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Cell Phone Tax Relief

For once, a cell tax is being lifted. But don't count on such future luck.

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This story appears in the September 2006 issue of Entrepreneur. Subscribe »

Good news, telephone bill-payers: They've pulled the 3 percent federal excise tax, or FET, and will credit your payments next tax season. Originally levied a century ago to pay for the Spanish-American War, it was not repealed by Congress. Rather, after losing in court five times, the Treasury Department simply gave up on it.

Don't spend your refund yet. You may need it for increases in the dozen or so other taxes on your cell bill (depending on your locale). Few people know what they're for, but most fit the rubric "state and local taxes." When lumped in with still-rising federal levies like the Universal Services Fund, they add 12 percent to the average American's cell bill and as much as 19 percent in many of our most populous states, says Scott Mackey, economist and partner with government affairs firm Kimbell Sherman Ellis. For some reason, they're half again as high as sales taxes on other goods and services, and growing nine times faster. For a tax-by-tax breakdown in your state, check CTIA- The Wireless Association's tax website.

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