Taxes and Fees on Communication Services: Talking Points

May 31, 2007
David Tuerck, Ph.D., Paul Bachman, Steven Titch, and John Rutledge, Ph.D.

Key Findings of Heartland Policy Study No. 113, Taxes and Fees on Communication Services:

  • Taxes and fees imposed on cable TV and telephone subscribers are, on average, more than twice as high as taxes on other retail goods, 13.40 percent versus 6.61 percent.
  • In Chicago and Los Angeles, taxes and fees on wireline phone service are higher than taxes on beer and liquor.
  • The average household pays approximately $250 a year in communication taxes and fees.
  • If communication taxes and fees were no higher than the average retail sales tax on other goods, the average family would save $126 a year.
  • Nationally taxes and fees on communication services add up to more than $37 billion a year.
  • Economists estimate the value of services lost due to high taxes and fees on communication services adds up to a “deadweight loss” to society of $11.4 billion a year.
  • Taxes and fees vary dramatically from one service to another: Wireline phone subscribers pay 16.87 percent; wireless phone subscribers, 11.78 percent; cable subscribers, 11.69 percent; and broadband Internet subscribers, 0.71 percent.
  • Taxes and fees vary dramatically from city to city: Consumers in the city with the highest taxes and fees (Tallahassee, Florida) pay $19.29 a month more--$231 a year--than consumers in Lansing, Michigan, the city with the lowest rates.
  • Taxes and fees vary dramatically depending on the technology used to provide otherwise-very similar services: Taxes and fees on a phone call placed with a wireline phone are 24 times higher than the taxes and fees on a call placed using VoIP, while cable subscribers pay twice the taxes and fees on a video product as they are likely to pay for similar products delivered by telephone companies using IPTV technology.
  • Communication taxes and fees are especially burdensome on the poor. They consume about 1 percent of the annual income of low-income households, compared to 0.5 percent of median-income households and only 0.1 percent of incomes of households in the top income quintile.
  • Ten states (Arizona, California, Indiana, Kansas, Michigan, New Jersey, North Carolina, South Carolina, Virginia, and Texas) have adopted laws creating statewide cable video franchising authorities, which will increase competition and reduce cable fees.
  • Two states (Virginia and Ohio) have adopted laws that lower and streamline communication taxes and fees. One state (Florida) streamlined but did not lower communication taxes.
  • Reform of the Federal Universal Service Fund would save consumers billions of dollars a year, and federal preemption of state and local authority to tax communication services at discriminatory rates would save consumers even more.

Key Recommendations:

  • Local reforms: Video franchise fees should be brought in line with the opportunity cost incurred by a business’s use of the public right-of-way and nonprice concessions should be reduced or eliminated.
  • State reforms: States can replace, reform, or eliminate local cable franchise laws, following the example of such states as Texas and Indiana. States also can follow the lead of Virginia and Ohio by adopting legislation that lowers and streamlines communication taxes.
  • National reforms: Congress could adopt legislation preempting local franchising authority, prohibiting discriminatory sales, use, or business taxes on communication services, and could reform the Federal Universal Service Fund, which unnecessarily costs consumers billions of dollars a year.

Title, Citation, and Availability of the Report:

“Taxes and Fees on Communication Services,” Heartland Policy Study #113 (Chicago, IL: The Heartland Institute), May 2007 rev. June 2007.

The study and complete database are available for free online at http://www.heartland.org and http://www.beaconhill.org. Print copies available for $20.00 from The Heartland Institute and Beacon Hill Institute. Call Heartland at 312/377-4000.

About the Authors:

David Tuerck, Ph.D., is executive director of the Beacon Hill Institute and professor and chairman of the Department of Economics at Suffolk University in Boston, Massachusetts.

Paul Bachman is director of research at the Beacon Hill Institute.

Steven Titch is a senior fellow of The Heartland Institute and managing editor of IT&T News

John Rutledge, Ph.D., is a senior fellow of The Heartland Institute and chairman of Rutledge Capital, a private equity investment firm.

About the Publishers:

The Heartland Institute is an independent national nonprofit organization based in Chicago. Founded in 1984, it has 1,600 donors, more than 100 academics and professional economists serving as policy advisors, and approximately 500 elected officials representing all 50 states serving as legislative advisors. Heartland provides research and commentary on a wide range of public policy issues to the nation’s 8,300 state and national elected officials and some 8,400 local officials.

Founded in 1991, the Beacon Hill Institute is the research arm of the Department of Economics at Suffolk University in Boston. The institute draws on faculty and student resources to conduct original research and produce readable, timely analyses of public policy issues. It distributes its research to interested citizens and to key opinion leaders and policymakers.

Inquiries: Reporters should contact Harriette Johnson, mainstream media specialist for The Heartland Institute, at 312/377-4000 or by email at hjohnson@heartland.org. Elected officials should contact Trevor Martin, director of government relations for The Heartland Institute, at 312/377-4000 or by email at tmartin@heartland.org.