Cell Tax Fairness Act passes the House

Yes, I know. Tax and fairness in the same title seems like an oxymoron. Especially to those of you who are self-employed and just paid your quarterly taxes a couple of days ago. You did remember to do that, right? Anyway, if you’ve ever examined your wireless bill, you’ve seen the list of taxes added to it. The Cell Tax Fairness Act will guarantee that no new taxes will be levied on wireless services for the next five years. Cell phone users pay an average of 15 percent in taxes on their service. The usual average sales tax rate on goods and services is 7 percent. Ouch. Why the high tax rate on wireless service? Before you start blaming the federal government or any particular administration, let’s clear something up—the bulk of those taxes are local.

To understand what’s been happening, we need to go back a few years. In 2006, the Internal Revenue Service (IRS) released Notice 2006-50. This notice revealed that the taxes the agency had been collecting on long distance services for the previous three and a half years were illegal. Apparently, bundled services offered by wireless carriers, which include local and long distance service, are exempt from federal taxation because wireless service is not a public utility.

The federal government levies taxes to pay for utility infrastructure, such as water or gas lines. Since the government does not subsidize the construction of cellular towers or any other wireless service infrastructure, they cannot tax it. If the federal government can’t tax bundled wireless service, then neither can the states. Upon learning this, states began to amend the status of wireless service so they could continue not only to tax it, but to increase those taxes, thereby preserving and increasing their revenue.

But it’s not just state and local governments. Wireless carriers tack on several fees of their own, and label them to look like taxes, calling them “administrative fees,” or “regulatory fees.” Administrative sounds business-related, doesn’t it? But regulatory? That sounds government- or tax-related, but that’s not usually the case on wireless bills.

Over the last four years, state and local taxes, and carrier-imposed fees like this have gone largely unchecked by the federal government. That changed last year when House Representatives Zoe Lofgren )D-Calif.) and Trent Franks (R-Ariz.) introduced the Cell Tax Fairness Act which will ban any new state or local taxes on wireless services for the next five years.

The bill now has 194 co-sponsors from both sides of the House. The Senate voted Tuesday to end debate on the bill, which will allow voting on the measure to take place. It is expected to pass.

In addition, the Senate is also preparing to pass a different measure very soon. It’s part of a small business lending bill, and it will end a provision that requires employees to pay taxes on any personal use of employer-provided cell phones or other wireless devices.

It’s important to note that the Cell Tax Fairness Act only applies to new taxes. It will not do away with any current taxes, and does not eliminate state’s or local governments’ authority to collect current taxes. It also does not apply to emergency 911 services subsidies paid or through fees on wireless bills, or contributions to the Universal Service Fund which helps pay for phone services for low-income and rural residents.

That last is actually part of the reason the federal government is stepping in. State and local governments, by increasing these taxes and making wireless service cost-prohibitive for some, are impeding the government’s efforts to expand broadband and wireless services to residents throughout the United States.

By placing a moratorium on new local and state taxes, the federal government hopes to encourage more consumers to spend money on wireless services, thereby further stimulating the economy. For those who are already paying high wireless bills, the Cell Tax Fairness Act will bring a little bit of tax relief for the next five years.

Filed under : Consumer Issues