How hidden taxes slam cell phone users
If you think your cell phone bill is too high, it may not be your carrier's fault. Federal, state and local taxes add 17 percent to the average bill. And for those unlucky enough to live in a high-tax city or state, government levies can amount to one-quarter to one-third of cell phone costs.
Governments favor cell phone taxes because they're largely hidden from view, according to the Tax Foundation, a Washington, D.C., nonprofit that conducted a thorough study of cell phone taxes nationwide.
However, these taxes place a disproportionate burden on the poor, who have increasingly dropped land lines in favor of cell service. Indeed, while state sales taxes are often criticized for hitting the poor hardest, cell phone taxes are far higher, according to the study.
"Excessive taxes and fees may reduce low-income consumers' access to wireless service at a time when such access is critical to economic success," said Scott Mackey, co-author of the study and a partner at KSE, a strategic communications firm in Washington, D.C.
According to the report, five cities have cell phone taxes that add more than one-quarter to the average consumer's bill. Taxes in Chicago and Baltimore are particularly egregious, according to the study. Baltimore imposes a $4 per-line tax for general revenue purposes, while the Illinois general assembly recently passed legislation to boost its per-line fee for 911 services to $3.90 from $2.50 per month.
It's worth noting that this fee was doubled in 2008 to pay for potential security upgrades to support Chicago's Olympic bid. Although Chicago didn't get the Olympics, the tax was never reduced to previous levels. And now, the state says it's hiking this tax to avoid having to increase property taxes.
"The use of 911 fees for purposes unrelated to direct expenditures on the 911 system breaks faith with wireless consumers," the study said. Certainly, it seems to shift the tax burden to renters with cell phones, rather than homeowners.
Where are cell phone taxes the highest?
Based on a $100 plan with four lines, residents of Chicago pay the most, with $35.42 of the bill going to pay state, federal and local taxes. Residents of Baltimore pay the second-highest tax levy at $32.05. Those in Omaha are third, with taxes amounting to $27.36, or 27.4 percent of the cost of service. Taxes also account for more than one-quarter of $100 cell bills for residents in New York ($25.80) and Seattle ($25.12).
On a statewide basis, wireless phone taxes are highest in Washington state, which levies a 18.6 percent tax, more than twice the state's sale tax rate of 9.15 percent. Nebraska comes in second, with wireless taxes and fees accounting for 18.48 percent of cell phone bills, which is nearly 11.5 percentage points higher than the state's sales tax rate of 7 percent.
It's worth noting that taxes on wireless service exceed sales tax rates in all but five states: Alabama, West Virginia, Louisiana, Idaho and Nevada. With wireless service the only form of connectivity for 56% of low-income Americans, the authors of the study urge state legislators to find alternative methods of raising revenue that are less harmful to the poor.
