Consumers Pressure Lawmakers to Cut Telecom Taxes

Published August 1, 2006

Nearly five years after the National Governors Association and National Conference of State Legislatures (NCSL) urged states to reform and modernize their telecommunications taxes, most states have failed to enact meaningful reforms.

On June 13, industry representatives, NCSL’s president, and others testified before the U.S. Senate Committee on Commerce, Science, and Transportation that states are using wireless telephone customers as a cash cow and that high taxes are suppressing service improvements. (See sidebar.)

Citizens generally, and wireless users specifically, have strongly opposed high telecom taxes and have put pressure on lawmakers to lighten the burden. On January 26, Rep. John Dingell (D-MI) testified to the House Committee on Energy and Commerce, “I continue to receive complaints from my constituents about the high level of taxation on telecommunications services, so I encourage you to facilitate a solution.”

Taxpayers Rejecting Hikes

Taxpayers in 2005 took matters into their own hands to create solutions. For instance:

  • In California, a proposed referendum to increase the “911 fee” by $3 (a 419 percent increase) to fund hospital care for the uninsured was defeated 72 percent to 28 percent.
  • In Missouri, with significant support from state taxpayers, HB 209 was signed into law, capping future business taxes on wireless service at 5 percent.
  • In Texas, strong opposition from wireless consumers helped defeat an effort in the General Assembly to shift to the wireless industry “rights-of-way” fees currently collected from cable and landline telephone companies by municipalities and localities.
  • In Pennsylvania, more than 40,000 emails were generated by Pennsylvania consumers through to the General Assembly and Gov. Ed Rendell (D) in an effort to repeal the 5 percent Gross Receipts Tax (GRT) that applies to public utilities and wireless service but amounts to a double tax on wireless service, which is subject also to a 6 percent state sales tax. The House passed the GRT repeal effort in 2005, and the Senate is expected to vote on the measure this year.
  • In Springfield, Oregon, residents forced a ballot initiative with a final vote of 73 percent to 27 percent in favor of removing a 5 percent tax on wireless service the city council had imposed in 2004.
  • Also in Oregon, the Portland City Council backed away from a proposed 5 percent tax on wireless service after consumers flooded the council with complaints against the proposal.
  • In Louisiana, state lawmakers on April 15, 2005 introduced legislation proposing a 2 percent tax on wireless service in exchange for removing the fees telephone companies pay to cities for using public rights-of-way. A grassroots campaign resulted in a significant defeat of the bill on the House floor.
Top 20 States for Wireless Taxes, Fees, and Surcharges
  State State + Federal
Nebraska 18.72 % 24.63 %
Washington 17.48 % 23.39 %
New York 16.09 % 22.00 %
Florida 16.08 % 21.99 %
Texas 15.13 % 21.04 %
Rhode Island 14.49 % 20.40 %
California 14.10 % 20.01 %
Pennsylvania 13.47 % 19.38 %
Utah 13.00 % 18.91 %
Illinois 12.72 % 18.63 %
South Dakota 11.79 % 17.70 %
District of Columbia 11.50 % 17.41 %
Tennessee 11.47 % 17.38 %
Kansas 11.46 % 17.37 %
Arkansas 11.07 % 16.98 %
North Dakota 10.82 % 16.73 %
Missouri 10.45 % 16.36 %
Maryland 10.43 % 16.34 %
Arizona 10.03 % 15.94 %
Oklahoma 9.83 % 15.74 %
Source: Scott Mackey, Kimball Sherman & Ellis

James Schuler ([email protected]) is assistant vice president of policy at CTIA-The Wireless Association, an international organization representing all sectors of the wireless communications industry.