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ASSESSMENT OF THE ECONOMIC

IMPACT OF TAXATION ON COMMUNICATIONS INVESTMENT IN

THE UNITED STATES

A report to the Broadband Tax Institute

November 2019

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Authors

§ Raul Katz (Ph.D., Management Science and Political Science, Massachusetts Institute ofTechnology)iscurrentlyDirectorofBusinessStrategyResearchattheColumbiaInstituteforTele-Information,andPresidentofTelecomAdvisoryServices,LLC(URL:www.teleadvs.com).Before founding Telecom Advisory Services, he worked for twenty years at Booz AllenHamilton,where hewas theHead of the Telecommunications Practice inNorth and LatinAmericaandmemberofitsLeadershipTeam.

§ Mr. Fernando Callorda (BA, MA, Economics, Universidad de San Andres-Argentina) is aProject Manager at Telecom Advisory Services, LLC and Research Fellow in the NationalNetworkofPublicUniversities inArgentina.He is also aprofessorofPoliticalEconomyatUNLAMandhastaughtcoursesofFinanceinregulatedindustries.

Telecom Advisory Services LLC (TAS) is an international consulting firm specialized in thedevelopment of business strategies and public policies for digital and telecommunicationscompanies,governments,andinternationalorganizations.Itsclientsincludeleadingcompaniesinthedigitalandtelecommunicationssectors,aswellasinternationalorganizationssuchastheInternational Telecommunications Union, theWorld Bank, the Inter-American DevelopmentBank, theWorldEconomic Forum, theUNEconomic Commission for LatinAmerica and theCaribbean, the GSMAAssociation, the CTIA, the NCTA, Cable Europe, and the FTTH Council(Europe).

ThisstudywasfundedbytheBroadbandTaxInstitute.Theauthorsaresolelyresponsibleforthe

viewsexpressedinthisstudy.

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TABLEOFCONTENTS EXECUTIVESUMMARYI. INTRODUCTIONII. EVIDENCEOFTHEIMPACTOFTAXATIONONINVESTMENT:AREVIEW

OFTHELITERATUREII.1. TheimpactoftaxationoncapitalinvestmentII.2. TaxationandcapitalspendingincommunicationsindustriesII.3. Conclusion

III. THEIMPACTOFTAXATIONONCAPITALINVESTMENTIN

COMMUNICATIONSNETWORKDEPLOYMENTINTHEUNITEDSTATESIII.1. Currentlevelofinvestmentandsalestaxrateoninitialequipment

purchasingIII.2. Modelexplainingtheimpactofsalestaxrateoninvestmentbycableand

telecommunicationscompaniesIII.3. Impactofsalestaxrateoninvestmentbycableandtelecommunications

companiesinspecificstates

IV. RESEARCHEVIDENCEOFTHEECONOMICIMPACTOFTELECOMMUNICATIONSIV.1. ThebroadbanddeploymenteffectIV.2. Broadbandspillovereffects

V. ECONOMICIMPACTOFLOWERINGTAXESONCOMMUNICATIONS

NETWORKINVESTMENTINTHEUNITEDSTATESV.1. DefiningalternativetaxationscenariosV.2. Economicimpactofalternativetaxationscenarios

V.2.1.AssessmentofconstructioneffectsV.2.2.Increaseinbroadbandpenetration

V.3. Conclusion

CASESTUDIESVI. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORK

INVESTMENTINFLORIDAVI.1. TheFloridaeconomyVI.2. Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinFloridaVI.3. EconomicimpactofcommunicationsnetworkequipmenttaxationinFlorida

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VII. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINGEORGIAVII.1. ThesituationoftheGeorgiaeconomyVII.2. Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinGeorgiaVII.3. EconomicimpactofcommunicationsnetworkequipmenttaxationinGeorgia

VIII.THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORK

INVESTMENTINILLINOISVIII.1.ThesituationoftheIllinoiseconomyVIII.2.Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinIllinoisVIII.3.EconomicimpactofcommunicationsnetworkequipmenttaxationinIllinois

IX. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORK

INVESTMENTINKENTUCKYIX.1. ThesituationoftheeconomyinKentuckyIX.2. Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinKentuckyIX.3. Economicimpactofcommunicationsnetworkequipmenttaxationin

KentuckyX. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORK

INVESTMENTINOKLAHOMAX.1. ThesituationoftheeconomyinOklahomaX.2. Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinOklahomaX.3. Economicimpactofcommunicationsnetworkequipmenttaxationin

OklahomaXI. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORK

INVESTMENTINTENNESSEEXI.1. ThesituationoftheeconomyinthestateofTennesseeXI.2. Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinTennesseeXI.3. Economicimpactofcommunicationsnetworkequipmenttaxationin

TennesseeXII. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORK

INVESTMENTINTEXASXII.1. ThesituationoftheeconomyinTexasXII.2. Currenttaxationregimeoninitialequipmentpurchasingby

telecommunicationsandcableserviceprovidersinTexasXII.3. EconomicimpactofcommunicationsnetworkequipmenttaxationinTexas

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BIBLIOGRAPHY

APPENDIXA.Input/outputmethodologyAPPENDIXB.StateSalesTaxRate(2010-2018)

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EXECUTIVESUMMARYIn this studyweassess the impactof taxationon the level of telecommunications and cableindustryinvestmentincommunicationsnetworksinamodelthatincludesdataonallstates,andin a number of specific state case studies (Florida, Georgia, Illinois, Kentucky, Oklahoma,Tennessee,andTexas).In2012,whenwedidthefirstiterationofthisstudy,thirtystatesandlocalauthoritiesimposedasalestaxonwirelessandwirelinenetworkequipmentpurchases,andthirty-onestates(plustheDistrictofColumbia)didsooncablenetworkequipment.Sincethen,thenumberofstatescollectingasalestaxoncommunicationsequipmentpurchasehasincreased to thirty-three in telecommunications and thirty-four for the cable industry.Furthermore,while in2010 theaveragesales tax rateof thestates that collected levieswas4.22%, in 2018 the average rate reached 4.40%1 . If the rates are prorated by the size ofinvestmentbystateandsector,theaverageratefor2018wouldbe4.58%.Theresearchliteraturetodateprovidesevidencethattaxestendtoraisetherequiredpre-taxrateofreturnofcapitalinvestedandtoaffectnegativelytheincentivesofacompanytomakeinvestments. In industries such as telecommunications and cable that provide broadbandservices,acriticalplatformtodeliverinformation,publicservices,andensureeconomicgrowth,taxationtendstoreducethelevelofcapitalinvestment.Accordingtotheeconometricmodelswedevelopedwithpaneldatabetween2006and2018,adecreaseof1percentagepointintheaverage weighted state and local sales tax rate affecting initial equipment purchases (from4.58%to3.58%)wouldincreaseinvestmentby1.97%overthecurrentlevelof$42.93billion.Thiswouldrepresentanadditionalinvestmentof$847million.Wealsoconsiderascenariounderwhichthestateswithsalestaxoncommunicationsequipmentwere to join those states that have eliminated these taxes to promotenetworkdeployment.Underthisscenario,weestimateanadditionalinvestmentof$3.88billion(anincreaseof9.04%overthecurrentlevel),reaching$9.92billiononacumulativebasisovertwoyearsduetotheinertiaincapitalplanning2.Alternatively,underascenariowheretheaveragerateweretobereducedby34.50%(from4.58%to3.00%),theincreaseininvestmentwouldbe$1.34billioninthefirstyear(anincreaseof3.12%overthe2018level)and$3.42billioncumulativeovertwoyears.Researchindicatesthattheeconomicbenefitsassociatedwithinvestmentincommunicationsnetworks are broadly distributed. By relying on input-output analysis, we estimate that anincreaseininvestmentof$3.881billionoveroneyearand$9.920billioncumulativeovertwoyears(salestaxeliminationscenario)willtranslateintothefollowingeconomiccontribution:

1SeecalculationinAppendixBforasimplearithmeticaverage.Theimpactanalysiscontainedinthisreportreliesonweightedaveragetaxratesbystateandsector.2Asestimatedintheeconometricmodels,capitalexpendituresinthecommunicationssectorinagivenyeararestronglyconditionedbyspendingintheprioryear.

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• $6.52billioninadditionalannualGDPinthefirstyearaftertheincreaseininvestmentand$16.65billionsofcumulativeoutputovertwoyearsdrivenbybroadbandconstruction3.

• 27,500jobsinthefirstyearaftertheincreaseininvestmentand70,300cumulativejob/yearsovertwoyearsresultingfromthesameeffect(althoughgiventhefullemploymentcontext,thesecouldoriginateinothersectorsorthroughnewentrantstothejobmarket)

ThesumtotaloftheeconomiceffectsispresentedintableA.

TableA.EconomiceffectsofeliminatingtheSalesTaxonNetworkEquipment

HorizonIncrementalInvestment($Billions)

DirectEffects IndirectandinducedEffects TotalEffects

IncrementalOutput

($billions)

Jobs(*)

IncrementalOutput

($billions)

Jobs(*)

IncrementalOutput

($billions)

Jobs(*)

Short-Term(1year) $3.88 $3.88 15,933 $2.64 11,582 $6.52 27,515Long-Term(2years)(**) $9.92 $9.92 40,724 $6.73 29,606 $16.65 70,330

(*)Measuredinjobyears(**)Cumulativebutassuminganinertiaeffectofinvestmentinyear2Source:TelecomAdvisoryservicesanalysisFurthermore,theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasneweconomicactivitygeneratesincome,sales,property,andothertax revenue for governments. Finally, the additional investment will trigger additionaldeploymentandconsequentlyadoptionofbroadband.Itisestimatedthatthelong-termeffectonincrementalinvestmentresultingfromtheeliminationofthesalestaxoncommunicationsequipment in those states that currentlyhave sucha levywouldyieldadditionalbroadbandpenetration of 0.26% (178,700 additional newbroadband connections), over and above thenaturalgrowthinbroadbandlines.Inthefollowingtablewepresenttheeconomiccontributioninsevenstatesfromtheeliminationofthesalestaxoncommunicationsequipmentpurchase.TableB.Economiceffectsofeliminatingthesalestaxonnetworkequipmentinspecific

StatesEconomicIndicators Florida Georgia

Current Short-run Long-run Current Short-run Long-runGDPpercapita $48,655 $48,677 $48,711 $55,913 $55,949 $56,004IncrementalGDP($M) $0 $464 $1,186 $0 $378 $966IncrementalJobs 0 1,958 5,005 0 1,595 4,076BroadbandPenetration 85.25% 85.30% 85.38% 83.75% 83.88% 84.08%

3Givenbroadband’shighpenetrationlevel,currentspillovereffectsaredrivenprimarilybyanincreaseinservicequalityratherthangrowthinpenetration,althoughnewbroadbandlinesrepresentacontributiontoreducingthedigitaldivide.

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EconomicIndicators Illinois KentuckyCurrent Short-run Long-run Current Short-run Long-run

GDPpercapita $67,858 $67,884 $67,925 $46,625 $46,640 $46,663IncrementalGDP($M) $0 $333 $851 $0 $65 $167IncrementalJobs 0 1,406 3,594 0 276 705BroadbandPenetration 85.10% 85.17% 85.27% 81.67% 81.77% 81.94%

EconomicIndicators Oklahoma Tennessee

Current Short-run Long-run Current Short-run Long-runGDPpercapita $50,716 $50,729 $50,751 $54,003 $54,029 $54,070IncrementalGDP($M) $0 $55 $139 $0 $176 $449IncrementalJobs 0 230 588 0 742 1,896BroadbandPenetration 81.95% 82.04% 82.19% 82.07% 82.24% 82.50%

EconomicIndicators TexasCurrent Short-run Long-run

GDPpercapita $61,870 $61,895 $61,932IncrementalGDP($M) $0 $692 $1,768IncrementalJobs 0 2,920 7,463BroadbandPenetration 84.51% 84.63% 84.80%

Source:TelecomAdvisoryservicesanalysis

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I.INTRODUCTIONIn2012,wepublishedresearchthatassessedtheimpactoftaxationonthelevelofinvestmentincommunicationsnetworksanditseconomicconsequencesintheUnitedStates4.Inthatstudyweprovidedevidencethatadecreaseof1percentagepointintheaverageweightedstatesandlocal sales tax rate affecting initial equipment purchasing (from 4.45% to 3.45% for cableoperatorsand from4.02%to3.02%for telecommunicationsproviders)would increasetotalannualinvestmentincommunicationsnetworksby$428million(1.03%overthe2012levelof$41.489billion). Wealsoestimatedatthetimetheeconomicspillovers if these levieswereeliminated inorder topromotebroadbandnetworkdeployment.This scenario resulted in abaselineestimateofanincreaseininvestmentof$1.78billion,$8.69billioninadditionalannualGrossDomesticProduct(GDP)inthefirstyearaftertheeliminationofthesalestaxand$48.26billionoverthreeyears,64,000newjobsinthefirstyearand354,000overthreeyears,andanincreaseinbroadbanddeploymentof712,000newconnections.Since the publication of our 2012 study, several changes have taken place both in thecommunications industry and, to some degree, in the network equipment sales taxationlandscape.Wireless,wirelineandcableserviceprovidersareunderconsiderablepressuretoinvestintheirnetworks.BroadbandInternettraffichasbeengrowingat28%peryear,driveninpartbytheincreaseinthenumberofdevicesthatrelyontheinternet(PCs,smartphones,tablets,smartTVs).Forexample,in2018smartphonepenetrationreached86.43%,increasingfrom52.61%in20125,whilepersonalcomputeradoptionperhouseholdreached94.48%from78.90%inthesameyear6.Inparallel,theusageperdevicehasincreaseddramatically.In2017,eachsmartphoneintheUnitedStatesgenerated4.2GBpermonth(upfrom3.5GBin2016).Ofthistraffic,videorepresented64%7.Theimpactofapplicationspenetrationonbroadbandnetworkspeedrequirementsisclear.Forinstance, a family of five streaming two video channels in high definition (requiringapproximately 51Mbps in total),while simultaneously playing high-definition online games(usingupto14Mbps)andtakingpartinmultiple-useronlineconversations(whichdemand8Mbps),throughsmartphonesand/orlaptopswouldneedapproximately150Mbpsintotal8.Acomparablehouseholdwould in2012require,atmost,72Mbps.Asexpected, thegrowth inInternettraffichasbeenparalleledbyanincreaseinfixedbroadbandspeed.Infact,weestimatethattheaveragebroadbanddownloadspeedhasbeengrowingby26.81%annually9.Inlightofthesedemand trends,operators in thebroadbandcommunications industryare increasinglyunderpressuretoacceleratetheir investment in infrastructure inordertoaccommodatethegrowthintrafficandcontinuedeliveringqualityservice.

4Katz, R., Flores-Roux, E., Callorda, F. (2012).Assessment of the economic impact of taxation of communicationinvestmentintheUnitedStates:areporttotheBroadbandTaxInstitute.October5Source:GSMAIntelligence6Source:InternationalTelecommunicationsUnion.7Source:CISCOVisualNetworkingIndex8Source:Broadbandspeedcalculator9Source:Ookla/Speedtest.

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Inadditiontocontinuingtheinvestmentinbroadbandnetworkstosupporttheever-growingneeds of American broadband users, operators are pushing to address the digital divide bydeployingnewnetworksorexpandingcapacityinruralandisolatedareas.AccordingtotheFCC,bytheendof201721millionpeopleresidedinareasunservedbroadbandservices10.Thesetwoimperatives – continue investing to accommodate traffic growth and deploy networks inunserved areas – put pressure on operators’ network spending. Between 2014 and 2018wireless,wirelineandcableoperatorsinvested$210.86billionincommunicationsnetworks,and$42.93billionalonein2018.Thistrendwillnotsubside,consideringtheever-increasingpressure to sustain the required maintenance and capacity upgrade investment, whilemodernizing networks (e.g. 5G, fiber optics, and DOCSIS 4.0). In this context, taxation onbroadbandequipmentpurchasing,by increasing capital costs, reduces theamountof capitalavailableforbroadbanddeployment.Asmentionedabove,in2012thirtystateshadasalestaxonwirelessandwirelineequipmentpurchasing,andthirty-onestates(plustheDistrictofColumbia)hadoneoncableequipment.In2018,thenumberofstateshasincreasedtothirty-three.In2010,theaveragesalestaxrateofthestatesthatcollectedlevieswas4.22%,whilein2018,theaverageratereached4.40%11.Our main hypothesis in this study is that sales taxes on the initial purchase of equipmentincreasethecostofdeployinginfrastructureand,consequently,havethepotentialtoreducetheamount of capital geared for deploying communications networks, in particular broadbandinfrastructure.Sincecommunicationshavebeenproventocontributetoeconomicgrowthandjobcreation,alesseramountofinvestmentcausedbysalestaxes,wouldreducetheirsocialandeconomicimpact.Inthisstudywewillprovidequantitativeevidenceofthenegativeeconomicimpactoftaxationofcommunicationsequipmentpurchase.Onthisbasis,wemodelwhattheexpected impact would be if the existing levels of taxation were to be reduced or outrighteliminated.InChapterIIwereviewtheresearchliteratureregardingtheimpactoftaxationoncorporateinvestment.Whileemphasizingthatariseinthetaxrateinanopeneconomycausesanetcapitaloutflow and negative economic welfare, the research also tends to emphasize the complexmechanisms bywhich taxes tend to affect capital investment in the communications sector.Amongthedifferentvariableshighlighted,wereviewthevaryingimpactoftaxesoninvestmentdepending on the state of the economy, the importance of inertia of past capital planningdecisionsasadriveroffutureinvestmentdecisions,andthecompetitiveimpactthattaxesmighthaveinattractingfutureinvestmentfromonestatetoanother.InChapterIIIweprovideevidenceofhowtaxationhasbeenaffectingcommunicationsnetworkinvestmentlevelssince2014intheUnitedStates.Focusingonsalestaxesoninitialequipmentpurchasingbythethree industriesmentionedabove,wefirstreviewthecurrentsituation intermsoftheweighted-averagestateandlocalsales.Onthisbasis,wedevelopaneconometric

10While thisnumber is significant, it shouldbementioned that in2013 theunservedpopulation reached51.6million.This significant reduction inunservedpopulation indicates the sizable investment effort conductedbybroadbandserviceproviders.Source:FCC,2019BroadbandDeploymentReport,Figure1,p.16.11 Iftheratesareproratedbythesizeofinvestment,theaverageratefor2018wouldbe4.58%.

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modeltoexplainthenegativerelationshipbetweensalestaxesandinvestment.Thethirdbodyofevidenceweincludeinthischaptercomprisesselectedcasestudiesbasedontheanalysisoflongitudinaldataofsalestaxesandinvestmentforthosestatesthathaveincreasedthemsince2014(e.g.Louisiana,andSouthDakota).Having proven the negative relationship between sales taxes on equipment purchasing andinvestment, we then move to determine the social and economic impact of a reduction intaxation. In Chapter IVwe review the research literature on the impact of communicationsnetworks on economic growth and job creation, underlining both the short-term effects ofnetwork deployment and the long-term impact through positive externalities and spill-overeffectsonthewholeeconomy.Withthereviewoftheliteratureoneconomiceffectsasabackground,wepresentinchapterVthe estimates of alternative scenarios regarding the reduction of sales taxes on networkequipment purchasing of the telecommunications and cable industries. The simulations arebased on impact models constructed for the national economy, calculating the impactcoefficientsforeconomicgrowth,jobcreation,andbroadbandpenetration.Finally,weutilizetheeconometricmodelspresentedinChaptersIIIandVtoestimatewhattheeconomic impactwouldbeifanexemptionofstateandlocalsalestaxesforcommunicationsnetwork equipment purchase were enacted in Florida (chapter VI), Georgia (chapter VII),Illinois(chapterVIII),Kentucky(chapterIX),Oklahoma(chapterX),Tennessee(chapterXI),andTexas(chapterXII).

