Cell phone taxes might not change,
but reading the bill should be easier
By Kay Bell • Bankrate.com

April 28, 2000 -- Cell phones are everywhere these days, generating more than $30 billion a year for the wireless communications industry. And it seems like every tax agency in America is clamoring for a piece of the cellular action, in large part by collecting from the phone user.

Thanks to increasingly confusing tax systems designed to get as much money as possible from this new technology, consumer patience also is being sorely taxed.

Current wireless rules allow for myriad tax charges on a single call. As wireless calls account for more and more of the total calls made throughout the United States, lawmakers and industry officials say the system is not sustainable.

A bill now moving unchallenged through Congress seeks to reduce the multi-layered and often overlapping tax confusion. The measure would eliminate current convoluted government tax systems and give collection responsibility over to one tax jurisdiction.

This bill should help consumers, governments and wireless companies administratively. But it is less clear as to just how much a change in tax structure will actually save customers when it comes to the charges on their monthly bills.

Countless wireless tax collectors
Currently, many different jurisdictions can tax the same wireless call made in transit, the norm for most such calls. And the farther you travel during a call, the greater the number of taxes assessed. Supporters of the Mobile Telecommunications Sourcing Act say it's time for this practice to end.

In testimony to House and Senate committees, cellular industry representative Thomas E. Wheeler outlined the taxes on mobile phone calls made during the two-hour drive from Baltimore to Philadelphia.

"During the course of this trip, the consumer will have passed through 12 state and local tax jurisdictions, each with their own telecommunications tax rates and rules," said Wheeler, president and CEO of the Cellular Telecommunications Industry Association.

"Even if there were not competing methodologies complicating the picture, the administrative difficulty for the wireless carrier of correctly determining tax rates and rules for 12 different jurisdictions, passed through in just a few hours, is tremendous. Likewise, the administrative difficulties for the 12 taxing jurisdictions in monitoring compliance with their laws are severe.

"In short, the current system doesn't work for consumers, industry, or state and local governments," Wheeler says. "And these problems will only get worse in the months and years ahead."

Many taxes still, but only one collector
Authors of the bill -- Senators Byron Dorgan, D-N.D. and Sam Brownback, R-Kan., and Rep. Chip Pickering, R-Miss. -- want to slash the number of taxing authorities, if not the taxes themselves.

States, counties and cities could continue to tax wireless service under the bill. But all such communications would be taxed as though they originated from a single source, meaning authority to collect that tax would fall to just one taxing jurisdiction for each customer.

This collector would be in the customer's place of primary use -- essentially, the subscriber's home or office.

The measure would not take effect for two years, giving states time to develop central databases of addresses for tax assessment purposes. If states did not act, carriers could create their own.

Brownback says the bill would eliminate a wireless telecommunications tax system that is "incredibly complex for carriers and costly for consumers."

"The wireless industry would not have to keep track of multiple taxing laws for each wireless transaction," according to the Kansas Senator. "State and local taxing authorities would be relieved of burdensome audit and oversight responsibilities without losing the authority to tax wireless calls."

And consumers, he says, would enjoy lower wireless prices and fewer billing headaches.

But would cell phone costs actually drop?

Fixing only one tax problem
The telecommunications bill so far has sailed unopposed through Congress, with only glowing words of support from industry representatives at the two hearings. But there has been little comment on the bill's consumer pocketbook effect.

In opening the House Commerce Committee hearing, Chairman Tom Bliley, R-Va., touched briefly on that issue. Calling the tax system problem monumental, Bliley added that he found the debate "a tad off the mark."

"The real question should be: Is it sound policy to put a consumption tax on wireless calls? These types of consumer taxes increase consumer cost and therefore have an effect on how much wireless systems are used," Bliley told his Capitol Hill colleagues.

Bliley said he would support the bill because it "leans in the right direction," but worried that the bill "will codify a system that allows for states and localities to impose a disincentive to use one of the most innovative and convenient technologies today. The wireless industry has accepted this fate and in effect, tied consumers to this result as well.

"I would hope that if we had to do it all over again and as we look at this type issue in another context, we would discuss whether this type of taxation is necessary at all, rather than how to simplify it," Bliley added.

The National Taxpayers Union agrees with Bliley.

Studies by the group's research affiliate, NTU Foundation, show that air travel, hotel stays, motor travel and telecommunications services are four of the highest-taxed activities from a U.S. consumer standpoint.

And within telecommunications itself, according to NTU spokesman Pete Sepp, wireless phones tend to bear an even higher burden of taxation than conventional telephone services -- as high as 30 percent or even more, when the various local franchise and access fees are passed through to consumers.

Former luxuries now necessities
Sepp notes that telecommunication taxes historically began as "luxury" taxes, aimed at the wealthy who were the first to enjoy technological advances. But that rationale has disappeared as virtually every home now has a telephone.

"Wireless taxes began in much the same way during the 1970s and 1980s," Sepp notes, "when it was thought that such devices would only be in common use among ‘businessmen' and ‘rich people.' Once again, that line of thinking, if it ever were valid, is no longer valid today."

Will Congress re-examine the actual taxation of wireless communications? Maybe, but not in the near future.

For now, it looks like callers will just to have to be content with a less confusing cellular phone bill, if not a lower one.

--Posted April 28, 2000