Federal tax set to disappear
The imposition of taxes and fees on wireless service starts at the federal level with the Universal Service Fund (USF) fee and the Federal Excise Tax (FET). The industry supports fair and equitable payment and distribution of USF monies, which are primarily intended to provide telecommunications services to poor and rural areas that could not obtain service at market rates.
The FET, however, was another matter. Originally passed in 1898 as a way to fund the Spanish American War, the tax was challenged in court by purchasers of long distance service. Five different U.S. Circuit Court of Appeals ruled in favor of the long distance customers, so finally, the Department of Treasury announced it will no longer claim its right to impose the tax and the Internal Revenue Service will no longer collect it after July 31st of this year. Details have yet to be finalized, but consumers will be able to claim refunds on their tax returns for three years worth of FET payments. CTIA President and Steve Largent praised the actions, saying, “The Spanish-American War ended successfully a long time ago, and now after a rough ride for consumers, so has the battle over the FET. With the FET finally taking its rightful place aside the Spanish-American War in our history books, wireless consumers can now turn their attention and efforts to repealing discriminatory wireless taxes on the state and local level.”
Cash cow for state and local governments
State and local governments, however, are reluctant to give up the revenues from wireless taxes. They often try to classify wireless service as a utility, or monopoly, service, subject to much higher tax rates. “States facing budget deficits wanted money quickly, and they felt that they could argue that because wireless was competing with landline service they should be able to tax wireless, too,” says Annabelle Canning, assistant general counsel - tax policy at Verizon Wireless. In Pennsylvania, for example, the legislature passed a law in December 2003 that levied a five percent gross receipts tax on wireless services which was in addition to the six percent sales tax on services that consumers were already being charged.
Another tax that wireless consumers pay on the state or local level (or sometimes both) is the 911 tax. But some jurisdictions have appropriated the funds intended for 911 service and used them for other purposes. “We want to make sure that the money collected from consumers is used appropriately for public safety and not going into the general fund,” says Schuler.