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II. EVIDENCEOFTHEIMPACTOFTAXATIONONINVESTMENT:AREVIEWOFTHELITERATURE

The most important function of taxes is to raise revenue to finance various governmentactivities, such as the delivery of public goods, like education, health, security, and publicinfrastructure.Taxesaretypicallycollectedonbothnetincomeandconsumptionofgoodsandservices.Thefirsttypeiscollectedoverincomegeneratedinafiscaloracalendaryear,whilethesecondone is linkedtotheacquisitionofagoodorservice(forexample,retailsales tax,value-addedtax,andimportduties)12.Decisionsregardingtaxationaredrivenbypublicpoliciesguidedbynormativegoals(howmuchrevenueshouldthestatecollecttopayforwhattypeofservicestobeprovidedtoitscitizens?)andthecost/benefitequation incurred tomeet thoseobjectives.While thebenefitsof taxesrelatetogeneralpolicies(e.g.raisingrevenuestosupportthepublicadministration)orspecificobjectives(e.g.,supportthedevelopmentofbroadbandinschools),economictheoryalsoshowsthat,ingeneralterms,anincreaseintaxationaffectsmarketequilibriumbyshiftingthedemandandsupplycurvesasaresultofraisingpriceswiththeconsequentreductioninthequantityofgoods.Therefore,theimpactoftaxationinthedigitaleconomyneedstobestructuredaroundnotonlythebenefitsitgenerates,butalsothecostsinlostsurplusitmayimply.II.1.TheimpactoftaxationoncapitalinvestmentTheresearchliteraturetendstofindthat,sincehighertaxestendtoraisetherequiredpre-taxrateofreturnofcapitalinvested,theaggregatecapitalstockinagiveneconomydependsontheeffectivetaxrate(Slemrod,1990;DevereuxandFreeman,1995;Jun,1994;Billington,1999).AsDevereux(2006)states,

“(Ifa)companyshouldinvestuptothepointatwhichthemarginalproductofcapitalequalsthecostofcapital(…)theimpactoftaxationshouldbemeasuredby the influenceof (aneffectivemarginal taxrate)onthecostofcapital”

Accordingly,whenafirmhastomakeaninvestmentdecision,taxationplaysasignificantrole.AsstatedbyLintner(1954),taxesaffectboththeincentivesofacompanytomakeinvestmentsandreducethesupplyoffundsavailabletofinancethem.Thus,notsurprisingly,manyempiricalstudiesindicatethathighermarginalandaveragetaxrateshaveanegativeeffectoninvestmentdecisions.Sinceinvestmentisoneoftheenginesoflong-termeconomicgrowth,taxationalsoplaysaroleindetermininganeconomy’sprospects.TalposandVancu(2009)showedthatareductionofcorporateincometaxationdetermines,overtime,anincreaseinthelevelofgrossfixedcapitalformation. The authors also found this effect to bemore important in emerging economies,whereinvestmentisneededmore.

12SeeOECD.AddressingthetaxchallengesoftheDigitalEconomy.Paris,2014.

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Taxesarejustoneofthemanyfactorsdrivingcapitalinvestmentdecisions.Beattyetal.(1997)showthathighnetequityfinancingactivity(accesstolowcostfunds)andhighstockreturns(market signaling) are also important in explaining high future net capital expenditures.Similarly,asexpected, theauthors foundthathighnet incomeand lowdividendpayoutsareimportantpredictors.Nevertheless,whencontrollingforthesefactors,theauthorsalsofoundthatchangesintheUnitedStatestaxcodein1986hadarealeffectontheinvestmentbehaviorofUS-basedfirms13.Ingeneralterms,Lintner(1954)alsofoundthatinperiodsofeconomicexpansion,whentaxesare fullyborneby firms, thenegative impactof taxationon investmentaffectsprimarily thesupplyoffundsandnottheincentivestoinvest.Investmentmaybeundertakentomaintainorimproveacompany’scompetitivepositionortoincreasemarketshare.Conversely,inperiodsofeconomicdownturn,theeffectsoftaxesoninvestmentincentiveswouldberelativelymoreimportant, and the availability of funds becomes less important in influencing investmentdecisions.Themechanismsbywhichtaxesaffecttelecominvestmentarefairlycomplex.Devereux(2006)considers that taxation first affects two binary decisions: which business to invest (e.g.wireless, broadband, other) andwhich geographic location to invest (e.g. a specific state).Whilethefirstdecision-whichbusiness–isnotrelevanttothisstudy,thesecondoneiscritical.As McLure (1970) has explored, tax policy has a critical impact on industrial location,particularlyunderhighcapitalmobilitycontexts.Inaddition,taxesalsoinfluenceacontinuouschoice: once a business and locations are agreed upon based on taxation attractiveness,businessesseeleviesaffectingtheircapitalexpenditureallocationprocess(inotherwords,taxeswillinfluencehowmuchwillinvestmentfavorcertainstatestothedetrimentofothers).It should be noted that changes in tax regimes do not affect investment decisionsinstantaneously. Investment decisions are partially driven by variables that only changegradually(e.g.changesinthecostofcapital).Asaresult,amodificationoftaxationregimes(e.g.a change in the sales tax rate affecting the initial purchasingof equipment)might affect theincentives to invest immediately but translate into investment decisions only gradually(Auerbach,2005).II.2.TaxationandcapitalspendingincommunicationsindustriesTypical capital planning processes in communications comprise decisions in three domains:maintenance of existing plant (e.g. replacement of depreciated equipment), networkmodernization(e.g.deploymentof5Gnetworks,fiberintheaccessnetwork,orDOCSIS3.1),andcapacity upgrades (e.g. investment to accommodate growth in demand). Each investmentdomainisdrivenbydifferenttimeconstraints.Forexample,maintenancecapitalinvestmentis

13 In 1986, the U.S. Congress passed the Tax Reform Act (TRA) to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences. The act raised overall revenue by $54.9 billion in the first fiscal year after enactment. As of 2014, the Tax Reform Act of 1986 was the most recent major simplification of the tax code, drastically reducing the number of deductions and the number of tax brackets (for the individual income tax) to three.

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typically multi-year and mostly non-discretionary; therefore, it is largely predictable andrelativelylesssubjecttotaxationeffects.Networkmodernizationcapital,whilealsobeingmulti-year,couldbeaffectedbycapitalallocationdecisionsinfluencedbytaxation(inotherwords,iftaxationreducesthesupplyoffunds,itcouldimpactinvestmenttherebyaffectingtherateofmodernization).Ontheotherhand,capacityupgradeshavealong-termcomponentdrivenbydemand forecast, but also a very short-term component focused on surgical infrastructureupgrades(e.g.accommodatespikesindemandincertainportionsofthenetwork).Thisareaofcapital investment might be less affected by taxation regimes since it is directly linked torevenuegenerationopportunities.Based on these considerations, when we construct econometric models that explain theevolution of communications network investment, it is critical for us to incorporate controlvariablesthatgobeyondthemeasurementofchangesintaxationregimes.Forexample,sinceinvestment levels are affected by whether the economy is expanding or contracting, it isimportant that we include variables measuring the performance of the economy (oralternatively including time fixed effects) in the models. Likewise, given that investment isdriven,toalargedegree,bytheimperativetocapturemarketpotential, itiscriticalforustoinclude variables and/or proxies for variables reflecting the intrinsic attractiveness of thebusiness opportunity which could be captured by location fixed effects). Finally, while ourmodelsofcommunicationsinvestmentrelyonasingledependentvariable(industryinvestmentacrossthewireline,wireless,andcablesectors),thismetricsubsumes,asmentionedabove,anumberofmanagementandcapitalplanningallocationdecisions,eachonebeinginfluencedbyspecificconditionsoftaxationregimes.Inthatsense,itiscriticalthatwedevelopmethodologiesthataccommodatetheinertiaofallocationprocesses,wherebyfuturecapitalinvestmentscanbe,tosomedegree,determinedbythelevelofinvestmentinprioryears.Salestaxesarecollectedwhenagoodorserviceissoldtoitsfinalconsumer.Theamountofthetaxvariesalthoughitisusuallybasedonapercentageofthesaleamount.IntheUnitedStates,sales taxes are collected at the state and local level. Since there canbe several jurisdictionschargingasalestax,theretailermustaddtheamountoftaxforeachofthemtocalculatetheCombinedSalesTaxRate.InthecaseofInternetsales,therateusedisthatofthelocationwheretheconsumerresides.Othertaxesthataresimilartothesalestaxaretheexcisetax(chargedongoodsorsalesproducedwithinthecountry),andthegrossreceipttax(chargedonthegrossrevenuesofabusinessorcompany).Salestaxoninitialequipmentpurchaseisaconventionalwaybywhichbroadbandserviceproviderscontributetothetreasury.Ratesforthisequipmentcan reach up to 10%, to which customs duties on network equipment may be added. Thefundamentaldifferenceinsalestaxesorimportdutiesonpurchasedequipmentinthesecasesisthatbotharechargedtothefirmproducingthegood(suchasatelecommunicationsoperator)rather than the consumer, although the operators may transfer some of these taxes toconsumers.However,underconditionsofcompetitivepressureand/orregulation,transferringthefullamountofthetaxtotheconsumermightbeimpossible,andtheserviceprovidermightbeput inasituationwhere investment is reduced.Even ifall the taxesarepassedon to theconsumerscouldhaveanegativeimpactoninvestmentsincetheconsequentincreasedpricesdecreaseoutput,therebyreducingthedemandforinvestment.

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Whilenotbeinganalyzedinthisstudy,propertytaxesareanothertypeoftaxationimposedonbroadbandserviceproviders.Forexample,intheUnitedStatestheseoperatorspaypropertytaxesforthephysicalassetstheyownineachstate.Paymentofpropertytaxesinmanystatesisbasedonthenotionthatbroadbandprovidersare“utilities”,andassuch,theyneedtopaytaxesoriginallyestablishedforrailroadsandelectriccompanies.Theamountmaybecalculatedbyvaluingtheentirebusinessenterprise,ratherthansummingupthefairmarketvalueofspecificfixedassetsownedbythebusiness14.Thekeyratioindeterminingthetaxtobepaidistheso-called “assessment ratio”,which is the proportion of the property value that the tax rate isapplied in establishing the amount to be paid in property taxes. In an example of sectordiscrimination, a number of states define higher assessment ratios to the property oftelecommunicationscompaniesthantheratioappliedtopropertyofgeneralbusinesses.Direct taxes such as sales taxes collected on initial network equipment purchases that areimposed on broadband service providers have a negative economic impact. The underlyingcausalityofthiseffectisdepictedinfigureII-1.

FigureII-1.ImpactoftaxesonBroadbandNetworkInvestment

Source:TelecomAdvisoryServicesAccording to the logic presented in figure II-1, taxes on network equipment in the twodimensionsmentioned above – property taxes and sales tax on equipment -may affect thedeploymentofbroadbandinfrastructurebytelecommunicationscarriersandcableoperators.Suppliers of broadband services have their capital investments pre-determined by financialbenchmarks(e.g.carrierstypicallytendtospend15-20%oftheirsalesincapitalexpenditures).Within this envelope, taxes could frame the allocation of capital across locations, therebypotentiallynegativelyimpactingdeploymentincertaingeographies.Reflecting the growing shift to digital platforms in commerce, advertising, and contentdistribution,taxationisbecominganincreasinglyimportanttopic.Twoopposingtrendscanbedetectedintermsoffiscalpolicyinthedigitaleconomy:oneistomaximizecollectionsbasedongrowingdigitalflows;thesecondoneistorecognizethatloweringtaxationbenefitsconsumersandbusinesses.

14 See Bierbaum, D., Fenwick, J. and Mackey, S. (2011). Property Tax Discrimination: Barrier to broadband.PresentationattheALECSpringConference.Cincinnati,OH,April29,2011.

Annual property taxes

on network equipment

Initial sales taxes on initial

network equipment purchases

Increase in broadband

network deployment

costs

Reduction in broadband

network deployment

Negative impact on economic

growth

16

Accordingtothefirsttrend,somepolicymakersarerecognizinggrowingdigitalflowsascriticalin their generation of revenues and are putting in place more mechanisms to maximizecollectioninthesedomainsofeconomicactivity.Forexample,intheUnitedStateswirelesstaxburdenshaveincreasedsince2006.Thecombinedfederal,state,andlocalburdenonwirelessconsumersincreasedfrom15.19%to19.10%,ornearly4percentagepoints.Underlyingthediscriminatorytrend,overalltaxburdensonwirelessconsumersgrewaboutthreetimesfasterthangeneralsalestaxesonothertaxablegoodsandservices15.Accordingtothesecondtrend,somepolicymakersconsiderthatloweringtaxesonthedigitalsectoroftheeconomytriggersspillovers that are larger than the foregone taxes.As a consequence, digital goods and theirsupportingequipmentmightbeexemptedfromcertaintaxes.

II.3.ConclusionTosumup,taxescancreatedistortionsiftheyaffectthechoicesmadebymarketagents,whichinthedigitalspacecouldbeasfollows:

• Consumers,particularlythosethatarepricesensitive,limittheiradoptionoftechnology;• Telecommunicationsoperatorsreducetheirrateofinvestmentininfrastructure;• Global digital technology providers adapt their deployment footprint according to a

minimizationoftaxburden;and• Differenttaxregimeswithinthedigitalecosystemcreateasymmetries.

Inconsequence,thedesignofanefficienttaxstructureinthedigitalspaceneedstoconsiderseveralsomewhatcontradictingrequirements:

• Ensurepropercollectionoftaxesforincomegeneratedatsource;• Avoidovertaxationofdigitalactivitieswhencomparedtootherindustries;• And, very relevant to this study, provide exemptions to facilitate investment in

infrastructureandpromoteadoptionbyend-users.

15 Mackey, S. and Henchman, J. (2018). Wireless Taxes and Fees Climb Again in 2018. Tax Foundation Fiscal, December, No. 626.

17

III. THEIMPACTOFTAXATIONONCAPITALINVESTMENTINCOMMUNICATIONSNETWORKDEPLOYMENTINTHEUNITEDSTATES

III.1.Currentlevelofinvestmentandsalestaxrateoninitialcommunicationsnetwork

equipmentpurchasingTelecommunicationsandcableserviceproviderinvestmentin2018intheUnitedStatesreached$42.927billion,averaging$131.21percapita.Thisfigurerepresentsthesumofinvestmentofthefourmajorwirelinetelecommunicationscarriers(ATT,Verizon,Sprint,andCenturyLink),the fivemajorwireless carriers (ATT, Sprint, T-Mobile,USCellular, andVerizon), aswell asalmost all cable operators16 . It includes only network investments, excluding other capitalexpenditures such as consumer premise equipment, vehicles, administrative offices,expendituresrelatedtoretailstoresandanyother“soft”coststypicallynotsubjecttosales/usetax.Whenlookingatthecommunicationsnetworkinvestmentpercapitaovertimebetween2006and2018,inadditiontoagradualincrease,weseeagrowingdispersionacrossstatesovertime(seetableIII-1). TableIII-1.EvolutionofCommunicationsNetworkInvestmentperCapitaintheUnited

States(2006-18)

YEAR Total(2006-10) 2014 2015 2016 2017 2018 Total

(2014-18)Mean $129.68 $130.57 $136.08 $128.38 $126.67 $131.21 $130.57Statesstd.dev. $69.69 $91.79 $71.18 $79.25 $61.74 $78.33 $76.51Sources:BroadbandTaxInstitute;TelecomAdvisoryServicesanalysis Intheperiodbetween2006and2010,correspondingtoourpriorstudy,theaverageinvestmentacrossstateswas$129.68,increasingonlytoanaverageof$130.57percapitaduringthe2014-2018 timeperiod.However, between2006 and2010 the standarddeviation, defined as theamountof dispersion across investmentper capitaby each statewas $69.69.The standarddeviationbetween2014and2018is$76.51(anincreaseofcloseto10%).Thetendencyisclear:whiletheaverage investmenthasremainedconstant,apolarizationtrendisemerging.Somestatesareincreasinglyreceivingmorepercapitanetworkinvestmentthanothers.Whileit isobviousthat,asstatedintheresearchliteraturereviewedabove,conventionalvariablessuchasmarketpotentialandcompetitiveimperativedriveinvestmentintensity,itispertinenttoraisethe question as to what the role of taxation is in driving capital investment levels and thegrowingpolarizationacrossgeographies.In2010,thesimplefive-yearaveragesalestaxrateoninitialequipmentpurchaseforthecableindustrywas4.45%,whilethefive-yearaveragerateforwirelessandwirelineproviderswas

16Itisestimatedthatthisfigurerepresentsinexcessof80%oftheinvestmentoftelecommunicationscarriersandnearlyallthecableTVindustry(source:BroadbandTaxInstitute).

18

4.02%. In 2018, the average tax rate was 4.40% 17 . The five-year average sales tax oncommunications equipment purchase between 2014 and 2018 has been relatively stable(around4.35%),althoughitdepictedagrowingstandarddeviationacrossstatesovertime(seetableIII-2).

