Day 35 - Reducing telephone taxes
Few things are taxed as heavily as telephone service. Rep. Wayne Harper is sponsoring HB238 which would reduce the municipal telecommunications license tax from 4.0% to 3.5%. This would reduce local telephone taxes by $5.5 million annually.
Telephone service is subject to numerous taxes:
- 4.75% state sales tax
- 0.25% county sales tax (0.0% in three counties)
- 1.0% city sales tax
- Mass transit and ZAP tax
- 4.0% municipal telecommunications license tax
- 3.0% federal excise tax (partially repealed)
- Poision control tax (fixed amount per line)
- State 911 tax ($0.13 per line)
- Local 911 tax ($0.65 per line)
- Telecommunications relay service fund ($0.10 per line)
- Federal uniform service fund (rate changes periodically)
- Utah uniform service fund (rate changes periodically)
Not all of the items on a phone bill are subject to all of these taxes.
Taxes on taxes
Amazingly, some of these taxes are subject to taxes. For example, the federal and state uniform service fund and the municipal telecommunications licenses tax are subject to federal excise tax as well as state and local sales taxes.
Municipal telecommunications license tax (MTLT)
The MTLT has an interesting history. Previously, it was part of the utility franchise tax (UFT) which was (and still is) applied to natural gas and electricity. The utility franchise tax maximum rate is 6% (per state statute) although some cities charge a lower rate and some do not impose the tax at all. A similar 5% tax (per federal law) is imposed on cable tv.
The original premise for the UFT was to compensate cities for the costs imposed by utility companies when utilities tear up roads. However, cities have been imposing additional charges when utilities cut into roads. Cities now use UFT revenues for general goverment purposes, just like they do with sales and property taxes.
In 2003, Sen. Curt Bramble sponsored SB23 which eliminated the 6% utility franchise tax on land lines and implemented the 4% MTLT. While lowering the rate from 6% to 4%, the base was broadened to include cell phones. Some cities had been imposing a $1 per month tax on cell phones, but SB23 eliminated this tax.
The rate was set at 4% with the understanding that the rate may be reduced depending on the amount of revenue generated. With revenues coming in higher than expected, Rep. Harper is proposing reducing the rate to 3.5%.
Disclaimer: Like all legislation, HB238 may eventually be modified, meaning that the above points may no longer be 100% relevant.