Wireless
Phone Taxes
For
many companies, the wireless portion of
telecommunications bills is a significant
segment of their overall monthly telecom
expenditures. Despite the fact that wireless
rates have dropped over the past five
years, the taxes portion of wireless bills
has increased dramatically.
Like
it or not, taxes for wireless phone service
far exceeds the tax rate for other consumer
goods and services - even alcohol and
tobacco! Federal, State and Local taxes
on a typical wireless bill can vary from
10% to as high as 24% or more of the total
monthly service charges depending on the
state the customer resides.
Why
are wireless taxes so out of control?
One
reason is that everyone wants a piece
of the pie. Federal, State, and Local
municipalities all contribute to the total
taxes customers pay each and every month
for wireless services. Nearly six years
after the National Conference of State
Legislatures (NCSL) urged state leaders
to begin to reform their telecommunications
taxes, most states have done little to
ease the wireless tax burden for customers
- and some have added more.
If
you are not familiar with the specifics,
the following are just a few of the many
taxes that are in place to help drive
up your wireless bill.
Federal
Excise Tax - The infamous federal
excise tax was signed into law in 1898
to help fund the Spanish American war.
Since virtually no one had phones in 1898
(except the wealthy) the tax was originally
designed as a luxury tax. 108 years later,
wireless customers still pay a 3% federal
excise tax on monthly bills.
Federal
Regulatory Fee - The introduction
of local number portability created this
federal tax. It is intended to cover local
number portability costs and other regulatory
license fees and charges that are incurred
by the carriers. This fee can vary significantly
from carrier to carrier. It is often found
in the surcharges section of the wireless
bill and not the taxes and fees section.
Federal
Universal Service Fee - The federal
government imposes this tax to promote
affordable telecommunications to all Americans
-- including low income consumers, schools,
libraries, etc. The fee is actually imposed
upon the carriers who then have the option
to pass the costs along to the consumer.
As you would guess nearly all carriers
typically recover this tax on monthly
wireless bills either as a fixed charge
or as a percentage of revenue based on
what they have estimated the total cost
will be to meet this requirement.
State
Universal Service Fee - Some states
impose a State Universal tax right along
with the Federal Universal tax. As with
the federal tax of the same name this
fee can either be levied on to the carrier
or directly onto the wireless bill of
the customer.
State
911 fees - All but five states impose
a 911 fee to help fund state and local
emergency communications systems. The
amount of this tax can vary greatly from
state to state.
State
and Local Excise Taxes - For states
that do not have a sales tax such as Montana,
New Hampshire or Delaware, an excise tax
on wireless service is imposed. This category
of taxes is placed directly on the wireless
customer bill and can be found in the
taxes and fees section of the bill.
Wireless
Taxes with Percentages By State
Just
how much does your wireless bill go towards
taxes? The following table of state listings
will give you a good idea of the total
amount of taxes in percentage of the monthly
wireless bill. (in descending order)
|
New York - 21.71%
Florida - 21.60%
Washington - 21.52%
Illinois - 21.05%
Nebraska - 20.61%
Texas - 19.67%
Rhode Island - 19.55%
Pennsylvania - 19.05%
California - 18.66%
District of Columbia - 18.05%
South Dakota - 17.49%
Tennessee - 17.05%
Missouri - 16.60%
Arizona - 16.54%
North Dakota - 16.42%
Wyoming - 16.15%
Kansas - 15.80%
Utah - 15.73%
|
Arkansas
- 15.69%
Kentucky- 15.46%
Indiana - 15.10%
Oklahoma- 15.06%
Colorado - 14.85%
Mississippi - 14.55%
Minnesota - 13.58%
New Hampshire - 13.35%
Virginia - 13.23%
North Carolina - 13.13%
Georgia- 13.12%
New Mexico - 13.11%
Ohio - 13.11%
Alabama - 12.93%
Vermont - 12.75%
Maryland - 12.55%
Michigan - 12.55%
|
Iowa - 12.01%
Maine- 12.01%
South Carolina - 11.98%
Connecticut- 11.89%
Hawaii - 11.62%
New Jersey - 11.48%
Massachusetts- 11.11%
Wisconsin - 11.03%
Delaware- 10.97%
Montana- 10.47%
Louisiana - 9.87%
Alaska - 9.53%
Oregon - 7.75%
Idaho- 7.71%
West Virginia- 7.42%
Nevada - 6.62%
|
Who
is to blame?
From
the perspective of state and local governments,
wireless and telecommunications taxes
in general are an important source of
revenue. The concern of state and local
municipalities is that federal legislation
to cut or eliminate certain state and
local wireless taxes would have a far-reaching
impact on this important and much-needed
source of revenue.
From
the perspective of the telecommunications
industry, the escalating taxes on telecommunications
services as compared with other goods
and services is just not sustainable.
Moreover,
the foreseeable future will bring additional
products and services directly to wireless
devices. Wireless customers are already
beginning to download video clips, games,
music and other digital products and services.
State and local governments that begin
taxing these types of transactions will
meet with even more protest from customers
and carriers alike.
The
convergence and popularity of new communications
technologies (VoIP) will pressure states
and local governments to begin to confront
the over taxation of wireless customers.
Not only will this type of tax reform
help the pocketbooks of consumers and
businesses, it will also encourage additional
investment incentives for companies to
lay the groundwork for the telecommunications
networks of the future.
Who
is tax exempt?
Payments
for certain services or payments from
certain users could be exempt. Charities,
churches, schools, nonprofit educational
and hospital operations, certain other
entities that receive government funding,
foreign counselor operations, and others,
may be exempt from state and/or federal
taxes on wireless services.
To
understand the specific services that
are exempt from federal tax, refer to
the Internal
Revenue Service publication 510 entitled
Communications Tax. This publication is
very specific as to what taxes are federally
imposed and which are exempt.
How
to duck cell phone taxes...
Can
you reduce your taxes on your wireless
phone without packing and moving to a
state such as Idaho or Nevada? Yes and
no. Although we don't recommend this method,
you could do
what this Forbes writer did to significantly
reduce his wireless taxes.
