Washington has 2nd highest taxes/fees on wireless services

February 14, 2011

A new report out today in State Tax Notes ranks Washington state's citizens as having to pay the second most in the nation towards their wireless taxes and fees. The report says that Washingtonians pay 17.95% in state and local taxes and fees, and 5.05% in federal USF fees for a combined rate of 23%. This is far higher than a normal state + local sales tax (hovering around 10% throughout most of Washington). It is also higher than the U.S. average of 16.26%.

This new data constitutes a disturbing trend as the 16.26% weighted average is the highest since 2005, when it was 16.85%. 

It appears that wireless isn't being specifically targeted here in Washington. But wireless customers are being caught up in general tax and fee hikes, such as last year's e-911 fee increase, or the federal USF (Universal Service Fund) increase. The problem is that every tax and fee increase comes on top of an already healthy array of extant taxes and fees. 

Because Washington allows local governments to impose their own taxes/fees, there is great disparity depending on where a wireless customers lives. The study uses the example that a customer living in Olympia has to pay a 9 percent telecommunications tax on top of the state-local combined sales tax rate of 8.5 percent. 

As more people ditch their wireline phones (traditional Ma Bell) in favor of a wireless only or wireless + IP phone system (like VoIP), state, local and federal governments should reconsider the taxes and fees applied to these services. As it stands right now, Washington citizens are paying more for the privilege of using their mobile phones than for just about anything else. In fact, at 23% these taxes/fees are bumping up against the "sin" tax category like cigarettes (appx 50%) and alcohol (appx 40%).

Wireless customers shouldn't be taxed less than the general sales tax rate. But 23% is discriminatory and provides a disincentive for people to move into wireless. And as some studies have shown, for many people their wireless services is their primary portal to the Internet. This will only increase as the cost of the smartphone hardware comes down in price (e.g. Apple's 3GS iPhone is only $49, many other smartphones are free with a contract).

The future is in mobile broadband and better, more powerful smartphones to tap into those speeds. Let's reassess our telecommunications tax policy to welcome more people online.