Cell Phone Taxes Are Sneaking Up on You

Wireless taxes are arbitrary and unfair to consumers.

Woman checking her cellphone
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There's a good chance that you're paying hundreds of dollars in taxes each year that you aren't even aware of – and the culprit is your cell phone. Although most people simply pay their monthly wireless bill without much thought, a closer look at your statement will show that you're being taxed at an average rate of 17 percent for a service that's become essential to everyday life. Thankfully, members of Congress are considering legislation that would freeze government's ability to squeeze extra dollars out of middle-class families through outrageous wireless taxes.

The Wireless Tax Fairness Act (H.R. 2309/S. 1235) has gained bipartisan support and would put the brakes on arbitrary taxes that regressively target those who can least afford to pay. This legislation would freeze any new state and local cell phone taxes for five years, preventing governments from quietly raising taxes right under the noses of everyday consumers.

State and local governments need to collect taxes, but wireless service is quickly becoming the over-milked cash cow for short-sighted legislators. In 46 states, commercial transactions are subject to a clear, transparent sales tax, generally between 5 and 9 percent. Yet instead of applying this sales tax to wireless service, most states impose an even higher tax – over 18 percent in some cases. These taxes, added directly to a consumer's monthly phone bill, unfairly single out wireless service from the billions of other transactions that take place each day.

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State taxation of wireless service is not only unfair, but redundant, as wireless service is already subject to a 5.82 percent federal tax. These taxes are highly arbitrary – Washington's 18.62 percent rate dwarfs neighboring Oregon's 1.85 percent rate, even though many cell towers serve both states.

The wireless tax is not a user fee that covers the state's technological infrastructure costs, but rather an overtapped fundraising mechanism upon which states have become increasingly reliant. While increases in income and sales taxes generate media attention, citizen scrutiny and often voter backlash, state wireless taxes grow steadily without much fanfare.

By tacking tax hikes onto consumers' phone bills instead of making them more visible, state lawmakers have largely avoided facing criticism for the inherently regressive nature of wireless taxes. Taxes on universally-owned products like cell phones weigh disproportionately on young people, the poor and fixed-income seniors, who simply don't have room in their monthly budgets for an additional 17 percent fee on their wireless bill.

State taxes should be fair, reasonable, and consumer-friendly, but the wireless tax is none of the above. It may be the easy way out for politicians seeking to raise revenue while avoiding the attention of income and sales tax hikes, but that hardly makes it a sensible policy for consumers or businesses.