Whether at the local, state or federal level, governments are consistently looking for ways to tax all things digital – from your gadgets to your Internet connection. While some federal protection from excessive taxation is in place, more is needed to combat new taxes on devices and services, and to lower the high and discriminatory taxes that already exist.
Internet Access Taxes
Since 1998, federal law under the Internet Tax Freedom Act has prohibited states and the federal government from taxing your Internet access or enacting discriminatory taxes on emails and other data. However, some states have consistently tried to exploit vague language in the law to enact new taxes.
The Federal Communications Commission has also called for reforming the Universal Service Fund tax (USF) – which subsidizes companies that provide telephone service to schools, libraries, and rural and lower income households – to cover broadband Internet. This is a step toward phasing out subsidies for traditional telephone service and redirecting the focus to VoIP and data-packet driven telephony. While 95 percent of households already have access to high-speed Internet, if the FCC wants to tax the Internet and traditional phone service, they should cap the size of the fund to ensure consumers don’t pay more than they currently do in taxes.
Phone and Cable Taxes
Taxes on cell phones are astronomically high. Today, the average consumer pays a tax rate of 16.3 percent on cell service, reaching as high as 24 percent in Nebraska. You pay a federal USF tax of 5.05 percent followed by varying and punitive state and local taxes and fees.
Excessively high taxes on cell service are largely due to localities and states imposing targeted taxes. To fix this onslaught of taxes at the local level, last year Congress considered the Cell Tax Fairness Act, which would place a five year freeze on all new, discriminatory state and local taxes on wireless service. The act should be reintroduced and passed in the new Congress. Another reason wireless taxes are high is due to the federal USF tax, which is changed administratively without Congressional approval and has risen since 1998, but exponentially in recent years.
All in, the Center for Fiscal Accountability has calculated that after accounting for these direct taxes, as well as other government taxes and fees, consumers pay 46.4 percent of their monthly cell phone bill straight to the government. Similar punitive taxes cause consumers of Cable TV and landline phones to pay 46.3 and 51.8 percent respectively to Uncle Sam.
In 2010, the Federal Trade Commission released a draft report proposing $35 billion in higher taxes a year in order to establish government funded journalism. This included an additional 5 percent tax on consumer electronics, on top of state and local sales taxes. The report also listed a 3 percent tax on Internet and cell phone service, and taxes on advertisements and broadcast spectrum. Overwhelming opposition to the media bailout forced the FTC chairman to effectively abandon the draft proposal as soon as it was released. This hasn’t stopped such calls for taxes to fund greater public media, however.
Federal and state governments should halt discriminatory taxes on tech goods and services and instead bring these taxes down to parity with other goods. For information on taxing online commerce and sales, check out www.StopETaxes.com.