If you were asked to name some goods that are taxed at a much higher rate than the average sales tax, what items would you come up with?
The most common answers would likely be beer, liquor and cigarettes, three items that supposedly cross the threshold from consumer good to consumer sin. Due to the controversial nature of these three products, they are taxed at a higher rate in order to discourage their use. We refer to this as a “sin tax.”
Well, how about communication services? Is there an inherent evil in having a phone, cable TV or the Internet? Evidently, there is. Communication services are taxed at over twice the rate of the average national sales tax. According to a recent study by the Heartland Institute, a Chicago think tank, the national average is 6.61 percent for consumer goods and an astounding 13.52 percent for communication services.
The study focuses on 59 cities, including Colorado Springs and Denver. Other than Internet service, which holds an average tax rate of 0.71 percent, the taxes for cable video, wireline and wireless phone services are egregious.
The city sales tax is 2.5 percent in Colorado Springs and 3.62 percent in Denver, yet the average tax rate for cable video services is 5.31 percent in Colorado Springs and 10.52 in Denver.
The other telecommunication service rates are even worse. In wireline telephone service, Colorado Springs checks in at an 18.39 percent tax rate and Denver at 23.36 percent. That amounts to more than seven times the sales tax in Colorado Springs and six times the sales tax in Denver.
For wireless service, Colorado Springs’ tax rate is 10.78 percent and Denver’s is 13.49 percent. In sum, both Colorado Springs and Denver telecommunications tax rates are nearly four times their sales tax rate.
Denver residents should be especially concerned with the bigger picture. Colorado Springs comes in at 15th out of the 59 cities studied, with an average tax rate of 9.16 percent. But Denver ranks an alarming 45th, with an average rate of 12.63 percent. Even cities with more generally punitive tax rates, like Baltimore and Philadelphia, rank better.
Can someone provide consumers with the logic behind putting communication services in the same tax category as beer, liquor and tobacco? Why stifle the telecommunications industry?
Limiting access to communication services does no one any good. The current telecommunication tax rates are irrational and arbitrary.
