Cell Phone Tax Burdens Rise for Second Straight Year

October 11, 2016

Cell Phone Tax Burdens Rise for Second Straight Year
Report details the record high taxes and fees on wireless consumers in 2016

Washington, DC (Oct 11, 2016)—In 2016, U.S. wireless consumers will pay an combined rate of 18.6 percent in federal and average state-local taxes on their wireless bills, a record high according to a new report from the nonpartisan Tax Foundation. Due to this high rate, the typical American household with four wireless phones paying $100 per month for wireless voice service will pay nearly $225 per year in taxes, fees, and government surcharges.

Other key findings from the report include:

  • Each year, consumers pay an estimated $17.2 billion in wireless taxes, fees, and government surcharges combined
  • In just two years, the average wireless tax burden has increased by 1.5 percentage points, and wireless taxes are now 4.5 percentage points higher than they were ten years ago
  • The average state-local wireless tax in the U.S. is 11.93%, over 4 percentage points higher than the average state-local sales tax
  • The five states with the highest combined state and local wireless taxes and fees are Washington (18.8%), Nebraska (18.7%), New York (18.0%), Illinois (17.8%), and Pennsylvania (15.7%)
  • The five states with the lowest combined state and local wireless taxes and fees are Oregon (1.8%), Nevada (2.1%), Idaho (2.3%), Montana (6.2%), and Delaware (6.3%)
  • 6 major U.S. cities now have wireless tax rates exceeding 25 percent: Chicago (36.24%), Baltimore (29.84%), New York (27.11%), Philadelphia (26.24%), Omaha (26.06%), and Seattle (25.94%)

With state and local governments continuing to face revenue challenges, the wireless industry and its customers will continue to be an attractive target for raising new revenues. However, there are two significant reasons why policymakers should be cautious about expanding wireless taxes: they disproportionately impact the poor and may slow investment in wireless infrastructure—a key element to the future success of modern cities.

“It’s important to remember that wireless service is increasingly the sole means of communication and connectivity for many Americans, particularly those with lower incomes,” said Tax Foundation Vice President of State & Legal Projects Joseph Henchman. “At the end of 2015, over 64% of all poor adults had only wireless service and over 48% of all adults of all incomes were wireless only.”

Scott Mackey of KSE Partners and co-author of the report suggests that, “States should study their existing communications tax structure and consider policies that transition their tax systems away from narrowly-based wireless taxes and toward broad-based tax sources that do not distort consumer purchasing decisions and do not slow investment in critical infrastructure like wireless broadband.”

“Florida took a step in the right direction by reducing the Communications Services Tax in 2015,” adds Henchman, “but wireless tax rates there are still well above the sales tax. States that reform their communications taxes put themselves in a position to attract additional wireless infrastructure investments that generate economic growth, create jobs, add revenue, and provide needed relief to low-income wireless users.”

Full report: Wireless Tax Burdens Rise for the Second Straight Year in 2016

Media Contact:
Colby Pastre
Marketing Project Manager
Tax Foundation

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