According to CTIA, an international nonprofit membership organization representing the wireless communications industry, as of June 2012 around 322 million wireless subscriber connections exist in the United States alone. Wireless phone services are quickly becoming the primary phone carrier for Americans, today about 34 percent of U.S. households are wireless-only, and this number is on the rise.
Growing almost as fast as the wireless industry are the fees and taxes paid by wireless phone users. Even as revenue earned per wireless phone line decreases, taxes and fees have continued to grow. In a new report, Scott Mackey of KSE Partners examined the burden to wireless phone user created by the taxes and fees added on to their monthly phone bill. Mackey’s report found that the taxes and fees paid by wireless user have maintained a steady upward trend, increasing from 16.26 percent in July 2010 to 17.18 percent in July 2012.
“The tax and fee burden on wireless consumers continued its steady upward march between 2010 and 2012. The average burden on consumers increased from 16.26 percent in July 2010 to 17.18 percent in July 2012, a 5.5 percent increase in just two years. Wireless consumers now pay the highest combined tax and fee burden since I began tracking rates in 2003, more than 3 percentage points above the 14.13 percent rate in 2007, which marked the low point for wireless taxes and fees during the last decade.”
Mackey found that wireless fees were increasing across almost all taxing levels; the report found that state and local wireless taxes and fees rose from 11.21 percent to 11.36 percent from 2010 to 2012. All told, the average amount that wireless users paid in taxes, fees and surcharges per month increased from $7.84 to $8.07.
While Mackey noted the increased state and local wireless taxes has a growing issue, he argued that the real culprit behind the increased wireless tax burden over the last two years is the federal Universal Service Fund (USF). Mackey noted the rapid growth in the USF surcharge and that it has grown to the point where it actually slows wireless development.
“However, the primary source of the growing wireless consumer burden during the last two years is the continued increase in the federal Universal Service Fund (USF) contribution rate and the corresponding surcharge imposed on consumers to cover that obligation. The federal USF surcharge has nearly tripled over the last decade, from 2.07 percent in 2003 to 5.82 percent in 2012. In fact, the 5.82 percent federal USF rate in 2012 almost exceeds the combined federal rate imposed in 2005, when the 3 percent federal excise tax still applied to wireless service.”
Mackey concludes the report by recommending against tax increases on wireless services, arguing that they slow wireless development. Instead of imposing narrow wireless taxes, he favors broad based taxes that encourage development of new technology and do not effect consumer choices.
“Higher taxes on wireless service, coupled with increased taxes on wireless investments, may lead to slower deployment of wireless network infrastructure, including 4G wireless broadband technologies that an increasingly mobile workforce relies on for economic success.
States should study their existing communications tax structure and consider policies that transition their tax systems away from narrowly based wireless taxes and toward broad-based tax sources that do not distort consumer purchasing decisions and do not slow investment in critical infrastructure like wireless broadband.”
Mackey’s report brought quick reactions from several technology experts. CTIA President Steve Largent argued that the increasing wireless taxes paid by consumers have led to the need for substantial communications tax reform. On his CTIA blog Largent cited Mackey’s report and called for the passage of the Wireless Tax Fairness Act.
“This is a truly troublesome trend, which is why we are advocating for the U.S. Senate to pass the Wireless Tax Fairness Act (S. 543). The U.S. House already passed the bipartisan bill last year, but we need the Senate to do the same so millions of wireless customers can get some much needed financial relief.”
The Wireless Tax Fairness Act is a legislative proposal that would put a moratorium on discriminatory state wireless phone and data service tax increases. The bill would create a five year freeze of any new taxes and fees on specific communications services. While this wouldn’t prevent governments from creating new taxes and fees on all communications, it would disallow them from targeting any one service. A five year freeze would both slow the rate of tax increases while allowing for adequate time to create a new taxing system for wireless that is more carefully developed, fair and non-disruptive.
Mackey’s report, “Wireless Taxes and Fees Continue Growth Trend” is available online here: http://heartland.org/policy-documents/wireless-taxes-and-fees-continue-growth-trend