A bipartisan bill introduced Tuesday in the House of Representatives would ban new state or local takes on mobile phone services for a period of five years. Sponsored by Rep. Zoe Lofgren (D-Calif.) and five co-sponsors, the bill is known as the Cell Tax Fairness Act (HR 5793 ).
In a statement, Lofgren said that between January 2003 and July 2007, the taxation rate on wireless services increased four times faster than the rate for other taxable goods and services. As a result, consumers pay 15.19 percent in federal, state, and local taxes on their cell phone bill, compared with 7.07 percent in taxes for most other goods and services.
"The Cell Tax Fairness Act will help ensure that consumers make choices about communications technology based on the merits of that technology, rather than on the rate of taxation," Lofgren said. The legislation "does not take away any existing revenue for state or local governments."
The bill, which is similar to Senate legislation introduced last year, would not affect current taxes, nor does it call for a ban on any new federal taxes. Furthermore, the ban would not apply to fees meant to subsidize emergency 911 services nor the universal service charge, which funds telecommunications infrastructure for low-income and rural residents. The federal excise tax on phone services, which was originally created to support the Spanish-American War, was dropped by the Internal Revenue Service and the Department of the Treasury in August 2006.
The wireless industry's lobbying arm, the Cellular Telecommunications Industry Association (CTIA), is supporting the bill, calling it "a step in the right direction." In its own statement, the association joined Lofgren in saying that a ban on new taxes would help encourage new innovation in the wireless sector. "We should do everything in our power to remove the roadblocks--such as excessive, discriminatory wireless taxes--that stand in the way of progress," said CTIA President and CEO Steve Largent.
Cell phones taxes and fees have been the target of a few bills in Congress since the Democrats regained control of the House, but lawmakers and the CTIA haven't always seen eye to eye. Separate bills in both the Senate and the House propose eliminating early termination fees and handset locking. The latter issue has become particularly controversial following AT&T's well-publicized lock on the iPhone, even though handset locking has been standard practice in the industry for years. Though the Senate bill won support from Senators in a hearing held in October, Largent and the CTIA have declined to support it, calling it "unnecessary."
The U.S. Supreme Court has declined to weigh a dispute that could affect how taxes show up on Americans' cell phone bills, dealing a setback to wireless companies.
The case at hand, which pitted Sprint Nextel and T-Mobile USA against state utility regulators, centers on whether states should be allowed to forbid wireless carriers from breaking out various state and local taxes as line-item fees on a customer's bill.
Sounds like a simple enough matter, but it has actually stirred up quite a fuss.
The wireless companies, naturally, maintain they should be able to establish a visible separation between the base prices of their services and the fees required by various regulators. States and localities have increasingly been passing laws prohibiting those line items expressly in order to "hide" arguably unpopular taxes and fees from consumers, Sprint Nextel and T-Mobile said in their brief to the high court.
And because taxes and fees vary by locale, building them into the base price would make it impossible to advertise one price to all customers nationwide, they contended--and therefore make it harder for consumers to compare prices among wireless carriers.
But state utility regulators have countered that the wireless companies are missing the point: The fees and taxes they impose are generally meant to fall on the wireless carriers themselves, not on consumers. Wireless companies should simply raise their rates to reflect that distinction, they argue.
An example of one such law, according to the court filings, is in Indiana, which imposes a tax on the "gross receipts" of corporations in the state. Indiana passed a law insisting that wireless carriers not pass on the tax to their customers as line-item fees. They are, however, allowed to raise their base rates accordingly.
The Federal Communications Commission has already sided with the wireless carriers. It issued an order in 2005 that said states can't impose such restrictions, citing a chunk of federal communications law that says wireless carriers must disclose all "rates charged." But the U.S. Court of Appeals for the 11th Circuit disagreed, saying there's nothing in that law to stop states from regulating how line item fees show up on wireless bills.
Without comment on Tuesday, the nation's highest court said it wouldn't hear an appeal by wireless carriers to overturn the appeals court decision. The U.S. Department of Justice had urged the high court not to take up the case because the appeals court had already sent the decision back to the FCC for further review. That means the fate of Americans' cell phone bills is now effectively back in the federal regulators' hands.
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