Many wireless customers are annoyed at how much their monthly cell phone bill costs. But a large chunk of that anger should be directed somewhere other than your wireless provider: According to a new study, 18.6% of the average wireless customer's bill goes to federal and state taxes and fees. Put another way, a family of four that pays $100 a month for their cell phone plan will pay about $225 a year in taxes, fees, and government surcharges.
The data comes courtesy of the Tax Foundation, which released its annual report on Tuesday. Researchers found that while taxes on wireless service did not dramatically increase over the past year, they are now 4.5 percentage points higher than they were a decade ago. Washington (18.8%), Nebraska (18.7%), and New York top the list of states where consumers pay the most in taxes and fees, while Oregon (1.8%), Nevada (2.1%) and Idaho are among the states that offer the lowest tax rates.
Most customers pay a variety of fees on their wireless bills, including federally mandated charges, plus state and local taxes — as well as surcharges imposed by the carriers as a way to recover the costs of divvying up the money to the required agencies. In fact, there are over 75 different “fees” your carrier can charge, according to wireless comparison site ABTolls.com.
Overall, the Tax Foundation found that American wireless customers annually pay approximately $17.2 billion in taxes, fees, and government surcharges. The biggest chunk of that, about $7 billion, goes to sales taxes, while over $5 billion is paid as part of the federal Universal Service Fund (USF) surcharges.
All providers must contribute to USF, which funds initiatives such as the Connect America Fund, Lifeline, and E-rate, according to the FCC. But this fee is not required by law to be charged to the consumer; in fact, some carriers absorb the cost, while others pass it along to consumers as an extra fee.
In prior years, the Tax Foundation found that the federal USF charge was the largest driver of rising wireless taxes and fees. However, in 2016 state and local taxes and fees increased significantly faster that the USF fee.
Fees are increasingly a concern as more Americans consolidate their telephone services to wireless only. Almost two-thirds of adults in poverty paid only for wireless service in 2015, while about 48% of all adults had switched over to wireless-only.
In most cases, there is no avoiding the rising taxes and fees associated with mobile phones. Yet certain charges—like administrative fees—can sometimes be negotiated down, Kae Zulager, CEO of BillPolice, told Money in June in a story about sneaky charges that may be on your bill right now.
The best way to reduce the amount of fees you pay is just to lower your overall spending, Zulager said: “The lower your bill, the lower your taxes are going to be, because a lot of them are based off a percentage of your service charges.”