Tags: cell | phone | tax | hidden

Report: Hidden Cell Phone Taxes Average 17 Percent

By Michael Kling   |   Thursday, 11 Jul 2013 10:12 AM

If you dislike paying a 5 or 6 percent local sales tax, you'll be especially annoyed at a 17.18 percent tax on your cell phone bill. That's what the average wireless consumer pays in taxes and fees for cell phone use, according to a new report from the Tax Foundation.

Unlike ordinary sales taxes, cell phone taxes are largely invisible, and states like cell phone taxes because they relatively hidden, according to the Tax Foundation. In fact, Texas once sued Sprint for revealing the state tax as a line-item on bills. Seven states impose sales taxes on customers as well as gross receipts taxes on service providers, and both taxes are ultimately borne by customers.

Cell phones are taxed at higher rates than other items, even alcohol or cigarettes, the foundation says. The highest sales tax in the country (combined state and average local rates) is 9.43 percent in Tennessee. The highest state and local rates for cell phone service are almost twice as high.

Editor's Note:
The IRS’ Worst Nightmare — How to Pay Zero Taxes

"Scholars from across the political spectrum have criticized telecom taxes as burdensome, regressive and stifling consumer choice," says Tax Foundation economist Scott Drenkard. "In response to this problem, legislation entitled the Wireless Tax Fairness Act, which would restrict excessive state and local wireless taxes, has been regularly introduced in Congress."

Baltimore imposes a $4 per line per month tax on wireless users, on top of federal and state charges. Nearby Montgomery County in Maryland imposes a $3.50 per line per month tax. These per line charges are especially burdensome on low-priced "family share" plans, the foundation argues.

Nebraska has the highest total tax rate of 24.49 percent. Six other states have rates over 20 percent, and 26 states have average state-local wireless taxes and fees in excess of 10 percent.

Critics say states, towns and government agencies use cell phone taxes to secretly raise revenues without the political fallout.

"Wireless taxes have long been a fairly frictionless way for states and cities to get revenue," Jot Carpenter, vice president of government affairs at telecom industry association CTIA, tells CNNMoney. "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."

Bills proposed in Congress would prevent higher cell phone taxes, but not decrease them.

"What needs to happen is an overhaul of this poorly thought-out tax policy," Carpenter adds. "But before you can fix it, you have to stop digging the hole.

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

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