Some $285 million in 911 taxes charged to voice service consumers were improperly diverted to non-911 purposes by states in 2017. That's nearly 10% of 911 taxes. Those findings were in the FCC's 10th Annual Report on State 911 Taxes. Diversions of state 911 taxes are contrary to law and undermine the integrity of 911 tax policy. Consumers are harmed by the dishonest, extra charges, and 911 services stand to lose needed funds.
To the FCC's credit, its report indicates states will face closer scrutiny in the future for diverting 911 taxes. Congress, the Commission, and state officials ought to consider new measures to combat states' misuse of 911 taxes and ensure compliance with the law.
The NET 911 Act of 2018 requires the FCC to annually report to Congress on state collection and distribution of 911 and enhanced 911 (E911) fees and charges. The Act was intended to "ensure efficiency, transparency, and accountability" when it comes to 911 taxes. It requires that the Commission's reports include findings on amounts of 911-related revenues spent by states for purposes other than 911-related services. To prepare its reports, the Commission sends the governors of each state questionnaires regarding 911 tax collections for each calendar year. The 10th Report observed: "All jurisdictions provided written responses to the questionnaire, but not all jurisdictions responded to every question and some jurisdictions provided incomplete responses to questions."
In all, states collected over $2.9 billion in 911 taxes in 2017. Key findings on diversions of state 911 tax revenues are contained in the 10th Report's paragraph 27:
Based on the data we have received, we find that six states and the U.S. Virgin Islands diverted or transferred fees in calendar year 2017… Montana self-identified in its responses to the questionnaire that it used collected funds, at least in part, for non-911 related purposes. Five states [New Jersey, New York, Nevada, Rhode Island, West Virginia] and the U.S. Virgin Islands did not self-identify as diverting funds, but the Bureau has determined based on review of the information provided that these jurisdictions in fact diverted funds for non-911 related purposes within the meaning of the NET 911 Act. The jurisdictions… diverted an aggregate amount of $284,968,912.66, or 9.70% of all 911/E911 funds reported to have been collected by all responding states and jurisdictions in 2017.
The report identified the amount of 911 taxes improperly diverted to non-911 purposes by each state. The three most notorious states were New York (over $170.8 million), New Jersey (nearly $94.2 million), and Rhode Island (almost $11.4 million). A statement by Commissioner Michael O'Rielly rightly called out those three "repeat offenders." Moreover, the Commission's finding of nearly $285 million in diverted 911 taxes in 2017 was more than double its 2016 finding of $129 million in diverted tax dollars.
Diversion of state 911 taxes poses a serious rule of law problem. As the 10th Report points out: "Section 6(f)(1) of the NET 911 Act requires that obligation or expenditure of 911/E911 fees or surcharges be 'in support of 9-1-1 and enhanced 9-1-1 services, or enhancements of such services.'" It goes without saying that when states impose taxes on consumers – on their citizens – for specified purposes, they should spend collected revenues only on those specified purposes. Indeed, voice service providers alleged to have improperly collected taxes from their subscribers have faced multi-state class-action lawsuits. Penalties for violating state consumer protection acts can include treble damage awards plus steep attorney fee awards. We should be no less tolerant of state governments improperly collecting taxes. States' diversions of 911 tax revenues may undermine public confidence in the integrity of 911 taxation, and in the integrity of tax laws generally.
Additionally, unaccountable 911 taxation wrongfully hits consumers of voice services. According to the 10th Report, the average 911 fees in 2017 totaled $1.04 per line per month for wireline, $0.97 per line per month for wireless, and $0.99 per line per month for VoIP. Also: "the average prepaid wireless percentage of retail transaction 911 fee [was] 2.12%." As indicated above, 911 tax charges totaled over $2.9 billion in 2017. Voice consumers – including wireless consumers – are already subject to high taxes and fee charges by multiple governments. Such taxes include: state and local sales taxes, federal USF surcharges, state USF surcharges, industry-specific state taxes, and state 911 taxes. Indeed, a Tax Foundation estimate pegged total wireless consumer taxes at $16.1 billion for 2018, amounting to 19.1% of consumers' wireless bills. That estimate likely lowballs the amount of 911 taxes that consumers were actually charged in 2018.
When it comes to affordability of voice and broadband services, wireless taxes hit lower-income consumers who are wireless-only especially hard. So it's especially important to curb excessive and improperly charged taxes on wireless services. FSF President Randolph May previously urged the FCC to act to prevent state 911 taxes from being assessed against low-income subscribers to no-charge Lifeline wireless service:
Putting aside the legal question, … it seems to me a matter of common sense – or sound policy, if you prefer – that the FCC should not allow states to impose taxes or fees on no-charge Lifeline service that the FCC has sanctioned by rule for the purpose of promoting access to communications services for those who otherwise cannot afford service.
In the past, a few states wrongly have either imposed 911 (and other) taxes on Lifeline services or considered doing so.
Similarly, it is sound policy for Congress, the FCC, and state officialsto ensure that 911 taxes are properly assessed and distributed. Otherwise, wireless consumers will be wrongly financially burdened and discouraged from accessing wireless communications services. And 911 services will be deprived of funds.
The 10th Report indicated the Commission will more closely scrutinize future state responses to questionnaires on 911 taxes. Going forward, the Commission will presume revenues are being diverted to non-911 purposes unless states make more complete responses. The Commission also should follow through on report warnings that states diverting 911 tax revenues may be ineligible for upcoming matching federal grants awards from funds raised through spectrum auctions. Congress, the FCC, and state officials should consider further ways to spotlight 911 tax diversions and incentivize compliance with the Act. Certainly, governors and state legislators should direct relevant state and local government officials to provide complete and accurate answers to FCC questionnaires on 911 taxation.
If states are going to charge consumers a dollar per line each month for 911, then every tax dollar collected should go to 911-related services. It's unlawful and unfair to consumers if 911 taxes are diverted to anything else. And 911 services stand to suffer.
Additionally, low income recipients should not be assessed 911 taxes on Lifeline service. That's counterproductive and inconsistent with Lifeline's purpose.