TableIII-2.EvolutionofUSSalesTaxonCommunicationsinvestment(2006-2018)

Year 2006 2007 2008 2009 2010 2014 2015 2016 2017 2018Mean 4.01% 4.08% 4.10% 4.27% 4.22% 4.28% 4.30% 4.34% 4.37% 4.40%Standarddeviation 3.50% 3.55% 3.58% 3.60% 3.67% 3.24% 3.24% 3.25% 3.27% 3.31%Stateswithoutsalestaxesontelecomandcablenetworkequipment 13 13 13 12 13 13 13 13 13 13

Stateswithsalestaxesexemptioninatleastonetechnology 26 26 26 25 26 22 22 22 22 22

Sources: BroadbandTaxInstitute;TelecomAdvisoryServicesanalysis Itisimportanttonotethechangeintheaveragetaxratesincethelaststudyweconducted.In2010,theaveragesalestaxratewas4.22%,butincreasedsincethenreaching4.40%in2018.Furthermore, taxation on initial communications equipment purchase does not represent ahomogeneous fiscal policy across the nation. In 2018, seventeen states (plus the District ofColumbia)donottaxtelecommunicationsprovidernetworkequipment,whileseventeendonotdo so in the cable provider case. The number of states with sales tax exemption for allcommunicationsnetworkequipmenthasremainedstableat13,althoughthenumberofstateswithatleastonetypeofexemptionhasdiminishedfrom26to22.Moreimportantly,nineteenstates have increased their state and local sales tax rate for all communications equipmentbetween2014and2018,whilefivestateshavedonesoforatleastoneortwotechnologies(seetableIII-3).TableIII-3.StateandLocalSalestaxrateoncommunicationsequipmentpurchasing

(2010-2018)State 2010 2014 2018

Wireless Wireline Cable Wireless Wireline Cable Wireless Wireline CableAlaska --- --- --- 1.69% 1.69% 1.69% 1.76% 1.76% 1.76%Alabama 1.50% 1.50% 0.00% 6.38% 4.26% 6.38% 6.83% 4.55% 6.83%Arkansas 8.38% 8.38% 8.38% 9.19% 9.19% 9.19% 9.41% 9.41% 9.41%Arizona 0.00% 0.00% 8.20% 0.00% 0.00% 8.17% 0.00% 0.00% 8.33%California 9.25% 9.25% 9.25% 8.41% 8.41% 8.41% 8.54% 8.54% 8.54%Colorado 7.56% 7.56% 7.56% 7.39% 7.39% 7.39% 7.52% 7.52% 7.52%Connecticut 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%DC 0.00% 0.00% 5.75% 0.00% 0.00% 5.75% 0.00% 0.00% 5.75%Delaware 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Florida 7.25% 7.25% 7.25% 6.62% 6.62% 6.62% 6.80% 6.80% 6.80%Georgia 7.50% 7.50% 7.50% 6.97% 6.97% 6.97% 7.15% 7.15% 7.15%Hawaii --- --- --- 4.35% 4.35% 4.35% 4.35% 4.35% 4.35%Iowa 1.86% 1.86% 6.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Idaho 6.00% 6.00% 6.00% 6.03% 6.03% 6.03% 6.03% 6.03% 6.03%Illinois 8.75% 8.75% 8.75% 8.16% 8.16% 8.16% 8.70% 8.70% 8.70%

17 Iftheratesareproratedbythesizeofinvestment,theaverageratefor2018wouldbe4.58%.

19

State 2010 2014 2018Wireless Wireline Cable Wireless Wireline Cable Wireless Wireline Cable

Indiana 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Kansas 8.13% 8.13% 8.13% 8.15% 8.15% 8.15% 8.68% 8.68% 8.68%Kentucky 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%Louisiana 9.00% 9.00% 9.00% 8.89% 8.89% 8.89% 10.02% 10.02% 10.02%Massachusetts 6.25% 6.25% 0.00% 6.25% 6.25% 0.00% 6.25% 6.25% 0.00%Maryland 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%Maine 5.00% 5.00% 5.00% 5.50% 5.50% 5.50% 5.50% 5.50% 5.50%Michigan 0.00% 0.00% 6.00% 0.60% 0.60% 6.00% 0.60% 0.60% 6.00%Minnesota 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Missouri 0.00% 0.00% 7.23% 0.00% 0.00% 7.58% 0.00% 0.00% 8.03%Mississippi 0.00% 0.00% 7.00% 1.75% 1.75% 7.00% 1.77% 1.77% 7.07%Montana 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%NorthCarolina 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%NorthDakota 0.00% 0.00% 6.00% 6.55% 6.55% 6.55% 6.80% 6.80% 6.80%Nebraska 7.00% 7.00% 7.00% 6.79% 6.79% 6.79% 6.89% 6.89% 6.89%NewHampshire 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%NewJersey 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%NewMexico 7.60% 7.60% 0.00% 7.26% 7.26% 7.26% 7.66% 7.66% 7.66%Nevada 7.91% 7.91% 7.91% 7.93% 7.93% 7.93% 8.14% 8.14% 8.14%NewYork 0.00% 0.00% 8.25% 0.00% 0.00% 8.47% 0.00% 0.00% 8.49%Ohio 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Oklahoma 8.45% 8.45% 0.00% 8.72% 8.72% 0.00% 8.91% 8.91% 0.00%Oregon 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Pennsylvania 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%RhodeIsland 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%SouthCarolina 7.25% 7.25% 0.00% 7.19% 7.19% 0.00% 7.37% 7.37% 0.00%SouthDakota 5.96% 5.96% 5.96% 5.83% 5.83% 5.83% 6.40% 6.40% 6.40%Tennessee 9.25% 9.25% 9.25% 9.45% 9.45% 9.45% 9.46% 9.46% 9.46%Texas 8.25% 8.25% 8.25% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06%Utah 0.00% 0.00% 6.80% 0.00% 0.00% 6.68% 0.00% 0.00% 6.77%Virginia 5.00% 5.00% 0.00% 5.63% 5.63% 0.00% 5.63% 5.63% 0.00%Vermont 6.50% 6.50% 6.50% 6.14% 6.14% 6.14% 6.18% 6.18% 6.18%Washington 9.00% 9.00% 9.00% 8.88% 8.88% 8.88% 9.18% 9.18% 9.18%Wisconsin 5.55% 5.55% 5.55% 5.43% 5.43% 5.43% 5.42% 5.42% 5.42%WestVirginia 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Wyoming 5.50% 5.50% 5.50% 5.49% 5.49% 5.49% 5.46% 5.46% 5.46%

Exemption Increaserate Decreaserate Stablerate Source:TaxFoundation III.2.Modelexplainingtheimpactofsalestaxrateoninvestmentbycableand

telecommunicationscompanies Followingthegeneralmethodologyimplementedinour2012study,webuildaneconometricmodeltotesttheimpactofsalestaxesontelecommunicationsandcablenetworkinvestment.Inordertobenefit fromadditionalobservationstobuildhigherstatisticalsignificance, thedatacollectedinthe2012study(correspondingtotheperiod2006-2010)wasincludedinapaneloftimeseriesbetween2014and201818.Ourmodelestimates the impactofdifferent taxratesamongstatesandyears,controllingforstateandyearfixedeffects.Inaddition,weincludeinour

18Thedatabetween2011and2013wasinterpolatedtogenerateacontinuouspanelbetween2006and2018.

20

modelalaggedinvestmentvariabletocontrolfortheinertiaincapitalspendingfromyeartoyear19.Beyondthis,theinvestmentpercapitavariableswereconvertedtonaturallogarithmsinorder to estimate the impact of a percentage change in indicators. The advantage of thisconversionisthatthemodelestimatesthechangeininvestmentforeveryincreaseordecreaseinpercentagepointsofthesalestaxrate.Themodelforassessingtheimpactofsalestaxesoninvestmentisstructuredasfollows:Beyondthetwotermsusedforfixedeffectsbystateandyear(indicatedbyf.e.intheequation),thevariablesconsideredarethefollowing(seetableIII-3):

TableIII-3.VariablesofSalesTaxesEffectonInvestment

Variable Explanation Rationale Source

Statecommunicationsinvestmentpercapita

Sumofstateinvestmentbyoperatorspercapita(incurrentdollars)

2006-20102014-2018

2011-2013interpolated

Totalstatecommunicationsinvestmentnormalizedbypopulationsize

BroadbandTaxInstitute

Statesalestaxrateoninitialequipmentpurchase

Effectivesalestaxrateoncable,wirelineorwirelessequipment

2006-20102014-2018

2011-2013interpolated

Independentvariable TaxFoundation

Statecommunicationsinvestmentpercapitalagged

Sumofstateinvestmentbyoperatorspercapitaoneyearbefore(incurrentdollars)

Controlforinvestmentinertia BroadbandTaxInstitute

Source:TelecomAdvisoryServicesanalysis Model results are presented in the following table.

19Inotherwords,itaccountsfortheimportanceofinvestmentintheprioryearinpredictinginvestmentinthecurrentyear,aneffectwefoundinthereviewoftheresearchliteratureoncapitalplanning.

Ln Taxable Investment PCit = α1 (Equipment State Sales Tax Rateit) + α2 (Ln Taxable investmentit-1) + f.e.i +f.e.t + eit

21

TableIII-4.ModelofImpactofSalesTaxRateonInvestment

ImpactonLnInvestmentpercapita Coefficients

LnInvestmentpercapitat-10.5560***(0.0325)

TaxRatet-0.0197*(0.0110)

Constant 2.1255***(0.1614)

StateFixedEffect YesTimeFixedEffect YesNumberofStates 49Years 2007-2018Observations 588R-Square 0.3625

***,**,*significantat1%,5%and10%criticalvaluerespectively.Source:TelecomAdvisoryServicesanalysis As can be seen in Table III-4, we find that investment in communications equipment bytelecommunications and cable service providers is negatively affected by sales taxes. Thecoefficientforthesalestaxratevariableindicatesthatadecreaseof1percentagepointinthisrate(forexample,from4.58%to3.58%)wouldincreasetelecomandcableinvestmentby1.97%acrossallstates.Theseresultsarestatisticallysignificantatthe10%level.Thiscoefficientallowsforthecalculationoftheimpactoninvestmentpercapitaofalternativetaxratescenarios.Forexample,adecreaseinthesalestaxrateaffecting initialequipmentpurchasefromanaverage4.58%to3.00%(aratereductionof34.50%)wouldyieldanincreaseininvestmentpercapitaof$4.09(3.12%overthecurrentlevel).Similarly,atotaleliminationofthesalestaxaffectingthepurchaseofequipmentwouldgeneratean increase in investmentof$11.86percapita.Thiswouldresult ina total increaseof$3.88billionfromabaseof$42.93billion.Under the assumption of a total exemption across states, the total investment would reach $ 46.81 billion, which means that for every dollar of taxes that is not collected, the investment would increase by $ 1.97.III.3.Impactofsalestaxrateoninvestmentbycableandtelecommunicationsservice

providersinspecificstatesWe also assess the impact of a reduction or an increase of the sales tax rate on equipmentpurchasingbyexaminingtheactual investmentbehaviorof telecommunicationscarriersandcableoperatorsinstatesthatenactedsuchpolicies.Westartthisassessmentbycalculatingtheaveragesalestaxrateonnetworkequipmentpaidbyallbroadbandoperatorsineachstate.Oncetheaveragetaxratewascalculated,thestatesthathadreducedormostsignificantlyincreased(over5%)theiraveragesalestaxrateoninitialequipmentpurchasebetween2014and2018wereidentified.TableIII-6ranksthesestatesbytherangeofvariationbetween2014and2018.

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TableIII-6.VariationonSalesTaxRateonTelecommunicationsInvestment(2014-2018)

StateName VariationonSalesTaxRate2014-2018

2014SalesTaxRate

2018SalesTaxRate

Louisiana 12.71% 8.89% 10.02%SouthDakota 9.78% 5.83% 6.40%Alabama 6.90% 5.68% 6.07%Illinois 6.62% 8.16% 8.70%Kansas 6.50% 8.15% 8.68%Missouri 5.94% 2.53% 2.68%NewMexico 5.51% 7.26% 7.66%Wisconsin -0.18% 5.43% 5.42%Wyoming -0.55% 5.49% 5.46%

Source:TelecomAdvisoryServicesanalysisofTaxFoundationdata AsindicatedintableIII-6,ninestateseithersignificantlyincreased(over5%)ordecreasedbysomeamountthecommunicationsequipmentaveragesalestaxrate.Wewillnowmeasureanychangesthatoccurredininvestmentlevelsfollowingthechangeintheeffectivetaxratefortwostates:LouisianaandSouthDakota.Onacomparativebasis,Louisianahasahighsalestaxrateoncommunicationsequipmentwhichhasbeenincreasingcontinuallysince2014. In2014theratewas8.89%,significantlyhigherthanthenationalaverage. In2017,duetobudgetpressure,thestateincreasedtherateby1percentagepointandby2018theaverageratewasincreasedagainto10.02%,thehighestinthe United States. The 2018 sales tax rate on network equipment is the same for all threeindustrysegments(wireless,wirelineandcable).Overthelongrun,thevarianceinsalestaxrateappears to have influenced network investment. Communications network per capitainvestmentjumpedfrom$57in2014to$79in2015,butthendroppedto$66in2016.Thelaggedeffectbetweenincreasingtaxratein2015andinvestmentdeclinein2916isatypicalmoveinyearlycapitalplanningprocesses.Eventhreeyearslater,theinvestmentlevelshadnotrecoveredtothe2015levels,althoughat$69percapitatheyweresomewhathigherthan in2014. SouthDakotaisastatewithafairlyhighvariationincommunicationsequipmentsalestaxrate:in2014theratewas5.83%,butincreasedin2017,reaching6.40%in2018.Ofnote,the2018rateisthesameforallthreeindustrysegments.Aconstanttaxrateof5.83%between2014and2018mighthaveactedasanincentiveforcommunicationsserviceproviderstoincreasetheirnetworkinvestmentfrom$75percapitato$93.In2017,theaveragesalestaxratejumpedfirstto6.39%andthen6.40%in2018.Investmentreactedaccordingly:amarginalincreasein2017to$95percapitaandadeclineto$87percapitain2018.Thislaggedeffectisagainconsistentwithcapitalplanningprocesseswhichtendtoreacttochangesintaxationpolicyonlyaftertwoormorequartersaftertheirenactment.BothcasestudiescouldbeunderstoodwiththehelpoftheframeworkdevelopedbyDevereux(2006)anddiscussed inchapter II.Whena state legislaturevotes to increasesales taxesonequipment purchase, it sends a signal to operators regarding the relative attractiveness of

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conductingbusiness in that state. In thedecisionofhowmuch capital investmentwill favorcertainstatestothedetrimentofothers, theoperatorssubsumetwodifferentreactions.Thefirstonereferstothesupplyoffundsdecision,whichmeansthat“dollarfordollar”,themoneysavedintaxesflowstoinvestment.ThesecondoneiswhatLintner(1992)callstheincentivereaction,wherebyfundsthatcouldhavebeeninvestedinotherstates,nowtendtoflowawayfromthestatethathasincreaseditssalestaxrate.

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IV. RESEARCHEVIDENCEOFTHEECONOMICIMPACTOFBROADBAND If sales taxes reduce communications investment (as we have shown above), andcommunications,especiallybroadband,haveapositivecontributiontoeconomicgrowthandjobcreation,itstandstoreasonthatareductionofinvestmentresultingfromincreasingsalestaxesshouldhaveanegativeeconomicimpact.Inthischapterwereviewtheevidencegeneratedsofarregardingthepositivesocio-economicimpactofbroadbandservices.Broadband has been found to havemultiple economic impacts, ranging from the growth ofoutput,tojobcreationandincreasingconsumersurplus(seefigureIV-1).

FigureIV-1.BroadbandEconomicImpact

Source:Katz(2012) Thefirsteffectresultsfromtheconstructionofbroadbandnetworks.Aswithanyinfrastructureproject, the deployment of broadband networks directly creates jobs and then has effectsthroughouttheeconomybymeansofmultipliers.Thesecondeffectresultsfromthe“spill-over”externalities, which impact both enterprises and consumers. The adoption of broadbandcommunicationswithinfirmsleadstoamultifactorproductivitygain,whichinturncontributestothegrowthofGDPandemployment.Inaddition,residentialadoptiondrivesanincreaseinhouseholdreal incomeasaresultofenhancedaccess to the jobmarketand improvedskills,among other factors. Residential users also receive a benefit in terms of consumer surplus,definedasthedifferencebetweenwhattheywouldbewillingtopayforbroadbandservicesandtheir actual price. This lastmeasure,while not being captured in the GDP statistics, can besignificant, insofar that it represents benefits in terms of enhanced access to information,entertainmentandpublicservices.Eacheffectwillbereviewedinturn.IV.1.Thebroadbanddeploymenteffect

Telecommunications deployment

Spillover effects

Investment in infrastructure deployment

Residential penetration

Consumer surplus

Household income

Business penetration

Total factor productivity Contribution

to GDP growth and

employment

25

Broadbanddeploymententailscapitalspendingwhich,inturn,willtranslateintoGDPgrowthandjobs.Broadbandconstructionaffectstheeconomyandemploymentinthreeways.Inthefirstplace,thecapital investmenttodeployinfrastructuretranslatesintoadditionalGDPanddirectjobs(suchastelecommunicationstechnicians,constructionworkers,andmanufacturersof the required telecommunications equipment). In addition, this spending creates indirectspendingtriggeredbyupstreambuyingandsellingbetweencommunicationsserviceprovidersconstructingtheirnetworksandtheirsuppliersofinputs(electronicequipment,metalproducts,etc.).Finally,thehouseholdspendingresultingfromtheincomegeneratedfromthedirectandindirecteffectscreatesadditional“induced”economiceffectsthroughouttheeconomy.SixnationalstudieshaveestimatedtheimpactofbroadbandnetworkconstructiononGDPandjobcreation:Crandalletal.(2003),Atkinsonetal.(2009),Liebenauetal.(2009),andinpriorresearchcarriedoutbytheauthor(Katzetal.,2008,Katzetal,2009,Katzetal.,2010).Allofthesestudiesreliedoninput-outputanalysisandassumedagivenamountofcapitalinvestment(seeTableIV-1).20

TableIV-1:Economicimpactofnetworkdeployment

Country Authors–Institution(*) Objective Results

UnitedStates

Crandalletal.(2003)–CriterionEconomics

EstimatetheemploymentimpactofUS$63.6billioninbroadbanddeploymentaimedatincreasinghouseholdadoptionfrom60%to95%,requiringaninvestmentofUS$63.6billion

• Creationof61,000jobsperyearovernineteenyears

• Totaljobs:1.159million(including546,000forconstructionand665,000indirect)

Atkinsonetal.(2009)–ITIF

EstimatetheimpactofaUS$10billioninvestmentinbroadbanddeployment

• Totaljobs:498,000jobsifinvestmentachievedinoneyear(including64,000direct,166,000indirectandinduced,and268,000innetworkeffects)

Switzerland Katzetal.(2008)–TelecomAdvisoryServices/Polynomics

EstimatetheimpactofdeployinganationalbroadbandnetworkrequiringaninvestmentofCHF13billion

• Totaljobs:114,000overfouryears(including83,000directand31,000indirect)

20Input-outputtablesmeasuretheinterdependenceofaneconomy’sproductivesectorsbyconsideringtheproductofeachindustrybothasacommoditydemandedforfinalconsumptionandasafactorintheproductionofitselfandothergoods.While input-output tablesarea reliable tool forpredicting investment impact, theyarestaticmodels reflecting the interrelationship between economic sectors at a certain point in time and are onlyinfrequentlyupdated. Since those interactionsmay change, thematrices fromoneperiodmayoverestimateorunderestimatetheimpactofbroadbanddeploymentinadifferentperiod.Forexample,iftheelectronicequipmentindustryisoutsourcingjobsoverseasatafastpace,theemploymentimpactofbroadbanddeploymentwilldiminishovertimeandpartoftheinvestmentwill“leak”overseas.

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Country Authors–Institution(*) Objective Results

UnitedKingdom

Liebenauetal.(2009)–LondonSchoolofEconomics

EstimatetheimpactofinvestingUS$6.4billiontoachievethetargetofthe“DigitalBritain”Plan

• Totaljobs:280,000jobsifinvestmentachievedinoneyear(including76,500direct,134,500indirectandinduced,and69,500innetworkeffects)

Germany Katzetal.(2010) EstimatetheimpactofinvestingEUR20.243billionforimplementingthe2014BroadbandStrategy

• TotalGDP:EUR20.2billionininvestmentandEUR52.32billioninadditionaloutput

• Totaljobs:304,000jobs(including158,000direct,71,000indirectand75,000induced

UnitedStates

KatzandSuter(2009)

EstimatetheimpactofinvestingUS$6.39billionforbroadbanddeployment

• Totaljobs:127,800directandindirect

Source:CompiledbyTelecomAdvisoryServicesAll studies calculated multipliers, which measure the total output and employment changethroughouttheeconomyresultingfromthedeploymentofabroadbandnetwork.21IV.2.BroadbandspillovereffectsStudieson the spillover impactof telecommunicationshavebeenproduced for thepast twodecadesconfirming,toalargeextent,thatwirelineandwirelesstelephony,aswellasfixedandmobilebroadbandhaveanimpactoneconomicgrowthand,insomecases,onemploymentandproductivity(Hardy,1980;KarnerandOnyeji,2007;Jensen,2007;Katzetal.,2010;Katz,2011;Katzetal.,2012a;Katzetal,2012b,ArvinandPradhan,2014).StudiesintheU.S.havebeenprimarilyfocusedonestimatingthecontributionofbroadbandtoGDP growth. Crandall et al. (2007) published one of the first studies that applied a cross-sectionaldatasetusingbroadbandpenetrationdatatodeterminetheimpactofthetechnologyon output. This study provided some empirical support for the conclusion that expandedbroadbandcapacityledtoanincreaseinGDP,particularlyintheservicesector,namelyfinance,realestate,andeducationalservices.However,thecorrelationbetweenbroadbandpenetrationandGDPlackedstatisticalsignificance.Gillettetal.(2006)conductedaneconometricstudymeasuringtheimpactoffixedbroadbandavailabilityonlocaleconomicdevelopmentusingsub-stategeographicdata.ThestudyclassifiedeachZIP(postal)codeareabasedonitsbroadbandavailabilityin1999,andthenfollowedthegrowth ineconomic indicatorsover time.Thestatisticalmethodology includedmatchingZIP

21Multipliersareoftwotypes.TypeImultipliersmeasurethedirectandindirecteffects(directplusindirectdividedbythedirecteffect),whileTypeIImultipliersmeasureTypeIeffectsplusinducedeffects(directplusindirectplusinduceddividedbythedirecteffect).

