One study by economists Greg Sidak and Alan Ingraham measured how consumers
respond to changes in prices for wireless service — the “price elasticity of demand,” in “economist-speak.” They estimated that each 1 percent increase in the price of wireless service reduces consumer demand by about 1.2 percent. If the average wireless customer faced the same tax burden as other competi-tive goods and services (about 6.9 percent), sales of wireless service would be almost 11 percent higher than they are today.
How does this price elasticity affect wireless investment? Excessive consumer
taxes reduce company revenues, which in turn reduce cash flow from operations available for investment in wireless networks. Wireless providers must either curtail investment or attract more expensive capital from the markets.
Another way that some state and local tax policies impede investment is the
imposition of sales and use taxes on equipment purchased by wireless companies
to improve and upgrade wireless networks with broadband capability. These taxes boost the cost of routers, switchers, and other equipment bybetween 5 percent and 9 percent, depending on the state. Most states have recognized the harmful impact of such taxes on business inputs by exempting purchases of manufacturing
machinery and equipment, but unfortunately 24 states persist in levying these
anti-investment, anti-growth taxes on wireless providers.
A few states are beginning to get it. Utah exempted wireless equipment from the sales tax beginning in July. The Virginia legislature passed a communications
tax bill that eliminates discriminatory taxes on wireless and other telecommunications services (but left sales taxes on wireless equipment in place). A bill to repeal the gross receipts tax on wireless service has passed the Pennsylvania House and is pending in the State Senate. And at the federal level, it appears that the Federal Excise Tax is on its last legs due to a series of federal court decisions questioning whether the tax applies to wireless.
Unfortunately, these are the exceptions, not the rule. The majority of states continue to impose taxes that slow investment in critical wireless networks
and applications. In doing so, state policies discourage investment
and slow the important productivity benefits that come with a wireless
world. It is tempting for states and municipalities to look to wireless consumers
and the industry as convenient remedies to budget shortfalls or to easily expand their revenue base for publicly-funded programs. Such thinking is grossly shortsighted and inevitably, impedes the fantastic potential the wireless industry has to contribute in an even more significant way to the long-term economic vitality of the country.
The average U.S. wireless customer pays 16.9 percent in taxes, fees, and charges on their wireless bill.
Pages: 1, 2