Should an old tax be applied to a new technology?

Look at your cell phone bill, and you'll see that it's a lot larger than you first anticipated. Mine $39.99 plan actually costs $45.06, or 13% more. That's far above the sales tax rate that I pay on other transactions.

A number of cities in Missouri, which have for years levied taxes on landlines, are going after cellular services. Why? More and more people are dropping land line service--leaving cities with fewer lines to tax. The Wall Street Journal (link for subscribers) says that University City, a suburb of St. Louis, has seen its tax take decline from $790,000 to $468,000 in six years.

University City, along with other municipalities in Missouri, has asked phone companies to voluntarily cough up money for the tax. To the delight of consumers, they've refused--so far. That's led to a lawsuit.

At issue is whether cell phones can be taxed the same as regular phone lines, which pay special utility taxes. In many states, cell phone services are also assessed sales and excise taxes, fees to guarantee universal coverage and to fund emergency 911 lines and other surcharges. The costs are typically passed on to customers.

[snip]

The Missouri municipalities say that land line calls and cell phone calls are essentially the same and must therefore pay the same business license taxes. "You dial a number and get to speak to someone at some distance. I think it's pretty obvious that it's telephone service," said Howard Paperner, an attorney representing two cities. "Why should one provider of telephone services have to pay a tax of 7% to 8% of their revenues while another has to pay nothing?"

Cell phone companies say the business license taxes Missouri wants to collect represent an unfair extension of laws written when telephone calls moved along copper wires and a sole provider agreed to the tax in exchange for right of way to set up telephone polls and lay cable.

On the one hand, I've got to hand it to these folks. They see a threat, and move on it. On the other hand, it sure would be nice if governments could be equally adept at innovating their business practices so that the need for money would go down.