Forking over $399 for an iPhone is only the beginning: Wireless customers pay an all-time high of nearly 18 percent on average in combined taxes and fees on their cellphone bills.
A report released Monday by the non-partisan Tax Foundation found that the combined federal, state and local tax burden on wireless service has risen steadily from an average of 14.1 percent in 2006 to a record high of 17.9 percent as of July 1, 2015.
The states with the highest state-local tax rates are Washington (18.69 percent), Nebraska (18.53 percent), New York (17.9 percent), Illinois (17.46 percent) and Missouri (14.79 percent). More than half the states have rates higher than 10 percent.
The five states with the lowest state-local rates are Oregon (1.80 percent), Nevada (1.95 percent), Idaho (2.17 percent), Montana (6.11 percent) and Delaware (6.29 percent).
That doesn’t include the federal USF rate of 6.46 percent, which means that wireless service in the highest-tax states ends up costing consumers about 25 percent of their total bill.
“The state of Washington has now edged out Nebraska as the state with the highest average wireless consumer burden in the country, with a combined rate of 25.15 percent,” said the annual report, co-authored by KSE Partners’ Scott Mackey and Joseph Henchman, Tax Foundation vice president for legal and state projects.
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“Nebraska is not far behind with a combined burden of 24.99 percent,” the report said.
In addition, “Four cities — Chicago, Baltimore, Omaha, New York City, and Seattle — now have effective tax rates in excess of 25 percent of the customer bill.”
The wireless industry was quick to respond by renewing its call for Congress to extend the Internet Tax Freedom Act, which expires in December, noting that the 18 percent wireless tax rate is 2.5 times higher than the general sales-tax rate on most other goods and services.
“Policymakers who want to ensure that every American can fully participate in the digital economy should support efforts to alleviate these discriminatory rates of taxation, and certainly to prevent their extension to new areas,” Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, an advocacy group, said in a statement.
By and large, state and local wireless taxes are used not for costs associated with wireless service but for general revenue. The exception is 911 fees, which are used to build and maintain the emergency-response systems, he said.
“So really, these taxes are just an easy way to get money from citizens because most people don’t look at the taxes and fees on their bills that closely,” said Mr. Mackey in an email. “This report is intended to help educate consumers about the billions they are paying in excess wireless taxes and fees.”
The report found cellphone consumers pay an estimated $5.8 billion annual in state-local taxes and fees, and another $5 billion in federal surcharges.
Those charges also hit lower-income customers the hardest, the report said. It is generally the case that all taxes on goods or services — as distinct from taxes on income or property — are regressive because they’re the same for all, regardless of ability to pay. But apart from that, phone-service levies also affects a service the poor need more, the Tax Foundation said.
“Governments need efficient taxes to raise necessary revenue, but there are compelling reasons as to why lawmakers should look elsewhere before expanding wireless taxes, fees, and surcharges,” said the report. “For instance, cell phones are increasingly the sole means of communication and connectivity for many Americans, particularly those struggling to overcome poverty.”
• Valerie Richardson can be reached at vrichardson@washingtontimes.com.
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