US Cell Phones Excessively Taxed

February 21, 2011 Taxation in USA

Cell PhoneUS state tax authorities are targeting cell phone owners as an easy way to raise large sums of tax revenues, leading to the relative overtaxation of mobile phone use, with many taxpayers seeing more than a fifth of their bills comprised of taxes.

On February 18th the Tax Foundation released States Target Cell Phones for Stealth, Burdensome Taxes, a report examining the difference in tax burdens faced by mobile phone users across all US states. The report revealed that average US cell phone user will see approximately 11.21 percent of their usage bill comprised of state and local taxes, and an additional 5.05 percent in federal taxes.

Mobile users in the state of Nebraska faced the highest tax liabilities, at an average tax rate of 23.69 percent. The use of mobile phones in the states of Washington, New York, Florida and Illinois was also subject to overall tax liabilities of above 20 percent. Taxpayers in the state of Oregon are charged the lowest tax rate in the country, at only 6.86 percent. The report claimed that in some states the tax liability on cell phone usage was equivalent to that levied on alcohol or cigarettes.

The report suggested that state-level legislators and tax authorities are able to raise large streams of tax revenues from mobile phone taxes in a relatively hidden way. It was claimed that cell phone users are often unaware of the direct taxation burden placed on them by state tax authorities, or the taxes imposed on the service provider and subsequently passed on to the consumer. To illustrate the issue, the report pointed to a case in Texas, where the state authorities took legal action against the service provider Sprint for revealing the taxes levied on users by the state tax authorities.

The report concluded that cell phones users are currently disproportionately taxed, and that “… state and local governments should not single out one product for stealth tax increases, as they are doing with wireless services,” as it could easily lead to a slow down in investment and distorted market effects.

Photo by AMERICANVIRUS