Americans Pay an Average of 17 Percent in Cell Phone Taxes and Fees

October 8, 2014

Americans Pay an Average of 17 Percent in Cell Phone Taxes and Fees

Oregon pays the least, Washington pays the most

Washington, DC (Oct 8, 2014)—U.S. wireless consumers pay an average of 17.05 percent in combined federal, state, and local taxes and fees on their cell phone bills, according to a new report released this morning by the nonpartisan Tax Foundation. This rate is comprised of a 5.82 percent federal rate and an average 11.23 percent state-local rate.

“Accessing content on our phones these days is easier than ever before, but paying cell phone bills remains difficult for many,” said Joseph Henchman, Tax Foundation Vice President of Legal & State Projects. “Instead of singling out wireless services with stealth tax increases, state and local governments should seek more neutral and less disruptive sources of revenue.”

The report finds that:

  • The five states with the highest state-local rates are: Washington State (18.6 percent), Nebraska (18.48 percent), New York (17.74 percent), Florida (16.55 percent), and Illinois (15.81 percent).
  • The five states with the lowest state-local rates are: Oregon (1.76 percent), Nevada (1.86 percent), Idaho (2.62 percent), Montana (6.00 percent), and West Virginia (6.15 percent).
  • Four cities—Chicago, Baltimore, Omaha, and New York City—have effective tax rates in excess of 25 percent of the customer bill.
  • The average rates of taxes and fees on wireless telephone services are more than two times higher than the average sales tax rates that apply to most other taxable goods and services.
  • States favor the taxes because they can raise revenue in a relatively hidden way.

Facing continual revenue challenges, some states and cities have resorted to targeting wireless customers as a source for additional revenue. For example, in 2014, Chicago increased its 911 fee from $2.50 per month per line to $3.90 per month per line (up from $1.25 in 2008). This kind of treatment, coupled with other taxes and fees like its excessive $4 per line fee for general revenue purposes, leaves Chicago consumers with a rate of 35.42% of their total cell phone bill.

Governments need efficient taxes to raise necessary revenue, but there are compelling reasons as to why lawmakers should look elsewhere before expanding wireless taxes, fees, and surcharges.

“Wireless taxes and fees are regressive and have a disproportionate impact on poorer citizens,” said Scott Mackey of KSE Partners and co-author of the report. “Excessive taxes and fees may reduce low-income consumers’ access to wireless service at a time when such access is critical to economic success.”

Additionally, targeted cell phone taxes may slow investment in wireless infrastructure by lowering consumer demand for wireless service. “The reduced demand impacts network investment, because subscriber revenues ultimately determine how much carriers can afford to invest in network modernization,” adds Mackey.

Full report: Wireless Taxation in the United States 2014

Media Contact:
Richard Borean
Manager of Communications
Tax Foundation
202-464-5120
borean@taxfoundation.org

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.

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The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.