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Will South Dakota stop traffic pumping?
There is an old adage that says nothing in life is free. You know those advertisements you see for free internation calls and pornographic chat lines? There’s actually a huge cost for those services. Unfortunately, millions of wireless subscribers like you help to pay for them through higher bills because of a practice known as access stimulation or “traffic pumping.”
Traffic pumping is the practice of artificially moving traffic onto a local exchange carrier (LEC). Traffic pumping takes place when an LEC enters into an arrangement with a calling company to carry “free services” over the LEC’s network. But because federal law requires that wireless and long-distance carriers reimburse LECs for calls on the network, the LECs take advantage of the increase in traffic and assess high fees on the wireless and long distance carriers. Consumers are ultimately the ones who must pay these fees through higher telephone bills. What’s more, the LEC pays the calling company a kickback for the increased traffic.
By one estimate, traffic pumping costs wireless consumers $190 million per year. The problem is now so serious that the Federal Communications Commission has called for efforts to address traffic pumping because it threatens to undermine the very basis of compensation for services in the telecommunications system. South Dakota appears to have heard the call for action, so much so that several senators have introduced Senate Bill 87. The bill would explicitly prohibit LECs from assessing charges certain “access stimulation” for traffic pumping. Unfortunately, the bill has become mired in a committee.
As we said in a letter to the Senate regarding SB 87, “regulations on both the telecommunications marketplace and the interaction among providers should be streamlined and kept to a sensible minimum. However, neither should those regulations create distortions that artificially impede upon the efficiency of the telecommunications sector nor impose higher prices on consumers.” SB 87 addresses these issues. Let’s hope that the Senate gets the message that this is not a narrow problem but a serious issue that needs action now.
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Wireless Taxes on the Rise
Most of us know that wireless phones are indispensible tools for businesses and individuals today. Unfortunately, it does not appear that most elected officials got the message to that effect.
A new report published in State Tax Notes shows that, after several years of relative stability, taxes and fees on wireless service are on the rise again. Wireless users now pay a combined federal, state, and local tax and fee burden of 16.3%, twice the rate of the average retail sales tax and the highest wireless rate in six years.
Nebraska, with a combined rate of 23.69%, continues to hold the dubious honor of “the nation’s highest wireless tax state,” followed by Washington (23%), New York (22.83%), Florida (21.62%), and Illinois (20.90%). The states with the lowest combined wireless tax rates are Oregon (6.86%), Nevada (7.13%), Idaho (7.25%), Montana (11.08%), and West Virginia (11.28%).
According to Scott Mackey, the economist who authored the report, most states have not increased wireless-specific rates, but rather have expanded sales taxes to more wireless services and goods. But at the same time, many local governments have aggressively imposed new and higher taxes and fees on wireless users. For example, the City of Baltimore and Montgomery County, both in Maryland, raised the per-line tax by 50 cents and $1.50, respectively, a burdensome cost for families who use multiple phone plans. Additionally, the City of Lincoln, Nebraska increased the business telecommunications license tax from 5.5 to 6 percent, which means that someone spending $48 per month on wireless service (the industry average) pays $11.35 just in taxes, fees, and surcharges before paying the cost of the service.
With states and cities in fiscal dire straits, there will be
a strong temptation to raise wireless taxes and fees. This is a shame because
as wireless taxes and fees increase, the cost of using those
goods and services also increases, which could slow economic activity.
Fortunately, as wireless consumers learn more about the tax burdens they must
pay, they have become more outspoken against higher burdens to pay for reckless
spending by government. Hopefully, this new report will encourage more
consumers to speak out and elected officials will finally get the message.
Tune into NTU's State of the Union Coverage tonight
Tonight at 9 p.m. EST, the National Taxpayers Union's crack government affairs and policy analysis teams will provide special online coverage of the President’s State of the Union Address, and we want you to be there and be a part of the discussion. We will be breaking down the President's proposals and what they will mean for taxpayers. Details on how you can join the conversation are below.
