battles between cities and service providers have become more frequent in recent years as telcos face ongoing competition from cable operators offering voice service and wireless providers.

For more:
- The Oregonian has this article

Related articles:
CenturyLink, Frontier protest Portland, Ore. wireline tax hike
New Hampshire to overhaul its century-old telecom rules
Competitive phone companies face $11.7M in FCC fines over mystery fees

* Updated article with statements from CenturyLink and Frontier.

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