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by: Wireline Competition Bureau

February 22, 2013

Please provide comments to the issue below as part of the 2012 WCB cost model virtual workshop for inclusion in the record. Comments are moderated for conformity to the workshop’s guidelines.

Background

The second version of the Connect America Cost Model (CACM v2.0) assumes an average federal corporate income tax rate of 34 percent and an average state corporate income tax rate of 5.3 percent. Parties who have signed the Third Supplemental Protective Order may view how these income tax values are used in CACM v2.0 by accessing the model, selecting the “Posted Data Sets” option, and visiting the “Capital Cost Inputs” tab of the “CQCapCostForCACM” capital cost model.

For property taxes, CACM v2.0 uses a set of state-specific factors that are applied to general and administrative (G&A) costs, which are calculated as an operating expense. G&A costs include property tax. The factors are designed to reflect the difference in property tax rates across the states, based on information obtained from Duff & Phelps, LLC, a large national company that handles property tax assessments for telecommunications carriers. The state-specific factors are applied against the G&A costs, which are calculated as an operating expense. Parties who have signed the Third Supplemental Protective Order may view the state-specific factors by accessing the model, selecting the “Posted Data Sets” option, and visiting the “Ptax V3” table in the “Inputs Collection.” To see how CACM applies the state-specific property tax factors, these parties may select the “Posted Data Sets” option and visit the “Telco Opex” tab of the “OpexV4” table in the “Inputs Collection.”

Questions for Comment

  1. Are the average federal and state corporate income tax rates assumed by CACM v2.0 reasonable? Should the Bureau use these income tax input values when it adopts the final version of the CACM?
  2. Is CACM v2.0’s use of state-specific property tax factors reasonable? Should the Bureau use these property tax input values when it adopts the final version of the CACM?
  3. To the extent any commenter argues either income tax or property taxes should be addressed differently in the final version of the model, they should describe in detail their proposal and supply specific input values to be used.

Sources

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