Cell Phone Customers Taxed Heavily

February 5, 2013

As the number of U.S. cell phone subscribers has increased over the last 15 years, many state and local governments have levied significant taxes against users.  Joseph Henchman and Scott Drenkard of the Tax Foundation reveal many of the hidden taxes and fees that result in a heavy and focused tax burden on cell phone use.

  • Cell phone subscribers, who numbered 48.7 million in 1997, totaled 321.7 million Americans in 2012, more than the official population.
  • U.S. wireless consumers pay an average of 17.18 percent in taxes and fees on their cell phone bills, including 11.36 percent in state and local charges.
  • Seven states have federal-state-local taxes in excess of 20 percent, 26 states have a tax rate above 10 percent and only three states -- Oregon, Nevada and Idaho -- have less than a 10 percent combined tax rate on wireless usage.

States prefer to keep their cell phone taxes hidden. For example, Texas sued to have Sprint remove a state tax as a line-item on user's phone bills and Utah continues to charge a wireless fee, which is really a tax that funds its poison control centers.

  • Critics of telecom taxes say that because there is a wide variety of taxes that each level of government can charge and tax levels differ by locality, cell phone providers are put in a tough position of accurately charging each customer for the taxes they owe or being responsible for any discrepancies.
  • Researchers have even found it difficult to accurately chart the expanse of taxes levied on users in different states given their variability.
  • Following the Mobile Telecommunications Sourcing Act of 2002, cell phone subscribers are taxed based on their "place of primary use," which is determined not by where they move to or use the phone the most but by the address provided by the subscriber.

Henchman and Drenkard say that hidden taxes and excessive fees on cell phones distort the market. In order to ensure that cell phone users are taxed equitably, they say that state and local governments should reduce cell phone taxes and the overall number of taxing authorities responsible for levying cell phone taxes should be reduced.

Source: Joseph Henchman and Scott Drenkard, "State and Local Governments Impose Hefty Taxes on Cell Phone Consumers," Tax Foundation, January 30, 2013.

 

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