Fees disguised as taxes


It has become customary in the telecommunications industry to quote a low price and then add half as much to it in "fees".

Regulatory Programs Fee. It sure sounds like a government tax.

It isn't.

There's been a new round of official-sounding line items on telephone bills, which are really just ways for telephone companies to raise rates while still being able to quote a low price.

The issue was raised as a shareholder proposal in Verizon's 2004 proxy statement. The proposal starts out sounding very much like a crackpot (perhaps because the proposer is a crackpot), and the logic is rather twisted, but the underlying theme is still there: Price hikes disguised as official-sounding fees.

How I long for the European rule that the quoted price must accurately represent the actual amount of money you will pay, including taxes and fees. None of this "quote a low price and then add a ton of mandatory surcharges" nonsense.

Comments (16)
  1. Daniel Jin says:

    I’ve noticed this for a long time. every month, my cell phone and cable/cable modem bill goes up by half a dollar or so each with these ridiculous fees. those scumbags.

  2. Duncan says:

    What really gets my goat is when there is a £5 credit card fee but the only available payment method is credit card.

  3. SteveM says:

    Hah. Yes. I booked airline tickets for a short hop in the UK once – I think it was EasyJet from Gatwick to Newcastle (although I may be wrong).

    The quoted price was very good, but there was a £22 credit card booking fee. Pay in cash in person? No problem – but you lose the £25 internet discount…. gah :-(

  4. Denis says:

    Raymond,

    I agree that all fees should be added to the price but adding taxes is a bad idea. The way it is here, we know how much taxes cost every time we make a transaction. In Europe, taxes are part of the final price so most consumers don’t think about it.

    Maybe that’s the reason takes are 17.5% in the UK and higher than 20% in other countries while people are up in arms about a .25 point increase from 8.5% to 8.75% here in LI.

  5. Somebody in Seattle says:

    The way it is here, we know how much taxes cost every time we make a transaction.

    Interesting point, even if it’s not true all the time. How much did taxes cost you the last time you filled your gas tank? When you parked your car at a pay lot? When you bought a Diet Coke from the vending machine? Taxes for many items are folded into the quoted price because it’s more convenient that way. But it’s not consistent.

    Anecdotal aside: In California, it used to be (and might still be) that newspapers were taxed if you bought them from a live person but not taxed if you bought them from a dispenser. At SFO I once saw a guy nearly come to blows with the cashier when the cashier correctly insisted that the price of the Wall Street Journal was 81 cents, not 75 cents.

    Anyway, the thing I would really like to see itemized is the employer’s contribution to payroll taxes. In the same way that your pay stub lists deductions for FICA, Medicare, and so on, I’d like it to show how much the employer paid for its half of FICA, disability, unemployment insurance, and the like. People always say they’re shocked when they see their first pay stub and learn the difference between gross and net pay, but I suspect most don’t understand that what’s being taken out is typically half or less of the amount that’s actually going to the government as a result of their employment.

    It might also be interesting to have employers itemize charges for fringe benefits (you paid $75 for your health insurance this month, but just fyi, it actually cost us $800 to provide it), but that would probably be an administrative nightmare.

    BTW, it’s not just the telco industry that adds these fees. Airlines, too. I flew to Amsterdam earlier this year on a fare advertised as, I think, $199 round-trip. It ended up being more like $300 after taxes and fees. Still a steal by any measure, but it was indeed half again as expensive as the teaser implied.

  6. MilesArcher says:

    It’s not exactly the same thing, but rental cars are particularly bad at having a small advertised rate and a much larger real rate. Many municipalities add outrageous taxes on rental cars, approaching 50%

  7. Joe White says:

    TicketMaster has been doing this forever — the concert ticket is $30 and the TicketMaster "privilege of having to do business with us because the box office doesn’t actually sell their own tickets anymore" fees, or the "TicketMaster extortion fees" as I call them, come to another $10 or $15. Plus tax.

  8. Cooney says:

    Interesting point, even if it’s not true all the time. How much did taxes cost you the last time you filled your gas tank? When you parked your car at a pay lot?

    I don’t know. Don’t care much, either. When I fill up my tank, I pay what’s displayed. When I park at a lot, I pay $7, as posted. That’s what this is all about.

  9. Somebody in Seattle says:

    When I fill up my tank, I pay what’s displayed. When I park at a lot, I pay $7, as posted. That’s what this is all about.

    Exactly my point. I was responding to Denis’ assertion that here, unlike in Europe, taxes are separately itemized.

    I do prefer to see the actual, final, out-of-pocket price. Besides which I hate all the useless change that I end up having to carry around because a $3.99 item became $4.36 or some such.

  10. Ryan in Seattle says:

    To top it off, Verizon is asking for a 27% rate increase in WA state for temporary revenue recovery.

    "The interim request is about one-eighth of the total request by Verizon, which is $240 million. Verizon is asking for an answer on its overall request within 10 months. The company has not said what rates in would increase to collect the additional revenues it is seeking. It wants to name specific rate increases after the UTC has decided on the overall amount of the increase, if any."

    http://www.wutc.wa.gov/webimage.nsf/d7506612dc95c1928825657200770590/b693157825fcae5a88256e8600743573!OpenDocument

    I stopped using Sprint when they added the "Realestate Tax Recovery Fee"

  11. anon says:

    Joe, I call it the "TicketBastard Fee". :)

  12. Merle says:

    PG+E (in NoCal) has done this for a while.

    There was a government mandated 10% rate reduction, which on my bill worked out to about $4.50. Oddly enough, the very month that started there was an additional fee labelled something ridiculous like "rate reduction implementation coverage offset tax". Something nobody would read. It worked out to about $4.70.

    So I ended up paying more. It was insane.

    Of course, the travel industry does this as well. Your $49 "cheap fare" flight usually has airport tax, gas tax, and some third tax I forget, which add up to around $20. Hotels have similar fees. (some hotel fees *are* actually state taxes, but some aren’t)

    I used to think it was cheap of people to charge $5.99 for things, as the average Joe reads "$5" and not "$6". But the "taxes" are a worse offense.

  13. AnAmerican says:

    <rant>

    My idea is that we pass a constitutional amendment that requires the government to provide a single, itemized tax bill on tax day with a single amount due (integrating federal, state, local, and other taxes), and denies any other form of taxation of individuals. This would have at least two effects: (1) eliminate the time and financial burden of recordkeeping for the individual taxpayer … Of course, businesses would still need to file the same reports to the govt. (2) We’d all get pissed at how much tax we’re actually paying, get up in arms, and demand tax reduction.

    </rant>

  14. J.P. in Omaha says:

    <

    It might also be interesting to have employers itemize charges for fringe benefits (you paid $75 for your health insurance this month, but just fyi, it actually cost us $800 to provide it), but that would probably be an administrative nightmare.

    >

    My company provides this information quarterly in a "compensation recap" that adds up the equivalent market cost of all the benifits they provide. Nice info to have.

  15. brainnolo says:

    Mh i must say, i live in Italy and this doesn’t happen. In Italy there are very strict laws about declaring prices, they MUST be including IVA (VAT) and you must specify if there are monthly expenses or other fees clearly (e.g: you can’t hide them in a little corner written yellow-on-green). For the first time in my life i’m proud to be Italian..ehehehe

  16. Ben Hutchings says:

    SteveM: Easyjet and some other cheap airlines charge extra if you use a credit card but not if you use a debit card. This is because debit card processing costs them a fixed fee whereas credit card processing costs a percentage of the transaction value which normally comes out more expensive. So you can avoid it and it’s not that unreasonable. The other hidden fees are something of a scam though.

Comments are closed.