Policy Documents

A Growing Burden: Taxes and Fees on Wireless Service

Scott Mackey –

Wireless users across the United States continue to face excessive and discriminatory federal, state, and local taxes and fees on their wireless bills. After several years in which taxes and fees on wireless users stabilized and even fell slightly, the trend toward higher impositions resumed between 2009 and 2010.

Wireless users now face a combined federal, state, and local tax and fee burden of 16.3 percent, a rate two times higher than the average retail sales tax rate and the highest wireless rate since 2005. Consumers now pay wireless taxes, fees, and government charges that exceed the retail sales tax rate. Although federal, state, and local taxes and fees all contribute to the high burden on wireless consumers, the recent increase in rates is mostly attributable to the rapid growth in the rate of the federal Universal Service Fund (USF) surcharge. Increases in the federal USF have added 0.9 percentage points to the rate since 2007, while state and local increases added about 0.2 percent, for a net increase in rates of 1.1 percentage points—from 15.2 percent to 16.3 percent. The average customer pays about $7.84 per month in taxes, fees, and government surcharges.

Nebraska retained its designation as the state with the highest rate on wireless consumers, at 23.69 percent, while Washington retained its number two designation with a 23 percent rate. In Nebraska, the city of Lincoln added to the consumer burden by increasing its telecommunications business license tax from 5.5 percent to 6 percent in 2009.