New Report: Cell Phone Taxes Exceed 20% in Several States

January 30, 2013
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This morning, we released a new report (download PDF here) on cell phone taxes. Some key 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 Wireless Tax Fairness 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.

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