Wireless communications adoption has grown from 48.7 million subscribers in 1997 to 321.7 million subscribers in 2012. While the number of wireless consumers is on the rises, and a greater number are choosing to “cut the cord” on their landline connections, the state and local tax burden has also skyrocketed. Frequently seen as a quick way to increase revenues into state coffers, an October 29, 2012 report by Scott Mackey of KSE Partners shows that taxes on wireless consumers continue to rise at a steady pace.

The report provides a detailed state-by-state analysis of the taxes wireless consumers now pay. Nebraska has the highest combined wireless tax rate at 24.49 percent and Oregon has the lowest combined tax rate at 7.67 percent. Rounding out the top five highest wireless tax states are Washington (24.44 percent), New York (23.67 percent), Florida (22.41 percent), and Illinois (21.76 percent). According to the report, the average burden from wireless taxes and fees on consumers has increased from 16.26 percent in July 2010 to 17.18 percent in July 2012.

One of the primary sources of that recent increase is the federal Universal Service Fund (USF) contribution rate, which is a hidden tax passed on to consumers. In 2003, the contribution rate was 7.3 percent. It more than doubled to 15.7 percent in 2012. On October 27, 2011, the Federal Communications Commission (FCC) approved plans to merge the USF and Intercarrier Compensation into the Connect America Fund (CAF), intending to use this new program to fund broadband deployment across the country. The FCC anticipates that approximately 18 million Americans living in underserved areas will receive broadband services in the next 10 years through CAF.

In addition to increases in the federal USF fee, several states are duplicating the federal government’s efforts by placing a surcharge on intrastate telecommunications services. These funds are typically used to support basic local phone service in areas where it is costly to provide such services. Among the states with their own USF fees are Alaska (5.98 percent), Colorado (1.82 percent), Indiana (.33 percent), Kansas (.17 percent), Louisiana (2.4 percent), Maine (.94 percent), Maryland (.38 percent), Nebraska (4.37 percent), Nevada (.1 percent), New Mexico (2.08 percent), Oklahoma (1.98 percent), Texas (2.7 percent), Utah (.63 percent), Vermont (1.6 percent which includes 911), Wisconsin (.1 percent), and Wyoming (.63 percent).

As noted in the report, most states also impose a 911 fee on consumers’ wireless bills, as well as state and local wireless taxes and other fees. The 911 program provides consumers of telephone services to contact emergency personnel; the Enhanced 911 program (E 911) allows consumers to reach emergency services regardless of the technology used to place the call. Such technology would include Voice over Internet Protocol and wireless networks. On March 10, 2006, the Government Accountability Office (GAO) issued a report on state and local use of funds collected for the purpose of E 911 implementation. Among its findings, GAO reported that several responding states were using the collected E 911 funds for purposes unrelated to the E 911 program, and in some instances had transferred these funds to the state’s general fund.

On November 8, 2011, the FCC reported that seven of the states responding to its request for information were still using the collected E 911 funds, at least in part, to support programs other than 911. While this is a reduction from 12 states noted in the FCC’s 2009 report and 13 states listed in 2010, four of the states (Arizona, Illinois, Oregon, and Rhode Island) reported that they used E 911 money to assist the state’s general fund in meeting budgetary demands and shortfalls. Other states spent the 911 funds collected for public safety purposes unrelated to 911 programs.

The telecommunications industry, while providing innovation and economic growth to the country, is one of the most heavily taxed businesses in the nation. Most of the taxes and fees listed in Mackey’s report are passed along to subscribers. Compared to the 17.18 percent average tax burden on wireless consumers, the U.S. average state and local sales tax for other goods and services is currently 7.33 percent.

To address this disparity and halt the rise in wireless taxes, legislation was introduced during the 112th Congress. The Wireless Tax Fairness Act (H.R. 1002/S. 543) would place a five-year freeze on attempts by state and local governments to raise taxes on wireless services, including mobile services, mobile service providers, or mobile service property. H.R. 1002 passed the House on November 1, 2011 and currently awaits Senate action. During the waning days of the lame duck session, it is doubtful this legislation will move forward in this Congress, and it will be left to the incoming 113th Congress to address this large tax disparity.

The ability to communicate efficiently and effectively by using innovative, disruptive technologies such as wireless broadband and cell phones is an essential component to today’s increasingly connected society, and should not be hindered by onerous taxes.