Wireless Taxes and Fees Keep Rising

Wireless users, on average, now face a combined federal, state and local tax and fee burden of 16.3 percent, a rate two times higher than the average retail sales tax rate and the highest wireless rate since 2005, according to a new study authored by Scott Mackey of KSE Partners, a government relations consultancy with clients in the wireless space.

Consumers now pay wireless taxes, fees, and government charges that exceed the retail sales tax rate, the report found.

Mackey also spotlighted a disappointing trend: after several years of remaining flat, taxes and government fees on wireless service are rising, especially as states and municipalities try to cover revenue shortfalls from traditional sources in the wake of the recession, combined with the ever-veracious Federal Universal Service Fund.

Since 2007, average state-local sales tax rates have increased from 7.07 percent to 7.42 percent, while the average imposition on wireless users has increased from 15.19 percent to 16.26 percent. In other words, wireless impositions have increased about three times faster than broad-based consumption taxes. Much of that increase on wireless consumers is attributable to increases in the federal USF charge.

He also pointed to research that shows when taxes are piled onto wireless service, adoption drops.

Consumer demand for wireless service is price sensitive. According to the most recent study on the price elasticity of demand for wireless service, each 1 percent increase in the price of wireless service reduces consumer demand for wireless service by about 1.2 percent. Using this estimate, the 9 percentage point disparity between wireless taxes, fees, and government charges and other taxable goods and services would suppress demand for wireless service by about 10 percent below what it would be if the tax and fee burden on wireless was equivalent to that imposed on other taxable goods and services.

Higher prices hit low-income users harder in the pocketbook. On a macro level, however, slow adoption leads to less investment. Any revenues gained from the extra taxes risk being offset by slower economic growth due to poor infrastructure. Worse, these taxes are being imposed just as a new generation of technology is rolling out, one that will make wireless much more competitive as a broadband alternative.

Targeting wireless consumers, however, disproportionately effects poorer families and may have ramifications for long-term state economic development and growth. Higher taxes on wireless service, coupled with increased taxes on wireless investments, may lead to slower deployment of wireless network infrastructure, including 4G wireless broadband technologies that an increasingly mobile workforce relies on for economic success.

The report surveys all 50 states and Washington, D.C. Nebraska took the prize for highest combined federal-state-local wireless tax rate, at 23.69 percent. Oregon was lowest at 6.9 percent. All told, 23 states have combined federal-state-local wireless tax rates above 10 percent.

A slew of other metrics can be found in the report here.

Hat tip to Washington Policy Center’s Carl Gipson at Technology Liberation Front for the pointer.