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Stop the High Taxation of Wireless Phone Services
Posted by Zack ChristensonJuly 17, 2012
Late last year, the House passed a bill known as the Wireless Tax Fairness Act of 2011.  The bill is an attempt to stop state and local governments from adding any new taxes for the next 5 years onto an already over-taxed service that millions of Americans currently pay for—wireless phone service.  By 2015, it’s estimated that there will be 2 billion mobile devices in this country alone.  This important step in stopping the implementation of new out of control taxes is only the first stop—now, the bill has been introduced into the Senate by Senator Ron Wyden (D-OR) as an amendment to the Small Business Jobs and Tax Relief Act.  The bipartisan bill is due for a Senate vote soon and could put an end to the discriminatory and unfair taxes on levied on cellular service consumers.

Right now, nearly half of all states impose some sort of wireless tax above 10%.  The average tax on wireless phone service is actually 16.3%, with consumers in 5 states actually being charged over 20% in taxes.  Worse yet is the statistics that show the awful outcome of many of the taxes that are collected via wireless taxes.  Much of the increases have come as a result of the Universal Service Fund (USF), whose funds are meant to be earmarked to provide service to rural and low-income areas.  A recent study shows that of the taxes meant for the USF, 59 cents out of every dollar is wasted on bureaucratic and administrative costs, leaving little left for what the program intended.

The Wireless Tax Fairness Act is important because it would put a stop to states and localities from attempting to fill budget holes and balance budgets on the backs of wireless phone consumers.  These taxes are discriminatory as they target one segment of the population.  They’re also nearly hidden as well—cell phone bills can be so complicated and long that they can be sometimes undecipherable.  Many consumers oftentimes don’t realize the massive tax they’re paying for their cell coverage.

With policymakers always espousing the need for consumers to have better, faster and wider access to the Internet, these outsized taxes can be an inhibitor to getting low and middle-income consumers to embrace the service.  Many low-income consumers only access to the Internet comes through wireless service.  And President Obama’s National Broadband Plan has called for all Americans to have reliable access to the Internet—these wireless taxes are a huge impediment to this goal.  Earlier this year, a paper was published that showed that discriminatory taxation can lead to underutilization of what’s being taxed—something we can’t afford when it comes to wireless technology.  Any outsized taxes on an industry and service that plays such a large role in spurring our economy, creating jobs and connecting people around the world should be pared back in order to spur these economic benefits.

The Senate should act quickly to pass this legislation and put it in front of the President.  In these unstable economic times, we can ill afford to have a system where wireless consumers are taken advantage of, merely to satiate the spending appetites of state and local legislators.  Although Congress can’t fix the dysfunctional tax codes of many states that have brought on these outsized tax bills, in its role of regulating interstate commerce it can take measures to put a cap on these discriminatory tax bills.

Zack Christenson write on digital tech issues for the American Consumer Institute

    

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State Sen. Mark Grisanti, R-Buffalo, and Assemblyman Dennis Gabryszak, D-Cheektowaga, discussed their proposal during a recent news conference.

In 1991, the state began collecting a surcharge of 70 cents on cellphone bills, and in 2002, the surcharge was raised to $1.20.

Proceeds from the surcharge, according to Grisanti, were designed originally for the State Police and to pay for upgrades to local 911 call centers and other technological improvements.

But that hasn’t happened, the lawmakers said, even in the aftermath of communication breakdowns such as occurred on 9/11 and continue to hamper emergency services in rural areas of the state.

“Oftentimes, when there is a surcharge placed for an intended purpose, the money gets swept out for use in the general fund and not used for the intended purposes,” Gabryszak added.

The lawmakers’ bill would designate 58.3 percent of surcharge funds as grants or reimbursements to counties for the enhancement of 911 call centers and public safety communications technology. The remaining 41.7 percent would be used for State Police purposes.

“We want to make sure that the funding is going to first responders, to our dispatchers, trickling down from the state to the local municipalities to the fire districts. So this way some of the burden is taken off the county government and local municipalities,” Grisanti said.

In 2002, a state audit discovered surcharge funds were being diverted to miscellaneous State Police expenses, instead of the communications upgrades.

The New York State 911 Coordinators Association estimated that the state has collected more than $1.2 billion in surcharges since 1994. Last year, the state collected $190 million but only transferred $9.3 million to county governments.

