A wide range of state and local government representatives met yesterday with communications industry officials in the first of a series of meetings designed to forge an alternative to the current telecom taxation system, which all participants agreed is outdated.

Virginia Gov. Mark Warner, chairman of the National Governors Association (NGA) executive committee, said the goal of the “unprecedented event” is to establish an industry-government plan for the future taxation of communications services during the next two months. Such an agreement could then be proposed to Congress or state governments as appropriate.

“If we can find agreement on the principles, the implementation can be handled,” Warner said during a press conference following the meeting.

But reaching an agreement on the complex item will be a “big challenge,” Warner said, noting that the matter has been debated for years.

At issue are state and local governments’ taxation practices in relation to communications services. Telecom carriers have long complained that telecom is taxed more than all business sectors except the so-called “sin” industries of tobacco and alcohol.

Telecom officials maintain this level of taxation is a competitive disadvantage, causing their services to cost consumers more to use than those offered via functionally similar alternative technologies.

“In some cases, [state and local taxes] are excessive; in some cases, they are unfair; and, in the future, some of them may not be collectable,” Tom Tauke, Verizon Communications’ said. “That calls for reform.”

This consumer migration from taxable legacy telephone services to wireless and voice-over-IP offerings is problematic for taxing entities, as well. For decades, taxation and right-of-way/franchise fees have produced steady streams of revenue for state and local governments—more than $18 billion annually, according to Tauke. Customer migration to technologies that are not subject to these taxes are causing state and local governments to seek a more sustainable revenue source.

Such a strategy is particularly important with the expected widespread adoption of VoIP. The portability of VoIP products blur the jurisdictional lines that dictate which entity should be allowed to levy a tax on the service. Furthermore, the FCC has ruled that VoIP is inherently interstate, which could jeopardize the ability for state and local governments to tax voice services at all. The actual content of the meeting was not divulged in any detail.

Warner said principles to be discussed were outlined but declined to release them. He characterized the discussion as “very free-wheeling” and that all issues are expected to considered, including right-of-way and franchise fees, which technically are not taxes but are viewed by the industry as the equivalent of taxation.

Representing state and local governments at the meeting were the NGA, the National Conference of State Legislatures, the National Association of Counties, the National League of Cities, the United States Conference of Mayors, the Council of State Governments and International City/County Management. Industry representatives included ILECs, long-distance carriers, mobile wireless providers, cable operators and Internet service providers such as AOL and Microsoft.

Although not binding, the expressed desire to resolve taxation issues in two months is expected to be welcome news to telecom carriers. Last week, one RBOC source expressed concern that the government participants might try to use the series of meetings to effectively delay a resolution of the taxation matter, which is expected to be a focal point of any Congressional effort to revamp the Telecommunications Act.