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October 23, 2013

IPI panel highlights bipartisan support for wireless service tax reform

  SNL Kagan

By Kyle Daly

Online sales tax reform may get all the attention, but there is another complex network of Internet-centric taxes that backers of reform say should be re-examined as well.

At a panel at the Institute for Policy Innovation's Oct. 22 Communications Summit in Washington, D.C., Annabelle Canning, a partner at Capitol Tax Partners and executive director of the Internet Tax Freedom Act Coalition, and Jot Carpenter, vice president of government affairs at CTIA-The Wireless Association, came together to call for reform of what Carpenter called "hideously regressive" cross-jurisdictional taxes on wireless Internet access.

Canning noted that there are more than 10,000 jurisdictions in the U.S., including federal, state, local and municipal tax districts, competing to collect taxes from consumers for wireless broadband service. In most cases, the underlying tax policy behind such levies dates back to, as Carpenter put it, "the days of Ma Bell." Moderator Bartlett Cleland, IPI's policy counsel, noted, for instance, that the standard tax on broadband service in Texas, even wireless, amounts to $25 on a customer's first bill, a number so chosen because it was the price of one month of AOL Inc. dial-up service when the tax was first enacted in the 1990s.

However, the panelists argued that line-item taxes on consumers' wireless bills will rise without broad reform of telecommunications taxes that ensure telecom services are treated the same as any other services and are not subject to special taxes. Canning estimated that at least 20% of cellphone bills may soon consist solely of taxes collected by carriers on behalf of the various tax-collecting jurisdictions. Already, CTIA estimates hold, wireless service is taxed at an average rate of 17.2% nationwide, compared to 7.4% for other general goods and services.

Carpenter said such costs create "friction" between service providers and their customers, as consumers blame carriers for rising tax charges. More troubling, however, he and Canning contended that such taxes are disproportionately burdensome to low-income and underserved consumers.

The two argued that wireless bills bloated to unsustainable levels with heavy taxes may dissuade those in the lower income brackets from continuing to pay for mobile broadband, which in some cases is their only consistent access point to the Internet. Canning noted that the common application for applying to college, social security benefits tools and other vital services are now online-only, while the newly unveiled health care exchanges under the Affordable Care Act are most easily accessed via the Internet.

Meanwhile, Carpenter said that if consumers do give up wireless plans, it would have a chilling effect on innovation and universal access to reliable wireless service. Noting that wireless is a "very capital-intensive industry," he said carriers will only build out networks in underserved areas if demand and existing take rates justify doing so. If rising wireless bills turn people off of signing up for service, it could affect network build-outs for entire regions.

To remedy these concerns, Canning and Carpenter advocated for the passage of the Wireless Tax Fairness Act to extend and expand tax moratoriums under the Internet Tax Freedom Act of 1998. The former bill was reintroduced with bipartisan support over the summer by Rep. Zoe Lofgren, D-Calif., in the House of Representatives and by Sen. Ron Wyden, D-Ore., in the Senate, but it has remained in committee with no further action.

The bill would not eliminate existing taxes, but would instead institute a five-year moratorium on any new state or local taxes on wireless service that do not apply to other goods and services. Moratoriums under the ITFA of 1998 have been extended numerous times since its passage, but seven states still have grandfathered exemptions, Canning said, and a number of states and localities have continued to raise wireless-specific taxes in recent years.

Canning said the new bill and others like it have received "very broad support through the years," but in order for them to succeed, Congress, stakeholders and the general public must be better informed about what they seek to achieve. That, she said, is precisely what her own ITFA Coalition, the CTIA and other groups intend to work on.

"As we educate folks, I think people will recognize the need for reform," she said.


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