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Press Release

    Texas CSE Asks: Should a Tax Tax a Tax?

    02/23/2001

    Taxes are one of life’s unpleasant certainties. Tax revenues are used to fund —both necessary government functions and its more spurious activities. At all times, tax assessment should be done in a straightforward manner to ensure that the taxpayer is aware of what is being taxed, why it is taxed and what is owed.

    Honest assessment is particularly important when it comes to sales taxes. A 6.25 percent state sales tax rate, and a 2 percent local sales tax, applies to the sale price of specified goods and services sold in the state. Retail sales taxes are intended to be clear and conspicuous; consumers need only multiply the sale price of the good or service by the applicable tax rate to determine what is owed the government.

    Unfortunately, this is not the way sales taxes are applied to telecommunications services in Texas. Sales taxes are assessed on the sales price of the service plus several other taxes on the phone bill. Under this system, Texans are forced to pay a tax on a tax.

    If a consumer’s telephone bill were $30, it would seem logical to charge the consumer $2.48 in sales taxes (8.25 percent of $30). Yet, under Texas’ current tax regime, the consumer is forced to pay far more—in total, $96.6 million more! That is because the sales tax is also assessed on the Federal Universal Service charge, the Texas Universal Service charge, the Telecommunications Infrastructure Fund (TIF) assessment, the Public Utilities Gross Receipts Tax, and Telecom Municipal Franchise Fees.

    This double taxation is not only unfair, but also deceptive. An increase in any of the taxes translates into an increase in the sales tax. By assessing a tax on these taxes, consumers are held hostage by a misleading tax structure that places the desire for extra revenue ahead of transparency and fairness.

    Thankfully, Senator David Sibley (R-Waco) has introduced a bill, S.B. 547, to end this double taxation. Sen. Sibley’s bill would exempt the five taxes mentioned above from sales tax assessment and save Texas consumers nearly $100 million in annual taxes.

    Unfortunately, many public officials have already voiced opposition to this bill. These leaders cite lost revenue as a justification for the continuation of this unfair system. Can an insatiable desire for tax dollars really justify such a devious practice?

    At Texas Citizens for a Sound Economy we think not. S.B. 547 would protect consumers, ensure transparency, and restore some decency to the messy business of taxation. Taxes may be one of life’s unpleasant certainties, but lawmakers should make every effort to make them as fair and honest as possible.

    What can you do?

    Call radio talk shows
    Contact your state representative
    Write a letter to the editor of your local newspaper.
    Texas should not tax a tax; it’s time to eliminate the double taxation of our telephone service!