For many companies, the wireless portion of
telecommunications bills is a significant segment of their overall monthly
telecom expenditures. Despite the fact that wireless rates have dropped over
the past five years, the taxes portion of wireless bills has increased
Like it or not, taxes for wireless phone service
far exceeds the tax rate for other consumer goods and services - even alcohol
and tobacco! Federal, State and Local taxes on a typical wireless bill can vary
from 10% to as high as 24% or more of the total monthly service charges
depending on the state the customer resides.
Why are wireless taxes so out of
One reason is that everyone wants a piece of the
pie. Federal, State, and Local municipalities all contribute to the total taxes
customers pay each and every month for wireless services. Nearly six years
after the National Conference of State Legislatures (NCSL) urged state leaders
to begin to reform their telecommunications taxes, most states have done little
to ease the wireless tax burden for customers - and some have added more.
If you are not familiar with the specifics, the
following are just a few of the many taxes that are in place to help drive up
your wireless bill.
Federal Excise Tax - The infamous federal
excise tax was signed into law in 1898 to help fund the Spanish American war.
Since virtually no one had phones in 1898 (except the wealthy) the tax was
originally designed as a luxury tax. 108 years later, wireless customers still
pay a 3% federal excise tax on monthly bills.
Federal Regulatory Fee - The introduction
of local number portability created this federal tax. It is intended to cover
local number portability costs and other regulatory license fees and charges
that are incurred by the carriers. This fee can vary significantly from carrier
to carrier. It is often found in the surcharges section of the wireless bill
and not the taxes and fees section.
Federal Universal Service Fee - The federal
government imposes this tax to promote affordable telecommunications to all
Americans -- including low income consumers, schools, libraries, etc. The fee
is actually imposed upon the carriers who then have the option to pass the
costs along to the consumer. As you would guess nearly all carriers typically
recover this tax on monthly wireless bills either as a fixed charge or as a
percentage of revenue based on what they have estimated the total cost will be
to meet this requirement.
State Universal Service Fee - Some states
impose a State Universal tax right along with the Federal Universal tax. As
with the federal tax of the same name this fee can either be levied on to the
carrier or directly onto the wireless bill of the customer.
State 911 fees - All but five states impose
a 911 fee to help fund state and local emergency communications systems. The
amount of this tax can vary greatly from state to state.
State and Local Excise Taxes - For states
that do not have a sales tax such as Montana, New Hampshire or Delaware, an
excise tax on wireless service is imposed. This category of taxes is placed
directly on the wireless customer bill and can be found in the taxes and fees
section of the bill.
Wireless Taxes with Percentages By
Just how much does your wireless bill go towards
taxes? The following table of state listings will give you a good idea of the
total amount of taxes in percentage of the monthly wireless bill. (in
New York - 21.71%
Washington - 21.52%
Illinois - 21.05%
Texas - 19.67%
Rhode Island - 19.55%
California - 18.66%
District of Columbia - 18.05%
Tennessee - 17.05%
Missouri - 16.60%
North Dakota - 16.42%
Wyoming - 16.15%
Kansas - 15.80%
Arkansas - 15.69%
Colorado - 14.85%
Minnesota - 13.58%
New Hampshire - 13.35%
North Carolina - 13.13%
New Mexico -
Ohio - 13.11%
Alabama - 12.93%
Vermont - 12.75%
Michigan - 12.55%
Iowa - 12.01%
Hawaii - 11.62%
New Jersey -
Wisconsin - 11.03%
Louisiana - 9.87%
Alaska - 9.53%
West Virginia- 7.42%
Nevada - 6.62%
Who is to blame?
From the perspective of state and local
governments, wireless and telecommunications taxes in general are an important
source of revenue. The concern of state and local municipalities is that
federal legislation to cut or eliminate certain state and local wireless taxes
would have a far-reaching impact on this important and much-needed source of
From the perspective of the telecommunications
industry, the escalating taxes on telecommunications services as compared with
other goods and services is just not sustainable.
Moreover, the foreseeable future will bring
additional products and services directly to wireless devices. Wireless
customers are already beginning to download video clips, games, music and other
digital products and services. State and local governments that begin taxing
these types of transactions will meet with even more protest from customers and
The convergence and popularity of new
communications technologies (VoIP) will pressure states and local governments
to begin to confront the over taxation of wireless customers. Not only will
this type of tax reform help the pocketbooks of consumers and businesses, it
will also encourage additional investment incentives for companies to lay the
groundwork for the telecommunications networks of the future.
Who is tax exempt?
Payments for certain services or payments from
certain users could be exempt. Charities, churches, schools, nonprofit
educational and hospital operations, certain other entities that receive
government funding, foreign counselor operations, and others, may be exempt
from state and/or federal taxes on wireless services.
To understand the specific services that are
exempt from federal tax, refer to the Internal Revenue Service publication 510
entitled Communications Tax. This publication is very specific as to what taxes
are federally imposed and which are exempt.