Cell phones have not been proven to cause cancer, so why exactly are they taxed like they do?
Steve Largent Steve Largent
, head of the main cell phone lobbying group, recently complained to Congress that the average 16.8% in combined federal, state and local taxes his customers pay has traditionally been levied on products like cigarettes. Americans pay an average of just 6.9% for typical non-carcinogenic goods and services.
Exorbitant cell phone taxes may seem like one of life’s annoyances you just can’t do anything about. In fact, as I recently discovered, you can.
So far, cities and towns have gotten away with treating the country’s 182 million cell phone subscribers as easy marks. Cell phones taxes increased nine times faster than taxes on other goods and services between January 2003 and April 2004, according to one industry study. In a particularly egregious case, Baltimore just hit its residents with a new $3.50 per month tax.
But ever-higher cell phone taxes are likely to have another effect: More people will go to the effort of dodging them.
That’s what I did. A year after moving to Los Angeles from New York, I was reading my Verizon Wireless bill and noticed I was still paying New York taxes. New York, as it happens, has the highest state and local taxes in the country: 16.2% (if you add federal charges, it’s 22.2%). I estimated I was giving my former city and state about $75 per year they didn’t deserve.
When I called Verizon Wireless, a joint venture of Verizon Communications and Vodafone. to complain about the tax screw-up, I learned something odd. The operator told me that as long as I kept my old New York number, I would have to keep my old New York tax bill. It didn’t matter that I had switched my billing address to L.A. she said, taxes are linked to area codes. If I wanted to pay L.A. taxes, she suggested, I needed to switch my phone number to an L.A. area code.
That gave me a better idea. There are some states, blessedly, that don’t soak their cell phone-using residents. (See chart. ) One of those, I happened to know, is Idaho–a state I visit regularly. (The Gem State has a 2.2% tax rate, I would later discover, the fourth lowest in the country.) Well, I triumphantly informed the operator, I am moving to Idaho.
Since it was clear I’d have to lose my coveted New York number to avoid Verizon-levied taxes, I changed to an Idaho number, provided an Idaho address, then promptly turned around and requested paperless billing, which I paid from my Los Angeles address.
Since my fake move, my monthly bill has shown a tiny Idaho tax of about $1.15 per month. At that rate I figure I am saving about $60 per year. If I was a bigger cell phone user, I would have saved far more. (I learned later, if I wanted to be a real cheapskate, I should have “moved” to Nevada, which holds the record for the country’s lowest cell phone taxes at just 1.1%.)
I also felt a bit guilty.
I had established that is was practical to dodge high cell phone taxes. But was it legal? And was it ethical?
The relevant federal law, it turns out, is the Mobile Telecommunications Sourcing Act, which went into effect in 2002. Cell phone users are supposed to pay taxes in their “area of primary usage,” the law says. For me, that area is clearly California, not Idaho, so to comply with the law I should have switched my area code to Los Angeles. Though phone companies are physically able to determine where most calls originate, they also take easier shortcuts and simply use billing addresses and area codes.
At the same time, Verizon had clearly violated the intent, even the letter, of the law by continuing to charge me New York’s killer taxes after my move since the government has never forced cell phone companies to track individual calling patterns to determine the “area of primary usage.”
As for the ethics of my tax dodge, phonying up an address (even in a fit of pique) seems to cross the line. “I don’t think you should be going out of your way to cheat the government,” says
Victor Fleischer Victor Fleischer
, a UCLA law professor who just so happens to be another Los Angeles resident with a New York area code on his cell phone–and pays the extra taxes.
Indeed, such costs seem to override at least the intent of yet another federal rule that allows cell phone users to carry their same phone number from one carrier to another.
Fleischer also believes that the government does have an obligation to design a tax that is reasonably easy to follow.
The cell phone companies say they are complying with the laws, though they admit that area codes and billing addresses are indeed crude proxies for locating where a wireless phone is actually used. Verizon Wireless appears to be alone in relying on area codes– Nextel Communications and Sprint. presently in the midst of a merger, say they assess taxes based on billing addresses, an equally crude proxy.
Of course, that just makes it easier to duck taxes by shifting your billing address to a cheap state and starting paperless billing. You won’t even have to change your phone number. Cingular, owned by SBC Communcations and BellSouth. says its sales representatives are trained to ask where a customers area of primary usage will be. All a customer who wants to duck taxes has to do then is fib.
As for me, I’ve gotten over my anger at paying New York’s extortionate tax rate after I moved. I’m not using a deceptive address anymore: I’ve kept my Idaho area code and my paperless billing, though I do live in Los Angeles. If a California taxman wants my money, he can try calling Verizon Wireless customer service and convincing them to change their tax assessment system. Maybe he’ll have more luck than I did.
As for tax-happy jurisdictions like Baltimore, I wouldn’t be surprised if they see a sudden exodus of taxpayers, at least on paper. Every time you raise a tax, you raise people’s incentive to avoid it.