We look forward to seeing you online tonight at 9 p.m. EST!
We look forward to seeing you online tonight at 9 p.m. EST!
Illinois digs a deeper revenue hole with affiliates tax
Earlier today, with breathtaking speed, the Illinois State Legislature approved a measure that will tax online shopping by requiring the in-state affiliates of out-of-state online retailers to collect sales and use tax. The measure is now before Governor Pat Quinn for his signature or veto. If you are opposed to taxing online shopping and you live in Illinois, click here to share your concerns with the Governor.
What surprises me most about the outcome today is that so many politicians ignored reality and basic facts in voting to adopt this measure. The states that have attempted to tax out-of-state online retailers through their affiliates have not raised much, if any, revenue. What these "Amazon tax" schemes have done is invited court challenges, so I hope Illinois has some good laywers ready. North Carolina isn't tracking revenues collected and Rhode Island reports that it actually lost revenue because of an affiliates tax. The reason why is simple: the retailers have shut down their affiliates programs rather than be subject to this ill-conceived, unconstitutional tax. They still make sales, but the states don't get any revenue. But the states actually lose revenue because, without the affiliates, there are no businesses to pay income tax, sales tax, and other taxes they are required to pay. By one account, Illinois has 9,000 affiliates, who earned $116 million and paid $18 million in state income tax in 2009. But now that is likely going to stop flowing into the Illinois Treasury because reailers, like Overstock.com and Amazon.com have told their affiliates they will terminate their relationships because of this bill. There may still be a chance to stop this bad bill, but only if good people like you who are concerned about Illinois speak out; click here to contact Governor Quinn and tell him taxing online shopping is a bad idea.
What surprises me most about the outcome today is that so many politicians ignored reality and basic facts in voting to adopt this measure. The states that have attempted to tax out-of-state online retailers through their affiliates have not raised much, if any, revenue. What these "Amazon tax" schemes have done is invited court challenges, so I hope Illinois has some good laywers ready. North Carolina isn't tracking revenues collected and Rhode Island reports that it actually lost revenue because of an affiliates tax. The reason why is simple: the retailers have shut down their affiliates programs rather than be subject to this ill-conceived, unconstitutional tax. They still make sales, but the states don't get any revenue. But the states actually lose revenue because, without the affiliates, there are no businesses to pay income tax, sales tax, and other taxes they are required to pay.
By one account, Illinois has 9,000 affiliates, who earned $116 million and paid $18 million in state income tax in 2009. But now that is likely going to stop flowing into the Illinois Treasury because reailers, like Overstock.com and Amazon.com have told their affiliates they will terminate their relationships because of this bill. There may still be a chance to stop this bad bill, but only if good people like you who are concerned about Illinois speak out; click here to contact Governor Quinn and tell him taxing online shopping is a bad idea.
Vote to Defund Public Broadcasting Fails
We’ve long been advocates of ending taxpayer subsidies to public radio and television, but it wasn’t until recently that the issue generated a media firestorm. Given the bickering initiated by pundits on both sides of the aisle, Republican efforts to defund National Public Radio (NPR) have been accused of being purely political. The House actually held a voted today on a measure to end all federal funding for NPR, which collects funds from the quasi-governmental Corporation for Public Broadcasting (CPB) as well as the Departments of Commerce, Education and the National Education Association. The vote, as expected, failed on an almost straight party line (239-171).
I can’t vouch for the motivation of Republican leaders, but I can, however, assure you that there is a sound non-political argument for ending federal funding for the CPB. I’ve blogged about this issue before, but I’ll reiterate a few of the reasons why NTU supports a move to end taxpayer-subsidized public broadcasting:
As you may recall, we sent a letter of support to Representative Doug Lamborn (R-CO) for his legislation to end all funding for CPB. Senator Jim DeMint has said he plans to introduce a similar bill after the Thanksgiving recess, so that will get the issue moving along in the Senate as well. While defunding legislation is unlikely to pass this year, it stands a much stronger chance in the new Congress.
