Tax Law

Does the Wireless Tax Fairness Act Pass the "Fairness" Test?

Would the Wireless Tax Fairness Act equalize tax burdens or would it instead enrich special industries?

Over the past few years, the use of wireless telecommunications has erupted, with a virtual panoply of services available to consumers from a number of providers.  With the advent of any new method of delivering goods or services, however, there comes both opportunity and challenges when reviewing the state and local tax treatment of such delivery. 

Recently, the House of Representatives passed a bill (H.R. 1002), the Wireless Tax Fairness Act of 2011, which would preclude "new discriminatory" taxes on wireless telecommunications services.  The bill provides that states and localities would be prohibited from imposing any 'tax imposed on mobile services, providers or property not generally imposed on, or that is generally imposed at a lower rate on, other types of services, providers or property, unless such tax was imposed and actually enforced prior to the enactment of this Act" for a period of five years.  During that period, the Comptroller General would be required to conduct, and submit to the legislature, a report on the effect of current laws and regulations on wireless telecommunications customers, along with recommendations for any needed changes.

Similar legislation was introduced in the Senate earlier this year. Both pieces of legislation are in response to concerns on the part of the telecommunications industry and its customers, that the combined state and local taxes and fees on wireless telecommunications services is much higher than the average combined state and local taxes and fees on purchases or leases of other goods or services. Although there is significant bi-partisan support for the legislation, there is opposition to federal legislation governing this issue, mostly from state and local associations and conferences.

In an economy that finds both governmental entities and struggling businesses faced with monumental challenges, opponents to the legislation argue that, rather than equalizing the tax burden that has been placed on an overtaxed industry, the bill is another example of special treatment being accorded to that particular industry at the expense of other industries, the taxpayers as a whole, and state and local governments that are badly in need of revenue sources.  This argument is difficult to refute when some of those who benefit most from the legislation include big league players, such as Verizon and AT&T.

On the other side, supporters argue that in some states nearly one-quarter of the wireless service costs to the customer represent the imposition of state and local taxes and fees, and that an unfair share of the burden of paying those taxes and fees falls on lower-income taxpayers.  They further argue that imposing higher taxes and fees on technological industries prevents growth in that area and blocks job creation and investment in new technologies, two goals that are perpetually being touted by federal and state legislators.

While there are issues surrounding the intrusion of the federal government on state and local tax policy issues, perhaps the more significant issue is that any decision as to what should be done in this area of taxation is that there is little, if any, empirical data showing whether the wireless telecommunications industries and its services have been unfairly targeted by state and local taxing authorities, that the imposition of taxes and fees on wireless services adversely affects economic growth, or that the taxes and fees are more regressive than other taxes.  Thus, in the event that the Wireless Tax Fairness Act becomes a reality, then despite arguments in opposition to governmental studies that there are lies, damned lies, and statistics, perhaps the most valuable part of the legislation is contained in the study required, which provides an opportunity to obtain reasonably accurate information clarifying the realities underlying the arguments advanced by both sides of the issue.

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