Admittedly, no one likes taxes, but things have gotten a bit out of control in the wireless space.
The typical wireless consumer pays 15.2 percent of their total bill in federal, state and local taxes, fees and surcharges. That’s more than double the average tax rate for other goods and services, which is about 7 percent.
According to the CTIA, taxes on wireless services increased four times faster than the rate on other taxable goods and services between January 2003 and July 2007. Twenty-one states now impose double-digit state and local transaction taxes on wireless services.
To that end, the Mobile Wireless Tax Fairness Act (available here) was introduced in the U.S. Senate this week by U.S. Senators Ron Wyden (D-Ore.) and Olympia Snowe (R-Maine). The bill calls for a five-year halt on new wireless-specific taxes by state and local authorities, and should help municipalities gradually wean themselves off of inflated wireless tax revenues.
The CTIA and a host of companies, including Verizon Wireless, applauded the initiative. Most of the taxes have a historic basis that goes back for decades. For example, they once paid for telecommunications companies’ use of public land for large-scale infrastructure deployment.
Although the rationale for such taxes has long since passed, municipalities have become dependent on the revenue they generate, and similar bills have failed in the past.
In 2006, a cell phone tax moratorium proposed by Sen. John McCain (R-Ariz.) died before reaching a full floor vote. In 2007, the Cell Phone Tax Moratorium Act met the same fate, followed by the Cell Tax Fairness Act (available here) in 2008, which also failed to reach a full floor vote.
“[Cities] sort of forgot about all the rationales and just said the taxes were functionally equivalent, so you have a two- or three-decades-old tax policy being applied to a 21st century marketplace,” says Scott Mackey, an economist at Kimbell Sherman Ellis who previously conducted research about wireless taxes and fees for the CTIA.
The state of the economy will make stemming any revenue stream a difficult pitch to make, especially given the bill’s track record.
Mackey’s final words: Given the huge reliance on these revenues, the best the industry can do is get a moratorium and give states time to reform.