Lawmakers Call for Wireless Tax Moratorium

With the effective tax rate on wireless services increasing four times faster than the rate on other taxable goods and services, bills in both the U.S. House and Senate call for a five-year moratorium on any new discriminatory taxes on mobile services or mobile service providers. Not surprisingly, cash-starved state, county and local officials are objecting to the legislation.

Not unexpectedly, cash-strapped state, county and municipal officials are lining up to oppose Congressional legislation that would impose a five-year moratorium on any new discriminatory taxes on mobile services or mobile service providers. The legislation defines a "new discriminatory tax" as a tax that is not generally imposed on other types of services or property or that is generally imposed at a lower rate.
The Cell Tax Fairness Act of 2009 (HR 1521) was introduced in March by Reps. Zoe Lofgren (D-Calif.) and Trent Franks (R-Ariz.). Sens. Ron Wyden (D-Ore.) and Olympia Snowe (R-Maine) introduced June 5 the Mobile Wireless Tax Fairness Act of 2009 as companion legislation to the House bill.
The legislation is gaining support in both the House and the Senate as well as among wireless carriers, which claim wireless subscribers paid almost $21 billion in cell phone taxes and fees in 2008 and which fear more wireless taxes, fees and tariffs will inevitably slow the growth of wireless broadband services.

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"If there is one thing all of our organizations have in common, it is our longstanding opposition to efforts by Congress to pre-empt state and local taxing authority," Don Stapley, president of the Maricopa County, Ariz., board of supervisors, told the House Judiciary Committee Subcommittee on Commercial and Administrative Law June 9. "This is especially true when it comes to telecommunications taxes. How to levy taxes fairly, how to ensure there is no discrimination among companies that provide different forms of the same service and how to protect local government revenues are all appropriate debates."
Stapley added, "But these debates belong at the state and local levels. And this is why our associations are united in our opposition to this bill."
Joanne Hovis, president of Columbia Telecommunications and speaking on behalf of the National Association of Telecommunications Officers and Advisors and other state and local groups, told the panel that state and local wireless taxes are not an obstacle to wireless broadband deployment.
Hovis said the primary reason for the slow rollout of wireless services to rural areas is the wider economics of the wireless carriers.
"Even in an environment of lower tax costs, the wireless carriers will, quite rationally, still invest their resources in the most potentially lucrative areas and will still set their prices at the highest aggregate rates they believe the market will bear," Hovis testified. "This basic reality of the economics of this industry will not be changed by pre-emption of state or local taxes or, frankly, by removal of any single cost of doing business, such as a tax."
But Robert Atkinson, president of ITIF (Information Technology and Innovation Foundation), insisted, "Imposing discriminatory taxes on wireless services is in essence taxing one of the major engines of U.S. innovation and economic growth. This very high impact of taxes on consumer demand also affects producer decisions on where to deploy services. Since adoption rates drive demand, not only do wireless taxes affect the ability of citizens to afford wireless Internet access, but they could also discourage some companies from deploying 3G and 4G systems."

Lofgren, Wyden and other lawmakers supporting the wireless tax moratorium point to numbers that show while the average tax rate for goods and services is 7.07 percent, the typical consumer pays 15.9 percent of his or her total wireless bill in federal, state and local taxes. In addition, the effective rate of taxation on wireless services increased four times faster than the rate on other taxable goods and services between Jan. 2003 and Jan. 2007.
The sponsors of the moratorium bill also contend that the legislation will allow American telecommunications companies to keep pace with foreign competitors and provide better services and products to consumers. Currently, the industry is in the midst of upgrading to the 4G network standard, which would provide the bandwidth necessary to offer true high-speed access in rural areas.
"While the telecommunications industry has emerged as one of the most vital and innovative sectors of the 21st century, American consumers are increasingly getting hit with excessive and discriminatory taxes to have access to wireless services in their day-to-day lives," Wyden said in a statement. "By banning these burdensome taxes, this legislation will equalize the taxation of the wireless industry with that of other goods and services and protect the wireless consumer from the weight of fees, surcharges and general business taxes."