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Government to Wireless Users: “No Holiday Layaways, Pay Up!”

by Thomas Aiello / /

As you use your wireless device for navigation home for the holidays and shop for holiday gifts on your devices on Black Friday and Cyber Monday, have you ever stopped to think how much governments are charging you for it all? The quick answer is: a lot more than you think. According to a new study, over 18 percent of a customer’s bill goes towards federal, state, and local taxes and fees. To put that in perspective, an average middle-income family of four that pays $100 a month for cell service will pay more than $220 in yearly taxes, fees, and surcharges.

This new data is revealed in the report “Wireless Taxes and Fees in 2017,” which was released by economist Scott Mackey and the Tax Foundation earlier this month. How much a consumer pays depends greatly on which state they live in. At the top of the wireless tax list once again is Washington State at 25.5 percent, followed by Nebraska (25.1), New York (24.6), Illinois (24.59), and Pennsylvania (22.3). At the other end of the spectrum with the lowest wireless tax and fee totals is Washington’s neighbor Oregon, along with Nevada and Idaho rounding out the bottom of the list.

Residents in cities like Chicago or Baltimore are hit especially hard due to extremely high local taxes and fees. Starting January in Chicago, a typical 4-line family voice plan at $100 will accrue over $40 in taxes, an effective tax rate of 40 percent. For residents in Baltimore, the same plan will garner over $29 in taxes, an effective tax rate of 29 percent.

The trend of rising 911 fees continued in Connecticut, Louisiana, Oklahoma, Utah, and West Virginia. At the same time Universal Service Fund (USF) rates increased in Alaska, Indiana, Kansas, New Mexico, Utah, and Wisconsin -- and South Carolina expanded their USF charge to include wireless service. On the flip side, both California and Wyoming reduced their USF rates this year.

Wireless service is increasingly becoming the singular means of communication for many Americans, including those with fixed and limited incomes. As Mackey and the Tax Foundation note: “At the end of 2016, over 66 percent of all poor adults had only wireless service, and 51 percent of all adults were wireless only. Excessive taxes and fees, especially the regressive per-line taxes like those imposed in Chicago and Baltimore, impose a disproportionate burden on low-income consumers.”

In total, the study highlights that American wireless customers will pay approximately $17.1 billion in taxes, fees, and government surcharges between all three levels of government just in 2017 alone. The largest share ($6.7 billion) is collected through sales tax, while over $5 billion is collected as part of the federal universal service fund (USF) surcharges.

Wireless devices and services, particularly smartphones, are an increasingly essential tool in everyday life. Governments across every level must work to reform broken and regressive tax schemes that hurt consumers and taxpayers. This latest report demonstrates that lawmakers have a long way to go; therefore they should start on the path to saner wireless taxes today.