Consumers, Industry Battle Back Against Cell Phone Tax Increases

Published April 1, 2008

Recent evidence suggests state and local policymakers are not getting the message that it is bad tax policy to single out one industry for excessive taxation, and bad economic policy to impose burdensome taxes on an industry that is investing in infrastructure that helps businesses improve productivity.

On March 4, for example, the Massachusetts Appellate Tax Board ruled Verizon Wireless must pay taxes on poles and wires over public property. As a result, the firm will have to pay an estimated $78 million more per year to cities and towns in Massachusetts. The number could go higher as some cities and towns may be eligible for retroactive tax payments because of lawsuits filed previously.

The Massachusetts decision heightens industry concerns that wireless consumers may continue to be targeted for new taxes and fees as states and localities experience deteriorating revenues due to declines in the real estate market and the overall economy.

Other actions in Illinois, Maryland, and Michigan suggest wireless consumers have cause for concern.

Persistent Tax Hike Attempts

In Illinois, the legislature doubled the Chicago 911 fee from the already excessive level of $1.25 per month to $2.50 per month, effective January 1, 2008. As a result, Chicago customers will pay more than 22.5 percent in taxes and fees on their bill in 2008.

In addition, Cook County commissioners considered, but so far have rejected, an additional tax of $4.00 per month, which would have increased the tax burden on Chicago residents by another eight percentage points–to more than 30 percent.

That state and local policymakers would even consider increasing taxes and fees in Chicago, when tax rates there already exceed 20 percent of the average phone bill, is troubling for consumers.

In Prince Georges County, Maryland, the council approved a proposal to raise the county telecommunications tax from 8 percent to 11 percent. Pressure from consumers led the council to postpone the effective date of the increase and place the proposal on the November ballot.

In Michigan, legislation to impose a new telephone tax of $1.35 per month to fund public safety and other programs not related to emergency communications was narrowly defeated in December. This proposal may represent a new trend–wireless and other telecommunications customers being tapped to fund public safety programs that have been historically funded out of broad-based general fund revenues. While this proposal was defeated, the legislature authorized counties to impose new 911 fees on wireless consumers.

More Battles Coming?

State and local revenues started to show signs of stress at the end of 2007 because of the downturn in housing prices and growing worries about an economic slump. This year’s legislative sessions should be an important barometer of whether policymakers have decided to resume targeting wireless consumers for excessive new taxes.

State lawmakers and local officials looking to impose new taxes and fees can expect more resistance than in the past. Wireless consumers have become more aggressive and organized in their efforts to oppose them. Wireless carriers and their national trade association, CTIA-The Wireless Association, have identified lowering discriminatory taxes and fees as a national priority for the industry.

Scott Mackey ([email protected]) is a partner and economist at the firm of Kimbell Sherman Ellis LLP in Montpelier, Vermont. This article includes material from an article by the author in State Tax Notes, February 18, 2008, used with permission.