By Larry Jones
November 7, 2011

Against the wishes of state and local governments, the House passed the Wireless Tax Fairness Act, H.R. 1002, by a voice vote on November 1. If enacted, the bill would ban new taxes on wireless phones for five years. This comes at a time when traditional wire line phones (and related local revenues) are declining rapidly while wireless phones are increasing exponentially. And before state and local governments are given an opportunity to adjust their telephone tax laws, this proposal is an attempt to close the door on taxing wireless phones as an alternative revenue source.

Local and state governments consider this proposal an unwarranted federal intrusion. Worst yet, the House is advancing it when most local jurisdictions are facing severe budget shortfalls as a result of the Great Recession and drastic cut backs in both state and federal aid to local governments. Commenting on the action in the House, Conference of Mayors CEO and Executive Director Tom Cochran said, “At a time when Congress is drastically cutting funds to local governments, [it] should not be imposing a moratorium on local governments’ ability to raise new taxes. …. It’s only logical that our telephone taxes should be applied equitably without regard to the industry providing the service. It is not fair to single out wireless phones for favorable tax treatment over all other phone services.”

Proponents of the bill claim the legislation is needed to protect the wireless phone industry from discriminatory taxes because, they say, consumers can pay an average of 16.3 percent in taxes and fees at the federal, state and local level as opposed to 7.4 percent for other taxable goods and services. However, when stripped of universal service fund (USF) and E-911 fees and other user'specific fees, industry’s own data fail to show any appreciable or widespread higher tax burden on the wireless industry than on other business sectors.

Also in an October 31 joint letter to Congress expressing opposition to the bill, the Conference and other local groups said, “… the wireless industry has yet to present any data indicating that state and local wireless taxes have had any adverse effect on wireless service subscribership, revenue or investment. Quite the contrary, wireless industry subscribership, revenue and investment continue to soar even as the industry complains about its state and local tax burden.” The letter further pointed out that the wireless industry was just one of many industries seeking preemption from state and local taxing authority. The Conference and other groups warned that if the bill is enacted, Congress would be flooded with similar demands for from other industries such as car rental and online travel companies.

During House floor action, Representative Judy Chu (CA) expressed opposition to the bill on behalf of state and local governments saying “This will deny states the flexibility to respond to the economic downturn during the moratorium and therefore undermine the ability of states to pay for essential services.” So far there has been no action on the Senate companion bill, S. 543, sponsored by Senator Ron Wyden (OR). Mayors and other officials are urged to contact their Senators and urge them to oppose S. 543.