Lawmakers must act now to eliminate the deficit and begin to trim down our $13+ trillion debt. We’ve said it before, and we’ll say it again, public broadcasting is an ideal place to start.2 Comments | Post a Comment | Sign up for NTU Action Alerts
Why is Keizer, OR intent on harming its economy with wireless taxes?
Just as the Oregon Trail was essential to the formation and growth of Oregon in the 19th century, reliable and inexpensive wireless communication is essential to the formation and growth of Oregon’s communities in the 21st century. But now, sadly, state and local governments in Oregon who, like other governments across the country, are starving for revenue to pay for overspending are targeting wireless communication services with discriminatory taxes.
On Monday, the City of Keizer, Oregon will consider a proposal to impose a “wireless license fee” of five percent on wireless communication services, including cellular phones. Additionally, the proposal callsfor a "per foot" line charge to cover providers with facilities in the city's jurisdiction.
Some think that these taxes will fall only on business. But the reality is that the proposed wireless fees will severely harm consumers and small business owners in Keizer. As the City Manager has pointed out in the proposed ordinance, telecommunications providers will simply pass the cost of any fees onto their customers. Thus, if the City of Keizer raises increases fees on wireless service, the people and businesses that use wireless services will face higher costs and have strong incentive to use the service less or seek out service elsewhere that costs less, which will be available in surrounding cities and counties. In these times of economic uncertainty and when strong communities are needed now more than ever, the City of Keizer should not give consumers an incentive to spend their dollars elsewhere or do less communicating.
Governments, no matter whether state or local, cannot keep tapping taxpayers with higher fees, taxes and surcharges to pay for more services and programs. In these challenging times, government simply has to do more with less rather than taxing and harming economic activity facilitated through communications. Instead of raising taxes, the City Council should look at ways to reform the city’s budget to find savings to provide its services.
If you live in the Keizer area, you can contact the City Council by clicking here. The hearing is also open to the public and will take place at the Keizer City Council (Keizer Civic Center, 930 Chemawa Road NE) at 7pm. You can find more details on at www.keizer.org or by calling (503) 390-3700.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The issue of retransmission consent, which I talked about in "Adventures in (Seemingly) Obscure Telecom Law" a while back, is going to be the subject of a Senate hearing next week during the lame-duck session. The reason it's getting this kind of attention is a well-publicized spat that led to a 16-day blackout of Fox programming for Cablevision's customers in the New York area. Fox then took to (briefly) blocking Cablevision customers from accessing their programming online, hilariously causing net neutrality advocates to cry foul (even though net neutrality is intended as a restriction on internet SERVICE providers, not CONTENT providers). Though I'm hardly some prescient genius, the concluding paragraph of my post from last month seemed to predict exactly this course of events:
Well, guess what. A crisis arrived, though it was a different major sporting event (the World Series) that was partially blacked out, and angry consumers (and Senators) are now yelling "There oughta be a law!" Senator John Kerry (D-MA) has been pushing draft legislation that would further insert the FCC into these tortured retransmission consent negotiations. I alluded to this in my original post, but I really can't say it any better than my friend Jerry Brito did at the Tech Liberation Front:
"The lesson of this latest confrontation should not be that we need to “reform” retransmission consent rules to add FCC arbitration as Sen. Kerry and some broadcasters and video distributors are suggesting. Instead, it’s that given a competitive market for programming, as the FCC has acknowledged exists in New York, we should plain and simply get rid of must-carry and retransmission consent rules altogether and allow a real free market to work. Without such a move, I see a lot more blackouts in the future."
