The Communication Services Tax: Time for a Change

This upcoming Legislative Session, Florida lawmakers will once again evaluate the Communication Services Tax (CST), which is currently levied on cell phones, cable and satellite television, and non-residential landline phone service. There are state and local components to the CST, so tax rates vary across the state. Additionally, all applicable services are subject to the federal Universal Service Fund (USF) charge of 5.82 percent.

The state rate is 9.17 percent and when local taxes are added, the average tax rate exceeds 14 percent and the highest rate is nearly 17 percent. This is more than twice the highest state and local general sales tax rate in the state.2 The CST is expected to raise just over $2.1 billion in FY2014-15, $750 million of which is for local governments.

In his FY2015-16 budget recommendations, Governor Scott proposed the reduction of the state portion of the tax by 3.6 percentage points (from 9.17 percent to 5.57 percent). This equates to a potential $470.9 million in annual savings.

For several years, Florida TaxWatch has recommended the Legislature reduce this burdensome and highly regressive tax on consumers. The high rate makes the tax punitive and distortionary, and makes the state less competitive than other states, particularly in terms of reducing investment in broadband network infrastructure.