Cell phone service taxes average 18%, an all-time high
New Tax Foundation study breaks down the taxes & fees wireless customers face
I can tell the holidays are just around the corner. I'm getting, and making, lots of call about our Thanksgiving and Christmas plans.
In most cases, the phone conversations are on my and my relatives' cell phones. We are not alone.
Wireless service is becoming the sole means of telephone communication for a growing number of Americans. Surveys by the Centers for Disease Control found that at the end of 2014, more than 44 percent of all adults relied solely on mobile phones. The percentage is even greater, more than 59 percent, among lower income individuals.
Cellular taxes at all levels: While we mobile phone users and the service providers competing for our business tend to focus on overall monthly charges, a recent analysis by The Tax Foundation looked at the role taxes play in our wireless bills.
The nonprofit Washington, D.C., tax policy group found that the bills of U.S. cell phone users include a combined tax rate of nearly 18 percent in federal, state, and local taxes and fees. That tax total includes the 6.46 percent federal rate and an average 11.5 percent state and local wireless tax rate.
This latest report, authored by Scott Mackey of KSE Partners and The Tax Foundation's Vice President of State & Legal Projects Joseph Henchman, is the sixth in a series that examines trends in the taxes, fees and surcharges imposed by federal, state, and local governments on wireless services.
Between 2005 and 2006, wireless tax burdens dropped after a series of federal court decisions forced the IRS to end the 3 percent federal excise tax on wireless service. Since then, however, wireless tax rates have climbed steadily, hitting a record in 2015.
Just how does your state compare to the 49 others when it comes to wireless taxes? You can see in the map below.
In dollar terms, says The Tax Foundation, wireless customers pay each year about $5.8 billion in state and local taxes and fees. Uncle Sam gets around $5 billion annually in Federal Universal Service Fund surcharges on our cell phone bills.
The Universal Service Fund, or USF, was created as a way to raise money that is used to provide service discounts to schools, libraries, as well as those living in rural and high-cost areas and income eligible families.
Wireless vs. general sales taxes: As states and cities face growing fiscal challenges, The Tax Foundation says that some jurisdictions have resorted to targeting wireless customers as a source for additional revenue. This has led to calls for changes in wireless taxes.
One of the longstanding arguments for reform of wireless taxation, says The Tax Foundation, is the disparity in the tax burdens on wireless services as compared to the states' general sales and use taxes.
According to tax group, Nebraska and Alaska are the only states that have a disparity of greater than 10 percentage points between the wireless rate and the general sales tax rate.
Other states with large disparities include Washington, New York, and Illinois.
New Hampshire ranks sixth in the disparity between wireless taxes and sales taxes despite having a relatively low rate on wireless service because the state does not have a sales tax but imposes a 7 percent communications tax and a $0.57 monthly 911 fee on wireless service.
Two other states that impose taxes on wireless but do not have sales taxes – Delaware and Montana – also rank relatively highly on this disparity scale despite their comparatively low rates on wireless consumers.
Four states, however, are at the other end of the cell vs. sales tax spectrum, having lower state and local rates on wireless service than their general sales tax rate. They are West Virginia, Louisiana, Idaho and Nevada.
Do you notice all the taxes listed on your cell phone bill? Or are you simply too floored after each bill to take a line-by-line look at the charges?
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