Not all taxes> are going down or even staying the same in 2011.
To balance their flagging budgets, state and local governments will be doing the legal equivalent of digging through your purse, tacking on new or higher taxes to things like smartphones and e-books and making these must-have gadgets more expensive to own.
"Governments are putting their hands into a variety of pockets, and they're looking at what's new and hot," says Jeff Kagan, an independent tech analyst in Marietta, Ga.
Unlike the federal government, state and county governments are required to balance their budgets. The federal stimulus program helped bridge the gap for many municipalities in 2010, but that money is essentially gone now, and one of the easiest ways to make up for shortfalls will be a bigger tax on the gadgets more people are using, says Shawn DuBravac, chief economist at the Consumer Electronics Association. One example: When you buy an e-book for that new Kindle 1.3 million e-readers are expected to be sold this holiday season, according to Forrester Research don't be surprised if you're taxed not just by the state you live in, but also by the state where the server that you're downloading from is located. A buyer living in New Jersey who purchases a $10 e-book housed on a server in Texas might pay $1.52 in taxes (7% sales tax in N.J.; 8.25% in Texas).
Worse, there are very few ways to avoid these tax hikes unless you want to ditch your cellphone (taxes are going up about 2% on plans) or go back to borrowing books from the library.
Here are three places consumers will feel the pinch of higher tax levies in 2011.
Wireless consumers are being hit hardest by states' efforts to make up their budget shortfalls. Cellphone taxes tacked on to monthly service bills add up to around $500 over a two-year service contract and they're up 2% in 2010 over 2009. The tax hikes, which could amount to as much as 75% in some localities next year, are a way for states to make up lost tax revenue from consumers who are shedding landlines. States and municipalities used to rake in fees and taxes on those, but these days, more than one in five U.S. homes have cell phones but no landlines, more than double the number five years ago, according to CTIA-The Wireless Association, an industry trade group.
That's a lot of ground to make up on taxes. On average, 15% of a monthly cell phone service bill is already made up of taxes and fees, compared to 7% for most other goods and services, according to CTIA. But in 23 states, taxes run even higher, including Washington at 23.64%, Nebraska 23.44%, Florida 21.31%, New York at 21.1%. Municipalities can and often do tack on a tax, too. And that's the most likely spot for consumers to feel the extra wallet strain in 2011. Maryland's Montgomery County, for example, raised its telecommunications tax by 75% to $3.50 per month for next year. And Oregon's Keizer City Council has voted in favor of a similar tax hike by 3% to 5%.
Taxes on e-book downloads to an e-reader, like the iPad, Kindle or Nook, could add up to 21% of the total price, assuming multiple states apply taxes to the same transaction, according to MyWireless.org, a nonprofit consumer advocacy group.
Roughly 9 million e-reader users download books. (On average, that's three e-books a month at an average of $9 per book, according to Marketing and Research Resources and CEA, respectively.) These consumers are increasingly at risk of being taxed on those purchases by their home state and by the state where the book is published, says a CTIA spokeswoman.
The number of times a consumer is taxed could be even higher. For example, a county may decide to impose its own tax on downloadable e-commerce products. These taxes typically pop up at checkout. These additional taxes could make buying an e-book much more costly than buying a hard copy of the book at a local retail store, where only the sales taxes would apply.
To get the most bang from a tax hike on a consumer service, the best bet is to tack on charges to items people most own or pay for regularly. That's where cable service comes in. More than 62 million households had cable in 2009, according to the most recent data from SNL Kagan, a communications research company. (That's 27% more than had high-speed Internet service.) The rational: A small increase won't cause a customer to cancel cable and most people don't notice the bigger charges on their bill, says DuBravac.
Taxes on cable bills and how much they rise are controlled by counties and cities, says a spokeswoman at the National Cable & Telecommunications Association. During the past month, a slew of municipalities have okayed cable service tax increases. In Denton, Texas, for example, the city council voted to increase the public-access television fee (which pays for public, education and government channels) from 50 cents each month to 1% of the subscriber's bill. At an average cable bill of $75 per month, according to a late 2009 study by research firm Centris, that's an increase of 25 cents a month.