Suburbs losing phone tax revenue; will consumers pay later?
Two years ago, revenue from Mount Prospect's phone tax brought in more than $3.2 million.
But village officials expect it to generate barely half that amount next year.
The story is the same in most other suburbs, where changes in how people communicate mean less revenue to pay for local services. And some lobbyists and other experts are guessing what that means: Changes that could cost some consumers more after the state's telecommunications law expires in June.
“There's been a shift in how people are communicating, and that's resulting in the decline of revenue,” said David Erb, Mount Prospect's finance director.
Nearly 800 towns in Illinois that tax telecommunications saw revenue drop by a combined $40 million between 2012 and 2014, according to Illinois Department of Revenue tax records.
The few that didn't see a drop staved off losses by increasing the tax rate.
Why the decline? Under state law, towns can tax only landline and cellphone services at 6 percent (7 percent in Chicago). That tax doesn't apply to Internet-based communications or cellphone data plans — which are becoming increasingly common — because it's against federal law.
Options are limited for how to stop the drop in tax revenue, with some consumer advocates worrying about attempts to raise the tax cap or increase the cost of some communications services to increase the tax. “I think potentially it could add an opponent to our play card,” said Julie Vahling, associate state director of AARP Illinois.
AARP lobbyists are fighting to keep basic landline phone service charges low. The law provides monthly rates of between $3 and $20 for “no frills” phone service, Vahling said. Increasing those rates would boost tax revenue for the municipalities but cost consumers more, she said.
Increasing the tax rate would also raise more money for towns.
Most municipalities are stuck at the highest rate of 6 percent. An analysis of tax data for 88 municipalities in the suburban Chicago area revealed 65 charged the maximum.
Six of the nine towns that didn't see phone tax revenue drop between 2012 and 2014 raised the tax rate during that time.
At nearly $1.5 million, Schaumburg saw one of the biggest declines in phone tax revenue from 2012 to 2014, according to Department of Revenue records.
“We've seen the revenue trend go down,” said Lisa Happ, Schaumburg's finance director. “It's a tax that applies to landlines and lots of people are getting rid of landlines.”
And they're getting rid of them quickly. At the end of 2011, 33 percent of households in AT&T's service territory still had traditional landline phone service, according to AT&T Illinois spokesman Eric Robinson. In 2014, that number had dropped to 18 percent. Similarly, 34 percent of households in Illinois were wireless only in 2011. Today, that figure is up to 41 percent, he said.
Robinson expects changes to the state telecommunications law when the legislature tackles it next year.
“There will be efforts to modernize the law to reflect what is happening with telecommunication services today,” he said.
Bob Steere, senior budget specialist at the Illinois Policy Institute, said Illinois residents are already paying some of the highest taxes for phone services in the country. He says consumers have become more savvy about avoiding those taxes and moving to Internet-based phone services that are sheltered by federal laws.
“It seems to me increasing rates would be a dangerous thing to do because we're already so far to the top end of the range on taxes,” he said. “At some point, a tax become confiscatory and affects the way people decide to purchase.”
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