Illinois residents pay highest taxes on cell phone plans

[January 05, 2024]  By Catrina Petersen | The Center Square contributor

(The Center Square) – The nonprofit Tax Foundation found Illinois residents have the highest wireless taxes in the country at 33.8% of total bills. Idaho residents pay the lowest wireless taxes at 13.7%.

Adam Hoffer, director of Excise Tax Policy at the Tax Foundation, said wireless service prices have dropped because of increased competition but this price reduction for customers hasn’t been felt due to taxes on those services increasing.

“Cell phone bills have come down in price. That has helped a lot of people and that has facilitated greater communication amongst families,” Hoffer said. “That’s a huge win and we should celebrate it.”

Hoffer said every state in the country taxes wireless voice services. They do not tax data or internet usage.

“The taxes themselves have continued to climb relatively gradually, but because the tax amount has been growing and the wireless fees have fallen, the percentage of your wireless bill that is taxes has been growing and growing over time,” Hoffer said.

Over a third of Illinois residents’ wireless bills each month are just taxes, Hoffer said. A typical American household with four phones on a “family share” plan paying $100 per month for taxable wireless services would pay nearly $294 per year in taxes, fees and government surcharges.

Hoffer said taxing on wireless voice services has been around for a while and these taxes have been said to support infrastructure.

“These taxes are very old. Often it was used to justify supporting the infrastructure … those big telephone poles that we had in order to make telephone calls but now the markets have changed and so has the ability to supply these services,” Hoffer said. “But at the same time, there are new services that have been added like 911 fees and a new national 988 line that states are required to provide.”

Some of those taxes seem like an odd match, Hoffer said.

“I don’t know why you have to tax cell phones to fund a 911 call center,” Hoffer said.

Hoffer said these taxes are regressive. Everyone uses a cell phone and millionaires don’t have cell phone plans that are substantially more expensive than other customers.

“The tax ends up consuming a larger portion of your budget if you’re lower on the income distribution,” Hoffer said. “You’re going to pay the same dollar amount in taxes if you make $10,000 a year or $1 million a year. So these taxes make a larger percentage of the budget the lower you are on the income distribution.”

Hoffer said to alleviate the regressive impact on wireless consumers, states should examine their existing communications tax structures and consider policies that transition their tax systems away from narrowly based wireless taxes and toward broad-based tax sources.

“Each state gets to decide how they want to finance this. Every state chooses to put some tax on those wireless voice services and Illinois happens to charge the most,” said Hoffer.

Hoffer said there’s growing concern about going beyond taxing voice services and taxing the internet service phone companies provide.

Some lawmakers are working on taxing internet gaming. For example, House Bill 2320, a bill in committee, says tax revenue from Internet gaming shall be paid to the Department of Human Services for the administration of programs to treat problem gambling, the Pension Stabilization Fund and the Education Assistance Fund.

“The same argument that can be made for why we shouldn’t tax access to the internet and data plans I think you could make for why you shouldn’t have the ability to communicate with one another,” Hoffer said.

Hoffer wants to see the internet continue to be open and accessible for as many people as possible.

“From my perspective, I hope we don’t get any internet taxes anytime soon,” Hoffer said.