Wireless Taxes and Fees Climb Again in 2018

by Scott Mackey and Joseph Bishop-Henchman, Tax Foundation, December 11, 2018

Key Findings

A typical American household with four wireless phones paying $100 per month for taxable wireless service can expect to pay about $229 per year in wireless taxes, fees, and surcharges—up from $221 in 2017.

Nationally, these impositions make up about 19.1 percent of the average customer’s bill—the highest rate ever. Illinois now has the highest wireless taxes in the country at 27.6%, followed by Alaska at 26.1%, Washington at 26.1%, Nebraska at 25.5%, and New York at 25.2%.

Since 2008, average monthly wireless service bills per subscriber have dropped from just under $50 per-line per month to $38.66 per month—a 23 percent reduction. However, wireless taxes have increased from 15.1 percent to 19.1 percent of the average bill—a 27 percent increase.

Most states impose higher taxes, fees, and surcharges on wireless service than on other taxable goods and services. In Alaska, which has no state sales tax but allows local sales taxes, wireless taxes are nearly eight times higher than local sales taxes. Other states with significantly higher wireless taxes include Nebraska (2.6 times higher), Pennsylvania (2.3 times higher), Maryland (2.3 times higher) and Illinois (2.2 times higher).

At the end of 2017, over 68 percent of poor adults had only wireless for their phone service, and 53 percent of all adults were wireless only. Excessive taxes and fees, especially the very high per line charges like those imposed in Chicago and Baltimore, impose a disproportionate burden on low-income consumers. In Chicago, taxes on a family with four lines of taxable wireless service paying $100 per month are nearly $500 per year—over 40 percent of the bill.

Executive Summary

Taxes, fees, and governmental surcharges on wireless consumers increased in 2018, jumping from 18.5 percent to 19.1 percent of the customer’s bill. An American household with four wireless phones paying $100 per month for wireless voice service can expect to pay about $229 per year in wireless taxes, fees, and surcharges—up from $221 in 2017.

State and local wireless taxes increased from 12.1% to 12.5%, the fifth consecutive increase. The Federal Universal Service Fund surcharge (FUSF) increased from 6.3 percent to 6.6 percent of the typical wireless bill.

Fortunately for wireless consumers, intense price competition produced a large reduction in the average monthly per-line cost of wireless service. Average revenue per subscriber fell dramatically for the second year in a row, from $41.50 per month in 2017 to $38.66 per month in 2018. Unfortunately, consumers were not able to fully enjoy this price reduction because taxes, fees, and surcharges continue to remain stubbornly high.

Wireless consumers will pay an estimated $16.1 billion in taxes, fees, and government surcharges to federal, state, and local governments in 2018 based on the tax rates calculated in this report. These taxes, fees, and surcharges break down as follows:

$6.1 billion in sales taxes and other nondiscriminatory consumption taxes

$4.9 billion in federal Universal Service Fund surcharges

$2.8 billion in 911 fees, a category that includes hundreds of millions of dollars that are not actually used for 911 purposes.

$2.2 billion in other industry-specific state and local taxes and fees.

Consumers in Illinois, Alaska, Washington, and Nebraska pay the highest wireless taxes in the country, while wireless users in Oregon, Idaho, and Nevada pay the lowest wireless taxes.

Wireless service is increasingly the sole means of communications and connectivity for many Americans, particularly young people and those with lower incomes. At the end of 2017, according to the Centers for Disease Control, about 68 percent of all poor adults lived in wireless-only households and 53 percent of all adults of all incomes lived in wireless-only households. [1] These excessive taxes and fees–especially those that impose high per-line taxes and fees–impose a disproportionate tax burden on those least able to afford them….

read … Cell Phone Taxes

Table 2. Taxes, Fees, and Government Charges on Wireless Service, July 2018

2018 Wireless State-Local Rate 2018 Federal USF Rate 2018 Combined Federal/State/Local Rate 46th Hawaii 7.75% 6.64% 14.39%

Table 3. Disparity Between Wireless Tax & Fee Rate and General Sales Tax Rate, July 2018

State-Local Sales Tax Rate State-Local Wireless Tax Rate Wireless Over/Under Sales Tax Rate Disparity Multiple Hawaii 4.00% 7.75% 3.75% 1.94

State and Local Transaction Taxes, Fees, and Government Charges on Wireless Service — July 1, 2018