To Brian Gould, fire chief of the Bellevue Fire Company, the improper diversion of funds is particularly troubling following what happened on 9/11.

“I think we all saw the tragedy in New York City on Sept. 11, and that should have been a wake-up call that we really need to use these funds where they’re meant to be used,” he said. “It just doesn’t seem right that the state can collect taxes for something and then, once they get the money, use it for something else.”

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The charges shown below are applied to various telecommunications services subscribed to by customers.


STATE AND LOCAL SALES TAX

a. Description: Taxes paid by consumers and directly submitted to appropriate state, county or city authorities. City school district taxes are also collected under sales tax law provisions.

b. Rate or Range of Rates: State Sales Tax rate is 4%; county sales tax rates are capped at 3%, but counties can seek legislative approval for higher rates. City school taxes are allowable up to 3%. An additional 0.375% MTA Tax Surcharge applies in the New York Metropolitan area and may be bundled with the State or Local Sales Tax. Calls to entertainment and information services, such as those dialed using 500, 700, 800 or 900 telephone numbers, are taxed at an additional 5%.

c. What it is applied to: All intrastate services, including all surcharges, except the E911 charge.

d. Statutory Authority: New York State Tax Law, § 1101 et seq. (State Sales Tax and additional tax on entertainment/information services), § 1201 et seq. (city school district taxes), § 1109 et seq. (MTA Surcharge on Sales Tax).

FEDERAL EXCISE TAX

a. Description: The Federal Excise Tax was introduced in 1898 by the federal government as a temporary tax to support the nation's efforts in the Spanish-American War. The tax revenue from the Federal Excise Tax goes directly into the Federal General Fund.

b. Rate or Range of Rates: The tax rate is three percent.

c. What it is applied to: The Federal Excise Tax is applied to all local telecommunications services except installation charges, and is not applied to other taxes.

d. Statutory Authority: Internal Revenue Code §§ 4251-54.

E911 SURCHARGE

a. Description: 911 has been designated as the "Universal Emergency Number" for all citizens throughout the United States to request emergency assistance. The purpose of the fee is to "pay for" the cost of such systems. Consumers do not pay this fee in order to be provided with E911 service. A consumer has access to E911 whether or not the locality in which the consumer lives has imposed the monthly charge. line that appears on their phone bill. There is no per-call charge for calling 911.

b. Rate or Range of Rates: Not to exceed thirty-five cents per access line per month on the consumers of every service provider within each municipality imposing the surcharge, other than the City of New York, Tompkins County and Onondaga County which are authorized to impose a monthly charge of up to $1.00. No such surcharge shall be imposed upon more than seventy-five exchange access lines per customer per location. Lifeline customers, a public safety agency and any municipality which has enacted a local law pursuant to the provisions of this article shall be exempt from any fee/surcharge imposed under this article.

c. What it is applied to: This surcharge is a flat fee paid by the consumer. The surcharge required to be collected by the service provider shall be added to and stated separately in its billings to the customer.

d. Statutory Authority: Established pursuant to authority under New York's County Law Article 6 and 6-A (Enhanced Emergency Telephone System Surcharge).

PUBLIC SAFETY COMMUNICATIONS SURCHARGE

a. Description: A surcharge to fund public safety communications systems. The surcharge is placed on wireless communications service provided to a wireless communications customer with a place of primary use in this state, as that term is defined in Tax Law §1101(26). The surcharge must be reflected and made payable on bills rendered to the wireless communications customer for wireless communications service. The surcharge must be added as a separate line item to bills furnished by a wireless communications service supplier to its customers, and must be identified as the "public safety communications surcharge".

b. Rate or Range of Rates: $1.20 per device per month.

c. What it is applied to: Each wireless communications device in service during any part of each month.

d. Statutory Authority: Imposed pursuant to New York's Tax Law §186-f.


MUNICIPAL SURCHARGE

a. Description: This surcharge recovers telephone company expenses associated with municipal revenue taxes, which apply to calls originating and terminating within the village or municipality.

b. Rate or Range of Rates: Not to exceed 1% except in Buffalo, Rochester and Yonkers, where the rate may not exceed 3%. Statements attached to tariff schedules indicate the surcharge percentage for each village or municipality.

c. What it is applied to: All local charges, LNP Surcharge, FCC Line Charge and Federal USF Surcharge.

d. Statutory Authority: General City Law, § 20-b, Village Law, § 5-530.

