Americans Pay 17% in Cell Phone Taxes and Fees on Average

 
 
January 30, 2013

Rates Highest in Nebraska, Lowest in Oregon

Washington, D.C., January 30, 2013—U.S. wireless consumers pay an average of over 17 percent in taxes and fees on their cell phone bill, including more than 11 percent in state and local charges, according to a new analysis by the Tax Foundation. In Nebraska, the combined federal-state-local average rate is nearly 24.5 percent, and in six other states (Washington, New York, Florida, Illinois, Rhode Island, and Missouri) it exceeds 20 percent.

“Accessing new sources of information on our mobile devices may be getting easier, but paying cell phone taxes is not,” said Tax Foundation Vice President for Legal & State Projects Joseph Henchman. “State and local governments should not single out one product for stealth tax increases as they are doing with wireless services.”

Included in the report, which uses recent data from a study by Scott Mackey of KSE Partners, are the following findings:

  • The average U.S. wireless consumer pays taxes and fees of 17.18 percent, of which state-local charges average 11.36 percent.
     
  • 26 states have average state-local wireless taxes and fees in excess of 10 percent; with federal taxes, some cell phone subscribers pay more than 20 percent in taxes.
     
  • States favor the taxes because they can raise revenue in a relatively hidden way. For example, Texas sued Sprint because the company listed a state tax as a line-item in its bill, rather than hiding it from customers.
     
  • Cell phones are taxed at a much higher level than other consumer items, even as much as or more than alcohol or cigarettes. The highest sales tax in the country (combined state and average local rates) is 9.43 percent in Tennessee – the highest state and local rates for cell phone service are almost twice as high.
     
  • Among local jurisdictions, Baltimore, Maryland imposes a $4 per line per month tax on wireless users, on top of federal and state charges. Nearby Montgomery County, Maryland imposes a $3.50 per line per month tax. These per line charges are especially burdensome on low-priced “family share” plans.

“Scholars from across the political spectrum have criticized telecom taxes as burdensome, regressive, and stifling consumer choice,” said Tax Foundation economist Scott Drenkard. “In response to this problem, legislation entitled the Cell Phone Tax Moratorium Act, which would restrict excessive state and local wireless taxes, has been regularly introduced in Congress.”

Tax Foundation Fiscal Fact No. 355, “State and Local Governments Impose Hefty Taxes on Cell Phone Consumers” by Joseph Henchman and Scott Drenkard is available online.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state, and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

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