Washington State’s Regressive Wireless Taxes are Still the Highest in the Nation

Washington is once again the highest wireless tax state in the nation, according to a recent study.  Consumers in our state pay a staggering combined (federal, state and local) average wireless tax rate of 25.15%.  In comparison, our neighbors to the east and south, Idaho and Oregon, boast wireless tax rates of less than 9%, the lowest in the nation.  The national average is around 18%.

This isn’t just a Washington state problem; wireless taxes in most states across the nation are skyrocketing, considered by lawmakers as a quick, reliable and inconspicuous way to increase tax revenues.  Over the past decade average wireless tax rates grew at quadruple the rate of general sales tax—this means many consumers are now paying more than double the taxes imposed on other goods and services.  Case in point—in Washington, the average state and local sales and use taxes on goods and services are 9.15% while the average state and local taxes on wireless service are 18.69% (the federal portion is 6.46%). 

Of course, Idaho and Oregon are two exceptions to the trend.  Idaho and Oregon’s state and local wireless taxes levied on consumers are just 2.7% and 1.8%, respectively.

Our state’s discriminatory state and local taxes and fees hit lower-class consumers the hardest. Three in five adults living in poverty rely on wireless services as their soles means of communication and connectivity.  The disparity between tax rates on wireless service and other taxable goods and services act as a barrier to the seniors, students, working families, small business, and minority communities who need wireless services the most.

A 2014 survey of wireless consumers found that 81% percent of respondents consider wireless services an essential part of daily life; and 65% said they use a wireless tablet or mobile phone for things related to work, school and personal management.  The overwhelming majority (81%) said combined state and local tax rate wireless services are too high and a whopping 97% believe wireless service should be taxed at the same rate as other goods and services.

Some lawmakers in Congress have pushed for legislation that would impose a five year freeze meant to provide relief from new state and local taxes on wireless services, similar to the five-year moratorium that prohibited state and local governments from imposing new internet taxes on internet access (that law expired recently and is pending reintroduction next year).

However, such a moratorium would only prevent new state and local taxes from being levied on wireless service; it would do nothing to reduce the wireless taxes consumers are already paying.

The only state to undergo some reform in the face of rapidly rising wireless tax rates this year was Florida, formerly the 4^th highest wireless tax state in the country. Voters reduced the state Communication Services Tax from 9.17% to 7.44% and provided over $100 million in tax relief to consumers and businesses, effectively dropping Florida out of the top five wireless taxpaying states.  While a move in the right direction, Florida is still one of the highest wireless taxed states, ranking  7^th  with a 21.12% wireless tax rate.

So what would be an option for reform in Washington?

Of the 25.15% Washington tax rate, a large portion is owed to state and local sales taxes, 911 service fees, and the USF (Universal Service Fund), which is set at a federal level. The remainder is accredited to an average 7.5% utility franchise tax which phone companies pass on to consumers. Most franchise fees are left over from an era of phone company monopolies and represent a fee companies must pay to conduct business with the city. Despite the competitive nature of modern telephone companies, this tax is still imposed—and readily passed along to consumers.

Removal of this outdated policy would bring Washington’s wireless tax down to 17.65%—just below the national average.  While that is still no comparison to the low wireless taxes in Oregon and Idaho, it would at least drop Washington out of the “top 20” ranks for wireless tax states entirely and offer billions in tax relief to those who need it most.

Ali Mollhoff ([email protected]) is a research assistant with the Washington Policy Center. An earlier version of this article appeared at http://washingtonpolicy.org/blog/post/washington-state%E2%80%99s-regressive-wireless-taxes-are-still-highest-nation/. Reprinted with permission.