27

codeareaswithbroadbandto thosewithout tocreate“treatment”and“control”groups,andthenusedregressionanalysis,andothereconometrictechniquestodistinguishcausalityfrommerecorrelation.Themajorfindingsofthestudywerethatbroadbandadded1.0to1.4percenttothegrowthrateoflocalemployment,and0.5to1.2percenttothegrowthrateofthenumberofbusinessestablishmentsfrom1998to2002.Inanotherstudy,Kolko(2010)foundthatbroadbandexpansioniscorrelatedwitheconomicgrowthover theperiod1999-2006.This relationshipwas strongest in industries that reliedheavilyonICT:information;professional,scientific,andtechnicalservices;management;andadministrative services. The author estimated an instrumental variables regression thatexplicitlyaccountedforthepotentialsimultaneityofbroadbandandemploymentgrowth.Acriticalissueoftheevolvingresearchontelecommunicationsspilloversistheimpactdifferenttelecommunicationspenetrationlevelsmayhaveonoutputandemployment.Morespecifically,is there a linear relationship between broadband adoption and economic growth, wherebyhigher penetration yields larger impact? Or, alternatively, are we in the presence of morecomplex non-linear causal effects, such as “increasing returns to scale” and/or diminishingreturnsduetosaturation? Accordingtotheinitialresearchonthistopic,RollerandWaverman(2001)andimplementedbyKoutroumpis(2009),KatzandKoutroumpis(2012a;2012b),andKatzandCallorda(2014;2016; 2018), the impact of telecommunications infrastructure on economic output ismaximizedoncetheinfrastructurereachescriticalmassgenerallyassociatedwithhigherlevelsofpenetration.Inthefirststudyidentifyingthis“returntoscale”effect,RoellerandWaverman(2001)examinedtheimpactofinvestmentintelecommunicationsinfrastructureontheGDPof21OECD countries and14developing or newly-industrializednon-OECD countries between1970and1990andfoundthattheeconomiccontributionofwirelinetelecommunicationswasnotlinear:itwasgreaterinOECDcountriesthanitwasinnon-OECDcountriesandincountriesthathadreached“criticalmass”.Theauthorsconcludedthatcriticalmassneededtoinfluenceeconomicgrowthispresentwhentelephonepenetrationreaches40maintelephonelinesper100population.The findings in wireline and wireless telephony were, subsequently, extended to fixedbroadband.Koutroumpis(2009)foundthatforOECDcountriesthecontributionofbroadbandto economic growth increased with penetration. According to Koutroumpis' research, incountries with low broadband penetration (under 20%), an increase of 1% in broadbandadoptioncontributedto0.008%ofGDPgrowth,whileincountrieswithmediumpenetration(between20%and30%),theeffectisof0.014%andincountrieswithpenetrationhigherthan30%,theimpactof1%adoptionreaches0.023(seeGraphIV-1).

28

GraphIV-1.ImpactoffixedbroadbandonGDPgrowthinOECDcountries,2009(inpercent)

Katzetal.(2010)confirmedthisfindingintheirstudyofGermany’scounties(Landkreisse).Inthiscase,theauthorssplittheirdatasetbetweencountieswithhighfixedbroadbandpenetration(average31%)andlow(average24.8%)andfoundthatthecoefficientofeconomicimpactwaspositiveandhigherinthecountieswithhighpenetration.Similarly,KatzandCallorda(2018)estimatedthroughmultiplestructuralmodelsthat fixedbroadbandpenetrationhadahighereconomic impact in high-income countries (0.14% increase in GDP growth with each 1%increase inbroadbandpenetration) thanmiddle incomenations(0.05%inGDPgrowthwithsimilar increase inpenetration),while results for low income countrieswasnot statisticallysignificant.Thequestionremainswhetherthereisapointafterwhichadditionalpenetrationdoesnotyieldeconomicspillovergrowth.Researchpointstotheexistenceofasaturationpointofdecliningreturnstobroadbandpenetration.Forexample,Atkinsonatal.(2009)pointoutthatnetworkexternalitiesdeclinewiththebuildoutofnetworksandthematurationoftechnologyovertime.Thereisevidencethatsupportsthisargument.Ithasbeendemonstratedindiffusiontheorythatearly technology adopters are generally those who can elicit the higher returns of a giveninnovation.Conversely,networkexternalitieswouldtendtodiminishovertimebecausethoseeffectswouldnotbeasstrongforlateadopters.Gillettetal.(2006)contendthattherelationbetweenpenetration andeconomic impact shouldnotbe linear “becausebroadbandwill beadopted(...)firstbythosewhogetthegreatestbenefit(while)lateadopters(...)willrealizealesserbenefit” (pp.10). In confirmationofdiminishing returns tobroadbandpenetration, intheirstudyofthestateofKentucky,Shideleretal.(2007)estimatedthatemploymentgrowthishighest around the mean level of broadband saturation at the county level, driven by thedecreasingreturnstoscaleoftheinfrastructure.Accordingtotheresearch,acriticalamountof

29

broadband infrastructure may be needed to sizably increase employment, but once acommunityiscompletelybuiltout,additionalbroadbandinfrastructurewillnotfurtheraffectemploymentgrowth.Thatsaid,thespilloverimpactofbroadbandathigherpenetrationlevelsstillremains,althoughitoccursthroughanothervariable:broadbandspeed.Twotypesofeffectsexplainthiscausalrelationship.First, fasterbroadbandcontributestoan improvement inproductivityresultingfromtheadoptionofmoreefficientbusinessprocesses.Forexample, improvedmarketingofexcess inventories andoptimizationof the supply chainare twoof theeffects thatmightbegenerated.Second,fasterconnectivityyieldsanaccelerationoftherateofintroductionofnewproducts,services,andthelaunchofinnovativebusinessmodels.AnearlystudythatassessedtheimpactofbroadbandspeedonGDP(RohmanandBohlin,2012)lookedat33OECDcountriesand concluded that a 100% increase (or doubling) of speed yields a 0.3% increase in GDP.Followingon thisstudy,KongautandBohlin (2014)useasimilarapproachbutdifferentiatebetweenhighandlow-incomeOECDcountriesanddeterminedthatanincreaseinbroadbandspeedof1%yieldsanincreaseinGDPpercapitaof0.1%forlowincomecountriesand0.06%forhighincomecountries22.Inanotherexample,intheirstudyoftheUnitedStatesCarewetal.(2018)concludedthata1%increaseinspeedequatestoa0.0197%inrealGDP.

***** To sumup, the literature of communications economic impact concludes that the impact ofreducedtaxationproceedsalongtwopaths.Ononehand,areductionintaxationwouldresultin an increase in communications investment, with the consequent effect in networkconstructionemploymentandoutput.Thiseffectcomprises:a)additionaldirectjobsandoutput(definedasemploymentandeconomicproductiongeneratedintheshortterminthecourseofdeploymentofnetworkfacilities),b)indirectjobsandoutput(understoodasemploymentandproductiongeneratedby indirect spending in industrial sectors suchasmetalproducts, andelectricalequipment),andc)inducedjobsandoutput(whichresultsfromhouseholdspendingbased on the income earned from direct and indirect effects). In addition, once additionalnetworksarebeingdeployed,theyyieldenhancedpositiveexternalities intermsofspillovereffectsonGDPandemployment,althoughathighpenetrationlevels,suchastheonecurrentlyexistingintheUnitedStates,spilloversduetoadditionalpenetrationtendnottomaterialize.

22 Anotherareaofbroadbandeconomicimpactisthecontributiontoconsumersurplus,definedastheamountthatconsumersbenefitfrompurchasingaproductforapricethatislessthanwhattheywouldbewillingtopay.Moststudiesofconsumersurplusderivedfromfasterspeedarebasedonsurveysorfocusgroupswhereconsumersstipulatetheamounttheywouldbewillingtopayforaservicesuchasbroadband(Savageetal.(2004);GreensteinandMcDewitt (2011); Liu et al. (2018)). Other studies that lack access to survey data tend to rely on pricingdifferences to estimate consumer surplus (Greenstein and McDewitt, 2011; Greenstein and McDewitt, 2012).Finally,otherstudiesonconsumersurplusfocusonhowconsumers’datausagereactstovariationsinprice.Forexample,Nevoetal.(2015)studiedhour-by-hourInternetusagefor55,000USsubscribersfacingdifferentpriceschedules.Theyconcludedthatconsumerswillpaybetween$0to$5permonthfora1Mb/sincreaseinconnectionspeed,withanaverageof$222.However,withtheavailabilityofmorecontentandapplications,consumerswilllikelyincreasetheirusage,implyinggreatertimesavingsandagreaterwillingnesstopayforspeed.

30

V. ECONOMICIMPACTOFLOWERINGTAXESONCOMMUNICATIONSNETWORKINVESTMENT

In order to estimate the economic impact of reduced taxation at the national level,we firstcalculatewhattheadditionalinvestmentincommunicationswouldbeasaresultofalternativetaxationscenarios.Oncewedefinethesescenariosandwecalculatetheadditionalinvestmentbased on the econometric models specified in chapter III, we estimate the impact of theincreasedinvestmentonemploymentandoutput.V.1.DefiningalternativetaxationscenariosToestimatetheimpactofinvestmentonemploymentandGDP,webasedonthecoefficientofimpactoftaxrateoninvestmentlevelestimatedintheeconometricmodelsspecifiedinsectionIII.2.3:adecreaseof1percentagepointinthisrate(forexample,from4.58%to3.58%)wouldincreasetelecommunicationsandcableinvestmentby1.97%acrossallstates.Wecalculatedinvestmentimpactoffourscenarios,inwhichtheaveragetaxesforbothsectorswouldbereducedto3.0%,2.0%,1.0%,and0.0%.Wefirstestimatetheshort-termimpact(oneyear)andthencalculatethelongerterm(twoyears)asaresultoftheinertiaincapitalplanningdiscussedinchapterII.AlltheresultsarepresentedintablesV-1andV-2.

TableV-1.Short-Term(one-year)IncrementalNetworkInvestmentresultingfromchangesinSalesTaxRate(inmillionsunlessindicated)

Averagesalestaxrate

TotalInvestmentGrowth

TotalAdditionalInvestment

3.0% 3.12% $1,3392.0% 5.09% $2,1861.0% 7.07% $3,0340.0% 9.04% $3,881

Source:TelecomAdvisoryServicesanalysis AccordingtothedataintableV-1,wefindthatifsalestaxesweretobereducedtoanaverageof3.0%,thiswouldgenerateanadditionalinvestmentof$1,339million.Alternatively,ifsalestaxeswere eliminated in all states, total communications network investment would increase by$3,881million. Thismeans that, propelled by the incentive effect identified in the researchliteraturereviewedinchapterII,operatorswouldinvestbeyondthesupplyoffundsbenefitoftaxdecrease(aneffectof197%ofthereductionintaxes).TheresultsintableV-1correspondtotheinitialimpactofataxreductionfromchangesinthesalestaxrate.AsshownintheeconometricmodelofTableIII-4,wefindthattheinvestmentinyear2dependsnotonlyonthetaxratebutalsoontheinvestmentofyear1(the“inertia”effect).According to the model, the industry invests, ceteris paribus, an additional 55.60 % of theinvestment fromthepreviousyear.Consequently, theeliminationorreductionofsalestaxesproducesnotonly a short-termeffect (depicted inTableV-1)but also a long-termeffect on

31

investment.Weestimatelong-termeffectsoninvestmentforyear2afterachangeinthesalestaxrate(seetableV-2).TableV-2.IncrementalNetworkInvestmentresultingfromchangesinSalesTaxratein

thesecondyear(inmillionsunlessindicated)

Averagesalestaxrate

TotalInvestmentGrowth

TotalAdditionalInvestment

3.0% 4.85% $2,0832.0% 7.92% $3,4021.0% 11.00% $4,7200.0% 14.07% $6,039

Source:TelecomAdvisoryServicesanalysisTheestimatesforthesecondyearafterthechangeinsalestaxrateallowustoprojectthetotaladditionalinvestmentresultingfromthesumofthetwoyears(AdditionalInvestmentofYear1+AdditionalInvestmentofYear2)(seetableV-3).TableV-3.IncrementalLong-TermNetworkInvestmentresultingfromchangesinSales

TaxRate(SumofYear1and2)(inmillionsunlessindicated)

Reductioninaveragesalestax

rate

TotalInvestmentGrowth

TotalAdditionalInvestment

3.0% 7.97% $3,4222.0% 13.02% $5,5881.0% 18.06% $7,7540.0% 23.11% $9,920

Source:TelecomAdvisoryServicesanalysis

Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,any incrementalavailable fundswouldbe,inlargepart,investedinnetworkmodernization.V.2.EconomicimpactofalternativetaxationscenariosHaving calculated the impact on telecom investment of a reduction in sales taxes on initialequipmentpurchase,we estimate the economic effect on incrementalGDPand job creation.According to the research literature reviewed above, those effects can be estimated both intermsofthedirectandindirectimpactresultingfromnetworkdeployment(e.g.construction)andintermsofacontributiontotheincreaseinbroadbandpenetration.

32

V.2.1.AssessmentofConstructionEffectsWe conducted the assessment of the direct, indirect and induced impact of additionalinvestmentontelecommunicationsandcableconstructionbyrelyingonInput/Outputanalysis,whichallowsustoestimate,asaresultofmultipliers,theimpactthroughouttheeconomyofadditionalinvestmentinonesector23.Accordingtothis,aneliminationofsalestaxesthat38statescurrentlycollectoninitialequipmentpurchasebytelecommunicationsandcableserviceproviderswouldgenerate27,500jobsand$6.52billioninGDPinthefirstyear.Effectswould,obviously,varyaccordingtothe fourcasesofsalestaxchangesdefinedabove(from lowering the average rate to3% to completely eliminating it).TableV-4presents therangeof short-termestimates fornetworkconstructioneffects.Ofnote, considering that theeconomyisoperatingatfullemployment,thejobstriggeredbynetworkconstructionwouldbeshiftedfromothersectorsorbenefittingnewentrantstothelaborforce. Table V-4. Direct, Indirect and Induced Short-Term Economic Effect of Changes in Sales Tax

on Network Equipment Purchasing (all $ figures in billions)

Reductioninaveragesalestax

rateInvestment Jobs Output

3.00% $1.34 9,493 $2.252.00% $2.19 15,501 $3.671.00% $3.03 21,508 $5.090.00% $3.88 27,515 $6.52

Source:TelecomAdvisoryServicesanalysis Byrelyingonthesumoftheincrementalinvestmentinthetwoyearsfollowingthetaxreduction(presentedintableV-4),wecanprojectthelong-termimpactonemploymentandGDP(directandindirecteffects)(seetableV-5). TableV-5.Direct,IndirectandInducedLong-TermEconomicEffectofChangesinSalesTaxonNetworkEquipmentPurchasing(all$figuresinbillions)(Totalof2years)

Reductionin

averagesalestaxrate

Investment Jobs Output

3.00% $3.42 24,265 $5.752.00% $5.59 39,620 $9.381.00% $7.75 54,975 $13.020.00% $9.92 70,330 $16.65

Note: The number of jobs is presented as job yearsSource:TelecomAdvisoryServicesanalysis V.2.2.Increaseinbroadbandpenetration

23 See methodology in appendix A.

33

Inadditiontotheconstructionimpact,asindicatedinsectionIV.2.1,networkinvestmentwillyieldacontributiontoanincreaseinbroadbandlinespenetrationandaconsequentreductionin thedigital divide. The assumption, as reviewed in the literature in chapter IV, is that theadditionalinvestmenttriggeredbyareductioninsalestaxeswillnothaveanadditionalspillovereffect onGDPgiven that fixedbroadbanddeployment in theUnitedStateshas reachedhighpenetration levels (87.5%). Furthermore, since the economy is already operating at fullemployment,thecontributiontoemploymentwouldbethroughabsorptionofjobsfromothersectorsoranopportunityfornewentrantstothelaborforce.To estimate the impact of additional investment in broadband penetration, we believe thatadditional deployment resulting from a reduction in sales tax on network equipment willmaterializeprimarilyinanincreaseinbroadbandlinesinlowpenetrationstates,withalowerincrement in high penetrated areas. In the 2012 study, we developed econometric modelslinkingthegrowthinnetworkinvestmenttotheincreaseinbroadbandpenetration.Asimilarmodelwas specified this timewith time series data extending through2018, differentiatingbetweenhighandlowpenetrationstates(seetableV-6).TableV-6.EconometricModelslinkingnetworkinvestmenttoincrementalinvestment

inbroadbandpenetration

Model of Impact of Investment Growth on Broadband Penetration Growth OLS model

Dependent Variable: Broadband Penetration Growth Independent Variable: Investment Growth, Broadband Penetration 1 period lagged

Sample Full Sample Low Penetration

High Penetration

InvestmentGrowth 0.004543 * 0.011111 * 0.002231

(0.00313) (0.00592) (0.00218) BroadbandPenetrationlagged1period -0.003137 *** -0.005129 *** -0.003247 ***

(0.00017) (0.05852) (0.00024)

Constant 0.279788 *** 0.431293 *** 0.292275

(0.01503) (0.04683) (0.02060)

R^2 0.8742 0.8817 0.8889

YearFixedEffect Yes Yes Yes

StateFixedEffect Yes Yes Yes

NumberofObservations 588 196 392

Note:***,**,*significanceat1%,5%&10%level Source:TelecomAdvisoryServicesanalysisAs indicated in the table V-6, the impact of network investment growth on broadbandpenetrationgrowthinstateswithlowpenetrationis0.0111%foreveryincreaseininvestment

34

of 1%.When considering the full sample, the impact coefficient decreases to 0.004543. Theunderlyingassumptionisthatadditionalinvestmentincreasesbroadbanddeploymentand,inturn,adoption.Ofnote,theimpactcoefficientinlowpenetrationstateshasdeclinedfrom0.1345inthe2012iterationofthisstudy.Webelievethisisduetothefactthat,withtheincreaseinfixedbroadbandpenetrationfrom76.88%ofhouseholds(2012)to87.85%(2018),thecostofdeployment is increasing because late adopters live in low density areas requiring higherinvestmentperline.Wereliedonthelowpenetrationcoefficienttoestimatetheincreaseinbroadbandlinesinlowpenetrationstatesandthefullsamplecoefficienttoestimatetheincreaseinhighpenetrationstates.Undertheseconsiderations,theeliminationofthesalestaxratewouldyieldanincreaseinpenetrationof0.26%(or178,700lines)(seetableV-8). TableV-8.Increaseinbroadbandadoptionduetotheeliminationofnetworkequipment

salestaxrate(includesonlystateswithequipmentsalestax)

