Fixing State Deficits With Higher Cell Phone Taxes

States to cell phone users: Can you hear us now?

States are targeting the honey pot of the estimated 292 million cell phone users in this country to close their Grand Canyon-sized budget gaps. A new national study shows that states are increasingly slapping U.S. taxpayers with excessive, hidden cell phone levies and fees in order to close their gaping budget holes. At more than 16%, the average federal and state cell phone taxes and fees are now more than double the average 7% or so charged for other goods and services, according to Congressional estimates.

Nebraska ranks as the worst in the country for cell phone users with the highest cell phone taxes.

The combined federal-state-local average rate in the state is 23.69%. And in four other states--Florida, Illinois, New York, and Washington--it exceeds 20%, says the Tax Foundation, a nonprofit.

Rhode Island, Missouri, Pennsylvania, Kansas and Texas round out the ranking of the top 10 worst states for cell phone taxes.

As the use of land line telephones has declined, the average U.S. wireless consumer now pays taxes and fees of 16.26%, of which state-local charges average 11.21%, says the Tax Foundation. That’s more than what they paid on land lines. Americans pay an estimated $146 billion annually on cell phone taxes, up an estimated 6% since 2003, an increase that's four times faster than the rate of growth for taxes on other goods and services. 

Twenty-three states have average state-local wireless taxes and fees in excess of 10%. With federal taxes, some cell phone subscribers pay more than 20% in taxes, the Tax Foundation says. Tax Foundation says it based its study on methodology from Council on State Taxation, 50-State Study and Report on Telecommunications Taxation, done in May 2005.

Interestingly, cell phones are taxed at a much higher level than alcohol or cigarettes, as well as other items, the nonprofit says.

Ever since the first federal telephone excise tax was launched at the time of the Spanish American war, states were supposed to use phone taxes and fees to enhance phone connectivity and usage.But the National Taxpayers Union notes “these predatory taxes are often squandered on projects that have little to do with improving the communications network.”

For example, Utah slaps a wireless fee on its taxpayers to fund poison control centers, Tax Foundation says. Wisconsin hits cell phone users with a tax that helps pay for police stations, the nonprofit says.

“States favor the taxes because they can raise revenue in a relatively hidden way,” Tax Foundation says in its press release.

It notes that in 2007 Texas “even sued Sprint for deceptive billing, because the company tried to pass off a cell phone fee as a state tax in its bill. Sprint had been charging Texas cell phone users a 1 percent “Texas Margin Reimbursement” fee. On some bills, the fee showed up in a section entitled “government fees & taxes.”

And even local jurisdictions join in the over taxation. For example, Baltimore hits cell phone users with a $4 line per month tax, in addition to federal and state levies, Tax Foundation says. Montgomery County, Maryland slaps a $3.50 per line per month tax.

Tax Foundation notes that experts on both sides of the political aisle have criticized, time and again, telecom taxes for being “burdensome, regressive, and stifling consumer choice.” Time and again, Congress entertains legislation like the Cell Phone Tax Moratorium Act, only to apathetically let such bills die on the vine.

To make matters worse, NTU research has shown that taxes heaped upon mobile service are among the worst of all the "hidden" levies not readily apparent to the people paying them.