The Hidden 17% Tax: Your Cell Phone Bill

August 29, 2013 — Leave a comment

While some taxes get more attention than they deserve, others fly totally under the radar.

The wireless tax is one of them and the mobile industry isn’t happy about it. As seen in a previous infographic which we posted, I bet you didn’t know wireless taxes grew 4X faster than general sales tax has in the last decade.

“Wireless taxes have long been a fairly frictionless way for states and cities to get revenue,” said Jot Carpenter, vice president of government affairs at telecom industry association CTIA. “It used to be a tax on the wealthy, but now that most people have cell phones, it’s hard to say it’s just targeting the rich now.”

Local, state, federal governments, 911 systems, and even certain school districts add-on surcharges to your wireless bill, which end up costing American cell phone users an extra 17.2%. That percentage sat at 16.3% just fifteen months ago.

A huge problem with the wireless tax is that wireless providers attach it to the cell phone bill each month and it is not as easily transparent as income or property taxes. As seen in the picture above: a cell phone customer in a New York jurisdiction could have up to 12 taxes and surcharges show up on their monthly bill.

Nebraska wins the price for having the highest wireless tax. The state’s wireless tax causes a cell phone bill of $60 to actually cost $74.69 at the end of the month. Contrariwise, Oregon has the lowest wireless tax rate and in the state of Oregon this same bill costs $10 less.

“High wireless taxes date back to the ‘Ma Bell‘ days of AT&T, when few Americans had cell phones and various governments saw wireless surcharges as a way to support expensive services, such as rural telephone infrastructure build-outs. Every American today pays 5.82% of their cell phone bill to the federal Universal Service Fund. which originally paid for those rural phone services.”

The Telecommunications Act of 1996 created the Universal Service Fund (USF). One of the primary goals of the USF was to “create specific, predictable, and enough Federal and State mechanisms to keep and advance universal service,” and that all schools, classrooms, health care providers, and libraries should have access to advanced telecommunications services

Being a resident in a tax-free state does not help you in avoiding the wireless tax. States, with no sales tax, like Alaska still have a higher than average wireless tax rate at 17.9%: “thanks in large part to its hefty 6%, state-imposed Universal Service Fund tax to support rural telephone services.”

The wireless tax remains ever more effective form of taxation in the fact that you cannot escape it by buying a phone in a bordering state with lower wireless taxes. The Mobile Telecommunications Sourcing Act of 2002 demands that taxes be levied at the address that the cell phone company determines to be a customer’s “place of primary use.”

So hypothetically, if you were to live in Washington (the state with the second highest wireless tax rate), it would not make sense to buy your phone in neighboring Oregon, for the low tax rate would have no effect.

Are there changes on the way? There are two bipartisan pieces of legislation floating around Congress ( known as the “Wireless Tax Fairness Act). These bills wouldn’t lower the wireless tax rate; however, they would impose a moratorium on the ever-growing, hidden wireless tax.

As we noted, Americans today can pay an average of 17.2% in taxes on cell phone bills, but these taxes can vary by state. Check out CNNMoney‘s interactive map to see what your state’s wireless tax sits at currently.

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