February 15, 2011 02.48pm EST

Taxes on Cell Phones Hit All-Time High, 10 Best and Worst States

Wireless consumers in Nebraska, Washington, and New York pay more than 20 percent of their wireless bills in taxes and fees, mostly due to the proliferation of archaic or duplicated surcharges.

In a report called "A Growing Burden: Taxes and Fees on Wireless Service" tax policy experts from KSE Partners spent five years monitoring the federal, state, and local taxes imposed on wireless consumers.

On average, consumers pay over 16 percent on wireless taxes and fees, compared to 7.4 percent for other taxable goods, the report found. Furthermore, these wireless taxes grew three times faster than the retail sales rate between 2007 and 2010.

"There is no sound policy reason to tax wireless and other communications services at these high rates," said Scott Mackey, a partner at KSE Partners and lead author of the report. "In fact, at a time when the President, Governors, and business leaders are calling for expansion of wireless service toimprove productivity, these excessive taxes actually discourage business and consumer purchases of wireless service and reduce the availability of funds for network modernization."

Why is our wireless tax burden higher than ever? The report highlights a couple perpetrators, but as a general principle the report suggests that legislators and Congressmen are targeting the wireless industry for tax money to relieve the burden from more recession-starved industries.

Your wireless taxes and fees come in five parts: federal tax, state sales tax, state and local 911 fees, and local "utilities" charges. In 2010, the federal Universal Service Fund (USF) surcharge grew more than any other fee, to 5.05 percent. This marks an increase of 0.9 percentage points since 2007, compared to 0.2 percentage points from state and local charges. The USF is a tax imposed on wireless carriers, which pass the fee on to consumers, to subsidize telecommunications service for schools, libraries, hospitals, and rural telephone companies (and their customers).

State and local fees vary greatly, depending on the level of authority states give local governments to impose wireless fees. In one example, Baltimore, Maryland increased its per-line tax to $4 a month from $3.50 a year ago. Many states also double-tax consumers by imposing a gross-receipts or excise tax on top of the general sales tax.

A few states even tax wireless consumers for non wireless-related projects: Utah funds its poison-control centers with a poison-control surcharge found on wireless bills, and in 2009 Wisconsin imposed a police and fire protection fee to subsidize local departments.

Mackey says there are two things wireless consumers can do to try to reduce these fees: first, contact your state legislators and urge them to reduce some of the archaic taxes "designed in an era of one monopoly provider." Second, contact your Congressmen to reduce the rapidly growing USF charge.

States With Highest Wireless Taxes:

1. Nebraska: 23.69%

2. Washington: 23%3. New York: 22.83%4. Florida: 21.62%5. Illinois: 20.90%6 Rhode Island: 19.67%7 Missouri: 19.28%8 Pennsylvania: 19.13%9 Kansas: 18.39%10 Texas: 17.48%

States With Lowest Wireless Taxes:

1. Oregon: 6.86%

2. Nevada: 7.13%3. Idaho: 7.25%4. Montana: 11.08%5. West Virginia: 11.28%6. Delaware: 11.30%7. Louisiana: 11.33%8. Virginia: 11.61%9. Alaska: 11.74%10. Connecticut: 12.01%

For a complete state-by-state breakdown, see the full report at KSE Partners.