Congress drafted rules that protected content providers from what was essentially a cable monopoly back in 1992, a monopoly that no longer exists. The result is that content providers are exploiting that protection to the fullest, leading to episodes of brinksmanship like the Fox-Cablevision fight. The time has come for a free-market rewrite of telecom law generally and retransmission consent specifically, and forgive me if I think our would-be Windsurfer in Chief is the wrong guy to lead it.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Taxpayers win in court
Taxpayers have won an important first-round victory in the battle against taxing Internet sales.
Late Monday, a U.S. district court judge in Seattle ruled that the First Amendment of the U.S. Constitution forbids state tax authorities from knowing what goods customers purchase from online retailers. At issue was an effort by North Carolina to require online retailers to report the names, addresses, and purchases of their customers so that they could collect sales taxes from the transactions. Amazon, which filed the lawsuit challenging the effort, successfully argued that such “data demands would make customers think twice about buying controversial products” when they purchase books, movies, and music.
Across the country, states starving for tax revenue, yet unwilling to reduce spending, have gone after out-of-state online retailers. The states claim that the out-of-state retailers have an obligation to collect sales taxes on purchases with their citizens. But not according to a 1992 U.S. Supreme Court case, which says that retailers are not required to collect a state’s sales tax unless they have a physical presence within the state.
Despite the Supreme Court’s ruling, several states, namely New York, Colorado, and North Carolina, have zealously sought to collect taxes from out-of-state online retailers through creative schemes commonly known as “Amazon laws.” Basically, these laws require out-of-state retailers to collect taxes because they have in-state affiliates, which are websites that link to the retailers. Other variations of Amazon laws require the retailers to report purchases to the state or send notices to customers that they owe sales tax. Online retailers have shut down their affiliates programs rather than meet these burdensome requirements. What these Amazon laws have done is cost the state revenues because without the affiliates, there is no business activity for the states to tax.
This case is an important victory for taxpayers. Not only does it protect Internet commerce from tax revenue-hungry states, but it also ensures the right to privacy in online shopping. But it is only a first step. Appeals will likely follow. There are also other states considering similar laws. Stay tuned. Rest assured, NTU will be watching these cases closely.0 Comments | Post a Comment | Sign up for NTU Action Alerts
A Call to End Taxpayer-Subsidized Public Broadcasting
If you're even the slightest media junkie, I’d be willing to bet you’ve heard that National Public Radio (NPR) news analyst Juan Williams was fired. The decision supposedly came as a result of Williams’ comments on Fox News’ The O’Reilly Factor. I’m not going to ask you to comment on whether or not you thought Williams’ comments were appropriate, or whether or not NPR should have done what they did, because all of this really leads into a larger, more significant question: should American taxpayers continue to subsidize public radio and television?
We’ve spoken out on this issue before but, in light of this week’s news, it seems to be generating more attention than ever before. Back in June, we sent a letter of support to Representative Doug Lamborn (R-CO) for his legislation to end all funding for the quasi-governmental Corporation for Public Broadcasting (CPB), which partially funds NPR. Here is an excerpt from the letter that explains our position in greater detail:
“While CPB is a private, non-profit organization that raises its own funds through many different outlets, taxpayers still bear the burden of approximately 13 percent of its total income. CPB received $420 million from taxpayer subsidies in 2010 alone, and that number is likely to grow considerably in the coming years. There is little doubt that public broadcasters disseminate useful information and quality programming, but taxpayers simply should not be responsible for funding a private entity that exists in a robust market serving consumers of many preferences and income levels.
Furthermore, it is unjustifiable that federal funding of the CPB has risen 26 percent over the past decade when the original purpose of that exercise has become virtually obsolete. Initially, the Public Broadcasting Act was created to institute taxpayer-backed public broadcasting in order to make telecommunications services available to all citizens. That is hardly a concern today as we find 99 percent of Americans in possession of a television and over 95 percent of them have access to the Internet.”
Senator Jim DeMint has said he will introduce a similar bill in the Senate once Congress reconvenes, so we will keep you posted on that legislation.
