On October 11,
2016, the Tax Foundation published a report entitled “Wireless Tax
Burdens Rise for the Second Straight Year in 2016.” According to
report authors Scott Mackey and Joseph Henchman, wireless tax rates have
increased to a record high 18.6% for the average U.S. consumer. Wireless
consumers are paying an estimated $17.2 billion in taxes, fees, and government
surcharges. And while average wireless bills have been dropping since 2008,
consumers have been unable to enjoy the benefits because “taxes are growing at
a rate twice as fast as average wireless prices have been falling.”
Wireless services
have raised living standards for low-income Americans, offering them flexible
low-cost connections to the rest of the world. Wireless communications provide low-income
Americans cost-effective means for accessing health, transportation, and
education services. However, burdensome state and local tax rates on wireless
connections increase costs for low-income Americans who access these valuable
services.
At the end of
2015, more than 64% of all low-income adults subscribed only to wireless voice services,
whereas more than 48% of adults overall were wireless only. Wireless taxes and
fees disproportionately harm low-income consumers because the taxes they pay
represent a higher percentage of their income compared to middle and
high-income consumers. With a federal Universal Service Fund rate of approximately
6.64%, state and local governments account for the remaining 11.93% of tax
burden for the average American wireless consumer. These heavy taxes make it
more likely that low-income consumers will drop wireless services. State and
local governments must alleviate these disproportionate harms affecting
low-income wireless consumers. For low-income adults who currently have no
connection, a reduction in state and local wireless tax rates likely would
encourage them to connect wirelessly.
Of course, all
wireless consumers are harmed by record-high wireless tax rates. Artificial
price increases from taxes reduce consumer demand and thereby reduce network
investment. As Mr. Mackey and Mr. Henchman explain: “The reduced demand impacts
network investment because subscriber revenues ultimately determine how much
carriers can afford to invest in network modernization.” The authors add, “Higher
taxes on wireless service, coupled with increased taxes on wireless
investments, may lead to slower deployment of wireless network infrastructure,
including fourth generation (4G) and fifth generation (5G) wireless broadband
technologies.”
In Maryland, the
wireless tax burden is severely harmful to consumers. Maryland and its
localities charge up to five different taxes on a consumer’s monthly wireless
bill. All combined, average wireless consumer tax burdens in Maryland far
exceed the state’s general sales tax rate of 6%. Including Washington, DC and
Puerto Rico, Maryland has the 15th highest combined wireless tax rate at 19.47%.
But among Maryland’s neighboring states, Delaware ranks only 48th with a 12.98%
combined rate. Meanwhile, Virginia is 47th highest with a 13.36% combined rate,
and West Virginia is 46th highest with a 13.36% combined rate.
In particular, Baltimore
has notoriously high wireless taxes. Baltimore charges a $4 tax per line per
month. Therefore, the taxes on a basic $100 per month family plan of 4 lines
would add almost $30 extra a month. (See chart below.) With the second highest combined
wireless tax rate in the country – only Chicago ranks higher – Baltimore should
reduce its wireless tax rates immediately in order to improve opportunities for
its residents to cost-effectively access wireless services. More generally,
Maryland should lower wireless tax rates to enhance opportunities for wireless
providers to invest in statewide networks.
Table 6: Wireless Taxes and
Fees on Multi-Line Plan in Selected Cities, July 2016
|
Federal, State, and
Local
|
City
|
Tax on 4 line plan @ $100 per
month
|
Tax Rate
|
Chicago, IL
|
$36.24
|
36.24%
|
Baltimore, MD
|
$29.84
|
29.84%
|
New York, NY
|
$27.11
|
27.11%
|
Philadelphia, PA
|
$26.24
|
26.24%
|
Omaha, NE
|
$26.06
|
26.06%
|
Seattle, WA
|
$25.94
|
25.94%
|
Providence, RI
|
$23.68
|
23.68%
|
Tallahassee, FL
|
$22.58
|
22.58%
|
Kansas City, MO
|
$21.49
|
21.49%
|
Los Angeles, CA
|
$21.19
|
21.19%
|
(Source:
Scott Mackey and Joseph Henchman, “Wireless Tax Burdens Rise for Second
Straight Year in 2016”)
In an October 17 blog
post,
Free State Foundation President Randolph May discussed ways that Maryland Governor
Larry Hogan can improve his fiscal record. Governor Hogan’s two-year record of
reducing taxes and fees and proposing to eliminate unnecessary regulations
provides a strong start. The time is now right for the Governor to work with
the Maryland General Assembly to reduce the tax burdens that wireless consumers
experience on a monthly basis.
All state and
local governments that burden their wireless consumers with heavy taxes should
think twice about the harms being visited disproportionately on low-income
consumers. State and local governments – including Maryland’s – should also
recognize the negative impact that excessive and discriminatory taxation has on
consumer demand and on network investment. High taxing states and localities
should significantly decrease wireless tax rates to encourage more wireless connections
for consumers of all income levels
and more investment from wireless providers.
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