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Cell phone tax 'fairness' bill moves forward

Cell phone users may not see any new local and state taxes added to their bills for the next five years if a bill in the House of Representatives gets passed soon.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

Consumers may soon get a guarantee that no new local and state taxes will pop up on their cell phone bills over the next few years.

A House Judiciary subcommittee today passed the Cell Tax Fairness Act of 2009 (H.R. 1521), which was first introduced by Reps. Zoe Lofgren (D-Calif.) and Trent Franks (R-Ariz.). The bipartisan bill, which now has 194 co-sponsor, would ban new state or local taxes on mobile phones for the next five years.

Currently, cell phone consumers spend on average more than 15 percent in taxes on their wireless service. This is compared with about 7 percent in taxes on other taxable goods, according to Lofgren.

In a letter written early this year supporting the bill, the National Taxpayers Union, which advocates for American taxpayers, claimed that between 2003 and 2007, taxes on cell phone service increased four times faster than those imposed on other general goods and services.

"While family members are forced into paying more money, out-of-pocket, to communicate with one another, these predatory taxes are often squandered on projects that have little to do with improving the communications network," the group said in its letter.

The bill would not affect current taxes. It also wouldn't ban new federal taxes, nor would it apply to fees that subsidize emergency 911 services and contributions to the Universal Service Fund, which helps fund rural phone service and phone service for low-income residents.

Instead, the bill is designed to curtail further increases in wireless taxes and fees in an effort to encourage people to spend more money on wireless service.

"The Cell Tax Fairness Act does not take away any existing revenue for state or local governments, it simply calls for a period of tax stabilization," Lofgren said when the bill was introduced last year.

Verizon Wireless and the rest of the wireless industry fully support the new bill. And they're pushing for it to be passed by the entire House before Congress goes on recess for the midterm elections.

"By providing a 'timeout' on new discriminatory and unfair taxes this year, Congress can protect wireless customers from new burdens that make broadband connections less affordable and stifle high-tech innovation and growth," Peter Davidson, Verizon senior vice president of federal government relations, said in a statement.

The wireless industry's trade organization said the bill could help spur investment and innovation in wireless broadband networks.

"As more Americans rely on their wireless devices as their only phone and on-ramp to the Internet, taxing their services at more than twice the rate applied to other goods and services is discriminatory," CTIA President and CEO Steve Largent said in a statement. "These types of taxes are regressive and make little sense in today's mobile information-driven economy."

The CTIA has long argued that local taxes are not helping the federal government reach its goals of offering affordable broadband to all throughout the country. And it claims taxes discourage consumers from using voice and data services.

While this may be true, the industry also tacks on its own fees, often disguised as taxes, increasing what consumers pay every month. Most of these fees sound like they are government mandated, but they're not. They're often listed as "administrative" or "regulatory" fees.

Over in the Senate, lawmakers are set to pass a measure this week included in a small business lending bill that would eliminate a provision requiring employees to pay taxes on personal use of employer-provided cell phones and similar devices.

The Senate voted yesterday to end debate on the measure, clearing the way for it to be voted on as soon as tomorrow. The legislation includes an item introduced by Senate Commerce Communications Subcommittee Chairman John Kerry (D-Mass.) that repeals a provision in the tax code requiring personal use of employer-provided cell phones and similar devices to be taxed like other corporate benefits such as the use of a company car. Current rules require employers to keep track of cell-phone calls by their staff.

"You can't do business in the modern economy without a cell phone, so it's crazy to tax them like some executive perk," Kerry said in a statement. "This law was long in need of modernization, and I'm glad we've done right by businesses and abolished this silly and outdated law."