Tax Definitions
Federal Taxes, Fees and Government MandatesFederal Regulatory Fee: This fee covers carriers’ Local Number Portability costs and various other regulatory license fees and charges. The amount of this fee can vary significantly. For wireless carriers that have adopted the voluntary Consumers' Code, this fee should be itemized in the surcharges section of consumers' bills, not the taxes and fees section.
Federal Universal Service Fee: This fee is imposed at the federal level to promote universally affordable telecommunications and information services to all Americans, including low-income consumers, eligible schools and libraries, etc. The fee is imposed on the carriers but may be surcharged to the customers (not required). The formula and amount charged to the customer is a relatively complicated calculation. The FCC determines an assessment rate applicable to interstate revenues based upon the current funding requirements. The carriers typically recover this contribution from their customers on a monthly basis as a fixed charge or as a percentage of revenue based upon what they have estimated their total costs will be to meet this requirement. The amount is adjusted quarterly. This fee should be itemized in the surcharges section of consumers' bills.
State Taxes, Fees and Government Mandates
State and Local Sales Taxes: All but five states impose general sales taxes. Almost all of the states that impose a general sales tax impose this tax on telecommunications services. The few states that don’t impose the sales tax on wireless services have considered doing so during recent legislative sessions. The average nationwide rate of the sales tax is 6%. Most sales taxes are imposed on the customers, although in some cases the tax is legally imposed on vendors but are customarily passed on to consumers (e.g., Arizona, Arkansas, Maine and New Mexico). Generally this tax appears in the taxes and fees section of the bill, but in the aforementioned four states it will most likely appear in the surcharges section of the bill.
State Universal Service Fund Fee: Some states impose a state USF fee that is a compliment to the federal fee and its funds are used for similar purposes. The amount of the fee varies from state to state. The fee can be imposed on the carrier or on the customer. When the fee is imposed on the carrier it will be itemized in the surcharges section of consumers' bills, otherwise it will be in the taxes and fees section of the bill.
State 911/E911 Fees: Approximately 45 states impose a 911/E911 fee to fund the state/local 911 emergency communications systems. The fee is authorized at the state level but may be payable to localities directly or payable to the states and then allocated to the localities in whole or in part. The amount of the fees vary substantially– for example, the amount of the state/local fee is $1.50 in the aggregate in NY, but two separate impositions will appear on the customer bills in RI, etc. The fee in all but a few jurisdictions is imposed on the customer and collected by the carrier on behalf of the government. In all but those few jurisdictions where the fee is legally imposed on the carrier, the fee is itemized in the taxes and fees section of the bill.
State Gross Receipts Taxes: A growing trend in the states is the expansion of state gross receipts taxes, which were historically imposed on regulated monopolies like utilities and phone companies, but are now being levied against wireless service providers. The rate varies, but is as much as 5% in a few of the states. These taxes are imposed on the carrier, so the surcharge to recover the tax is itemized in the surcharges section of the bill.
State/Local Consumers' Excise Taxes: In a number of states that either do not have a sales tax (e.g., Delaware, Montana, New Hampshire) or have a sales tax but do not impose the tax on services (California, Virginia), states/localities impose an excise tax on wireless service that is comparable to a sales tax. The rate of tax varies but is generally very substantial. These excise taxes are typically imposed on the customer, so the tax will most likely be itemized in the taxes and fees section of the bill.
TDD/TRS/Regulatory Fees: These are miscellaneous fees that fund various regulatory programs (e.g., relay services for the hearing impaired, the state PUCs, etc.) The amount of the imposition varies but is typically not as significant as other line items on the bill. Whether the fees are imposed on the carriers or the customers varies from state to state. Accordingly, whether such fees are in the surcharges or taxes and fees section of the bill will vary as well.
Local Franchise/ROW/Privilege Taxes: This is a “catch-all” category of all sorts of taxes and fees that are vestiges of the regulated monopoly local phone/cable tax systems. They are no longer appropriate with convergence in the technologies and competition in the marketplace. Whether the taxes/fees are imposed on the carriers or the customers varies from state to state. Accordingly, whether such fees are in the surcharges or taxes and fees section of the bill will vary as well.