4:00pm November 1, 2011

Wireless Service Taxes Hit D.C., MD the Hardest


Did you know: Maryland (11th) and the District of Columbia (15th) are among the top 20 states with the most expensive wireless services? A special report released by Tax Analysts, a non-profit provider of tax news and analysis, offers a detailed picture of the problem. If you live in Maryland, the combined federal-state local tax rate on your wireless services is 17.28% – and in D.C. the combined rate is 16.63% (as of July 2010). Wireless taxes in Maryland are about 6.3% higher than the national average and in D.C. about 2.3% higher.

Low-Income Americans Disproportionately Hurt by Wireless Services Taxes

According to the most recent CTIA report the average U.S. mobile subscriber bill is $47.23 (2011). Someone living in the state of Maryland, spending the U.S. average on wireless service, pays about $8.16 in taxes, fees, and government surcharges and in DC about $7.85 per month. The issue of wireless services taxation is important to everyone, not only because of its influence on individual cell phone bills but also because of its impact on the economy and the most vulnerable members of our society.

Maryland is a strong case in point because of it’s massive African American population. The largest county in the state, Prince George’s, is over 70% Black. It’s also ground zero for the state’s foreclosure explosion.

Wireless service taxes are discriminatory against the socio-economically disadvantaged in the U.S. since low-income Americans rely more heavily on wireless technology. While state-local governments like Maryland are using the wireless sector to shore-up state and city deficits, the tax burden falls on people who use wireless services the most. A 2010 study on U.S. wireless usage points out that 36% of people living in poverty and 29% of people living near poverty are living in wireless ONLY households, while only 19.6% of mid-higher income adults living in wireless only homes.

Wireless service taxes are regressive taxes because they disproportionately effect poorer citizens and, in doing so, compromise the state-local economic recovery. The burden on wireless consumers is climbing - and is well above the tax rate on other goods and services. In Maryland, the state-local sales tax is 6% and wireless taxes are twice as high: 12.23%. In DC, the state-local sales tax is 5.7%, whereas wireless taxes are almost 12%.

Consider that the city of Baltimore increased its total wireless taxes by 14.29% (per-line tax) and that Montgomery County, MD raised its per line taxes by 75%. With an unemployment rate of 11.1% (2011) increasing wireless service taxes harms people facing economic hardship by levying an excessive burden on one of the major drivers of growth—wireless service provision.

Why Wireless?

Wireless services are very attractive as a target for state and local legislatures looking for short-term sources of revenue because of the explosive growth in the that sector over the past fifteen years. According to the CTIA, as of June 2011 there are about 328 million wireless subscribers in the U.S., which is an increase of about 210 million from ten years ago.

The Long-Term Impact

In an article published earlier this year, Politic365 highlighted pending legislation on the wireless service taxation issue. Known as the Wireless Tax Fairness Act of 2011, the bill has yet to be passed. Maryland, the District of Columbia and other economies continue being encumbered by shortsighted, regressive wireless service taxes.

Consider also that every $1 invested in wireless broadband creates an additional $7-$10 for GDP. Wireless service taxes hinder both demand for wireless service and network upgrades like 4G and LTE.

There is clearly a benefit from wireless service tax reform. City and state economies could foster a more productive workforce, therefore enabling their ability to generate greater tax revenues on a long-term basis through greater participation in the 21st century economy.

Taxes on wireless services detract from national deployment and adoption goals for wireless and other communications services. In the current economic environment we have to identify those areas blocking economic growth and job creation. In areas like Maryland and the District of Columbia, where state and local economies struggle with recovery, there are opportunities to introduce relief.  Reducing wireless service taxes is one such path worth closer examination.

(photo credit: TechnicallyPhilly.com)

About the Author

DeVan Hankerson
DeVan Hankerson is the Research Director at the Minority Media and Telecommunications Council, she also serves as the Co-Chair of Communications Consumers United. She has a masters degree in International Trade Policy with a specialization in Telecommunications and Information Technology Policy from the Monterey Institute of International Studies. DeVan earned her BA from Vassar College in 2006 with a degree in Psychology and Linguistic Anthropology. She is originally from New York City and has intermediate level Arabic language training.



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