StateName AdoptionRateincrease

Newadoptions

Mississippi 0.19% 1,638NewMexico 0.43% 2,623Arkansas 0.53% 4,693Louisiana 0.56% 7,623Alabama 0.36% 5,322

NorthDakota 0.38% 978SouthCarolina 0.21% 3,260Kentucky 0.34% 4,761Oklahoma 0.30% 3,651Tennessee 0.53% 11,332SouthDakota 0.36% 1,018Vermont 0.35% 747Missouri 0.24% 4,915Georgia 0.40% 12,769Maine 0.31% 1,477Michigan 0.15% 5,105Kansas 0.49% 4,652

Wisconsin 0.30% 6,088Texas 0.34% 28,075Illinois 0.20% 8,257Florida 0.16% 10,378NewYork 0.05% 3,121

RhodeIsland 0.16% 557Virginia 0.10% 2,688Wyoming 0.13% 247Hawaii 0.10% 389Nebraska 0.16% 1,037Nevada 0.19% 1,810D.C. 0.00% 11Idaho 0.14% 763Arizona 0.07% 1,654Alaska 0.04% 90

35

StateName AdoptionRateincrease

Newadoptions

Massachusetts 0.11% 2,463Maryland 0.14% 2,687California 0.20% 22,710Colorado 0.17% 3,354Washington 0.21% 5,482

Utah 0.03% 302USA 0.26% 178,728

Source:TelecomAdvisoryServicesanalysisThis increase in broadband lines resulting from an outright elimination of the sales tax onnetworkequipmentshouldbeconsideredoverandabovethenaturalgrowthinbroadbandlines(whichatthispointisgrowingbetween1and2percentagepointsperyear).V.3.Conclusion Weestimatemodels for fourcasesofaveragesalestaxreduction:3%,2%,and1%andtotalelimination.Forexample, if sales taxeswere tobereduced toanaverageof3.00%, itwouldgenerateanadditionalinvestmentof$1,339millioninthefirstyear.Alternatively,ifsalestaxeswere completely eliminated in all states, total communications network investment wouldincreaseby$3,881millioninthefirstyear.Thisfindingisparticularlysignificantinsofarthatitdemonstratestheimportanceoftaxreductionasastimulusofnetworkinvestment.InTableV-9wepresentthedecompositionbystateforthenewinvestment.TableV-9.Increaseininvestmentbystateduetotheeliminationofnetworkequipment

salestaxrate(includesonlystateswithequipmentsalestax)

StateName Inv.p.cgrowth

NewInvestment

Alabama 12.73% $71,932,662Alaska 3.47% $322,832Arizona 6.32% $52,038,606Arkansas 18.57% $44,456,799California 16.86% $621,424,727Colorado 14.84% $212,582,552D.C. 0.37% $639,315

Florida 13.42% $276,349,168Georgia 14.11% $225,027,693Hawaii 8.59% $15,907,889Idaho 11.90% $14,538,672Illinois 17.17% $198,432,829Kansas 17.13% $55,439,821Kentucky 11.84% $38,922,008Louisiana 19.78% $63,738,876Maine 10.86% $20,079,026

Maryland 11.84% $103,171,423Massachusetts 9.19% $93,444,912Michigan 5.40% $37,703,586Mississippi 6.82% $10,558,709

36

Missouri 8.57% $112,865,281Nebraska 13.60% $27,421,990Nevada 16.07% $73,555,789

NewMexico 15.12% $25,057,668NewYork 4.28% $148,700,521

NorthDakota 13.42% $9,545,464Oklahoma 10.56% $32,488,151RhodeIsland 13.82% $24,869,497SouthCarolina 7.30% $35,094,800SouthDakota 12.63% $9,720,573Tennessee 18.67% $104,699,387Texas 11.96% $412,079,752Utah 2.90% $10,860,120

Vermont 12.20% $5,164,818Virginia 8.52% $108,942,287

Washington 18.12% $515,011,916Wisconsin 10.70% $59,566,104Wyoming 10.78% $8,507,938USA 9.04% $3,880,864,163

Source:TelecomAdvisoryServicesanalysisBeyondthiseffectinthefirstyear,theeliminationorreductionofsalestaxesalsoproducesalong-termeffectoninvestment(thisislabeledthe“inertia”effect).Accordingtotheeconometricmodel,inyear2communicationsfirmsinvestabout55%morethaninthefirstyearafterthesalestaxreductionisenacted.Bycombiningshortandlong-terminvestmenteffect,areductionofaveragesalestaxto3%onnetworkequipmentwillresultin$3.42billionincreaseinnetworkinvestment.Asexpected, totaleliminationofsales taxesunderthe long-termscenariowouldyieldadditionalinvestmentof$9.92billion.Thisadditional investmenthastwotypesofeconomiceffects:thecontributiontooutputandjobsresultingfromnetworkconstruction,andtheincreaseinbroadbandlines.Byrelyingoninput/outputanalysis,weestimatetheimpactofnetworkconstruction.Forexample,anannualincreaseof$3.88billionininvestment(resultingfromaneliminationofthesalestax)willyieldanincreaseinGDPof$6.52billionand27,500jobsinthefirstyear,and$16.65billioninoutputand 70,300 job/yearswithin two years. In addition, a total elimination of the sales taxwillincreasebroadbandaccesslinesby178,700.

37

CASE STUDIES

• FLORIDA • GEORGIA • ILLINOIS • KENTUCKY • OKLAHOMA • TENNESSEE • TEXAS

38

VI. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINFLORIDA

Havingproven thata reductionof sales taxeson initial communicationsnetworkequipmentacquisitionhasasubstantialeconomicimpactonanationalscale,wenowaddresswhatthatimpactwouldbeinthestateofFlorida.VI.1.TheeconomyofFlorida:Floridaranks40thintheUnitedStatesintermsofGDPpercapita(seegraphicVI-1).

GraphicVI-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis Between2014and2018Florida’sGDPpercapitagrewby15.08%,inparallelwiththeoverallstateGDP.

GraphicVI-2.Florida:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Florida ($ 48,655)

$42,281

$44,207$45,486

$46,693

$48,655$ 839,706

$ 894,044

$ 938,370

$ 979,465

$ 1,036,323

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

$1,100,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

39

InJanuary2012,Florida’sunemploymentratewas10.90%,implyingthat2,019,516individualsof a total labor force of 18,462,256 were unemployed. The unemployment rate has beendecliningeversince,reaching3.35%in2018(withanunemployedlaborforceof344,711)(seeGraphicVI-3):

GraphicVI-3.Florida:UnemploymentRateandNumberofUnemployedWorkers(2014-2018)

Sources:USBureauofLaborStatistics;TelecomAdvisoryServicesanalysisInthiscontext,itisrelevanttoconsidercommunicationsequipmenttaxationpoliciesthatwillfurtherbotheconomicgrowthandjobcreation.VI.2. Currenttaxationregimeoninitialequipmentpurchasingbytelecommunications

andcableserviceprovidersinFloridaFlorida is one of the 32 states that applies a sales tax to purchase/use of communicationsnetworkequipmentandoneof33statesthatcollectsataxoncablenetworkequipment.Bothcable operators and telecommunications service providers paid a sales tax rate of 6.80%(averagecombinedstate-local rate for thestate) in2018.This implies thatFlorida is in16thposition in termsof taxrate fornetwork investmentaffecting telecommunicationsoperatorsandin19thpositionintermsofsalestaxcollectedoncablenetworkequipmentamongallstates(seeGraphicVI-4).

5.86%

5.06%

4.66%

3.95%

3.35%

561,702

490,399

465,008

401,074

344,711

300,000

350,000

400,000

450,000

500,000

550,000

600,000

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

40

GraphicVI-4.Florida:RankinginUSSalesTaxRateonInvestment(2018)

Sources:TaxFoundation;TelecomAdvisoryServicesanalysisThe evolution of the sales tax rate on equipment investment compared to thetelecommunications and cable network investment per capita in Florida indicates that bothvariablesareinverselycorrelated24(seegraphicVI-5).

GraphicVI-5.Florida:SalesTaxRateandCommunicationsInvestmentperCapita(2014-2018)

Sources:TaxFoundation;BroadbandTaxInstitute;TelecomAdvisoryServicesanalysisFrom2014 to 2018, Florida increased itsweighted average state-local taxes from6.62% to6.80%.Simultaneously,thetotaltelecommunicationsandcablenetworkinvestmentpercapita

24 The correlation coefficient is -0.47

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline (6.80%)

Wireless (6.80%)

Cable (6.80%)

6.62% 6.65% 6.66%6.80% 6.80%

$ 102

$ 107

$ 92$ 95 $ 97

$55

$65

$75

$85

$95

$105

$115

6.00%

6.50%

7.00%

7.50%

8.00%

2014 2015 2016 2017 2018

Sales Tax Rate Investment per Capita

41

declined,from$101.83in2014to$91.93in2016.Since2017thesalestaxratelevelstoppedincreasing,which,coupledwithanimprovementoftheU.S.economy,resultedinanincreaseinthecommunicationsinvestmentpercapitafrom$91.93in2016to$96.67in2018(growthof5.16%).Inlightoftheinversecorrelationbetweencommunicationsnetworkequipmentsalestaxes and investment, we now consider what the impact would be if the sales tax oncommunicationsequipmentweretobeeliminatedinthestate.VI.3. Economic impact of taxation of communications network equipment taxation in

FloridaBy relying on the coefficients of the econometric models linking tax rates to investmentpresentedinsectionIII.2,weestimatedtheshortrunandthelongrunimpactofaneliminationofthesalestaxrateinFlorida.Assumingthatinyear1thesalestaxrateiseliminated,investmentpercapitawouldincreaseby$12.9725(equivalentto13.42%overthecurrentlevelof$96.67).Inthecaseofareductionofthesalestaxrateto50%oftheactualrate,investmentpercapitawouldincreaseby$6.49(equivalentto6.71%overthecurrentlevelof$96.67).Furthermore, investment inyear2after theeliminationof thesales taxwouldbe, toa largedegree,dependentonthelevelinyear1.Asaresult,theeliminationofsalestaxesyieldsnotonlyashort-termbutalsoalong-termeffectoninvestmentlevels(seetableVI-1).TableVI-1.Florida:EstimationoftheIncreaseinCommunicationsInvestmentResulting

fromtheEliminationoftheSalesTaxonNetworkEquipment(in$millionsunlessindicated)

Year1 Year2 TotalEliminationofsalestax InvestmentGrowth $276.35 $430.00 $706.35SavingsfromSalesTaxElimination $140.01 $140.01 $280.02

ShareofSavingsReinvested 197.38% 307.13% 252.25%

50%reductionofsalestax InvestmentGrowth $138.17 $215.00 $353.18SavingsfromSalesTaxElimination $70.00 $70.00 $140.01

ShareofSavingsReinvested 197.38% 307.13% 252.25%

Source:TelecomAdvisoryServicesanalysisTheestimatespresentedintableVI-1indicatethat,asaresultofapotentialeliminationofthesalestaxoninitiallypurchasedequipment,inyear1thecable,wirelessandwirelineoperatorsreinvest197.38%ofwhattheywouldhavepaidassalestax,andoverthelongruntheywould

25Thisestimateisbasedonamodelthattakesintoconsiderationfixedeffects.

42

continuetoinvestmorethanwhattheywouldhavesaved.Intwoyears,theinvestmentlevelswouldrepresent252.25%ofsavedtaxes26.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,wecalculatedthefollowingestimatesofstatewidesocio-economicimpact(seetableVI-2).

TableVI-2.Florida:EstimationofDirectandIndirectSocio-EconomicImpactofEliminatingSalesTaxonCommunicationsEquipmentPurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $48,655 $48,677 $48,711GDPPerCapitaGrowth 0.00% 0.04% 0.11%IncrementalGDP($million) $0 $464 $1,186UnemploymentRate 3.35% 3.35% 3.35%Jobscreated 0 1,958 5,005BroadbandConnections 6,657,251 6,661,311 6,667,629BroadbandPenetration 85.25% 85.30% 85.38%

Source:TelecomAdvisoryServicesanalysisTheeconomicanalysisbasedonthecoefficientsofthemodelsspecifiedinchaptersIIIandVindicatethateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$1,186millioninneweconomicactivity;• Create5,000job/years;• Create10,300newbroadbandconnections

ThestudiesreviewedinchapterIVhaveshownthattheproductivitybenefitsassociatedwiththe investment in communications networks are broadly distributed across the manybusinesses,governments,andnon-profitsthatuseinformationtechnologyandcommunicationservices. Therefore, capital investments made by communications companies improveinfrastructure that benefits the entire state of Florida, not just the companies making theinvestments.The$1,186millioninneweconomicactivitythatweestimatewouldresultfromtheeliminationofsalestaxesoncommunicationsnetworkinvestmentswouldbenefitsectorsasdiverseaswholesaletrade,professionalservices,finance,andhealthcare.AnexemptioninsalestaxesforcommunicationsequipmentinFloridawouldalsocreate5,000direct, indirect and induced jobs. Whilenot being significant overall, job creationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsoin themany business sectors that rely on communications networks to develop new,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantial

26Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

43

offsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworksandwillalsoacceleratecompetitionbetweenwireless,wireline,andcable providers of high-speed communications services. This competition directly benefitsconsumersthroughbetterservicesandlowerprices.

44

VII. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINGEORGIATheeconomicgainsofreducingthesalestaxoninitialcommunicationsequipmentpurchasearenot only realized in Florida. The state of Georgiawould also be able to improve its currenteconomicsituationifitweretoreduce,oroutrightexemptcommunicationsequipmentfromthe7.15%tax.VII.1.ThesituationoftheGeorgiaeconomyThestateofGeorgiaranks30thintheUnitedStatesintermsofGDPpercapita(seegraphicVII-1).

GraphicVII-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis

Between2014and2018GeorgiaGDPpercapitagrewby16%,whiletotalGDPgrewby21%(thedifferenceisexplainedbyanincreaseintotalpopulation).

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Georgia ($ 55,913)

45

GraphicVII-2.Georgia:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysisIn2011,Georgia’sunemploymentratewas9.80%,whichimpliesthatapproximately457,000individualsofatotallaborforceof4,663,000wereunemployed.Theunemploymentratehasconsistentlydeclinedsince then, reaching3.75%(or191,709unemployedworkers) in2018(GraphicVII-3):

GraphicVII-3.Georgia:UnemploymentRateandNumberofUnemployedWorkers(2014-2018)

Sources:USBureauofLaborStatistics;TelecomAdvisoryServicesanalysisInthiscontext,weshouldconsiderbroadbandequipmenttaxationpoliciesthatwillfurtherbotheconomicgrowthandjobcreation.VII.2.Currenttaxationregimeoninitialequipmentpurchasingbytelecommunications

andcableTVoperatorsinGeorgia

$48,159$50,357

$52,232$53,982

$55,913

$ 484,915

$ 512,694

$ 538,238

$ 562,121

$ 588,172

$450,000

$470,000

$490,000

$510,000

$530,000

$550,000

$570,000

$590,000

$610,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

6.46%

5.56%5.29%

4.31%

3.75%

307,062

268,156264,147

219,778

191,709

170,000

190,000

210,000

230,000

250,000

270,000

290,000

310,000

330,000

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

46

Georgiaisoneof32statesthatappliesasalestaxtopurchase/useofcommunicationsnetworkequipmentand33states thatcollectsa taxoncablenetworkequipment.Thestateand localauthoritiesimposeaweighted-averagesalesandusetaxof7.15%.Thestatealoneimposesasales and use tax of 4%, with additional rates between 1% and 4% imposed locally. Theoverwhelmingmajorityofcountiesimposearateof3%,whileahandfulofcountiesimposelocaloptionratesofeither1%or2%.TherateinthecityofAtlantais8%,whichincludesthe4%statetax,the1%citytax,andthe3%countytax.This implies that Georgia has the 13th highest sales tax rate on wireless and wirelinetelecommunicationsaswellascableequipmentinthecountry(seegraphicVII-4).

GraphicVII-4.Georgia:RankinginUSSalesTaxRateonInvestment2018

Sources:TaxFoundation;TelecomAdvisoryServicesanalysisThe sales tax on purchase and use network equipment in Georgia has been consistentlyincreasingsince2014,albeitatafairlyslowrate,movingfrom6.97%to7.15%(seetableVII-1).TableVII-1.Georgia:CommunicationsEquipmentState-LocalweightedaverageTaxrate

(2014-2018) 2014 2018Wireless 6.97% 7.15%Wireline 6.97% 7.15%Cable 6.97% 7.15%Average 6.97% 7.15%

Source:TaxFoundationVII.3.EconomicimpactofcommunicationsnetworkequipmenttaxationinGeorgia

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline (7.15%)

Wireless (7.15%)

Cable (7.15%)

47

By relying on the coefficients of the econometricmodels presented in section III.2,wehaveestimatedtheshortrunandthelongrunimpactofaneliminationofthesalestaxrateinGeorgia.Assumingthatinyear1thesalestaxrateiseliminated,investmentpercapitawouldincreaseby$21.39(equivalentto14.11%overthecurrentlevelof$151.58).Inthecaseofareductionofthesalestaxrateto50%oftheactualrate, investmentpercapitawouldincreaseby$10.70(equivalentto7.06%overthecurrentlevelof$151.58).Furthermore,accordingtothemodelinsectionIII.2,investmentinyear2aftertheeliminationofthesalestaxis,toalargedegree,dependentonthelevelinyear1.Asaresult,theeffectofaneliminationofsalestaxesyieldsnotonlyashort-termbutalsoalong-termeffectoninvestmentlevels(seetableVII-2).

TableVII-2.Georgia:EstimationoftheIncreaseinCommunicationsInvestmentResultingfromtheEliminationoftheSalesTaxonNetworkEquipment

(in$millionsunlessindicated) Year1 Year2 Total

Eliminationofsalestax InvestmentGrowth $225.03 $350.15 $575.17SavingsfromSalesTaxElimination $114.01 $114.01 $228.01ShareofSavingsReinvested 197.38% 307.13% 252.25%50%reductionofsalestax InvestmentGrowth $112.51 $175.07 $287.59SavingsfromSalesTaxElimination $57.00 $57.00 $114.01ShareofSavingsReinvested 197.38% 307.13% 252.25%

Source:TelecomAdvisoryServicesanalysisOurestimatesintableVII-2indicatethat,asaresultofapotentialeliminationofthesalestaxoninitially purchased equipment, in year 1 the cable,wireless andwireline operators reinvest197.38%ofwhattheywouldhavepaidassalestax,andoverthelongruntheywouldcontinueto have the incentive to invest more than what they would have saved. In two years, theinvestmentlevelswouldrepresent252.25%ofsavedtaxes27.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,wecalculatedthesocio-economicimpactbenefitsderivedfromeliminatingthesalestaxoncommunicationsnetworkequipment(seetableVII-3).

27Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

48

TableVII-3.Georgia:EstimationofDirectandIndirectSocio-EconomicImpactofEliminatingSalesTaxonCommunicationsEquipmentPurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $55,913 $55,949 $56,004GDPPerCapitaGrowth 0.00% 0.06% 0.16%IncrementalGDP($million) $0 $378 $966UnemploymentRate 3.75% 3.75% 3.75%Jobscreated 0 1,595 4,076BroadbandConnections 3,184,947 3,189,943 3,197,716BroadbandPenetration 83.75% 83.88% 84.08%

Source:TelecomAdvisoryServicesanalysisTheeconomicanalysisbasedon thecoefficientsof themodels specified in chapter III andVindicatesthateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$966millioninneweconomicactivity;• Create4,075job/years;• Create12,750newbroadbandconnections

ThestudiesreviewedinchapterIVhaveshownthattheproductivitybenefitsassociatedwiththe investment in communications networks are broadly distributed across the manybusinesses,governments,andnon-profitsthatuseinformationtechnologyandcommunicationservices. Therefore, capital investments made by communications companies improveinfrastructure that benefits the entire state of Georgia, not just the companies making theinvestments.The$966millioninneweconomicactivitythatweestimatewouldresultfromtheeliminationof sales taxesoncommunicationsnetwork investmentswouldbenefit sectorsasdiverseaswholesaletrade,professionalservices,finance,andhealthcare.AnexemptioninsalestaxesforcommunicationsequipmentinGeorgiawouldalsocreate4,075direct, indirect and induced jobs. Whilenot being significant overall, job creationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsoin themany business sectors that rely on communications networks to develop new,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworksandwillalsoacceleratecompetitionbetweenwireless,wireline,andcable providers of high-speed communications services. This competition directly benefitsconsumersthroughbetterservicesandlowerprices.

