WASHINGTON-A major fallout of Congress’ failure to pass telecom-reform legislation this year is the continued imposition of new state and local cell-phone taxes, like the one on track to begin Jan. 1 in South Sioux City, Neb.
Though only a small town in a state already boasting hefty wireless taxes, South Sioux City’s move toward a 4-percent wireless tax is indicative of broader national trend.
“This looks like another attempt by a public body to raise revenue using a popular service,” said Joe Farren, a spokesman for CTIA, the national mobile-phone association.
In April, the Maryland Tax Court rejected a lawsuit against local wireless taxes filed by T-Mobile USA Inc., Verizon Wireless, Cingular Wireless L.L.C. and Sprint Nextel Corp. The four national cellular carriers protested monthly wireless taxes of $3.50 and $2 imposed by Baltimore City and Montgomery County, respectively.
Indeed, state and local governments around the country are increasingly turning to the cell-phone industry as an indirect source for revenue, a strategy far less politically painful than raising property taxes or limiting spending. In South Sioux City and elsewhere, targeted wireless taxes are pursued to offset the loss of receipts as consumers opt for mobile phones over wireline phones.
Wireless carriers pass along the tax to subscribers by listing it as a line item on monthly bills and later write checks to cities and states. “We’ve essentially become a tax collector,” said Farren.
The city council of South Sioux City unanimously approved the 4-percent tax last Monday in the first of three possible readings required for official adoption. If approved, according to the Sioux City Journal, cell-phone tax receipts would be deposited into the city’s general fund, but could be steered to city and county law enforcement if collections from the $1 landline enhanced-911 tax and the 4-percent franchise tax fail to cover the public-safety budget. The paper said the city’s cell-phone subscribers pay a 50-cent E-911 tax, which goes to the state to upgrade E-911 systems.
Councilwoman Sandra Ehrich, a member of the committee that proposed the cell phone tax, told the paper the decision to impose a new tax on wireless subscribers was difficult. Ehrich did not reply to an e-mail request for comment.
The U.S. Senate’s telecom bill would mandate a three-year moratorium on any new state or local taxes specifically directed at mobile-phone carriers and their customers. But with the legislation dead for the year and prospects for next year uncertain because of a possible Democratic House takeover in the midterm elections, state and local wireless taxes are free to continue.
But there are signs of a push-back in states.
On Nov. 7, South Dakota will vote on a referendum to repeal the state’s 4-percent cell-phone tax. The Pennsylvania legislature is trying to overturn double taxation of wireless services. Currently, cellular subscribers pay a 5-percent gross-receipts tax on top of a 6-percent state sales tax. The cell-phone industry is also attempting to fight back efforts to enact new cell-phone taxes in Oregon.
One approach to the wireline-to-wireless migration trend has been to modernize the tax code.
Earlier this year, Virginia Gov. Timothy Kaine (D) signed into law landmark legislation creating the nation’s first flat tax on wireless and other communications services in the state. The tax, set to kick in Jan. 1, would cap communications taxes at 5 percent.
In May 2005, Missouri Gov. Matt Blunt (R) signed into law legislation effectively allowing wireless taxes to be raised to a maximum 3 percent and terminating a slew of lawsuits filed by municipalities to collect back taxes from cell-phone operators. However, local governments sued to challenge the law. Verizon Wireless, the No. 2 wireless carrier, has backed legislation in Florida that would lower the state communications services tax from 9.17 percent to 6 percent.
On the national front, the cellular industry-aided by U.S. government legal defeats-helped get the Bush administration to phase out the century-old 3-percent federal excise tax on long-distance and cell phone services.
