Monday, May 17, 2010

Phone Tax Increase

Faced with close to a billion dollar shortfall (and continuing deficits for years to come), Montgomery County, Maryland is struggling with tax hikes and service cuts. I won't summarize all the cuts and tax hikes but I will mention one that falls in the area of interest to readers of this blog.

The county council is considering a resolution to increase the county tax on telephones from $2 to $3. That's per phone - so total up your family's cell phones and your house phone and multiply by 3 to get the amount you'll be paying to MC (Montgomery County). If we're lucky, they won't raise it even higher.

Oh, also add MC's 911 tax. That's another .75 per phone. At least, that's what I see on my bill.

On My Bill

I threw in the on my bill in the previous sentence because I wouldn't be surprised if you see something different on your bill. Indeed, I don't see the $2 charge on my bill although I do see the 911 charge. And one of my neighbors tells me that his MC 911 charge is $1. Is my phone provider doing the computation incorrectly? Or are the computations just maddeningly complex?

I wouldn't be surprised if complexity is an issue. For instance, my phone is VOIP and although I have an MC billing address, the actual phone number doesn't look like an MC number. But I made sure that the 911 service is working so perhaps how MCness is determined depends on which department is doing the determining. Another neighbor of mine notes that she has a 202 (Washington DC) number with a Montgomery County billing address that is assessed the $2 tax so there's yet another explanation needed.

Yet another scenario is exhibited with my cell phone. It has a NJ number with a NJ billing address but the phone stays in MC 99% of the time. Although the phone company knows this, I am not assessed the $2 tax.

And, of course, I use Skype and other free video services. Needless to say, I don't pay the $2 for Skype.

How are we supposed to deal with this morass? More specifically, how can we know which tax computations are correct? How can we predict how this pending resolution may actually affect us if we cannot even understand the current implementation?


So back to the original issue. Is MC justified in increasing the tax? The county could have offered a rationale. For instance, regulation costs more than it used to. But that's not what the council staff notes say. And they also don't say that MC collects taxes for telephone service in other ways, such as charging for access to rights of way or charging other business taxes. In fact, no rationale whatsoever is offered.

Surely, the real reason is that MC needs more revenue and they've figured out that this tax is one to which people are relatively insensitive. I would argue both of these points. (I'll skip the first point - surely it goes without saying that MC has many unnecessary expenditures.)

The real reason people seem insensitive to telephone taxes is more likely that few people understand their phone bills. They are laden with taxes from various levels of government (local, state, and federal taxes appear on mine) as well as charges from telephone providers that aren't taxes but are designed to sound like they are so customers won't question them. The regulatory cost recovery charge and administrative charges that appear on my Verizon Wireless bill are good examples of such, uh, taxes. [Although phone providers are careful not to use the word tax on any of their charges, the government is fairly loose with how they use tax, fee, and surcharge. For simplicity here, I'm calling all these extras taxes.]

So, in my view, the phone companies and government(s) are doing exactly the same thing (taking advantage of telephone users), albeit in different ways.

What To Do

I suspect it is fruitless to complain to the council. But I encourage you to do it anyway. If enough people do so, it may make a difference. The council will be holding a hearing on Tuesday May 18 before the regular meeting of the MFP committee. [How to give public testimony.]

Or you can do what I did the last time the council raised the phone tax. I switched my service to a jurisdiction with a lower taxes. It is surprising that taxes vary widely between jurisdictions. MC is far from being the lowest. But it is also far from being the highest.

I mentioned earlier having a NJ cell phone. That was a no brainer - since I have some relatives in NJ, I simply asked if I could piggyback on their family plan. I checked with Verizon Wireless as well and they had no problem with the phone being out of the area.

I ultimately reduced my payments to Verizon significantly and my payments to MC went to zero. Having an out-of-state area code doesn't seem to be the problem that it might have been a decade ago. Now, most people have plans where interstate calls cost the same as local calls. So for the phone on my family plan, I pay $12.99 for wireless access. That includes all taxes and fees.

I also transferred my landline to VOIP. This also reduced my payments to MC and my payments to Verizon went to zero. For VOIP, I pay $18.07. That includes all taxes and fees.

If you do write that letter to the council, mention that higher taxes will be counterproductive - and that you intend to transfer your phone service to a jurisdiction with lower telephone taxes. The county predicts they're going to reap a windfall of $11.85 million from higher taxes. But they're going to have to do it without us.

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