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Wireless Taxes on the Rise



February 16, 2011

 

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. 


 

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