How much tax do you pay for cellphone service?

The number of U.S. cell phone subscribers has grown significantly in recent years from 48.7 million in 1997 to 321.7 million in 2012. That period has also seen a fall in landline telephones, with 34 percent of households now only using 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.

Seven states have combined federal-state-local average cell phone tax rates exceeding 20 percent: Nebraska, 24.49 percent; Washington, 24.44 percent; New York, 23.67 percent; Florida, 22.41 percent; Illinois, 21.76 percent; Rhode Island, 20.50 percent; and Missouri, 20.11 percent. Notable among local jurisdictions, Baltimore, Maryland imposes a $4 per line per month tax on wireless users on top of federal and state charges. Nearby Montgomery County, Maryland imposes a $3.50 per line per month tax. Tallahassee charges a local communications services tax of 6.9 percent on top of a 9.17 percent state communication services tax.

Because each state and many localities can impose cell phone taxes, and because they can be imposed as a percentage or as a flat rate, there are numerous taxes which vary widely. Researchers have found it difficult to create a database of cell phone taxes, and cell phone companies have encountered similar problems in calculating the taxes. According to Tax Foundation, this can be a serious problem for cell phone businesses because they collect the taxes from subscribers and can be held legally accountable for any mistakes—both over-collection and under-collection.

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