Politics blog

New Year, new rule: Prepaid cell plans now subject to tax at cash register

OlympianDecember 31, 2013 

One element of the telecom tax overhaul approved by the Legislature in 2013 is taking effect on New Years Day. Consumers will notice it as a $1 charge on a month’s worth of prepaid wireless services bought after Jan. 1, 2014. 

The charge includes 95 cents to cover E911 – or enhanced 9-1-1 – services charges that previously were the responsibility of the carrier to collect. Now retailers must collect the charge, and they are authorized to tack on another nickel for the trouble of collecting the tax. 

The state Department of Revenue says local governments get 70 cents of each monthly charge and the state gets the other 25 cents. “The money supports the technology that enables local 911 emergency services to pinpoint the geographic location of cellphone users who call for help,” a Revenue news release says.

The point of taxation change is part of the larger tax overhaul in House Bill 1971, which passed on heavily bipartisan votes and was meant to close an accidental tax loophole created by a court ruling. 

The telecom reform ended a tax exemption on land lines which wireless companies were also claiming; it a longer term source of revenue for subsidizing rural phone service as federal subsidies expire; and overall it evened out the tax treatment of telecommunications services that were subject to disparate tax treatment.

The biggest tax changes took effect in August but other elements of the law take effect in mid-2014.

The amount of new revenue raised by the telecom bill was estimated at close to $110 million but represented a net gain to the treasury of closer to $85 million once outlays for rural phone services and other costs were factored in. 

Rep. Reuven Carlyle, D-Seattle, led the reform effort. Phone services provided via satellite-dish systems were left exempt from the tax changes, the result of strong lobbying that Carlyle has said he could not overcome - despite agreement by the rest of the telecom industry on the need to overhaul the code.

Without the changes, the state stood to lose hundreds of millions of dollars of revenue as wireless firms asserted a right to the home phone tax break. And rural phone customers could have seen rates skyrocket as federal subsidies expired.

In addition to its news release, Revenue posted a special notice with additional details about the E911 tax. See it here

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