The average cost of a cell phone plan is dropping. Competition between carriers has resulted in lower charges, averaging from just under $50 per month in 2008 to $44.65 per month in 2016: a drop of about 11%. You might not have noticed the dip, however, because related taxes and fees have increased by 23%. In other words, cell phone taxes are growing at a rate twice as fast as average wireless prices have been falling.
According to a new report from the nonpartisan Tax Foundation, U.S. wireless consumers will pay a combined rate of 18.6% in federal and average state and local taxes on their wireless bills in 2016. That’s a new high. In simple dollars, a household with four wireless phones paying $100 per month for wireless voice service will pay nearly $225 per year – or nearly $20 per month – in taxes, fees, and government surcharges.
Those taxes, fees, and government surcharges add up. U.S. wireless consumers pay an estimated $17.2 billion in taxes, fees, and government surcharges each year. Here’s how it breaks down:
- $7.0 billion in sales taxes and other non-discriminatory broad-based consumption taxes
- $5.1 billion in federal Universal Service Fund (FUSF) surcharges
- $2.5 billion in 911 fees
- $2.6 billion in other discriminatory state and local taxes, fees, and surcharges
Those Universal Service Fund (USF) surcharges are a result of the Telecommunications Act of 1996. The Act did a number of things, including increasing internet access to doctors and patients in rural hospitals (for consults with specialists); subsidizing internet and phone coverage for schools and libraries and providing free or subsidized coverage for families who can’t afford it so that they have links to emergency and government services. Under the Act, “all telecommunications providers are required to contribute a percentage of their interstate and international end-user telecommunications revenues.” So that fee on your phone bill labeled USF? That’s what you’re paying for.
And those 911 fees? They’re exactly what you think: carriers collect these fees from customers to help local governments pay for emergency services such as fire and rescue. 911 fees are typically imposed on a per line basis.
State and local discretionary taxes, fees, and surcharges can be used for all kinds of reasons not necessarily related to cell service. Rates may also vary wildly depending on where you live.
Where’s the best place to have cell service? According to the Tax Foundation, the five states with the lowest combined state and local wireless taxes and fees are:
- Oregon (1.8%)
- Nevada (2.1%)
- Idaho (2.3%)
- Montana (6.2%)
- Delaware (6.3%)
And the worst? The five states with the highest combined state and local wireless taxes and fees are:
- Washington (18.8%)
- Nebraska (18.7%)
- New York (18.0%)
- Illinois (17.8%)
- Pennsylvania (15.7%)
Some cities have been particularly hit hard when it comes to fees and taxes. Wireless service tax rates in six major U.S. cities now exceed 25%. Those cities are:
- Chicago (36.24%)
- Baltimore (29.84%)
- New York (27.11%)
- Philadelphia (26.24%)
- Omaha (26.06%)
- Seattle (25.94%)
Don’t expect those numbers to change any time soon. According to the Tax Foundation, state and local governments find the wireless phone industry (and its customers) attractive target for raising new revenues. That’s especially true as consumers become more reliant on cell service for regular communication.
You can read the entire report – which includes a breakdown of state and local transaction taxes, fees, and government charges – here.
