Wireless Service Taxes Now Double Sales Taxes

Wireless Service Taxes Now Double Sales Taxes
May 19, 2011

Wireless telecom customers are paying a combination of federal, state and local taxes on their bills that often far exceed the retail sales tax rate, according to Scott Mackey, partner with KSE Partners in Montpelier, Vermont.

At the top are Nebraska (a combined tax rate of 23.69 percent) and Washington (a combined rate of 23 percent). New York, Florida and Illinois are the other states in the top five in terms of highest combined tax rates on cell phones and other wireless services.

Wireless consumers in Oregon, Nebraska, Idaho, Montana and West Virginia pay the lowest combined rates.

‘Twice the Sales Tax Rate’
“Wireless users now face a combined federal, state and local tax and fee burden of 16.9 percent, a rate two times higher than the average retail sales tax and the highest wireless rate since 2005,” Mackey wrote in a recent report on the growing burden of taxes and fees on wireless service.

“The recent increase in rates is mostly attributable to the rapid growth in the rate of the federal Universal Service Fund (USF) charge.”
USF increases have added 0.9 percent to the rate since 2007, according to Mackey.

“There’s no one single reason why this is happening. Just about every level of government can add taxes to the wireless bills. When so many different levels of government can levy taxes, it creeps up over time. It really adds up,” Mackey says. “The problem is a lot of consumers don’t know what they are paying in taxes. So they haven’t gotten to the point of outrage yet. Until consumers start being educated about what they are paying, they won’t reach the level of outrage” that could prompt governments to end the escalation of these taxes.

One place where consumers can learn more about wireless taxes is www.mywireless.org, which provides consumers with information on the different taxes they are paying on bills. The site also helps taxpayers communicate with elected officials in order to express concerns about wireless taxes and other issues.

Not Like Old Monopolies
Legislators tend to look at wireless as a “cash cow” that they can tap whenever they need additional funds, said Jim Kranjc, principal and telecom practice leader in the Pittsburgh office of Ryan Inc., a global tax practices firm.

“Most legislators continue to look at wireless companies as they did at landline companies, which at one time were monopolies that [legislators] could control through rate regulations and could tax heavily,” Kranjc said. “Wireless companies are independent and offer highly competitive services, but the government continues to look at them like utilities and thinks they need to be taxed in the same way.”

But such high tax rates are impeding growth of the industry and are hurting consumers, many of whom have opted to drop a landline and have only a wireless phone, according to Kranjc.
“A person can end up paying more in taxes and fees than the cost of service for a second line. Wireless phones are needed for safety concerns. They are extremely helpful in emergency situations.”

Moratorium Proposal
Kranjc has hopes for legislation in the House and the Senate -- the Wireless Tax Fairness Act of 2011 (S. 543 and H.R. 1002)  -- which would put a five-year moratorium on these discriminatory taxes and fees.

“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 [on average],” said Steve Largent, president and CEO of CTIA-The Wireless Association, in a recent blog post.

“When you add the fact that policymakers are looking for ways to make affordable broadband accessible for all Americans, it’s incomprehensible why 47 states and the District of Columbia charge their wireless consumers a rate that exceeds the general rates for other taxable goods and services,” Largent wrote.

‘Tired of Being Gouged’
“State tax policies are at cross-purposes with economic development,” said Rick Hoffman, managing director of Mobilocity, a mobile productivity company based in Everett, Washington. “High taxes discourage use, yet government says that it is trying to encourage industry to expand wireless. The government is subsidizing different services and saying they want more of this, and on the other hand they are discouraging use through high taxes.”

Hoffman points out that businesses are large users of this technology, but he says high taxes slow the addition of wireless devices and any business growth that would occur as a result of their use.

The wireless fees on consumer bills aren’t the only revenues the government derives from the wireless business, notes Scott Testa, associate professor of business at Cabrini College, Philadelphia, Pa.

“Between the high taxes on services, taxes on cell towers and spectrum auctions, the wireless business generates a lot of income for the government. When things are good, people really don’t notice. But people notice in a weak economy. Consumers are tired of being gouged.”

Phil Britt (spenterprises@wowway.com) writes from South Holland, Illinois.

Internet Info

“A Growing Burden: Taxes and Fess on Wireless Service,” by Scott Mackey: http://www.budgetandtax-news.org/article/29937.