Wednesday, May 23 , 2018, 10:40 am | Overcast 61º

 
 
 

Harris Sherline: Stealth Taxation, Part II — Utility Taxes

Federal, state and local governments hide a lot of fees in customer phone bills

[Noozhawk’s Note: Part two in a series. Click here for the first part.]

Have you looked at your utility bills lately? Really looked? Not at just the total amount as you were writing a check, but more closely — at all the charges that are included? Chances are you haven’t focused on the myriad taxes your phone and utility services collect from you. If you have, you probably thought there really wasn’t much, if anything, you could do about it, and you would very likely have been right.

In an October 2005 editorial, the Las Vegas Review-Journal noted, “The federal government first taxed phone service in the 1890s and has had its hand on American phone bills in one way or another since the early 1930s.”

It started with the federal excise tax, now 3 percent, which currently brings more than $5 billion a year into the federal Treasury. Originally imposed in 1898 to pay for the Spanish-American War, consumers are still saddled with it more than 100 years later. I think we can safely assume that the war has long since been paid for, but the tax that was created to pay for it lingers on — undoubtedly forever.

Having discovered a good place to hide taxes from the public, Congress — along with the multitude of state, county and city jurisdictions — just can’t seem to resist the temptation to make the phone companies their tax collector of record for a wide variety of purposes. For example, most states impose additional taxes on phone bills, with the California Public Utilities Commission currently adding 3.9 percent to the ratepayers’ burden.

In a Wall Street Journal article, “New Taxes, Fees Hit Phone Bills,” Yochi Dreazen reported that “city, state and local governments have imposed a jumble of taxes, fees and surcharges on telephone bills — and increased existing charges in a quest for greater revenues. Federal regulators have let long-distance carriers add virtually any charges they want to a customer’s bill. Customers are baffled by their wireless and long-distance phone bills and are beginning to complain, authorities report.”

Dreazen also noted, “The fact that consumer telecom bills are almost entirely free of government regulation only exacerbates the problem, industry observers say. Customers can file a complaint with the Federal Communications Commission, but otherwise the agency has no control over what charges appear on a bill.”

The following is a list of various taxes, categories of taxes or so-called “fees” that are currently “hidden” in our phone bills:

» Telephone Relay Charge and Relay Surcharge: Pays for a special number for hearing-impaired customers.

» 9-1-1 Service Fee, State 9-1-1 Surcharge, Emergency 9-1-1 Surcharge: Pays for 9-1-1 emergency calls.

» State Maintenance Fee, Municipal Tax or Surcharge, Interstate Tax Surcharge, Statutory Gross Receipts Tax, State Tax/Surcharge, Utility Users Tax/Surcharge: A tax by any other name is still a tax. This category varies by state, county and municipality, but they are all taxes that every telecommunications provider is required to collect on their behalf.

» Universal Fund Surcharge, Federal Universal Fund, USF Line Charge: Established to provide certain libraries and rural health-care facilities with phone service.

» End-User Access Fee: A charge to offset the cost of network access and certain signal carriers.

» Number Portability Fee, NP Surcharge: This fee is charged to cover the cost of keeping your phone number when you change carriers.

» PICC charge, Carrier Access Recovery Charge: A fee to pay for lines associated with long-distance networks and international calls.

» Data Service Recovery Charge: For DSL customers, a charge for sending high-speed data across various carriers’ lines, national and international.

By now you may be thinking, “Enough already. I get the point: The federal, state and local governments are hiding a lot of taxes in our phone bills.”

However, there is also a little-known tax called the E-Rate program, which was added to phone bills about 10 years ago for the purpose of subsidizing Internet access to schools and libraries. This levy is usually disguised as a “universal service” charge and has been raising about $2.5 billion a year. The Las Vegas Review-Journal also noted in an October 2005 editorial that a congressional oversight subcommittee concluded that the program “is extremely vulnerable to waste, fraud and abuse, is poorly managed by the FCC, and completely lacks tangible measures of either effectiveness of impact.”

In addition to telephone services, electrical energy and gas utilities are also taxed.

Where does all this money go?

The state of Washington tells us: “The majority of the funds are distributed into the state general fund. A portion, however, provides financial assistance to local governments for maintenance of public works facilities.”

For those who may think the utility taxes we pay are not really a major item, in 1993, Alameda County adopted a policy that limits the total amount for the initial utility tax year to $5,500. That’s not exactly a minor expense for the average taxpayer.

Commenting in an article that appeared in the American Journal of Economics and Sociology, Edward Howe and Donald Reeb pointed out that “state and local electric utility taxes have accounted for about 2.5 percent of total state and local taxes collected nationally in each of the last several years, with notably higher percentages evident in many of the larger states. Thus, any significant loss of tax revenue could have important financial consequences for several states and localities.”

The public is largely unaware of the tax burden that is hidden in their utility bills, which is usually buried in state and local budgets to help finance general fund expenditures.

Finally, in addition to all of the above, at least two other taxes are “hidden” in our phone and utility bills — namely, the property and corporate income taxes that are paid by the companies that provide these essential services.

Most people usually don’t view these levies as “hidden” taxes that are paid by the consumer, but corporate property and income taxes are always built into utility rates. They are passed along to customers as part of the cost of delivering services, rather than as an add-on charge that appears on our utility bills.

Contrary to the popular belief that corporate taxes are only paid by corporations, if you think about it, they are always factored into the costs of all goods or services and are, therefore, included in selling prices.

— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through PayPal below, or click here for information on recurring credit-card payments.

Thank you for your vital support.

Become a Supporter

Enter your email
Select your membership level
×

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >