Congress Hears Complaints about Telecom Taxes

Published August 1, 2006

Despite pressure from consumers to reduce telecommunications taxes, lawmakers continue to view the industry as a potential source of additional revenue.

“Wireless consumers are bearing the brunt of budget shortfalls as cities and localities view the telecom consumer as the golden goose for revenue enhancement,” said Steve Largent, a former Oklahoma Congressman and current CEO of CTIA-The Wireless Association, in testimony on June 13 before the U.S. Senate Committee on Commerce, Science, and Transportation.

“Ironically,” said Largent, “some of the states that are the most aggressive in pushing for regulation on wireless carriers in the name of the consumer, are also the states with the highest rates of taxes and fees on their constituents.”

Also on June 13, in testimony before the House of Representatives’ Subcommittee on Administrative and Commercial Law Committee, Illinois state Sen. Steve Rauschenberger (R-Elgin) said current tax schemes are holding back advancements in telecommunications services. He was speaking in his role as president of the National Conference of State Legislatures.

“Innovation and convergence of existing technologies are radically expanding telecommunications services, blurring distinction between telephone and Internet services; between cable, wireless, and satellite; between long distance and local service; and between telephone and other forms of communications,” Rauschenberger said.

Rauschenberger said this has resulted in “uneven governmental treatment” that has unintentionally “led to competitive barriers, discouraged investment in infrastructure development by traditional providers, and impacted the roll out of advanced telecommunications services.”

Taxes Highly Regressive

At the House hearing, Scott Mackey, an economist at Kimbell Sherman Ellis LLP who specializes in telecommunications taxes, noted a “disturbing trend” regarding these taxes.

“In the last few years, some jurisdictions have imposed flat ‘per line’ taxes, such as Baltimore’s new $3.50 per month tax,” Mackey testified. “These taxes take an already regressive tax and make it much worse.

“In the case of Baltimore, $3.50 per month on a $25 monthly calling plan is a 14 percent tax rate on that plan, but only 3.5 percent on a $100 monthly calling plan. When the state sales tax of 5 percent is added on, the consumer on a $25 monthly plan in Baltimore is paying an effective tax rate of 19 percent! And if that consumer has a family plan with multiple lines, the $3.50 applies to each line. Several wireless providers allow consumers to add an additional line for as little as $9.99 per month. The tax rate on that additional line is a staggering 35 percent!”

— James Schuler