Lincoln, Nebraska Plan to Raise Cell Phone Taxes Draws Fire

Published October 1, 2009

A plan by city leaders in Lincoln, Nebraska to raise the local cell phone tax has drawn the ire of wireless telephone industry officials and tax watchdog groups, which want a cap on cell phone taxes. They say such taxes are unfairly high compared with other taxes and prompt undeserved complaints to wireless companies.

Opponents also say the taxes reduce business for wireless companies because consumers will forgo some services when they feel the overall price after including taxes is too high.

A national study released a year ago by CTIA-The Wireless Association found residents in Omaha and Lincoln, Nebraska had the nation’s highest average cell phone taxes.

“I don’t like hearing that Nebraska is No. 1 in taxing anything,” said State Sen. Abbie Cornett (R-Bellevue), chairwoman of the legislature’s Revenue Committee, which is conducting an interim study on cell phone taxes.

Multiplying Taxes

Cities originally began levying an occupation tax on telephones in exchange for the use of city rights-of-way for phone lines. Now the tax extends to cell phones and is coupled with several other phone-related surcharges.

In Omaha, cell phones carry a 6.25 percent occupation tax—the state’s highest—along with state and federal “universal service fees” to expand wireless services to rural areas, state fees to finance upgrades of 911 emergency response centers and provide telephone services for the blind, and state and local sales taxes.

Taxes add up to an average of 22.54 percent on a cell phone bill in Omaha and Lincoln, according to a survey of 2008 taxes conducted for CTIA, which represents the nation’s cell phone industry.

Nebraska’s average cell phone tax rate in the survey is almost double Iowa’s (11.46 percent) and higher than in more typical high-tax states such as New York (20.14 percent) and California (15.16 percent).

Surprising Showing

Nebraska’s ranking came as a shock to the wireless industry.

“There are several issues with this,” said Jim Schueler, CTIA’s assistant vice president for state and external affairs. “I was shocked when I saw Nebraska on the top of the list. Telecom consumers should be treated like general business.”

But in Nebraska and many other states, cell phones are targeted for heavier taxes, Schueler noted.

“This is an extension of the landline carrier tax that was imposed when the landline carrier had a monopoly, and the tax was paid for providing a right of way—tearing up roads and the like,” Schueler said.

But cell phone usage doesn’t place that type of stress on the local infrastructure, Schueler said, so it’s hard to justify the additional tax burden.

Stifling Wireless Growth

While the tax might help fill government coffers, it sets up a barrier to cell phone growth, Schueler said.

“Without [the tax] we could get to the end goal of universal coverage quicker,” Schueler said. “There would be faster adoption rates.

“In hard times [government entities] are always looking for additional revenue,” Schueler added. He suggests a better system is to allow such taxes only at the statewide level, as Virginia did through a reform effort several years ago.

Virginia’s tax on cell phone use is 5 percent, and there have been very few complaints about it, Schueler says.

Consumer Cash Cows

Steven Titch, a telecom analyst for the Los Angeles-based Reason Foundation, agrees.

“There’s a lot of inertia [in changing the laws]. This comes from the monopoly days. When there was one provider of phone service, [local and state governments] saw them as a source of tax revenue,” Titch said.

“The states and municipalities will take as much as they can get,” Titch added. “Cell phone consumers are wondering what the heck is going on. The legislatures think the money will always be there, but the cell phone providers are looking for ways around these surcharges.”

Phil Britt ([email protected]) writes from South Holland, Illinois.

For more information …

David Tuerck, Ph.D., Paul Bachman, Steven Titch, and John Rutledge, Ph.D., “Taxes and Fees on Communication Services,” Heartland Policy Study No. 113, rev. June 14, 2007: