Governments charge taxes on cigarettes (New York $4.36 for a pack) and liquor (Washington State 20.5 percent for liquor) because cigarettes and booze are seen as “sin” taxes. Now, apparently, it is sinful to use a cell phone.
Why? Because wireless consumers now have to pay an average of 17.18 percent in taxes and fees on their cell phone bills, including 11.36 in state and local charges, on average, according to a new study by the Tax Foundation.
The number of U.S. cell phone subscribers has soared from 48 million in 1997 to 321 million in 2012.
Not just the young — all of whom own cell phones — are hit with these taxes. A cell phone specifically designed for seniors, for instance, is the Jitterbug Plus.
While the size of a typical modern cell phone has shrunk, is becoming more complicated, has an overwhelming number of applications to navigate, and demands technical savvy, the Jitterbug phone was designed to meet senior citizens’ unique needs. It has oversize buttons, a big display face, and louder speaker.
But whether young or old, you pay something near the equivalent of a “sin” tax on your cell phone.
In Nebraska, the average federal, state, local average rate is 24.49 percent. In six other states, (New York, Rhode Island, Illinois, Washington, Missouri, and Florida), it exceeds 20 percent.
States look with favor on phone taxes because they can bring in revenue in a relatively hidden manner.
Seven states (New York, Kentucky, Indiana, North Dakota, Pennsylvania, and Rhode Island) impose sales taxes as well as gross receipts on wireless service providers. “Both taxes are ultimately borne by customers,” explains Joseph Henchman and Scott Drenkard, Tax Foundation economists.
Baltimore, Md., charges a $4 per line per month on wireless users on top of federal and state taxes. Montgomery County, near the District of Columbia, imposes a $3.50 per line per month. Scholars of every ilk “have criticized telecom taxes as burdensome, regressive, and stifling consumer choice,” the Tax Foundation economists write.
Legislation known as the Wireless Tax Fairness Act has been introduced in Congress repeatedly to restrict excessive state and local wireless taxes.
Even if applying the rate and collecting the tax were easy, “determining which tax should apply to a specific cell phone user remains difficult,” the economists said.
In attempting to address the problems, Congress passed the Mobile Sourcing Communications Act in 2002. But it failed to solve all the problems.
In conclusion, making cell phone calls and using wireless phones for additional purposes (picture taking) may be getting easier, but paying the taxes is not. “Such actions distort market decisions and risk slowing investment that contributes to economic growth. Cell phone users are overtaxed relative to consumers of other goods plus a risk of double taxation,” argued Henchman and Drenkard.
Tait Trussell is an old guy and fourth-generation professional journalist who writes extensively about aging issues among a myriad of diverse topics.