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Florida’s Cell Phone Tax Cut Could Help Reduce the Digital Divide

Mobile Phone

Governor Rick Scott (R-FL) is asking the Florida legislature to cut $470 million in taxes that the state collects from residents on their cell phone, satellite, and television bills. This proposal to cut the cellphone and TV tax rate by 3.6 percentage points will not only put money back into the pockets of everyday Floridians, but it is also a positive step in the right direction to help reduce Florida’s digital divide and will enable more innovation though mobile broadband.

Florida has one of the highest tax rates for wireless services (16.59 percent), falling behind only Washington, Nebraska and New York. In fact, consumers in seven states—Washington, Nebraska, Rhode Island, New York, Illinois, Missouri, and Florida—pay in excess of 20 percent of their bills for their combined state and federal tax rates.

So why have these taxes to begin with? States have traditionally turned to taxing services that people consume in their home because it is a reliable form of revenue. Someone in Florida cannot travel to Georgia to get a lower tax rate on their cell phone bill like they could for purchases of goods that include sales tax. This reliable revenue stream has also led these services to be taxed more heavily than other goods or services. However, while these high taxes may have made sense once when the main telecommunications service consumed by people was the traditional telephone, it certainly makes no sense for telecommunications services—like wireless services—which have become key drivers of today’s digital economy.

Excessive wireless tax rates impede the digital economy and have a perverse effect on wireless consumption. While taxes on cell phones and other wireless services may not necessarily impact a consumer’s decision whether to buy a device, it does affect his or her consumption of wireless services. Indeed, individuals in states like Florida that face higher taxes are more inclined to purchase plans with fewer minutes or services. For example, one study found that for every dollar of additional tax reduce levied against the average U.S. consumer’s cellular bill, economic welfare fell by between $1.23 and $1.95. Basically, an increase on taxes for cellular services leads to a drop in spending for services on those devices.

These effects also tend to be regressive, affecting more middle to low income families than taxes on fixed broadband. Because high-income Americans are more likely than low-income Americans to purchase fixed broadband services, and low-income households are almost as likely to purchase wireless service as higher income households, taxes on wireless services tend to affect lower-income Americans more than some other kinds of taxes. For example, while mobile phone adoption in 2012 was 77 percent for households making under $25,000 a year, only 57 percent of these households had a computer at home. Compare this to households making over $100,000, 96 percent of which used mobile phones and 97 percent used home computers. Therefore, these regressive taxes have a disproportionate impact on low income households, playing a role in limiting adoption and increasing the digital divide.

It is important to note that this issue is not only about cutting taxes, as it is possible for this type of tax cut to be done in a budget neutral way to maintain state revenues by increasing taxes on less innovation-friendly services. The fact is that this type of taxation distorts the market in harmful, anti-innovation, and often discriminatory ways. By removing excessive and discriminatory taxes on wireless services, states like Florida can ensure that a larger share of citizens is fully participating in the digital economy. Moreover, more mobile broadband subscribers would likely lead to a virtuous cycle where data-intensive applications become more commercially-viable, which would in turn create better services and generate more adoption.

By reducing Florida’s state wireless tax, Governor Scott’s plan will increase consumption of and access to of wireless and television services for Florida’s low-income households. This tax cut is estimated to save the average family approximately $43 a year (assuming they pay $100 per month for these services). That is a sizable chuck of change back in the pockets of Floridians, who can use it to purchase more minutes or better wireless and television services. It is time for Florida to pass this plan, and for other states with high wireless tax rates—such as Washington State and Nebraska—to look to its example for how to reduce their burden on the digital economy and bridge the digital divide.

Photo credit: Mike Fisher

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About the author

Alan McQuinn is a research analyst at ITIF. His research areas include a variety of issues related to emerging technology and Internet policy, such as cybersecurity, privacy, virtual currencies, e-government, and commercial drones. Prior to joining ITIF, McQuinn was a telecommunications fellow for Representative Anna Eshoo (D-CA) and an intern for the Federal Communications Commission in the Office of Legislative Affairs. He graduated from the University of Texas at Austin with a B.S. in public relations and political communications.
  • weekapaug.groove76

    I have T-Mobile. I traveled for two weeks outside of t-mobile land. To my surprise, I only found out I was roaming on another network after I had used all of my roaming data. Why is it that companies give away free call roaming and text roaming, but they greatly restrict the amount of roaming data? If I don’t use all of my data during the month anyways, why at least not credit that unused data each month to roaming data? Also, there is no truly unlimited plan. After researching today for data roaming, all carriers greatly limit or prohibit roaming data all together. Even though all those ads we read and see on the TV, the Net and the Radio, they all claim this “unlimited” status. What a bunch of phooey. Oh well. Oh and that tax we all pay to the federal government which is supposed to help provide telecommunications to everyone everywhere, what’s the point of that tax if my phone won’t work on a roaming network? That is false taxation, and is taxation without representation. Let alone all of those other taxes that are one there, like 9-1-1, are often times used to fill other state/local budget gaps. The wool is heavy and thick and is being brought down upon all of our eyes. What a shame. The world of “unplug and go wireless” to me will eventually become a world of just unplug and not have the service at all. Seriously, in PA, our cell phone taxes are almost cresting 20%. What a joke. Cancel your service and bank that as savings and retire at least 5 years earlier.

  • weekapaug.groove76

    Better yet, why aren’t all taxes based on income? For example, I earn so much, so then that amount should determine my state sales tax rate. If all tax rates were based on earned and un-earned income, the tax system would be far more fair. The lower income brackets would save on sales tax while the rich would have to pay a higher sales tax. To me, that just makes sense. In fact, it is probably a no-brainer for when the gov’t finally does away with cash all together and we all have to pay by some digital means. Oh well. Just frustrated after researching cell phone plans for a potential switch. You almost need a doctorate in legal-ease to read through all of the plans and to make a real educated decision based on the facts of each plan.
    Why isn’t there a law which states that all cell phone plans have to be laid out in a table and made easy to compare one to the other for the consumer? To me, that is a no-brainer too.