NEW YORK STATE GROSS REVENUE TAX SURCHARGE

a. Description: This surcharge recovers telephone company expenses associated with mandated New York State Transportation and Transmission Corporation Franchise Taxes (Section 184 Tax) and Excise Taxes on Telecommunications Services (Section 186E Tax).

b. Rate or Range of Rates: The Commission has previously established maximum rates for this surcharge, which vary according to the type of service provided and whether or not the carrier is principally engaged in local telephone business. For telephone corporations, including resellers, principally engaged in local telephone business, the maximum rates 1 are as follows:
Services provided for resale - 0.3764%
IntraLATA toll and Regional Calling - 2.8273%
All other Services - 2.9405%


For telephone corporations, including resellers, not principally engaged in local telephone business, the maximum rate is 2.5641% and applies to all services.

c. What it is applied to: This surcharge is generally applied to all services except the E911 surcharge. Technically, companies are not required to pay Section 184 Taxes on interstate and international calls and services; however the surcharge is not bifurcated in this manner. Since the 184 Tax is very small compared to the 186E Tax, which is levied on interstate and international services, the amount of over-collection is minimal. Companies may file tariffs that provide for separate 184 and 186E Tax surcharges to more precisely collect the appropriate taxes.

d. Statutory Authority: New York State Tax Law, § 184; §186-e.

FCC SUBSCRIBER LINE CHARGE (SLC) 2

a. Description: The FCC instituted this charge as it developed its access charge regime after the break-up of AT&T in 1984, and caps the maximum price that a company may charge. This is not a government tax or surcharge, and it does not end up in the government's treasury. The SLC recovers some of the costs of the local network formerly recovered through interstate toll charges. While only ILECs are required to collect the SLC, the FCC explicitly affirmed the right of CLECs to impose a SLC on their customers. Thus, CLEC SLC rates are not capped in the same manner as ILEC SLCs.

b. Rate or Range of Rates: Subscriber Line Charge (SLC) for a primary residential line and a single-line business is capped at $6.50 per month per line. The cap for non-primary residential lines is $7.00 per month per line. Only one residential line is deemed to be the primary line. The cap of $9.20 per month applies to multi-line business users. CLECs are not required to apply these rates.

c. What it is applied to: This surcharge is a flat fee. The surcharge required to be collected by the service supplier shall be added to and stated separately in its billings to the customer. All taxes and surcharges apply to this charge.

d. Statutory Authority: Interstate Charge Approved by FCC under § 47 USC 201, Case # CC 80-286.

FEDERAL UNIVERSAL SERVICE FUND RECOVERY CHARGE

a. Description: The FCC, as directed by Congress developed the Federal Universal Service Fund (USF) which provides funding for low income services, schools and libraries, and high cost rural service. All telecommunications companies are required to pay a specific percentage of their interstate and international revenues into the USF.

b. Rate or Range of Rates: The FCC calculates the quarterly percentage of the interstate and international revenue (contribution factor) based on the ratio of total projected quarterly costs of the universal service support mechanism to contributors' total projected collected end-user interstate and international revenues, net of projected contributions. The quarterly percentage can be found on the FCC web site at http://www.fcc.gov.

c. What it is applied to: The USF charge is a flat fee on the interstate and international revenues on a customer bill which may not exceed the FCC quarterly percentage.

d. Statutory Authority: 47 C.F.R. § 54.709(a)

MTA TAX SURCHARGE

a. Description: This surcharge recovers telephone company expenses associated with mandated New York State temporary metropolitan transportation business tax surcharge (Section 184-A Tax), and applies to customers located in the New York metro area only.

b. Rate or Range of Rates: The Commission has previously established maximum rates for this surcharge, which vary according to the type of service provided and whether or not the carrier is principally engaged in local telephone business. For telephone corporations, including resellers, principally engaged in local telephone business, the maximum rates are as follows:
Services provided for resale - 0.1277%
IntraLATA toll and Regional Calling - 0.6890%
All other Services - 0.73%


For telephone corporations, including resellers, not principally engaged in local telephone business, the maximum rate is 0.5986% and applies to all services.

c. What it is applied to: This surcharge is generally applied to all services except the E911 surcharge. Technically, companies are not required to pay Section 184-A Taxes on interstate and international calls and services; however the surcharge is not bifurcated in this manner. Since the 184-A Tax is very small, the amount of over-collection is minimal.

d. Statutory Authority: New York State Tax Law, § 184-a.

