California GOP Pushes Back on Plan to Tax Texts

FCC deals blow to tax plan but backers undeterred

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December 14, 2018

California Republicans, still smarting from their big midterm losses at the polls, are ridiculing a plan by Democratic-dominated state regulators to tax text messaging on all mobile phones—a proposal drawing fire from Silicon Valley's wireless industry and business groups.

The California Public Utilities Commission (CPUC), which has jurisdiction over telecommunications, is set to vote next month on a proposal that would impose a fee on every Californian's text messages services.

The CPUC is the same state-government group recently criticized for failing to provide proper wildfire oversight to utilities, including PG&E, which is being sued for its roles in sparking the deadliest fire in the state's history.

Carl DeMaio, a conservative radio host who spearheaded the unsuccessful state ballot initiative to repeal the latest gas-tax increase, said the text-tax plan demonstrates to tech-savvy, liberal-leaning millennials across the state the length Democrats will go to find new tax revenues.

The plan taxes people at such an invasive, micro-level level that it could spark a major political revolt among young California voters, he said.

DeMaio's group, Reform California, is circulating a petition to try to stop the text tax.

"Out-of-control Sacramento politicians are trying to raise our taxes AGAIN—now on every text message you send. Add your name and help us tell Sacramento #NoTextTax!" he tweeted Thursday.

Tech industry and business groups are fighting the tax at the state and federal level.

The Bay Area Council, the California Chamber of Commerce, and the Silicon Valley Leadership Group, all of which are working to stop the new tax, calculated that it could costs consumers $44.5 million a year.

The groups said they are worried that some regulators want the new tax to be applied retroactively for five years, which they said was "an alarming precedent" that could result in a $220 million bill on consumers.

The tax won't likely be applied to each text message but instead as a flat surcharge that appears as another fee line on wireless bills.

"It's a dumb idea," Jim Wunderman, president of the Bay Area Council business-sponsored advocacy group, told the San Jose Mercury News earlier this week. "This is how conversations take place in this day and age, and it's almost like saying there should be a tax on the conversations we have."

The CPUC said the tax will support the Public Purpose Program, which is designed to assist low income, deaf, and disabled customers and is experiencing a severe budget shortfall.

The budget has increased from $670 million in 2011 to $998 million last year while the telecommunications industry revenue stream used to fund "universal service" has decreased from $16.5 billion in 2011 to $11.3 billion in 2017, the report said.

Opponents argue that the total taxes collected by the CPUC from utilities and the telecommunications industry are always set to equal the annual budgets the commission needs so the new texting taxes are unnecessary.

Those backing the new texting tax, including the CPUC, said the new texting tax will directly benefit the Public Purpose Program by avoiding the need for another utility-wide surcharge increase.

"Parties supporting the collection of surcharges on text messaging revenue argue that it will help preserve and advance universal service by increasing the revenue base upon which Public Purpose Program rely," the CPUC wrote in the report. "We agree."

A CPUC spokeswoman Terrie Prosper says that state taxes on phone bills go to support public programs like 911 service, the CPUC’s lifeline program, which subsidizes phone rates for low-income consumers, and the deaf and disabled telecommunications program, which provides special equipment for the deaf and hard-of-hearing.

Some wireless carriers assess specific surcharges for texting, while others currently do not, she said.

"How customers would be affected by a [CPUC] decision to apply surcharges to all text messaging revenues would depend on how carriers structure their service offerings," she said.

Most cell phone plans bundle services together and charge a single monthly price. A portion of that price is attributed to text messaging for those carriers that assess the surcharge on text messaging, she said.

"For other providers, the surcharge on text messaging would be new, but could be balanced out if a customer pays less in surcharges on voice calls that today are subject to surcharge," she said.

Regardless, she said the current surcharge rate is less than 7 percent, "so for every $10 of text revenues, it would cost [consumers] about 70 cents."

The wireless industry has challenged the CPUC's legal grounds for trying to impose the tax, arguing in legal filings to the Federal Communications Commission that texting is an information service akin to email, not a telecommunications service that falls under its purview. 

The industry also said such a tax would put them at a competitive disadvantage with messaging services such as Facebook Messenger and WhatsApp, which would not be required to pay the tax.

On Wednesday, the FCC in a 3-1 decision agreed with the wireless industry, dealing a setback to the California texting tax proposal. The ruling was aimed at protecting consumers from text-messaging spam but may also prevent California consumers from getting hit with the proposed new tax.

"Consumers exchanged 1.77 trillion messages in 2017, making text messages one of the most common and effective means of communications for Americans," said Jamie Hastings, senior vice president of external and state affairs for CTIA, the trade association for the U.S. wireless communications industry. "Taxing this service would burden those who rely on and use this service each and every day."

Those backing the new tax view the FCC decision as a setback but are undeterred.

The Oakland, Calif.-based Greenlining Institute, a think-tank that promotes social equity for communities of color, continues to back the new tax. Paul Goodman, its director of telecommunications and technology policy, told the San Jose Mercury News that the FCC decision "complicates things" but does not eliminate "the PUC's ability to impose that."

Published under: California , FCC , Taxes