49

VIII. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINILLINOIS

AfterexplainingtheeconomicbenefitsthatFloridaandGeorgiawouldachievebyeliminatingorreducingthesalestaxrateoncommunicationsequipment,wecalculatetheimpactofasimilarscenarioforIllinois.Illinoishasenactedan8.70%salestaxrateforbothtelecommunicationsandcablecompanies.Asthe fifthhighestrate intheNation,weestimatethat thisconstrainsequipmentinvestmentsignificantly. VIII.1.ThesituationoftheIllinoiseconomy:ThestateofIllinoisranks12thintheUnitedStatesintermsofGDPpercapita(seegraphicVIII-1).

GraphicVIII-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis

Between 2014 and 2018 the Illinois GDP per capita grew 14.19%,while the total GDP alsoincreased,albeitat12.88%(thedifferenceisexplainedbyadecreaseintotalpopulation).

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Illinois ($ 67,858)

50

GraphicVIII-2.Illinois:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysisIn2014,unemploymentrateinIllinoiswas6.12%,whichimpliedthat397,356individualsofatotallaborforceofover6,500,000wereunemployed28.Theunemploymentratehasdeclined,particularlybetween2015and2017.In2018,276,474workerswerestillunemployed(GraphicVIII-3):

GraphicVIII-3.Illinois:UnemploymentRateandNumberofUnemployedWorkers(2006-2012)

Sources:USBureauofLaborStatistics;TelecomAdvisoryServicesanalysisInthiscontext,weconsiderneedtoconsidernetworkequipmenttaxationpoliciesthatmightstimulateeconomicgrowth,whilecreatingnewjobs.

28StateofIllinois.WomenandminoritiesintheIllinoisLaborForceAnnualReport2015.

$59,424

$61,613$62,793

$64,586

$67,858

$ 765,910

$ 792,614

$ 805,434

$ 825,811

$ 864,587

$720,000

$740,000

$760,000

$780,000

$800,000

$820,000

$840,000

$860,000

$880,000

$55,000

$60,000

$65,000

$70,000

$75,000

$80,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

6.12%6.04%

5.39%

4.55%

4.27%

397,356 396,007

350,413

295,221

276,474

250,000

300,000

350,000

400,000

450,000

500,000

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

51

VIII.2.Currenttaxationregimeoninitialequipmentpurchasingbytelecommunications

andcableTVoperatorsinIllinois:Illinois is one of the 32 states that applies a sales tax to purchase/use of communicationsnetworkequipmentand33statesthatcollectsataxoncablenetworkequipment.Thestateandlocalauthoritiesimposeaweightedaveragesalesandusetaxof8.70%overcommunicationsequipment. This implies that Illinois has the sixth highest sales tax rate in the country onwireless andwireline telecommunications equipment and fifth highest in cable (see graphicVIII-4).

GraphicVIII-4.Illinois:RankinginUSSalesTaxRateonInvestment2018

Sources:TaxFoundation;TelecomAdvisoryServicesanalysisThe sales tax on purchase and use network equipment in Illinois has been consistentlyincreasingsince2014,albeitatafairlyslowrate,movingfrom8.16%to8.70%(seetableVIII-1).TableVIII-1.Illinois:CommunicationsEquipmentState-LocalweightedaverageTaxrate

(2014-2018) 2014 2018Wireless 8.16% 8.70%Wireline 8.16% 8.70%Cable 8.16% 8.70%Average 8.16% 8.70%

Source:TaxFoundationVIII.3.EconomicimpactofcommunicationsnetworkequipmenttaxationinIllinoisByrelyingonthecoefficientsoftheeconometricmodelspresentedinsectionIII.2,weestimatedtheshortrunandthelongrunimpactofaneliminationofthesalestaxrateinIllinois.Assumingthatinyear1thesalestaxrateiseliminated,investmentpercapitawouldincreaseby$15.57

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline (8.70%)

Wireless (8.70%)

Cable (8.70%)

52

(equivalentto17.17%overthecurrentlevelof$90.70).Inthecaseofareductionofthesalestaxrateby50%oftheactualrate,investmentpercapitawouldincreaseby$7.79(equivalentto8.59%overthecurrentlevelof$90.70).Furthermore, investment inyear2after theeliminationof thesales taxwouldbe, toa largedegree,dependentonthelevelinyear1.Asaresult,theeffectofaneliminationofsalestaxesyieldsnotonlyashort-termbutalsoalong-termeffectoninvestmentlevels(seetableVIII-2).

TableVIII-2.Illinois:EstimationoftheIncreaseinCommunicationsInvestmentResultingfromtheEliminationoftheSalesTaxonNetworkEquipment

Year1 Year2 TotalEliminationofsalestax InvestmentGrowth($million) $198.43 $308.76 $507.20SavingsfromSalesTaxElimination($million) $100.53 $100.53 $201.07ShareofSavingsReinvested 197.38% 307.13% 252.25%50%reductionofsalestax InvestmentGrowth($million) $99.22 $154.38 $253.60SavingsfromSalesTaxElimination($million) $50.27 $50.27 $100.53ShareofSavingsReinvested 197.38% 307.13% 252.25%

Source:TelecomAdvisoryServicesanalysisOurestimatesintableVIII-2indicatethat,asaresultofapotentialeliminationofthesalestaxoninitiallypurchasedequipment,inyear1thecable,wirelessandwirelineoperatorsreinvest197.38%ofwhattheywouldhavepaidassalestax,andovertwoyears,theinvestmentlevelswouldrepresent252.25%ofsavedtaxes29.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,weestimatethesocio-economicimpactofthechangeinsalestaxes(seetableVIII-3).

TableVIII-3.Illinois:EstimationofDirectandIndirectSocio-EconomicImpactofEliminatingSalesTaxonCommunicationsEquipmentPurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $67,858 $67,884 $67,925GDPPerCapitaGrowth 0.00% 0.04% 0.10%IncrementalGDP($million) $0 $333 $851UnemploymentRate 4.27% 4.27% 4.27%Jobscreated 0 1,406 3,594BroadbandConnections 4,140,239 4,143,470 4,148,496BroadbandPenetration 85.10% 85.17% 85.27%

Source:TelecomAdvisoryServicesanalysis

29Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

53

Theeconomicanalysisbasedon the coefficientof themodels specified in chapter III and IVindicatesthateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$851millioninneweconomicactivity;• Create3,600job/years;• Create8,250newbroadbandconnections

ThestudieswereviewinchapterIVhaveshownthattheproductivitybenefitsassociatedwiththe investment in communications networks are broadly distributed across the manybusinesses,governments,andnon-profitsthatuseinformationtechnologyandcommunicationservices. Therefore, capital investments made by communications companies improveinfrastructure that benefits the entire state of Illinois, not just the companies making theinvestments.The$851millioninneweconomicactivitythatwouldresultfromtheeliminationof sales taxes on communications network investmentswould benefit sectors as diverse aswholesaletrade,professionalservices,finance,andhealthcare.AnexemptioninsalestaxesforcommunicationsequipmentinIllinoiswouldalsocreate3,600direct, indirect and induced jobs. Whilenot being significant overall, job creationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsoin themany business sectors that rely on communications networks to develop new,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworks.Newinvestmentswillalsoacceleratecompetitionbetweenwireless,wireline,andcableprovidersofhigh-speedcommunicationsservices.Thiscompetitiondirectlybenefitsconsumersthroughbetterservicesandlowerprices.

54

IX. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINKENTUCKY

ThestateofKentuckyhasa6.00%salestaxrateonnetworkequipmentsalesanduseforbothtelecommunicationsandcableserviceproviders.Asthetwenty-fourthhighestrateinthenation,weestimatethatthisrateconstrainsequipmentinvestment.IX.1.ThesituationoftheeconomyinKentucky:ThestateofKentuckyhasthe8thlowestGDPpercapitaintheUnitedStates(seegraphicIX-1).

GraphicIX-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis

Between2014and2018theKentuckyGDPpercapitaincreasedby10.25%,whilethetotalGDPincreasedby11.59%(thedifferenceisexplainedbyanincreaseintotalpopulation).

$0

$30,000

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Kentucky ($ 46,625)

55

GraphicIX-2.Kentucky:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysisInMarch2012,theKentuckyunemploymentratewas8.80%,implyingthat581,116individualsof a total labor force of 6,588,762 were unemployed. Unemployment rate has decreasedsubstantiallysincethen,reaching4.30%(or88,684oftheworkforce)in2018(graphicIX-3):

GraphicIX-3.Kentucky:UnemploymentRateandNumberofUnemployedWorkers(2004-2018)

Sources:USBureauofLaborStatistics;TelecomAdvisoryServicesanalysisHowever,lowunemploymentisfocusedprimarilyinthe“urbantriangle”counties(Lexington,LouisvilleandCincinnati),whilelowworkforceparticipationisstillconcentratedinMartin,Lee,Elliott, Clay, Leslie, Morgan, and Wolfe counties. Creating abundant high-paying jobs in

$42,291$43,384 $43,954

$45,127$46,625

$ 186,695

$ 192,019

$ 195,080

$ 200,991

$ 208,340

$185,000

$190,000

$195,000

$200,000

$205,000

$210,000

$215,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

5.48%

5.29%5.20%

4.36% 4.30%108,827 105,321 105,927

89,682 88,684

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

56

Kentucky’s ruralareashasbeenandcontinues tobeachallenge forpolicymakers,economicdevelopmentprofessionals,andcivicleaders30.Inthiscontext,weconsidercriticallyimportantbroadbandnetworkequipmenttaxationpoliciesthat could continue fostering both economic growth and job creation, while addressingdisparitiesbetweenurbanandruralareas.IX.2.Currenttaxationregimeoninitialequipmentpurchasingbytelecommunications

andcableTVoperatorsinKentucky:Asmentionedabove,cableTVoperatorsandtelecommunicationscompanieshadtopayasalestax rate of 6.00 % (weighted average combined state-local rate for the state) on networkequipment purchase in 2018. This implies that Kentucky has the 23th highest tax rate forwireless andwireline telecommunicationsof the country and also the26th highest for cableinvestment(seegraphicIX-4).

GraphicIX-4.Kentucky:RankinginUSSalesTaxRateonInvestment(2018)

Sources:TaxFoundation;TelecomAdvisoryServicesanalysisThissalestaxratehasnotchangedsinceatleast2006.IX.3.Economicimpactofcommunicationsnetworkequipmenttaxationinthestateof

KentuckyByrelyingonthecoefficientsoftheeconometricmodelspresentedinsectionIII.2,weestimatethe short run and the long run impact of an elimination of the sales tax rate in Kentucky.Assumingthatinyear1thesalestaxrateiseliminated,investmentpercapitawouldincreaseby$8.71(equivalentto11.84%overthecurrentlevelof$73.55).Inthecaseofareductionofthe

30UniversityofKentucky.CenterforBusinessandEconomicResearch(2018).KentuckyAnnualEconomicReport2018.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline 6.00%)

Wireless (6.00%)

Cable (6.00%)

57

sales tax rate to 50% of the actual rate, investment per capita would increase by $ 4.36(equivalentto5.92%overthecurrentlevelof$73.55)31.Furthermore,asindicatedinsectionV.2.1,investmentinyear2aftertheeliminationofthesalestaxwouldbe,toa largedegree,dependentonthelevel inyear1.Asaresult, theeffectofaneliminationofsalestaxesyieldsnotonlyashort-termbutalsoalong-termeffectoninvestmentlevels(seetableIX-2).

TableIX-2.Kentucky:EstimationoftheIncreaseinCommunicationsInvestmentResultingfromtheEliminationoftheSalesTaxonNetworkEquipment

Year1 Year2 TotalEliminationofsalestax InvestmentGrowth($millions) $38.92 $60.56 $99.49SavingsfromSalesTaxElimination($millions) $19.72 $19.72 $39.44

ShareofSavingsReinvested 197.38% 307.13% 252.25%50%reductionofsalestax InvestmentGrowth($millions) $19.46 $30.28 $49.74SavingsfromSalesTaxElimination($millions) $9.86 $9.86 $19.72

ShareofSavingsReinvested 197.38% 307.13% 252.25%Source:TelecomAdvisoryServicesanalysisOurestimatesintableIX-2indicatethat,asaresultofapotentialeliminationofthesalestaxoninitially purchased equipment, in year 1 the cable,wireless andwireline operators reinvest197.38%ofwhattheywouldhavepaidassalestax,andovertwoyears,theinvestmentlevelswouldrepresent252.25%ofsavedtaxes.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,wecalculatethefollowingestimatesofsocio-economicimpact(seetableIX-3).

TableIX-3.Kentucky:EstimationofDirectandIndirectSocio-Economicimpactofeliminatingsalestaxoncommunicationsequipmentpurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $46,625 $46,640 $46,663GDPPerCapitaGrowth 0.00% 0.03% 0.08%IncrementalGDP($million) $0 $65 $167UnemploymentRate 4.30% 4.30% 4.30%Jobscreated 0 276 705BroadbandConnections 1,415,036 1,416,899 1,419,797BroadbandPenetration 81.67% 81.77% 81.94%

Source:TelecomAdvisoryServicesanalysis

31Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

58

Theeconomicanalysisbasedon the coefficientof themodels specified in chapter III and IVindicatesthateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$167millioninneweconomicactivity;• Create700job/years;• Create4,750additionalbroadbandconnections

ThestudieswereviewedinchapterIVshowthattheproductivitybenefitsassociatedwiththeinvestmentincommunicationsnetworksarebroadlydistributedacrossthemanybusinesses,governments, and non-profits that use information technology and communication services.Therefore,capitalinvestmentsmadebycommunicationscompaniesimproveinfrastructurethatbenefitstheentirestateofKentucky,notjustthecompaniesmakingtheinvestments.The$167million in new economic activity that would result from the elimination of sales taxes oncommunications network investments would benefit sectors as diverse as wholesale trade,professionalservices,finance,andhealthcare.AnexemptioninsalestaxesforcommunicationsequipmentinKentuckywouldalsocreate700direct, indirect and induced jobs. Whilenot being significant overall, job creationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsoin themany business sectors that rely on communications networks to develop new,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworks.Newinvestmentswillalsoacceleratecompetitionbetweenwireless,wireline,andcableprovidersofhigh-speedcommunicationsservices.Thiscompetitiondirectlybenefitsconsumersthroughbetterservicesandlowerprices.

59

X. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINOKLAHOMA

InOklahoma,telecommunicationscarrierspaysalestaxesonnetworkequipmentpurchase,butwhilecableoperatorsareexempted.Wirelessandwirelinecompanieshavetopayasalestaxof8.91%ofthecapitalinvestedinpurchasingnetworkequipment.X.1.ThesituationoftheeconomyinOklahoma:ThestateofOklahomaranks39thpositionintheUnitedStatesintermsofGDPpercapita(seegraphicX-1).

GraphicX-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis

Between2014and2016theOklahomaGDPpercapitadeclinedby9.90%,reachingalowpointin2016($45,460inpercapitaGDP).Afterthatyear,theGDPgrew11.56%,reaching$50,716percapita.

$0

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1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Oklahoma ($ 50,716)

60

GraphicX-2.Oklahoma:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysisIn January 2012, Oklahoma´s unemployment rate was 6.10%, which implies that 109,064individuals of a total labor force of 1,784,846 were unemployed. The unemployment ratedeclined,althoughbetween2014and2016itincreasedreaching4.69%.Sincethen,triggeredby the national expansionary cycle, the rate declined to 3.13% (half of the 2012 level) (seegraphicX-3):

GraphicX-3.Oklahoma:UnemploymentRateandNumberofUnemployedWorkers(2014-2018)

SourcesUSBureauofLaborStatistics;TelecomAdvisoryServicesanalysisIn this context,weneed toconsidercommunicationsequipment taxationpolicies thatmightcontinuefosteringbotheconomicgrowthandjobcreation.

$50,457

$47,381

$45,460

$47,639

$50,716

$ 195,689

$ 185,251

$ 178,510

$ 187,348

$ 199,976

$170,000

$180,000

$190,000

$200,000

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$220,000

$230,000

$42,000

$43,000

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$45,000

$46,000

$47,000

$48,000

$49,000

$50,000

$51,000

$52,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

4.15%

4.56%

4.69%

3.97%

3.13%

75,440

83,806 85,776

73,274

57,502

10,000

30,000

50,000

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90,000

110,000

3.00%

3.20%

3.40%

3.60%

3.80%

4.00%

4.20%

4.40%

4.60%

4.80%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

61

X.2. Currenttaxationregimeoninitialequipmentpurchasingbycommunications

companiesinOklahoma:Wirelineandwirelesscompaniespayasales taxrateof8.91%(weightedaveragecombinedstate-local rate for the state), the fifth highest rate in the nation, while cable operators areexemptedfromsalestaxesonnetworkequipment(seegraphicX-4).

GraphicX-4.Oklahoma:RankinginUSSalesTaxRateonInvestment(2018)

Sources:TaxFoundation;TelecomAdvisoryServicesanalysisThe evolution of sales tax rate on telecommunications equipment investment andcommunicationsinvestmentpercapitaispresentedingraphicX-5.Thesalesandusetaxratefor telecomcarriersnetworkequipmenthasbeenconsistently increasingbetween2014and2018(seetableX-1).TableX-1.Oklahoma:CommunicationsEquipmentState-LocalweightedaverageTax

rate(2014-2018) 2014 2018Wireless 8.72% 8.91%Wireline 8.72% 8.91%Cable 0.00% 0.00%Average 5.81% 5.94%

Sources:TaxFoundationX.3.EconomicimpactofcommunicationsnetworkequipmenttaxationinOklahomaByrelyingonthecoefficientsoftheeconometricmodelspresentedinsectionIII.2,weestimatethe short run and the long run impact of a potential elimination of the sales tax rate ontelecommunicationsnetworkequipmentinOklahoma.Assumingthatinyear1thesalestaxrateonthiscapitalgoodiseliminated,telecommunicationsinvestmentpercapitawouldincreaseby$8.24(equivalentto10.56%overthecurrentlevelof$78.04).Inthecaseofareductionofthe

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline (8.91%)

Wireless (8.91%)

Cable (0.00%)

62

sales tax rate to 50% of the actual rate, investment per capita would increase by $ 4.12(equivalentto5.28%overthecurrentlevelof$78.04)32.Furthermore,asindicatedinsectionV.2.1,investmentinyear2aftertheeliminationofthesalestaxwouldbe,toalargedegree,dependentonthelevelinyear1.Asaresult,theeliminationofsalestaxesontelecommunicationsequipmentpurchaseyieldsnotonlyashort-termbutalsoalong-termeffectoninvestmentlevels(seetableX-2).TableX-2.Oklahoma:EstimationoftheIncreaseinCommunicationsResultingfromtheEliminationoftheSalesTaxonNetworkEquipment(in$millionsunlessindicated)

Year1 Year2 TotalEliminationofsalestax InvestmentGrowth $32.49 $50.55 $83.04SavingsfromSalesTaxElimination $16.46 $16.46 $32.92ShareofSavingsReinvested 197.38% 307.13% 252.25%50%reductionofsalestax InvestmentGrowth $16.24 $25.28 $41.52SavingsfromSalesTaxElimination $8.23 $8.23 $16.46ShareofSavingsReinvested 197.38% 307.13% 252.25%

Source:TelecomAdvisoryServicesanalysisOurestimatesintableX-2indicatethat,asaresultofapotentialeliminationofthesalestaxoninitially purchased equipment, in year 1 the cable,wireless andwireline operators reinvest197.38%ofwhattheywouldhavepaidassalestax,andoverthelongruntheycontinuetohavethe incentive to investmore thanwhat theywouldhavesaved. In twoyears, the investmentlevelswouldrepresent252.25%ofsavedtaxes.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,wecalculatethefollowingestimatesofsocio-economicimpact(seetableX-3).