LOCAL NUMBER PORTABILITY SURCHARGE (LNP)

a. Description: Local Number Portability (LNP) is a service that provides residential and business traditional (wired) telephone customers with the ability to retain, at the same location, their existing local telephone numbers when switching from one local telephone service provider to another. LNP was mandated by the Telecommunications Act of 1996. In July 1996, the FCC issued a ruling in CC Docket No. 95-116 that LNP must be in place nationwide by January 1, 1998. Since each state is responsible for implementation of LNP, timetables vary; the specifics of the implementation vary, as well. The FCC allows, but does not require, local telephone companies to pass certain costs of implementing and maintaining long-term number portability on to their customers. Additional information can be found on the FCC web site at http://www.fcc.gov.

b. Rate or Range of Rates: For a period of five years from the date of implementation, a local telephone company may recover their costs. The FCC allows ILECs to recover only costs directly related to providing long-term telephone number portability, which keeps the charges passed on to consumers, if any, as small as possible. Because the FCC neither regulates the rates nor dictates the maximum amount carriers can charge their customers, carriers may choose to recover their costs of providing long-term telephone number portability in any lawful manner consistent with their obligations under the Telecommunications Act of 1996.

c. What it is applied to: The LNP charge is a fee on a customer's bill that varies by ILEC. This fee is based upon the ILECs internal costs of implementing long-term telephone number portability.

d. Statutory Authority: 47 C.F.R. § 52.33

OTHER COMMON CHARGES

The charges shown below are specific line items for services rendered but are not defined as a tax or surcharge. Therefore, they are taxable and may have surcharges applied to them. These charges ARE NOT MANDATED by state or federal authorities and are therefore not charged separately by all telephone companies. It should also be noted that some charges are specifically not allowed as a separate line item for the intrastate portion of bills, such as Regulatory Recovery Fees, but may be allowed as an interstate charge. Such items that we consider to be "uncommon" are not listed here.

PRESUBSCRIBED INTEREXCHANGE CARRIER (PIC) CHANGE CHARGES

The Presubscribed Interexchange Carrier Change Charge is a one-time charge imposed when customers presubscribe to their carrier of choice, which gives them the ability to make toll calls without having to dial an access code. The charge applies each time a customer requests a change, and separate charges may be imposed for changes to intraLATA and interLATA/interstate changes. Rates vary, but most are $5 or less.

INTRASTATE ACCESS RECOVERY CHARGE

The Intrastate Access Recovery Charge recovers costs long distance carriers incur to connect to the local telephone network which are higher in New York State than the national average. The use of this charge allows long distance carriers the ability to offer uniform toll rates throughout the country. Rates vary from company to company as do the names given for this charge. The rates are included in New York intrastate tariffs.

CARRIER COST RECOVERY CHARGE

The Carrier Cost Recovery Charge recovers national costs associated with various federal regulatory fees and programs. Rates vary from company to company as do the names given for this charge. Similar charges to recover New York State costs are not allowed.

NEW YORK CITY FRANCHISE FEE

The New York City Franchise Fee applies to some facilities-based telecommunications providers. The rate of approximately 5% is collected separately by some providers, and does not, at this time, apply to Verizon New York, Inc.

1 Companies are allowed higher surcharge levels upon showing their inability to recover their costs based on the established Commission-approved levels.
2 Also known as FCC charge for Network Access, Federal Line Cost Charge, Interstate Access Charge, Federal Access Charge, Interstate Single Line Charge, Customer Line Charge.

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Retailers that sell prepaid cell phones and phone cards will collect a surcharge from new customers starting in January.

The Nebraska Department of Revenue announced Monday that customers will pay a 1.1% surcharge in 2013, in addition to state and local sales taxes of up to 7%

The charge comes from a law approved in April that requires retailers to collect the surcharge on behalf of prepaid phone companies. The phone companies usually can't collect it themselves, because they don't interact directly with customers - and as a result, they're forced to absorb the cost.

The surcharge pays for 911 service and technology to help the hearing impaired.

The new charge does not apply to users on a calling plan, who already pay it through their monthly bill.