Verizon has shortchanged the city of Baltimore and Anne Arundel and Baltimore counties at least $7 million in taxes in the past year, and more than a half-million telephone customers will have to make up the difference.
Company officials acknowledge they made a mistake when they began reformatting bills last year.
The company failed to charge, collect and pass on a tax on local telephone service levied by the three jurisdictions.
The problem began in July but wasn't noticed until months later, as its effects compounded.
Consumers have received lower bills, but the local governments still want their money.
So Verizon needs to figure out how much customers owe and collect it from them, probably this year.
The three governments estimate that by the time their fiscal years end June 30, they will be short a combined $7.2 million in local phone sales taxes.
The tax rate is 12 percent in Baltimore, and 8 percent in Baltimore and Anne Arundel counties.
A customer with a $25 local phone bill would pay $3 or $2 in taxes each month, depending on where the customers lived.
If the error cropped up six months ago - the length of time varies because the new bills are being phased in - the customer will have to pay an additional $18 or $12.
Verizon officials say they hope to spread the extra payments over three to six months, but no solution has been made final.
The problem "actually occurred last July but didn't come to our attention until late last year," said Sandra Arnette, a Verizon spokeswoman.
"We've had to go in and fix some of the coding. We expect that the problem will be corrected by early summer," she said.
"Verizon will sit down with the city and county officials and we will plan the best course of action.
"We will let them play an important role in determining how we back-bill customers. They eventually will be billed for that tax that they should have been paying all along."
The problem was slow in surfacing because the company has rolled out its new bills gradually.
In July and August, a few customers were paying bills without the tax. But the number has steadily grown.
About 560,000 of the roughly 800,000 customers in the city and the two counties have been sent the revised bills, and the number is increasing each month.
In Maryland, only Baltimore, Baltimore County and Anne Arundel County levy the tax.
The shortfall is getting public attention for the first time as officials of those three governments scrutinize revenues and expenditures for the budget year that begins July 1.
Members of the Baltimore County Council learned during a budget hearing this week that instead of the $11.3 million in telephone tax revenue the county was expecting in the year that ends June 30, it will receive $8.25 million.
The news angered County Councilman Vincent J. Gardina, a Perry Hall Democrat who thinks Verizon should be penalized. Taxpayers are losing money, he said, because the revenue could have been invested to earn short-term interest.
"A company like that, that brings in billions of dollars a month in phone revenues, should have a better management system in place," Gardina said.
"They should pay the back taxes, and be charged interest and a penalty."
Baltimore officials say that instead of $12.3 million, they are on a pace to receive $9 million.
Edward J. Gallagher, deputy city finance director, said he has not been satisfied with Verizon's response.
"We're not sure when this issue will be resolved or how it will be resolved," Gallagher said.
Company officials "just have to decide how they are going to deal with the problem," he said. "There will come a time when we need to get down to specifics."
Gallagher said the shortfall is not affecting operations in the cash-strapped city. "I think we'll be all right because [the city has] other revenues that came in over budget that will offset the loss," he said.
Arundel affected least
Anne Arundel has suffered the least. County officials expect to collect $5 million in telephone receipts, down from an anticipated $5.9 million.
"The only thing we've been told is there's a billing error on their part," said William H. Hagedorn, assistant county comptroller. "I wish I could tell you more, but I just don't have any specifics.
"This has never happened before. Not in the local sales tax area."
Arnette, the Verizon spokeswoman, said the new bills are being introduced from New Jersey to Virginia and are designed to display charges better.
The company's billing system is so complex, she said, that corrections take time.
"It's not just going in and making a quick fix," she said. "The system itself is so complicated."
Arnette said Verizon has not talked with government officials about penalties or lost interest.
"We'll cross that bridge if and when we get to it," she said.