TableX-3.Oklahoma:EstimationofDirectandIndirectSocio-EconomicImpactofEliminatingSalesTaxonCommunicationsEquipmentPurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $50,716 $50,729 $50,751GDPPerCapitaGrowth 0.00% 0.03% 0.07%IncrementalGDP($million) $0 $55 $139UnemploymentRate 3.13% 3.13% 3.13%Jobscreated 0 230 588BroadbandConnections 1,217,175 1,218,603 1,220,826BroadbandPenetration 81.95% 82.04% 82.19%

Source:TelecomAdvisoryServicesanalysis

32Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

63

Our economic analysisbasedon the coefficientof themodels specified in chapter III and IVindicatesthateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$139millioninneweconomicactivity;• Create588job/years;• Create3,650broadbandconnections

Thestudieswereview inchapter IVshowthat theproductivitybenefitsassociatedwith theinvestmentincommunicationsnetworksarebroadlydistributedacrossthemanybusinesses,governments, and non-profits that use information technology and communication services.Therefore,capitalinvestmentsmadebycommunicationscompaniesimproveinfrastructurethatbenefitstheentirestateofOklahoma,notjustthecompaniesmakingtheinvestments.The$139million in new economic activity that would result from the elimination of sales taxes oncommunications network investments would benefit sectors as diverse as wholesale trade,professionalservices,finance,andhealthcare.AnexemptioninsalestaxesforcommunicationsequipmentinOklahomawouldalsocreate588direct, indirect and induced jobs. Whilenot being significant overall, job creationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsoin themany business sectors that rely on communications networks to develop new,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworks.Newinvestmentswillalsoacceleratecompetitionbetweenwireless,wireline,andcableprovidersofhigh-speedcommunicationsservices.Thiscompetitiondirectlybenefitsconsumersthroughbetterservicesandlowerprices.

64

XI.THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINTENNESSEE

Tennessee is another state that has one of the highest tax rates for sales and use of bothtelecommunicationandcableinvestmentinthenation.XI.1.ThesituationoftheeconomyinTennessee:ThestateofTennesseeranks35thintheUnitedStatesintermsofGDPpercapita(seegraphicXI-1).

GraphicXI-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis Between2014and2018theTennesseeGDPpercapitagrew16.14%,whilethetotalGDPgrew20.20%(thedifferenceisexplainedbyanincreaseintotalpopulation).

0

30,000

60,000

90,000

120,000

150,000

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210,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Tennessee ($ 54,003)

65

GraphicXI-2.Tennessee:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysisInJanuary2012,Tennessee´sunemploymentratewas7.10%,implyingthat891,600individualsof a total labor forceof12,518,200wereunemployed.Unemployment ratehasdecreased to3.32%in2018(GraphicXI-3):GraphicXI-3.Tennessee:UnemploymentRateandNumberofUnemployedWorkers

(2014-2018)

Sources:USBureauofLaborStatistics;TelecomAdvisoryServicesanalysisIn this context,we should consider communications equipment taxation policies thatmightfosterbotheconomicgrowthandjobcreation.

$46,500

$48,960$50,321

$51,848

$54,003

$ 304,150

$ 322,688

$ 334,385

$ 347,835

$ 365,602

$290,000

$300,000

$310,000

$320,000

$330,000

$340,000

$350,000

$360,000

$370,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

6.27%

4.89%4.63%

3.51%3.32%

190,723

150,729 146,544

113,151 108,137

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

66

XI.2. Currenttaxationregimeoninitialequipmentpurchasingbytelecommunications

andcableoperatorsinTennessee:As mentioned above, in 2018 communications equipment investment was taxed at 9.46%(weightedaveragecombinedstate-localrateforthestate).ThisimpliesthatTennesseehasthesecond highest tax rate for wireless and wireline telecommunications as well as cableinvestment(seeGraphicXI-4).

GraphicXI-4.Tennessee:RankinginUSSalesTaxRateonInvestment(2018)

Sources:BroadbandTaxInstitute;TelecomAdvisoryServicesanalysisThe evolutionof sales tax rate on equipment investment and telecommunications and cableinvestmentpercapitaisshowningraphicXI-5.

GraphicXI-5.Tennessee:SalesTaxRateandCommunicationsInvestmentperCapita(2014-2018)

Sources:BroadbandTaxInstituteData;TelecomAdvisoryServicesanalysis

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline (9.46%)

Wireless (9.46%)

Cable (9.46%)

9.45% 9.45% 9.46% 9.46% 9.46%

$ 95

$ 83 $ 83

$ 96

$ 83

$55

$65

$75

$85

$95

$105

$115

$125

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2014 2015 2016 2017 2018

Sales Tax Rate Investment per Capita

67

Tennesseeexhibitsintheperiodunderanalysisafairlystablehighsalestaxrateof9.46%.Onthe other hand, the investment per capita decreased significantly up to 2015, increasingtemporarily in 2017, but resuming the decline in 2018. All in all, since 2010, the networkinvestmentpercapitahasdroppedfrom$110to$83.XI.3.EconomicimpactofcommunicationsnetworkequipmenttaxationinTennesseeByrelyingonthecoefficientsoftheeconometricmodelspresentedinsectionIII.2,weestimatethe short run and the long run impact of an elimination of the sales tax rate in Tennessee.Assumingthatinyear1thesalestaxrateiseliminated,investmentpercapitawouldincreaseby$15.47(equivalentto18.67%overthecurrentlevelof$82.82).Inthecaseofareductionofthesales tax rate to 50% of the actual rate, investment per capita would increase by $ 7.73(equivalentto9.34%overthecurrentlevelof$82.82)33.Furthermore,asweindicateinsectionV.2.1,investmentinyear2aftertheeliminationofthesalestaxwouldbe,toalargedegree,dependentonthelevelinyear1.Asaresult,theeffectofan elimination of sales taxes yields not only a short-term but also a long-term effect oninvestmentlevels(seetableXI-1).TableXI-1.Tennessee:EstimationoftheIncreaseinCommunicationsResultingfromtheEliminationoftheSalesTaxonNetworkEquipment(in$millionsunlessindicated)

Year1 Year2 TotalEliminationofsalestax InvestmentGrowth $104.70 $162.91 $267.61SavingsfromSalesTaxElimination $53.04 $53.04 $106.09ShareofSavingsReinvested 197.38% 307.13% 252.25%50%reductionofsalestax InvestmentGrowth $52.35 $81.46 $133.81SavingsfromSalesTaxElimination $26.52 $26.52 $53.04ShareofSavingsReinvested 197.38% 307.13% 252.25%

Source:TelecomAdvisoryServicesanalysisOurestimatesintableXI-1indicatethat,asaresultofapotentialeliminationofthesalestaxoninitialpurchasesof equipment, in year1 the cable,wireless andwirelineoperators reinvest197.38%ofwhattheywouldhavepaidassalestax,andoverthelongruntheywouldcontinueto have the incentive to invest more than what they would have saved. In two years, theinvestmentlevelswouldrepresent252.25%ofsavedtaxes.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,wecalculatethefollowingestimatesofsocio-economicimpact(seetableXI-2).

33Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

68

TableXI-2.Tennessee:EstimationofDirectandIndirectSocio-EconomicImpactofEliminatingSalesTaxonCommunicationsEquipmentPurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $54,003 $54,029 $54,070GDPPerCapitaGrowth 0.00% 0.05% 0.12%IncrementalGDP($million) $0 $176 $449UnemploymentRate 3.32% 3.32% 3.32%Jobscreated 0 742 1,896BroadbandConnections 2,136,269 2,140,702 2,147,601BroadbandPenetration 82.07% 82.24% 82.50%

Source:TelecomAdvisoryServicesanalysisOur economic analysis based on the coefficient of themodels specified in chapter III and Vindicatesthateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$449millioninneweconomicactivity;• Create1,900job/years;• Create11,300broadbandconnections

ThestudieswereviewinchapterIVhaveshownthattheproductivitybenefitsassociatedwiththe investment in communications networks are broadly distributed across the manybusinesses,governments,andnon-profitsthatuseinformationtechnologyandcommunicationservices. Therefore, capital investments made by communications companies improveinfrastructure thatbenefits theentirestateofTennessee,not just thecompaniesmaking theinvestments.The$449millioninneweconomicactivitythatwouldresultfromtheeliminationof sales taxes on communications network investmentswould benefit sectors as diverse aswholesaletrade,professionalservices,finance,andhealthcare.An exemption in sales taxes for communications equipment inTennesseewould also create1,900direct,indirectandinducedjobs.Whilenotbeingsignificantoverall,jobcreationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsointhemanybusinesssectorsthatrelyoncommunicationsnetworkstodevelopnew,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworks.Newinvestmentswillalsoacceleratecompetitionbetweenwireless,wireline,andcableprovidersofhigh-speedcommunicationsservices.Thiscompetitiondirectlybenefitsconsumersthroughbetterservicesandlowerprices.

69

XII. THEECONOMICCONTRIBUTIONOFCOMMUNICATIONSNETWORKINVESTMENTINTEXAS

Through2013,theStateofTexashadasalesandusetaxratefornetworkequipmentof8.25%forbothtelecomcarriersandcableserviceproviders.In2014,thelegislatureenactedarefundprovisionofsalestaxespaidforcommunicationsequipment,whichresultedinaneffectiverateof6.06%.XII.1.ThesituationoftheeconomyinTexasThestateofTexasranks20thintheUnitedStatesintermsofGDPpercapita(seegraphicXII-1).

GraphicXII-1.UnitedStates:StatesRankingbyGDPperCapita(2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysis

Between2014and2016 theTexasGDPper capitadecreasedby3.50%,while the totalGDPremainedfairlyconstant(thedifferenceisexplainedbyanincreaseintotalpopulation).Sincethatyear,bothindicatorsgrewat10.49%.

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Texas ($ 61,870)

70

GraphicXII-2.Texas:GrossDomesticProductandGDPPerCapita(2014-2018)

Sources:USBureauofEconomicAnalysis;TelecomAdvisoryServicesanalysisInJanuary2012,Texasunemploymentratewas8.30%,implyingthat291,443individualsofatotal labor forceof3,490,872wereunemployed.Theunemployment ratehasdeclined since(withanincreasein2016),drivenbythenationalexpansionarycyclereaching3.71%in2018(seeGraphicXII-3):

GraphicXII-3.Texas:UnemploymentRateandNumberofUnemployedWorkers(2014-2018)

Sources:USBureauofLaborStatistics;TelecomAdvisoryServicesanalysisIn this context, we consider communications network equipment public policies thatmightcontinuetostimulatebotheconomicgrowthandjobcreation.

$58,027$57,051

$55,996

$58,416

$61,870

$ 1,565,390 $ 1,568,147 $ 1,564,396

$ 1,654,494

$ 1,775,797

$1,400,000

$1,500,000

$1,600,000

$1,700,000

$1,800,000

$1,900,000

$2,000,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

2014 2015 2016 2017 2018

GDP per capita in current prices GDP in current prices

4.55%4.45%

4.79%

4.06%

3.71%

595,297587,752

645,027

557,377

516,371

500,000

520,000

540,000

560,000

580,000

600,000

620,000

640,000

3.00%

3.20%

3.40%

3.60%

3.80%

4.00%

4.20%

4.40%

4.60%

4.80%

5.00%

2014 2015 2016 2017 2018

Unemployment Rate Unemployment

71

XII.2.Currenttaxationregimeoninitialequipmentpurchasingbytelecommunications

andcableTVoperatorsinTexas:Asmentioned above, in 2018 communications equipment investment inTexaswas taxed at6.06%(weightedaveragecombinedstate-localrateforthestate).ThisimpliesthatTexashasthe31sthighesttaxrateforwirelessandwirelinetelecommunicationsofthecountryandalsothe28thhighestforcableinvestment(seeGraphicXII-4).

GraphicXII-4.Texas:RankinginUSSalesTaxRateonInvestment(2018)

Sources:BroadbandTaxInstitute;TelecomAdvisoryServicesanalysis

As a result of this rate, telecommunications and cable companies paid approximately $209millioninsalestaxesontheirnetworkinvestmentsin2018alone.Until 2014, Texas imposed an average of 8.25% sales tax on purchase of communicationsequipment.Aswementionabove,basedontherefundprovision,Texasdroppeditssalestaxratetoanestimated6.06%.XII.3.EconomicimpactofcommunicationsnetworkequipmenttaxationinTexasByrelyingonthecoefficientsoftheeconometricmodelspresentedinsectionIII.2,weestimatetheshortrunandthelongrunimpactofaneliminationofthesalestaxrateinTexas.Assumingthatinyear1thesalestaxrateiseliminated,investmentpercapitawouldincreaseby$14.36(equivalentto11.96%overthecurrentlevelof$120.03).Inthecaseofareductionofthesales

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Wireline Wireless Cable

Wireline (6.06%)

Wireless (6.06%)Cable (6.06%)

72

taxrateto50%oftheactualrate,investmentpercapitawouldincreaseby$7.18(equivalentto5.98%overthecurrentlevelof$120.03)34.Furthermore,asweindicateinsectionV.2.1,investmentinyear2aftertheeliminationofthesalestaxwouldbe,toalargedegree,dependentonthelevelinyear1.Asaresult,theeffectofan elimination of sales taxes yields not only a short-term but also a long-term effect oninvestmentlevels(seetableXII-1).TableXII-1.Texas:EstimationoftheIncreaseinCommunicationsResultingfromtheEliminationoftheSalesTaxonNetworkEquipment(in$millionsunlessindicated)

Year1 Year2 TotalEliminationofsalestax InvestmentGrowth $412.08 $641.20 $1,053.28SavingsfromSalesTaxElimination $208.77 $208.77 $417.55ShareofSavingsReinvested 197.38% 307.13% 252.25%50%reductionofsalestax InvestmentGrowth $206.04 $320.60 $526.64SavingsfromSalesTaxElimination $104.39 $104.39 $208.77ShareofSavingsReinvested 197.38% 307.13% 252.25%

Source:TelecomAdvisoryServicesanalysisOurestimatesintableXII-1indicatethat,asaresultofapotentialeliminationofthesalestaxoninitially purchased equipment, in year 1 the cable,wireless andwireline operators reinvest197.38%ofwhattheywouldhavepaidassalestax,andoverthelongruntheywouldcontinueto have the incentive to invest more than what they would have saved. In two years, theinvestmentlevelswouldrepresent252.25%ofsavedtaxes.Inturn,thisadditionalinvestmentwouldgenerateanimpactontheeconomyofthestate.Byrelyingon the coefficientsof the input/outputmatrix forUnitedStates and theeconometricmodelsofsectionV,wecalculatethefollowingestimatesofsocio-economicimpact(seetableXII-2).

TableXII-2.Texas:EstimationofDirectandIndirectSocio-EconomicImpactofEliminatingSalesTaxonCommunicationsEquipmentPurchases

EconomicIndicators CurrentLevel ShortRun LongRunGDPPerCapita $61,870 $61,895 $61,932GDPPerCapitaGrowth 0.00% 0.04% 0.10%IncrementalGDP($million) $0 $692 $1,768UnemploymentRate 3.71% 3.71% 3.71%Jobscreated 0 2,920 7,463BroadbandConnections 8,262,153 8,273,137 8,290,228BroadbandPenetration 84.51% 84.63% 84.80%

Source:TelecomAdvisoryServicesanalysis

34Whileitisdifficulttoestimatewhatportionofthisreinvestedcapitalwouldbeusedinnetworkmodernizationprojects,itisreasonabletoassumethat,sincetheothertwoCAPEXcategories(maintenanceandcapacityupgrades)arenon-discretionary,anyincrementalavailablefundswouldbe,inlargepart,investedinnetworkmodernization.

73

Our economic analysis based on the coefficient of themodels specified in chapter III and Vindicatesthateliminatingthesalesandusetaxoncommunicationsinfrastructurewould,overtwoyears:

• Generateover$1,750millioninneweconomicactivity;• Create7,450job/years;• Create28,000broadbandconnections

ThestudieswereviewinchapterIVhaveshownthattheproductivitybenefitsassociatedwiththe investment in communications networks are broadly distributed across the manybusinesses,governments,andnon-profitsthatuseinformationtechnologyandcommunicationservices. Therefore, capital investments made by communications companies improveinfrastructure that benefits the entire state of Texas, not just the companies making theinvestments. The $1,750 million in new economic activity that would result from theeliminationof sales taxesoncommunicationsnetwork investmentswouldbenefit sectorsasdiverseaswholesaletrade,professionalservices,finance,andhealthcare.AnexemptioninsalestaxesforcommunicationsequipmentinTexaswouldalsocreate7,450direct, indirect and induced jobs. Whilenot being significant overall, job creationwouldbewidespreadasnewemploymentiscreatednotonlyintheinstallationofnewequipmentbutalsoin themany business sectors that rely on communications networks to develop new,moreefficientandprofitablewaystodobusiness.Theneweconomicactivitywillgeneratesubstantialoffsettingrevenuesforstateandlocalgovernmentsasnewemploymentandeconomicactivitygeneratesincome,sales,property,andothertaxrevenueforgovernments.Morerapidinvestmentincommunicationsnetworkswillhaveimmediateanddirectbenefitsforconsumers aswell. New investmentwill benefit consumers by providing better and fastercommunicationsnetworks.Newinvestmentswillalsoacceleratecompetitionbetweenwireless,wireline,andcableprovidersofhigh-speedcommunicationsservices.Thiscompetitiondirectlybenefitsconsumersthroughbetterservicesandlowerprices.

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AppendixA.Input/OutputMethodologyThismethodologyfocusesondetermininghowmuchvalueaddedandemploymentisgeneratedthroughtheinvestmentincommunicationsnetworks.Input-outputtablesenablethecalculationof the impact of additional inputs in specific sectors on the economy as a whole. Therelationships between the sectors at the inputs stage trigger additional demand and thusincreaseproductioninothersectors.Thesumofalltheseeffectsisthemultiplierforthetotalvolumeofgoods.Multiplierscanbecalculatedinseveralwaysandalsoforseveraleconomicdimensions.Thereare,forexample,goods-relatedmultipliersforthetotalvolumeofgoodsinaneconomy,forthevalueoftotalproductionorforthevalueadded.Therearealsomultipliersforlabormarketparameterssuchasthesizeoftheworkforceorthenumberofhoursworked.

Oncetheinvestmentinputiscalculated,theestimationofemploymentandoutputeffectscanbedone.Input-outputtableshelpcalculatingthedirect,indirect,andinducedeffectsofbroadbandnetwork construction on employment and production. The interrelationship of these threeeffectscanbemeasuredthroughmultipliers,whichestimatehowoneunitchangeontheinputsideeffectstotalemploymentchangethroughouttheeconomy(seefigureA.1).

