Cell Phone Industry Calls on Uncle Sam for Tax Relief

American consumers flocking to cell phones are finding that using them is a more taxing affair than they expected.

Although 28,000 new customers sign up for cell phone service every day, the industry thinks even more would be carrying the hand-held phones if not for the massive telephone tax burden.

Local, state and federal levies have grown so much in recent years that the Cellular Telecommunications Industry Assn. has called on Congress to repeal the 3% federal excise tax on phone service and roll back other levies that now account for as much as 30% of every phone bill, cellular or traditional.

Speaking to an audience at the association’s annual convention in Atlanta last week, association President Thomas E. Wheeler said that “telephone service--basic communications in this country--is not a luxury and it’s time to repeal the [excise] tax.”

The proposal won the immediate endorsement of two key lawmakers: Sen. John McCain (R-Ariz.), who chairs the Senate Commerce Committee, and Rep. W.J. “Billy” Tauzin (R-La.), chairman of the House Telecommunications subcommittee.

The two conservatives, who have long championed deregulation, indicated they would introduce bills to repeal the tax, which was first applied on a temporary basis around the turn of the century but became a permanent fixture on phone bills about a decade ago. The tax raised an estimated $4.2 billion in 1996, according to the Treasury Department.

Tauzin said repealing the tax would benefit consumers by reducing the cost of phone service and stimulating competition.

However, Tauzin aide Ken Johnson cautioned that it might be too late in the current session of Congress to get the legislative ball moving.

“But then again,” he added, “once consumers recognize the potential savings in this, anything is possible.”

As the nation undergoes a rapid transition to a service economy--dominated by the booming $600-billion-a-year information services industry--telecommunications has emerged as an enticing target for revenue-hungry tax collectors.

The wireless and wire-line telephone industries have increasingly sparred with state and federal regulators on a host of levies aimed at raising money from phone service, said Michael Basch, a telecommunications tax analyst with Vertex Inc., a Berwyn, Pa., tax analysis firm.

“I would say that, generally speaking, taxes are rising” on phone service, Basch said.

The government levies, which are usually passed on directly to phone users, range from so-called universal service fees, which subsidize phone service in poor and rural areas, to state and local fees that enable phone companies to string lines along roads and other public throughways.

The bite is especially sharp in the city of Los Angeles, which imposes a 10% tax on phone service in addition to the federal excise tax and six separate statewide surcharges on telephone services.

Some government officials say the industry overstates the impact of taxes on phone service.

The assertion that taxes and government mandates make up 20% to 30% of a phone bill “doesn’t bear any resemblance to anything that I’ve seen,” said John Nakahata, chief of staff for the chairman of the Federal Communications Commission.

Nakahata called the 3% federal excise tax modest and said Americans are “perfectly comfortable” with other levies that subsidize emergency 911 service and phone service in poor and rural areas.

But Wheeler of the cellular association disagreed, citing an industry poll that found that 76% of wireless customers surveyed felt taxes on their phone bills were too high.

What’s more, Wheeler said, even if federally mandated programs such as universal service and 911 subsidies are excluded, state, federal and local taxes still make up more than 15% of the average phone bill.

“The government told us we should do business differently, but the government itself doesn’t want to act differently,” Wheeler said. “If you want us to be as competitive as Wal-Mart, then our taxes should be no higher than Wal-Mart.”