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Wireless tax rates have reached all-time highs. Almost half the states nationwide now impose a wireless tax above 10 percent. According to a new report released this morning by the Tax Foundation, the national average, consisting of the combined federal, state, and local taxes and fees on cell phone bills, has now reached as high as 17.05 percent. Broken down, this historically high tax rate is comprised of a 5.82 percent federal rate and an average 11.23 percent state-local rate. Even as revenue earned per wireless phone falls, taxes and fees continue to climb.
In a media release on the study, Joseph Henchman, Vice President of Legal & State Projects at the Tax Foundation argues that state and local legislators should look away from wireless taxes for new tax revenue.
“Accessing content on our phones these days is easier than ever before, but paying cell phone bills remains difficult for many,” said Joseph Henchman, Tax Foundation Vice President of Legal & State Projects. “Instead of singling out wireless services with stealth tax increases, state and local governments should seek more neutral and less disruptive sources of revenue.”
According to CTIA, a wireless industry trade group, around 326 wireless device connections exist in the United States today (this number includes devices like smartphones, feature phones, tablets and personal wireless hotspots). In addition, according to the National Center for Health Statistics, around 41% of U.S. households have only wireless phones in the second half of 2013, indicating a move away from traditional landlines.
Scott Mackey of KSE Partners, co-author of the report argues in the media statement that wireless taxes are regressive and pose a threat to wireless network development.
“Wireless taxes and fees are regressive and have a disproportionate impact on poorer citizens,” said Scott Mackey of KSE Partners and co-author of the report. “Excessive taxes and fees may reduce low-income consumers’ access to wireless service at a time when such access is critical to economic success.”
Additionally, targeted cell phone taxes may slow investment in wireless infrastructure by lowering consumer demand for wireless service. “The reduced demand impacts network investment, because subscriber revenues ultimately determine how much carriers can afford to invest in network modernization,” adds Mackey.
In the report, Wireless Taxation in the United States 2014, the authors examined state, local and federal wireless taxes, creating state and local tax rankings. Below is a review of some of these findings:
The report finds that:
The five states with the highest state-local rates are: Washington State (18.6 percent), Nebraska (18.48 percent), New York (17.74 percent), Florida (16.55 percent), and Illinois (15.81 percent).
The five states with the lowest state-local rates are: Oregon (1.76 percent), Nevada (1.86 percent), Idaho (2.62 percent), Montana (6.00 percent), and West Virginia (6.15 percent).
Four cities—Chicago, Baltimore, Omaha, and New York City—have effective tax rates in excess of 25 percent of the customer bill.
The average rates of taxes and fees on wireless telephone services are more than two times higher than the average sales tax rates that apply to most other taxable goods and services.
States favor the taxes because they can raise revenue in a relatively hidden way.
With wireless taxes growing out of control, legislators should take another look at Wireless Tax Fairness Act, a bill designed to slow the growth of these taxes. The Act would put a five-year moratorium on discriminatory state wireless phone and data service tax increases. Although 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 slow the rate of tax increases while allowing more time to create a new taxing system for wireless that is more carefully developed, fair, and non-disruptive.
High wireless taxes drag down both consumers and the wireless market, deterring innovation and infrastructure improvements, while disproportionately affecting minority and low-income populations. Many of these groups support lower wireless taxes. As an example, according to a MyWireless study conducted by McLaughlin & Associates partnered with Penn Schoen Berland, nine in ten Hispanics believe the wireless tax rate should be the same or less than the taxes they pay on general goods and services.
Placing a moratorium on these discriminatory tax hikes would benefit the economy and consumers.