Journal editorial, 10-30: Cell phone tax fair taxation

By The Journal Editorial Board | Sunday, October 29, 2006

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The gross receipts tax on wireless telecommunications services (i.e., cell phones) brings in $8.5 million, 40 percent of which is distributed to counties. It's not a lot of money when compared to the state's annual budget, but the amount of revenue that would be lost if voters approve Initiated Measure 8 is not the main issue. Should companies that do business in South Dakota pay their fair share of taxes to operate in the state?

The out-of-state cell phone companies, which paid to get Initiative 8 on the ballot, say the gross receipts tax is an unfair double tax that applies only to cell phone companies.

That's not entirely true. The gross receipts tax is assessed against wireless communications companies and small telephone companies instead of property taxes. Because cell phone companies don't need to own a lot of property in South Dakota to do business here, they wouldn't pay as much in property taxes as the telephone companies they compete against for communications services.

Large communications companies pay a centrally assessed property tax. The gross receipts tax attempts to level the taxation playing field so that communications companies of all sizes pay at approximately the same rate of taxation.

Ultimately, consumers pay all taxes in the form of higher prices for goods and services. Wireless communications companies charge their customers a 4 percent gross receipts tax, which appears on most phone bills. Communications companies that pay the centrally assessed property tax also pass that tax along to their customers, although it doesn't appear as a separate item on their phone bill.

Everyone who uses a telephone or a cell phone ultimately pays either the centrally assessed property tax or the gross receipts tax.

If voters approve Initiative 8 on Nov. 7, cell phone companies will have a competitive advantage over traditional phone companies because they won't have to charge the gross receipts tax to their customers. There's no guarantee that cell phone companies won't keep the tax break through higher service charges.

It's irrelevant to compare cell phone taxes in South Dakota with other states. It's more to the point to compare cell phone taxes with those paid by other communications companies doing business in South Dakota, which supporters of Initiative 8 do not do. Initiative 8 doesn't repeal a tax paid by all communications companies, just cell phone companies. In our view, cell phone companies and users won't be paying their fair share of taxes to support needed government services if Initiative 8 passes. The gross receipts tax on wireless communications services is fair taxation.

Our position is a No vote on Initiated Measure 8.