Tocalculateemploymenteffectsresultingfromcommunicationsinvestment,wereliedontheinput-outputmatrixpublishedbyBureauofEconomicAnalysis.However,inordertobeutilizedinthisanalysis,theinput-outputmatricesneededtobeformattedtocalculatetheemploymentmultipliers.Oncethetableisreformatted,onecalculatesthemultipliers.FromtheI/O-tableitispossibletoobtainmultipliersfortotalindustrysupplyandadditionalvariablesasvalueaddedandemployment.Thecalculationofthemultipliersforthetotalindustrysupplyusesthedirectrequirementtable,whichisalsocalledLeontief-Inverse.Thedirectrequirementtable(DR)iscalculatedbythefollowingformula:

DR=(I–A)^-1withA=I/O-table/totalindustrysupply

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(divisionofeachcellofintermediatedomesticsupplybytotalindustrysupply)I=Identitymatrix

Thesumofthecolumnsperindustryreflectstheincreaseofthetotalindustrysupplybyoneadditionalunitofdemandinthisspecificsector.Acorrectionfortheshareofimportsontotalindustrysupplyresultsinthetotaldomesticproductionoftheindustries.Themultiplyingoftheshareofvalueaddedoftotaldomesticindustryproductionresultsinthevalue-addedmultiplier.Usinglaborproductivity,itispossibletocalculatethejobeffectsnow.TheI/O-tablewasbuiltbased on the Bureau of Economic Analysis (BEA) and GTAP make- and use-tables using amethodology from Chamberlain Economics LLC. To obtain an I/O-table that can be used tocalculatemultipliersthatreflectdomesticproductionitisnecessarytoexcludeimportsfromthemake-table.

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AppendixB.StateSalesTaxRate(2014-2018)

State Year Wireless Wireline Cable AverageAlaska 2014 1.69% 1.69% 1.69% 1.69%Alabama 2014 6.38% 4.26% 6.38% 5.68%Arkansas 2014 9.19% 9.19% 9.19% 9.19%Arizona 2014 0.00% 0.00% 8.17% 2.72%California 2014 8.41% 8.41% 8.41% 8.41%Colorado 2014 7.39% 7.39% 7.39% 7.39%Connecticut 2014 0.00% 0.00% 0.00% 0.00%D.C. 2014 0.00% 0.00% 5.75% 1.92%Delaware 2014 0.00% 0.00% 0.00% 0.00%Florida 2014 6.62% 6.62% 6.62% 6.62%Georgia 2014 6.97% 6.97% 6.97% 6.97%Hawaii 2014 4.35% 4.35% 4.35% 4.35%Iowa 2014 0.00% 0.00% 0.00% 0.00%Idaho 2014 6.03% 6.03% 6.03% 6.03%Illinois 2014 8.16% 8.16% 8.16% 8.16%Indiana 2014 0.00% 0.00% 0.00% 0.00%Kansas 2014 8.15% 8.15% 8.15% 8.15%Kentucky 2014 6.00% 6.00% 6.00% 6.00%Louisiana 2014 8.89% 8.89% 8.89% 8.89%Massachusetts 2014 6.25% 6.25% 0.00% 4.17%Maryland 2014 6.00% 6.00% 6.00% 6.00%Maine 2014 5.50% 5.50% 5.50% 5.50%Michigan 2014 0.60% 0.60% 6.00% 2.40%Minnesota 2014 0.00% 0.00% 0.00% 0.00%Missouri 2014 0.00% 0.00% 7.58% 2.53%Mississippi 2014 1.75% 1.75% 7.00% 3.50%Montana 2014 0.00% 0.00% 0.00% 0.00%NorthCarolina 2014 0.00% 0.00% 0.00% 0.00%NorthDakota 2014 6.55% 6.55% 6.55% 6.55%Nebraska 2014 6.79% 6.79% 6.79% 6.79%NewHampshire 2014 0.00% 0.00% 0.00% 0.00%NewJersey 2014 0.00% 0.00% 0.00% 0.00%NewMexico 2014 7.26% 7.26% 7.26% 7.26%Nevada 2014 7.93% 7.93% 7.93% 7.93%NewYork 2014 0.00% 0.00% 8.47% 2.82%Ohio 2014 0.00% 0.00% 0.00% 0.00%Oklahoma 2014 8.72% 8.72% 0.00% 5.81%Oregon 2014 0.00% 0.00% 0.00% 0.00%Pennsylvania 2014 0.00% 0.00% 0.00% 0.00%RhodeIsland 2014 7.00% 7.00% 7.00% 7.00%SouthCarolina 2014 7.19% 7.19% 0.00% 4.79%SouthDakota 2014 5.83% 5.83% 5.83% 5.83%Tennessee 2014 9.45% 9.45% 9.45% 9.45%Texas 2014 6.06% 6.06% 6.06% 6.06%Utah 2014 0.00% 0.00% 6.68% 2.23%Virginia 2014 5.63% 5.63% 0.00% 3.75%Vermont 2014 6.14% 6.14% 6.14% 6.14%Washington 2014 8.88% 8.88% 8.88% 8.88%Wisconsin 2014 5.43% 5.43% 5.43% 5.43%

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State Year Wireless Wireline Cable AverageWestVirginia 2014 0.00% 0.00% 0.00% 0.00%Wyoming 2014 5.49% 5.49% 5.49% 5.49%USA 2014 4.17% 4.13% 4.55% 4.28%Alaska 2015 1.76% 1.76% 1.76% 1.76%Alabama 2015 6.68% 4.46% 6.68% 5.94%Arkansas 2015 9.26% 9.26% 9.26% 9.26%Arizona 2015 0.00% 0.00% 8.17% 2.72%California 2015 8.44% 8.44% 8.44% 8.44%Colorado 2015 7.44% 7.44% 7.44% 7.44%Connecticut 2015 0.00% 0.00% 0.00% 0.00%D.C. 2015 0.00% 0.00% 5.75% 1.92%Delaware 2015 0.00% 0.00% 0.00% 0.00%Florida 2015 6.65% 6.65% 6.65% 6.65%Georgia 2015 6.96% 6.96% 6.96% 6.96%Hawaii 2015 4.35% 4.35% 4.35% 4.35%Iowa 2015 0.00% 0.00% 0.00% 0.00%Idaho 2015 6.01% 6.01% 6.01% 6.01%Illinois 2015 8.19% 8.19% 8.19% 8.19%Indiana 2015 0.00% 0.00% 0.00% 0.00%Kansas 2015 8.20% 8.20% 8.20% 8.20%Kentucky 2015 6.00% 6.00% 6.00% 6.00%Louisiana 2015 8.91% 8.91% 8.91% 8.91%Massachusetts 2015 6.25% 6.25% 0.00% 4.17%Maryland 2015 6.00% 6.00% 6.00% 6.00%Maine 2015 5.50% 5.50% 5.50% 5.50%Michigan 2015 0.60% 0.60% 6.00% 2.40%Minnesota 2015 0.00% 0.00% 0.00% 0.00%Missouri 2015 0.00% 0.00% 7.81% 2.60%Mississippi 2015 1.77% 1.77% 7.07% 3.54%Montana 2015 0.00% 0.00% 0.00% 0.00%NorthCarolina 2015 0.00% 0.00% 0.00% 0.00%NorthDakota 2015 6.56% 6.56% 6.56% 6.56%Nebraska 2015 6.80% 6.80% 6.80% 6.80%NewHampshire 2015 0.00% 0.00% 0.00% 0.00%NewJersey 2015 0.00% 0.00% 0.00% 0.00%NewMexico 2015 7.35% 7.35% 7.35% 7.35%Nevada 2015 7.94% 7.94% 7.94% 7.94%NewYork 2015 0.00% 0.00% 8.48% 2.83%Ohio 2015 0.00% 0.00% 0.00% 0.00%Oklahoma 2015 8.77% 8.77% 0.00% 5.85%Oregon 2015 0.00% 0.00% 0.00% 0.00%Pennsylvania 2015 0.00% 0.00% 0.00% 0.00%RhodeIsland 2015 7.00% 7.00% 7.00% 7.00%SouthCarolina 2015 7.13% 7.13% 0.00% 4.75%SouthDakota 2015 5.83% 5.83% 5.83% 5.83%Tennessee 2015 9.45% 9.45% 9.45% 9.45%Texas 2015 6.06% 6.06% 6.06% 6.06%Utah 2015 0.00% 0.00% 6.68% 2.23%Virginia 2015 5.63% 5.63% 0.00% 3.75%Vermont 2015 6.14% 6.14% 6.14% 6.14%Washington 2015 8.89% 8.89% 8.89% 8.89%

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State Year Wireless Wireline Cable AverageWisconsin 2015 5.43% 5.43% 5.43% 5.43%WestVirginia 2015 0.00% 0.00% 0.00% 0.00%Wyoming 2015 5.47% 5.47% 5.47% 5.47%USA 2015 4.18% 4.14% 4.57% 4.30%Alaska 2016 1.78% 1.78% 1.78% 1.78%Alabama 2016 6.73% 4.49% 6.73% 5.98%Arkansas 2016 9.30% 9.30% 9.30% 9.30%Arizona 2016 0.00% 0.00% 8.25% 2.75%California 2016 8.48% 8.48% 8.48% 8.48%Colorado 2016 7.52% 7.52% 7.52% 7.52%Connecticut 2016 0.00% 0.00% 0.00% 0.00%D.C. 2016 0.00% 0.00% 5.75% 1.92%Delaware 2016 0.00% 0.00% 0.00% 0.00%Florida 2016 6.66% 6.66% 6.66% 6.66%Georgia 2016 7.01% 7.01% 7.01% 7.01%Hawaii 2016 4.35% 4.35% 4.35% 4.35%Iowa 2016 0.00% 0.00% 0.00% 0.00%Idaho 2016 6.03% 6.03% 6.03% 6.03%Illinois 2016 8.64% 8.64% 8.64% 8.64%Indiana 2016 0.00% 0.00% 0.00% 0.00%Kansas 2016 8.60% 8.60% 8.60% 8.60%Kentucky 2016 6.00% 6.00% 6.00% 6.00%Louisiana 2016 9.00% 9.00% 9.00% 9.00%Massachusetts 2016 6.25% 6.25% 0.00% 4.17%Maryland 2016 6.00% 6.00% 6.00% 6.00%Maine 2016 5.50% 5.50% 5.50% 5.50%Michigan 2016 0.60% 0.60% 6.00% 2.40%Minnesota 2016 0.00% 0.00% 0.00% 0.00%Missouri 2016 0.00% 0.00% 7.86% 2.62%Mississippi 2016 1.77% 1.77% 7.07% 3.54%Montana 2016 0.00% 0.00% 0.00% 0.00%NorthCarolina 2016 0.00% 0.00% 0.00% 0.00%NorthDakota 2016 6.82% 6.82% 6.82% 6.82%Nebraska 2016 6.87% 6.87% 6.87% 6.87%NewHampshire 2016 0.00% 0.00% 0.00% 0.00%NewJersey 2016 0.00% 0.00% 0.00% 0.00%NewMexico 2016 7.51% 7.51% 7.51% 7.51%Nevada 2016 7.98% 7.98% 7.98% 7.98%NewYork 2016 0.00% 0.00% 8.49% 2.83%Ohio 2016 0.00% 0.00% 0.00% 0.00%Oklahoma 2016 8.82% 8.82% 0.00% 5.88%Oregon 2016 0.00% 0.00% 0.00% 0.00%Pennsylvania 2016 0.00% 0.00% 0.00% 0.00%RhodeIsland 2016 7.00% 7.00% 7.00% 7.00%SouthCarolina 2016 7.22% 7.22% 0.00% 4.81%SouthDakota 2016 5.84% 5.84% 5.84% 5.84%Tennessee 2016 9.46% 9.46% 9.46% 9.46%Texas 2016 6.06% 6.06% 6.06% 6.06%Utah 2016 0.00% 0.00% 6.69% 2.23%Virginia 2016 5.63% 5.63% 0.00% 3.75%Vermont 2016 6.17% 6.17% 6.17% 6.17%

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State Year Wireless Wireline Cable AverageWashington 2016 8.89% 8.89% 8.89% 8.89%Wisconsin 2016 5.41% 5.41% 5.41% 5.41%WestVirginia 2016 0.00% 0.00% 0.00% 0.00%Wyoming 2016 5.42% 5.42% 5.42% 5.42%USA 2016 4.22% 4.18% 4.61% 4.34%Alaska 2017 1.76% 1.76% 1.76% 1.76%Alabama 2017 6.76% 4.51% 6.76% 6.01%Arkansas 2017 9.30% 9.30% 9.30% 9.30%Arizona 2017 0.00% 0.00% 8.25% 2.75%California 2017 8.25% 8.25% 8.25% 8.25%Colorado 2017 7.50% 7.50% 7.50% 7.50%Connecticut 2017 0.00% 0.00% 0.00% 0.00%D.C. 2017 0.00% 0.00% 5.75% 1.92%Delaware 2017 0.00% 0.00% 0.00% 0.00%Florida 2017 6.80% 6.80% 6.80% 6.80%Georgia 2017 7.00% 7.00% 7.00% 7.00%Hawaii 2017 4.35% 4.35% 4.35% 4.35%Iowa 2017 0.00% 0.00% 0.00% 0.00%Idaho 2017 6.03% 6.03% 6.03% 6.03%Illinois 2017 8.64% 8.64% 8.64% 8.64%Indiana 2017 0.00% 0.00% 0.00% 0.00%Kansas 2017 8.62% 8.62% 8.62% 8.62%Kentucky 2017 6.00% 6.00% 6.00% 6.00%Louisiana 2017 9.98% 9.98% 9.98% 9.98%Massachusetts 2017 6.25% 6.25% 0.00% 4.17%Maryland 2017 6.00% 6.00% 6.00% 6.00%Maine 2017 5.50% 5.50% 5.50% 5.50%Michigan 2017 0.60% 0.60% 6.00% 2.40%Minnesota 2017 0.00% 0.00% 0.00% 0.00%Missouri 2017 0.00% 0.00% 7.89% 2.63%Mississippi 2017 1.77% 1.77% 7.07% 3.54%Montana 2017 0.00% 0.00% 0.00% 0.00%NorthCarolina 2017 0.00% 0.00% 0.00% 0.00%NorthDakota 2017 6.78% 6.78% 6.78% 6.78%Nebraska 2017 6.89% 6.89% 6.89% 6.89%NewHampshire 2017 0.00% 0.00% 0.00% 0.00%NewJersey 2017 0.00% 0.00% 0.00% 0.00%NewMexico 2017 7.55% 7.55% 7.55% 7.55%Nevada 2017 7.98% 7.98% 7.98% 7.98%NewYork 2017 0.00% 0.00% 8.49% 2.83%Ohio 2017 0.00% 0.00% 0.00% 0.00%Oklahoma 2017 8.86% 8.86% 0.00% 5.91%Oregon 2017 0.00% 0.00% 0.00% 0.00%Pennsylvania 2017 0.00% 0.00% 0.00% 0.00%RhodeIsland 2017 7.00% 7.00% 7.00% 7.00%SouthCarolina 2017 7.22% 7.22% 0.00% 4.81%SouthDakota 2017 6.39% 6.39% 6.39% 6.39%Tennessee 2017 9.46% 9.46% 9.46% 9.46%Texas 2017 6.06% 6.06% 6.06% 6.06%Utah 2017 0.00% 0.00% 6.76% 2.25%Virginia 2017 5.63% 5.63% 0.00% 3.75%

84

State Year Wireless Wireline Cable AverageVermont 2017 6.18% 6.18% 6.18% 6.18%Washington 2017 8.92% 8.92% 8.92% 8.92%Wisconsin 2017 5.42% 5.42% 5.42% 5.42%WestVirginia 2017 0.00% 0.00% 0.00% 0.00%Wyoming 2017 5.40% 5.40% 5.40% 5.40%USA 2017 4.25% 4.21% 4.64% 4.37%Alaska 2018 1.76% 1.76% 1.76% 1.76%Alabama 2018 6.83% 4.55% 6.83% 6.07%Arkansas 2018 9.41% 9.41% 9.41% 9.41%Arizona 2018 0.00% 0.00% 8.33% 2.78%California 2018 8.54% 8.54% 8.54% 8.54%Colorado 2018 7.52% 7.52% 7.52% 7.52%Connecticut 2018 0.00% 0.00% 0.00% 0.00%D.C. 2018 0.00% 0.00% 5.75% 1.92%Delaware 2018 0.00% 0.00% 0.00% 0.00%Florida 2018 6.80% 6.80% 6.80% 6.80%Georgia 2018 7.15% 7.15% 7.15% 7.15%Hawaii 2018 4.35% 4.35% 4.35% 4.35%Iowa 2018 0.00% 0.00% 0.00% 0.00%Idaho 2018 6.03% 6.03% 6.03% 6.03%Illinois 2018 8.70% 8.70% 8.70% 8.70%Indiana 2018 0.00% 0.00% 0.00% 0.00%Kansas 2018 8.68% 8.68% 8.68% 8.68%Kentucky 2018 6.00% 6.00% 6.00% 6.00%Louisiana 2018 10.02% 10.02% 10.02% 10.02%Massachusetts 2018 6.25% 6.25% 0.00% 4.17%Maryland 2018 6.00% 6.00% 6.00% 6.00%Maine 2018 5.50% 5.50% 5.50% 5.50%Michigan 2018 0.60% 0.60% 6.00% 2.40%Minnesota 2018 0.00% 0.00% 0.00% 0.00%Missouri 2018 0.00% 0.00% 8.03% 2.68%Mississippi 2018 1.77% 1.77% 7.07% 3.54%Montana 2018 0.00% 0.00% 0.00% 0.00%NorthCarolina 2018 0.00% 0.00% 0.00% 0.00%NorthDakota 2018 6.80% 6.80% 6.80% 6.80%Nebraska 2018 6.89% 6.89% 6.89% 6.89%NewHampshire 2018 0.00% 0.00% 0.00% 0.00%NewJersey 2018 0.00% 0.00% 0.00% 0.00%NewMexico 2018 7.66% 7.66% 7.66% 7.66%Nevada 2018 8.14% 8.14% 8.14% 8.14%NewYork 2018 0.00% 0.00% 8.49% 2.83%Ohio 2018 0.00% 0.00% 0.00% 0.00%Oklahoma 2018 8.91% 8.91% 0.00% 5.94%Oregon 2018 0.00% 0.00% 0.00% 0.00%Pennsylvania 2018 0.00% 0.00% 0.00% 0.00%RhodeIsland 2018 7.00% 7.00% 7.00% 7.00%SouthCarolina 2018 7.37% 7.37% 0.00% 4.91%SouthDakota 2018 6.40% 6.40% 6.40% 6.40%Tennessee 2018 9.46% 9.46% 9.46% 9.46%Texas 2018 6.06% 6.06% 6.06% 6.06%Utah 2018 0.00% 0.00% 6.77% 2.26%

85

State Year Wireless Wireline Cable AverageVirginia 2018 5.63% 5.63% 0.00% 3.75%Vermont 2018 6.18% 6.18% 6.18% 6.18%Washington 2018 9.18% 9.18% 9.18% 9.18%Wisconsin 2018 5.42% 5.42% 5.42% 5.42%WestVirginia 2018 0.00% 0.00% 0.00% 0.00%Wyoming 2018 5.46% 5.46% 5.46% 5.46%USA 2018 4.28% 4.24% 4.67% 4.40%

(*)Datafor2010excludesAlaskaandHawaii