According to a study by Tax Foundation, an independent, non-partisan organization that provides research and analysis on federal and state tax policy, the number of cellphone users has grown in the United States from 48.7 million users in 1997 to over 320 million in 2012. Thirty four percent of households in the country have given up their landlines and now use only wireless phones. This trend toward cell phones has not gone unnoticed by state and local governments, many of which have targeted wireless services for higher taxes.
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New York has the dubious honor of placing high among the states with the highest rates and fees. This week, Tax Foundation's Monday Map detailed the state and local tax and fee rates on wireless service. The average state and local rate is 11.36 percent. New York's is 17.85 percent, making it the state with the third highest rate.
Nebraska has the highest rate at 18.67 percent, and is followed closely by Washington at 18.62 percent. Oregon has the lowest rate at 1.8 percent, and is tailed closely by Nevada at 2.13 percent and Idaho at 2.28 percent. It is interesting to note that Nebraska, Washington, and New York have rates nearly ten times that of Oregon, and that Washington actually borders the states with the first and second lowest rates.
These rates do not include the additional federal rate of 5.9 percent, which brings Nebraska's rate to 24.49 percent and Oregon's rate to 7.67 percent. The average combined federal, state, and local rate is 17.18 percent.
States favor cell phone taxes because they can raise revenue in a relatively hidden way, the study points out. "Texas even sued Sprint because the company listed a state tax as a line-item on its bill rather than hiding it from customers. Utah uses what they call a wireless "fee" to fund its poison control centers, but the levy is really a tax because the government service benefits the general public regardless of cell phone ownership or usage," according to the study.
Seven states, including New York, impose sales taxes on wireless customers as well as gross receipts taxes on wireless service providers. Both taxes are ultimately borne by customers.
The study concludes, "Making cell phone calls and using wireless services for additional purposes may be getting easier, but paying cell phone taxes is not. State and local governments should not single out one product for stealth tax increases as they are doing with wireless services. Such actions distort market decisions and risk slowing investment that contributes to economic growth. Cell phone users are overtaxed relative to consumers of other goods and at risk of double taxation. Finally, the wide number of taxing authorities and the wide variety in rates makes tracking problematic and burdensome."
Anyone checking their wireless bill probably wouldn't be surprised to learn New York's rates are the third-highest. But, hey, here on the East End, users fork over the dough, but can't reliably send text messages or accept calls, the coverage is so poor in pockets throughout the region.