Cell Phone Taxes Are Three Times Higher Than Sales Taxes

Consumers currently pay about $92 a year on average, or 16.3% of their total bill (compared to 7.4% for other goods and services), in local, state and federal taxes as part of their cellphone plan -- the highest amount ever. That's up from a 14.1% tax rate in 2006. Many states and local municipalities are facing budget shortfalls and looking for new ways to raise revenue. Taxes vary by location, but residents in at least five states, including Florida, Illinois and Washington, get hit with rates that account for more than 20% of their wireless bill. Some municipalities raised taxes by 3% to a whopping 75%. In Baltimore, for example, taxes and fees account for 27% of the average customer's wireless bill, while in New York they account for about 20%. [Source]

Federal Universal Service Charge: Congress has mandated that all telephone companies providing interstate service must contribute to the USF. Although not required to do so by the government, many telephone carriers choose to pass their contribution costs on to their customers in the form of a line item, often called the “Federal Universal Service Fee” or “Universal Connectivity Fee.” [Source]

Consumer Cell Phone Taxes Are Three Times Higher Than Sales Taxes

May 13, 2011

American Consumer Institute - As state budget woes grow and politically viable solutions shrink, state legislators often turn to hidden taxes and fees for extra revenue. Nowhere is this as evident as it is in on your cell phone bill, especially if you live in Nebraska (18.64%), Washington (17.95%), New York (17.78%), or any of the other 23 states that now impose wireless taxes of greater than 10%.

The average wireless consumer faces taxes and fees amounting to more than 16% of their bill. These taxes are considered by most experts to be regressive information taxes, disproportionately affecting those in the greatest need.

The out of control taxes on cell phone bills more than double the average tax on other taxable goods and services.

The Wireless Tax Fairness Act of 2011 – spearheaded by Reps. Zoe Lofgren (D-CA) and Trent Franks (R-AZ) and Sens. Ron Wyden (D-OR) and Olympia Snowe (R-ME) – promises a five-year “catch your breath” moratorium on state and local wireless taxation. The intent is to freeze the out-of-control taxation long enough to wait out the current fiscal crisis, taking away the crutch some states are using to fill their budget holes. The bill is the third such attempt in five years, but also marks the most robust and popular version. In her remarks, Rep. Lofgren said:

“By freezing wireless taxes and fees, we hope to spur additional consumer driven development in wireless broadband and to increase access to advanced wireless networks. This legislation is about stabilizing the wireless and giving consumers the opportunity to choose services based on the merits and not on the changing rate of taxation.”

The state taxes in questions come in addition to (and often mirror) federal programs like the Universal Service Fund, which taxes all consumers cell phone bills and spends the money to increase access to the poor and rural areas. The problem is that the Universal Service Fund (and daughter programs in the states) loses in bureaucracy far more than it could gain in providing access.

One study found that money spent from the federal Universal Service Fund saw less than 41 cents of every dollar actually used in building infrastructure, its intended use. The remaining 59 cents of every dollar were lost in bureaucracy and administrative costs.

A wireless association executive, CTIA’s Steve Largent, says that increased taxes are incomprehensible in a time of economic downturn:

“In light of today’s challenging economic conditions it is hard to understand why the average wireless consumer is being charged more than 16 percent in taxes and fees when other taxable goods and services are only 7.4 percent.”

As Largent goes on to illustrate, increased wireless taxes seem to completely contradict the espoused goals of policymakers looking to expand broadband Internet access to all Americans.

Wireless taxes are especially troublesome because of not only what they limit, but whom they limit it. As wireless Internet grows in popularity, it becomes for many the only portal to the Internet. Recent studies show that minorities and the impoverished are far more likely to depend on wireless service as both their primary method of communication and their primary method of Internet access.

It’s rare to see Washington politicians saving us from overreaching state governments, but this seems to be the case here. If Congress really wanted to get serious about spurring innovation, the adoption of wireless services and expand Internet access to everyone, they might consider lowering federal cell phone taxes while they’re at it. One miracle at a time.

The Wireless Tax Fairness Act is a fine start, but as Scott Mackey points out, much of the damage has already been done. Forty-seven states already levy taxes and fees on wireless customers greater than the average good or service.

A moratorium on taxes gives consumers time to catch their collective breath, but it’s up to legislators to look at ways to cut these regressive taxes back down to size. Doing so will undoubtedly spur innovation in the fastest-growing sector of the economy and begin to make high-speed Internet accessible to everyone.

Wireless Phone Taxes Must Go

July 1, 2011

Daily Caller - ...Economists of all political persuasions typically recommend adherence to the principle of tax neutrality, which holds that taxes should treat economic activities equally in order to have similar effects across consumers. In other words, taxes should be broadly applied at a low rate rather than applied to just a handful of goods at a high rate.

And make no mistake: cell phones are taxed at an inordinately high rate. The federal government charges a 5.5 percent fee on the voice portion of your cell phone bill to support the Universal Service Fund, which subsidizes phone service to low-income and rural households as well as schools and libraries. State and local governments tack on additional fees, averaging almost ten percent nationwide, ranging from a low of just 1.84 percent in Oregon to a staggering 18.64 percent in Nebraska.

As a result, cell phone service is taxed at an average combined rate of 15.4 percent, according to calculations by economist Scott Mackey. Compare this with sales taxes, which average just 6.83 percent nationally (in part because the federal government collects no sales tax). This rate is simply economically unjustifiable.

These high taxes disproportionately affect lower-income households. When policymakers enacted cell phone taxes, wireless telephony was seen as the exclusive domain of the wealthy and privileged — think of the stereotypical 1980s Wall Street executive holding a brick-sized cell phone to his cheek.

This is obviously no longer the case. In the last decade, the number of cell phones in the United States has almost tripled. By 2009, a quarter of American households had only cell phones and no land lines. And poor households are almost twice as likely as non-poor households to only have cell phones.

Moreover, Congress has made expanding high-speed Internet access a policy priority. But because cell phones increasingly also offer Internet access, taxing wireless telephony runs counter to that policy.

According to a 2010 survey by the Pew Internet and American Life Project, 40 percent of American cell phone users report using their cell phones to go online. Eighteen percent of African-American respondents and 16 percent of English-speaking Hispanic respondents said their cell phones were their only means of accessing the Internet.

Virtually everyone agrees that increasing access to the Internet — whether through cables to your desktop or wireless signals to your pocket — is a good thing. But taxing wireless phone service will have the opposite effect.

If states are serious about improving their tax codes, they would do well to consider scrapping excise taxes on cell phone service and to avoid adding any new taxes to wireless Internet or data services.