In recent years, cell phones have eclipsed landlines, in a big way. States have noticed and are busily taxing mobile with average consumers paying 16% in taxes and fees. According to the Tax Foundation, Nebraska taxpayers face the highest cell phone tax rates:
The number of U.S. cell phone subscribers has grown significantly in recent years, from 55 million in 1997 to 292 million in 2010. That period has also seen a fall in landline telephones (there are now 50 million), and 2007 marked the first year that Americans spent more on cell phones than on landlines. This trend toward cell phones has not gone unnoticed by state and local governments, which have targeted wireless services for higher taxes.
The average U.S. wireless consumer pays taxes and fees of 16.26 percent, of which state-local charges average 11.21 percent, according to a newly released study that identifies and calculates wireless taxes and fees. Twenty-three states have average state-local wireless taxes and fees in excess of 10 percent, and taking into account the infamous federal telephone excise tax (dating to the Spanish-American War and partly repealed in 2006), some cell phone subscribers pay more than 20 percent in taxes.
Cell Taxes and Fees Are Often Hidden, Enabling Excessive Rates
States favor the taxes because they can raise revenue in a relatively hidden way. Texas even sued Sprint because the company listed a state tax as a line-item in its bill, rather than hiding it from customers. Utah uses a wireless fee to fund its poison control centers-a government service that benefits the general public regardless of cell phone ownership or usage. Six states (Kentucky, Indiana, North Dakota, Pennsylvania, Rhode Island, and South Dakota) impose both sales taxes on wireless customers and gross receipts taxes on wireless service providers, both of which are ultimately borne by customers. Universal Service Fund (USF) charges are modest in most states but particularly excessive in Nebraska and Kansas, where they exceed 4 percent of the wireless bill.
Because each state and many localities can impose cell phone taxes, and because they can be imposed as a percentage or as a flat rate, there are numerous taxes which vary widely. Researchers have found it difficult to create a database of cell phone taxes, and cell phone companies have encountered similar problems in calculating the taxes. This can be a serious problem for cell phone businesses, because they collect the taxes from subscribers and can be held legally accountable for any mistakes-both over-collection and under-collection.