If Congress truly desires to restore fiscal responsibility and accountability to Washington, public broadcasting is a good place to start. This issue isn’t any more critical today than it was four months ago. It’s just more visible, more relevant, which we’re hoping paves the way for past-due Congressional action. We’re not concerned with the politics of it all. We’re looking out for taxpayers, and we believe defunding CPB is the right thing to do.2 Comments | Post a Comment | Sign up for NTU Action Alerts
With the country atwitter about tax cuts, there are dozens of important issues that are firmly placed on the backburner of Washington’s agenda. As a result, many important issues are getting short shrift in the current debate. Here’s one I bet you’ve never heard of: retransmission consent. Here’s the Cliff’s Notes version: broadcasters (think ABC, for example) are charging ever-higher amounts to cable companies/other television service providers (think Comcast or DirecTV) to carry their content to consumers, leading to higher costs or blacked-out content. So, what’s the limited-government, free-market response to this? As with everything in Washington, it’s complicated…
When a broadcaster creates content (say, a television show like American Idol), they then negotiate with cable and satellite television providers in order to allow them to carry the content to your TV screen (i.e. Comcast paying the Philadelphia Fox affiliate for the right to carry American Idol and the other content they create). With increasing frequency, broadcasters are demanding huge fees in order to allow their content to be shown on certain systems. That can lead to higher costs for consumers or, in the worst case scenario, black outs of programming if they cannot come to agreement. The most famous recent example is when 3 million New Yorkers were unable to watch the beginning of the Oscars because the local ABC affiliate and Cablevision couldn’t agree on fees to retransmit the program.
So, what’s the problem, you say? Why should anyone care about negotiations between two private businesses? After all, if the providers aren’t willing to pony up to broadcasters in order to secure retransmission rights for their content, then so be it. Well, as with everything else in Washington, it’s a bit more complicated than that.
For example, broadcasters are allowed to choose a “must carry” designation, which forces television providers to carry their content and are also able to dictate on what specific channel their programming appears. Also, providers are limited to negotiating with one local affiliate, meaning that RCN Cable in the Washington, DC metro area may only negotiate with, say, CBS’ affiliate in Washington, DC. If they can’t come to an agreement with the DC affiliate, they’re not allowed to go to a Baltimore affiliate and try to purchase the content from them at a potentially lower cost.
This can all be traced back to 1992 when the retransmission consent rules were last rewritten. The marketplace looked very different back then, as most consumers had only one choice for cable television service. Congress structured the rules in favor of broadcasters because they were viewed to have less negotiating power in the face of monopoly cable providers of the early 1990s.
Nowadays, people can often choose between three or four providers, from cable to satellite to new fiber optic networks. That means that broadcasters have much more negotiating power than they once did, which is reflected in the prices they’re charging for their content.
The cable companies and other providers have put together what they call the American Television Alliance, a group which is dedicated to reforming retransmission consent laws. Some of their recommendations are common sense, but they’re also reflective of the core problem that we face here: too much government involvement in the first place, given how vibrant and competitive this market is. That’s why the ideal answer is not to simply rebalance the scale so that government grants equal benefits to broadcasters and providers. The best answer is to overhaul our telecom law in a way that reflects the realities of the modern, competitive marketplace.
This applies to far more than just retransmission consent, of course. A comprehensive free-market overhaul would allow us to get government bureaucrats out of the way on a number of other issues, like network neutrality, where there are attempts to force regulation of the internet under outdated and burdensome Depression-era monopoly telephone provider laws. There are also lingering issues Universal Service Fund abuse, e-911 taxes on wireless service, and ongoing battles regarding spectrum allocation that could and should be dealt with in a much more intelligent and modern fashion.
The way that Congress works, this stuff never gets dealt with until a crisis has arrived, but we can all hope that won’t be the case this time around. Otherwise, you may only see the evidence when the Super Bowl gets blacked out because your affiliate and cable company couldn’t come to an agreement. Then, you'll inevitably get a bunch of angry consumers yelling "There oughta be a law!"
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