Results from a comprehensive study of how American cities and states tax the growing wireless telecommunications industry, released last month by the non-partisan Tax Foundation, suggest the growing need for reforming how government treats this important telecommunications industry.
Since 2003, tax rates on the average American’s wireless bill have grown nearly three times faster than taxes on any other goods and services. Nationwide, the average wireless tax rate is 17.05 percent, when federal, state, and local taxes are combined.
Gone to POTS
In seven states, consumers face taxes and fees exceeding 20 percent of their total bill. In addition to taxes, some larger municipalities add extra per-line fees, hiking multi-line family plans to over 35 percent of the total bill.
By imposing fees and taxes that treat wireless phone systems and traditional phone lines — commonly referred to as “plain old telephone service (POTS) — local governments also impose fees based on outdated business models, taxing wireless phones to fund utility poles and wires.
Additionally, wireless companies have been forced to negotiate rental agreements for land that was once covered with these taxes. Consumers are often forced to pay so-called “local taxes” on their cell phone bill, to fill government coffers unrelated to public communications needs. For example, Chicago doubled heir per-line 911 access fee to fund security upgrades for a 2008 Olympics bid. The city’s hopes of hosting the Olympics has long since faded, but the tax remains in place, to this day.
In New York City, school and transit districts are permitted to levy various taxes on cell phones to fund their budgets. Wireless taxes in Baltimore and Chicago are directed to the cities’ general budget, as opposed to funding telecommunications expenses, as logically expected.
For every 1 percent increase in communications fees, consumer demand drops by 1.2 percent. Extra taxes reduce companies’ revenue from subscriptions, in turn decreasing the amount of capital available for investment in network modernizations.
Economists have consistently found a strong link between investments in communication infrastructure and economic growth, mostly because such diverse segments of society — transportation, health care, energy, education, and even government — use wireless networks to increase productivity and efficiency.
While many state and local governments seem eager to use wireless taxes as a cash cow, the Tax Foundation’s study suggests that tax-hikers are actually limiting the ability of their constituents to grow their businesses, and therefore stunting the long-term economic growth of their cities and states.
Concluding the study, Mackey suggests that “states should study their existing communications tax structure and consider policies that transition their tax systems away from narrowly based wireless taxes toward broad-based tax sources that do not distort consumer purchasing decisions and do not slow investment in critical infrastructure like wireless broadband.”
“Reform of communications taxes in states with excessive tax rates,” Mackey adds, “would position those states to attract additional wireless infrastructure investments that generate overall economic growth through the new jobs and revenue growth they produce, while helping provide relief to low-income wireless users.”
Dotty Young ([email protected]) writes from Ashland, Ohio.
“Wireless Taxation in the United States 2014,” Scott Mackey, Tax Foundation: http://heartland.org/policy-documents/wireless-taxation-united-states-2014