by Howard Stephenson
Phone users pay a bewildering number of taxes for phone services that amount to 12.5% of a typical phone bill and 16.6% for phone plans that contain only basic services. Using the September 2003 phone bill of a Draper taxpayer, the Utah Taxpayers Association analyzed the various charges and taxes:
Federal Excise Tax – Remember the Maine! The Federal Excise Tax (FET) is a 3% tax imposed on all telephone charges except the Line-Backer optional inside wire repair plan, which is seen as an insurance policy and not a telecommunications service. The FET is used for general government expenditures.
The FET originated as a “luxury tax” in 1898 when the United States declared war on Spain after the U.S.S. Maine was destroyed in Havana harbor. To finance the war, the federal government imposed a one-cent tax on all calls valued at 15 cents for more. The FET was later repealed and re-imposed several times and has been set at 3% since 1982. The federal government will collect $6.2 billion in 2003 from this tax.
State and Local Sales Taxes – 6.6% tax The 4.75% state general sales tax, 0.5% transit tax, 1.0% city general sales tax, 0.25% county general sales tax, and the 0.10% ZAP tax are applied to all charges except interstate long distance calls.
On your Qwest phone bill, the state general sales tax and the transit tax are listed as “state tax” and the county general sales tax, city general sales tax, and the ZAP tax are listed as “city tax”.
Federal Uniform Service Fund (Federal USF) – 9.5% tax The federal USF is a 9.5% tax applied to the federal access charge, service number portability, and long distance interstate and international calls. The federal government uses these revenues to subsidize high cost rural telephone companies and internet service to schools, libraries, and rural health-care facilities. Note: The Federal USF approved a rate change 9.2% on October 1, 2003. The rate can change quarterly.
Utah Uniform Service Fund (State USF) – 0.34% tax The Utah USF is a 0.34% tax applied to basic phone services such as residence line, dial tone, extended calling area, caller ID, and intrastate long distance calls. The state uses these tax revenues to subsidize rural areas where the cost of providing telephone service to low numbers of subscribers located at great distances from each other could not be recovered without charging unaffordably high rates. Note: the Utah Public Service Commission recently authorized an increase in the state USF to o.9%, a 165% increase, to take effect December 1, 2003.
Telecommunications Relay Services (TRS) – $0.10 per line tax The TRS is a per line tax imposed by the state to fund the Telecommunications Devices for the Deaf and Hearing Impaired (TDD) program and the Dual Party Relay service programs.
911 Surcharge – $0.53 per line tax Under state law, counties are allowed to impose up to a $0.53 per line monthly tax to fund emergency response services.
Utah Poison Control Center Surcharge – $0.07 per line tax The state collects this tax to fund the University of Utah Poison Control Center.
Utility Franchise Fee – up to 6% tax Identified as “municipal charge” on your Qwest phone bill, the utility franchise fee (really a tax) is applied to basic services such as residence line and dial tone. Some cities also impose the tax on extended area calling and caller identification.
In 2003, the legislature passed a law that repeals this tax and replaces it with a telecommunications utility tax that will also apply to cell phones beginning July 1, 2004. At that time, the $1 per month municipal cell phone tax imposed by some cities will be eliminated. The new tax base will be expanded to include all telecommunications services that are subject to sales tax, and the rate will be reduced in order to ensure that local governments do not receive a tax windfall.
More Phone Taxes Proposed
Rep. Brad Dee (R-Washington Terrace) is proposing two tax increases to your monthly phone bill. Dee’s first tax increase would allow local governments to increase the existing tax that is earmarked for 911 emergency services from 53 cents per line per month to 65 cents per line per month. A second tax would be imposed at 16 cents per line per month for two years which would then be reduced to 9 cents per line per month thereafter.
Each one-cent tax increase on phone lines costs Utah taxpayers $280,000 annually. If the 16-cent tax increase were imposed statewide and every local government increased their monthly tax from 53 cents per month to 65 cents per month, taxpayers would pay about an additional $8 million per year.
What will the Dee Tax be used for? Revenues would be earmarked for expanding the capabilities of public safety answering points (PSAPs). Enhanced 911 technology, also known as E-911, enables emergency dispatchers to trace the actual location from which a wireless 911 call originates. Federal law mandates that local governments have E-911 capabilities in place by 2005.
The Craziness of Phone Taxes
Taxes on Taxes Your phone bill is a textbook example of taxes subject to taxes. The municipal utility franchise fee, the federal USF, and the state USF are taxes that are subject to the federal excise tax as well as state and local sales taxes.
Are These Taxes or Fees? Government officials frequently refer to the various additions to phone bills as fees. However, are officials calling these charges “fees” because taxpayers find this term less offensive than the term taxes?
In the strictest sense, fees are based on usage, and higher usage leads to higher fees. Taxpayers pay numerous fees that are tied to usage and the cost of providing service. Examples include water fees, impact fees, and garbage collection fees. The gas tax is a fee in that the more a taxpayer drives the more gas tax he pays. (Fuel efficiency, however, can impact the amount that one driver pays compared to another.)
None of the government-imposed telephone charges, however, are tied to usage. Everyone pays the county 911 and poison control charges even if they never impose a burden on government for these services. These charges, as well as the federal and state USF charges, are really taxes that re earmarked for specific public safety and general welfare purposes. These services should be funded by general unearmarked tax revenues such as property and sales taxes.
Government spending needs to be constantly prioritized, and statutorily earmarking revenues prevents annual reprioritization of expenditures. When revenues are earmarked, elected officials lose flexibility in allocating revenues. As larger portions of tax revenue are earmarked for specific functions, if a sudden need arises or general revenues decrease, elected officials are left with only two choices: raise taxes or cut services that do not receive earmarked funds.
Why not tax matches instead? From the first tax on telephone services imposed to fund the Spanish American War, special phone taxes have never been justified. How can anyone tie war costs to telephone services? What connection is there between poison control centers and telephone taxes? Wouldn’t it be more logical to tax poisons? Why should 911 emergency services be funded by the telephone services which make them possible? This is as illogical as it would be to tax the ambulances that respond to 911 calls. Better yet, if 30% of 911 calls are related to automobile accidents, raise 30% of the budget through a tax on cars. If 10% of 911 calls involve falls, tax ladders. If fires elicit 911 calls, tax matches. Aren’t taxes on telephones just as preposterous as these examples?
But perhaps most preposterous of any phone tax is the proposed Dee cell phone tax described above. The rationale for the tax is that since new generation cell phones have the capability of being tracked similar to global position satellite (GPS) devices, the users of these new phones should be punished through a new tax. Wouldn’t it make more sense to give cell phone users a tax break for making law enforcement and emergency services more efficient?
The point is, these kinds of public safety and emergency services ought to be funded through general taxes, not taxes on telephones.
Telephones are used to transmit important emergency messages. Don’t shoot the messenger.