The Wireless Tax Moratorium: The Senate Will Decide

The wheels of progress on Capitol Hill may be turning slowly when it comes to deficit reduction or jobs creation, but there has been activity regarding preventing state and local governments from using wireless services as a way to enrich their dwindling coffers.

Since the commercialization of wireless telephony in the early 1980s, cities and states have assessed all manner of fees on carriers, which of course get passed down to the customer on the monthly bill. There have been protests – some successful, some not – during the course of the years, but there appears to be forward momentum on a federal law to prohibit state and local governments from imposing certain “new discriminatory taxes” on providers of wireless communications service for five years after enactment of the legislation.

According to a U.S. House of Representative report, “the average combined state and local tax rate on wireless telecommunications services is significantly higher than the combined state and local sales tax rate imposed on the purchase of other goods and services. The wireless industry and many state and local government groups agree that wireless tax reform is needed.”

Earlier this week, H.R. 1002 – The Wireless Tax Fairness Act of 2011 was passed by the House. Introduced by Rep. Zoe Lofgren (D-Calif.) last March, the bill defines a "new discriminatory tax" as “a tax imposed on mobile services, providers or property not generally imposed on, or that is generally imposed at a lower rate on, other types of services, providers or property, unless such tax was imposed and actually enforced prior to the enactment of this Act.”

The bill also requires the Government Accountability Office to conduct a study examining the impact of the moratorium on consumers.

But this isn’t a done deal. Also in March, the Senate introduced its own bill, sponsored by Sens. Ron Wyden (D-Ore.) and Olympia Snowe (R-Maine). The Wireless Tax Fairness Act of 2011, which has been co-sponsored by a large bi-partisan group, uses essentially the same words as does the just-passed House bill, and that body now needs to take a vote.  Because the bills are pretty much mirror images of each other, there shouldn’t be much haggling on final wording if the melded bill is sent to the White House for a signature.

Notes Wyden, “Wireless is a prime example of how every time a new innovation hits the market – governments invent new ways to tax it. We should be encouraging wireless usage as it continues to revolutionize the way Americans work, study and interact with friends and family, and yet, the only products subject to more layers and higher levels of taxation in the U.S. are alcohol and tobacco products.”

He continues, “New innovations have a hard time realizing their promise when they’re buried under multiple layers of discriminatory taxes. This is why we took steps to bar multiple and discriminatory taxes on Internet access and services – like email – and I’m glad we are finally moving to extend those same protections to wireless products.”

Mixed Reactions

There were yays and nays regarding the House action. In a statement, CTIA President/CEO Steve Largent said, “On behalf of the 300 million wireless customers in the United States, CTIA applauds the Wireless Tax Fairness Act’s lead sponsors, Reps. Lofgren and Franks, who worked tirelessly to get the bill approved in the House…In light of the challenging economy, we hope the U.S. Senate moves swiftly to pass the companion bill.”

Added Steve Pociask, president of the American Consumer Institute Center for Citizen Research, “In some states, a quarter of monthly wireless service costs are due to state and local taxes and fees. These cellphone taxes are an increasingly troubling trend that adversely affects younger and lower-income Americans. Public policies need to stop taxing what we should be encouraging.  High taxes on information technologies stunts economic investment and impedes job creation, thereby hurting consumers and small businesses.“

However, a coalition of state-based associations had mounted a grassroots effort to block any federal regulations on wireless taxes. The National Association of Counties, the National League of Cities, the U.S. Conference of Mayors, the International City/County Management Association, the Government Finance Officers Association and the National Association of Telecommunications Officers and Advisors signed a joint missive to U.S. congressmen, saying in part the House legislation “represents an unwarranted federal intrusion, as it carves out one sector of the communications industry for favorable tax treatment. It creates an uneven playing field and unfair competition for other communications service providers.”

While positing that “the wireless industry has yet to present any data indicating that state and local wireless taxes have had any adverse effect on wireless service subscribership, revenue or investment,” the group added, “In order for states and local communities to continue to recover from the Great Recession, they must have at their disposal all the tools and resources available to balance their budgets, preserve and create jobs and provide essential services, like police, fire and education. What this bill does is take away one of these tools – to tax the wireless industry – at the expense of other taxpayers and businesses.”

Finally, the group admonished Congress by saying, “Mandating that state and local governments provide favorable treatment to the wireless industry – as this bill does – over other sectors of the communications industry and other industries generally, will not encourage additional state and local communications tax-reform initiatives.”

-Debra Baker