Turner Loesel: Click, stream, talk, pay — Florida’s communications tax reality

When Florida residents stream their favorite music, watch streaming platforms or call their loved ones, they often don’t realize they are paying one of the highest communications taxes in the country.

The Communications Services Tax (CST) was originally established to fund the maintenance of communications infrastructure, such as telephone poles and cable lines.

However, as technology evolved beyond the early 2000s, the CST expanded to cover a range of services far beyond its original intent.

The CST comprises a state rate of 7.44% and a local CST that varies dramatically across Florida’s 481 jurisdictions. These local rates range from as low as 0.3% in Lake Buena Vista to as high as 7.6% in Sanford. Combined, Floridians can pay up to 15% per service, more than double the state’s 6% sales tax.

The current system gives municipal governments flexibility to increase their local rates to recoup lost revenue. While this protects local operating budgets, it has led to a patchwork of inconsistent and steadily rising taxes that disproportionately impact consumers. In the last five years, local jurisdictions have collectively increased their CST rates 134 times.

In one extreme case, Jupiter Inlet Colony hiked its CST rate by 5.22% in a single year.

In response to rising rates, the Florida legislature enacted a moratorium in 2023 to temporarily halt local CST rate increases until January 2026. With this deadline approaching, lawmakers are now considering extending the freeze until 2031, ensuring that Florida residents don’t face unexpected hikes in their communications bills.

Beyond protecting consumers, the bill also provides greater stability for businesses by simplifying compliance with complicated local tax rates. This would allow communications providers to focus on infrastructure improvements and customer service rather than managing fluctuating tax obligations.

The proposed legislation would also establish a working group to evaluate the CST and recommend changes. If managed effectively, this group could provide needed transparency about how CST revenue is collected and spent. Notably, this is not the first time a CST working group has convened.

Previous iterations of the group, starting in 2013, unanimously recommended abolishing the CST and collecting revenues under the existing sales tax, which is not currently levied on communications services.

Such a shift would simplify Florida’s tax code, enhance transparency, ease administrative burdens, and potentially reduce consumer costs statewide.

A national study indicated that the average household could save approximately $125.76 annually if taxes on communications services were aligned with the sales tax rate.

However, because this approach involved increasing the state sales tax from 6% to 6.36%, momentum for comprehensive reform stalled.

Even if major reforms prove politically challenging, the working group has an opportunity to improve the CST significantly. A key first step is increasing the transparency of CST spending at the local level.

Currently, detailed public accounting of CST expenditures is lacking, and local governments aren’t required to reinvest revenue in communications infrastructure.

At least a portion of CST revenues should be directed toward maintaining and enhancing Florida’s digital infrastructure, such as inspecting public rights of way after broadband fiber deployment or ensuring timely permit processing for essential communications projects.

Instead, these funds flow into general budgets with no specific accountability for how they’re spent. Additionally, the group should clarify the definition of taxable communications services to reduce inconsistencies. Florida’s ambiguous definition has resulted in uneven enforcement, creating confusion for consumers and businesses alike.

For instance, video streaming services Hulu and Amazon have long collected the CST, but Netflix only began collecting it last February.

As Florida’s Communications Services Tax continues to burden residents, extending the moratorium and introducing targeted reforms presents the most viable path forward. The moratorium provides immediate relief, protecting Floridians from further financial strain and offering businesses needed stability. Meanwhile, the working group can focus on developing lasting improvements for the CST.

Lawmakers must carefully review the group’s recommendations and consult with all stakeholders to prevent unintended consequences. By thoughtfully revisiting and refining the CST framework, Florida can craft a fairer, simpler tax structure that aligns with modern technology use and genuinely serves the public interest.

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Turner Loesel is a policy analyst in the Center for Technology and Innovation at The James Madison Institute.