Inequities in Texas Telecom Taxation
November 26, 2013
In many states, telecom and wireless services are subject to "double taxation," in which both an intermediary good and the services provided are taxed. Currently 20 states exempt on at least one or more services (telecom, voice or broadband), whereas 30 states tax all three. However, Texas consumers continue to face a heavy tax burden that varies widely from city to city, say Pamela Villarreal, a senior fellow, and Kyle Buckley, a former research associate, with the National Center for Policy Analysis.
The 10 most populous Texas cities generated more than $300 million in fee and tax revenue from cable television and telephone services in 2011. Taxes that Texas costumers are subject to include:
- Sales taxes. Texas consumers pay a 6.25 percent sales and use tax on cable and wire-line services. Municipalities, counties, special purpose districts and transit authorities may impose additional taxes, up to a total of 8.25 percent.
- State/Local Cable Franchise Fee. Cable video providers pay a state-imposed monthly franchise fee of up to 5 percent of gross revenues for the use of public right-of-way (infrastructure). Municipalities also impose an additional 1 percent Public Education and Government (PEG) franchise fee.
- Right-of-Way Fees. Telecommunications providers must compensate municipalities for use of the public rights of way in the municipality. The right-of-way fee is considered a rental payment for the use of public property and is assessed at fair market value. However, the fee is passed on to consumers.
- Texas Universal Service Fund. The Public Utilities Commission levies a fee for the Texas Universal Service Fund on all voice services, including local, long distance, pager and wireless. Telecommunication providers pay an average tax of 3.4 percent of taxable communications receipts, and pass that cost on to consumers.
- 911 Emergency Service Fee and Equalization Surcharge. These fees are assessed for emergency telecommunication services. Consumers pay a set $0.50 fee every month, along with a variable fee averaging $0.25 for areas served by Emergency Communications Districts, the equivalent of a 2.14 percent unregulated tax. One percent equalization surcharges are also imposed on consumers, based on the cost of intrastate long-distance services.
- Public Utility Commission Fee. The state assesses a 0.0017 percent fee on all public utility service providers (which includes certified telecommunication providers) to fund the Public Utility Commission.
The tax treatment of the Texas telecom industry is far from equitable. The industry faces tax hurdles not imposed on other industries or in other states. The Texas legislature should consider the following options:
- Streamline business and cable franchise taxes for cable providers.
- Reduce right-of-way fees to their original intended use.
Source: Pamela Villarreal and Kyle Buckley, "Inequities in Texas Telecom Taxation," National Center for Policy Analysis, November 2013.
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