Math 101 - Taxes, Fees & Surcharges

As Dorothy walked through the scary woods outside of Oz she remarked, "lions and tigers and bears, oh my." If she were living in the U.S. today, she just might be singing about "taxes, fees and surcharges, oh my, oh my, oh my...."

To see what I mean, please take a close look at your electricity and telephone (cell or landline) bills. You may have to view several pages to locate all of the taxes, fees and surcharges (TFS) listed. And, at least on my AT & T cell phone bill, the charges are broken up by individual cell phone and then regrouped under various categories, including one that is entitled, "Credits, Adjustments and Other Charges." Yet, what is listed (Regulatory Cost Recovery Charge and Federal Universal Service Charge) sure sound like taxes to me!

Individually each of these is probably not all that significant in terms of extra cost; collectivity, they start to mount up fast. At least where I live (in Naples, FL), these bills have TFS' amounting to approximately 15.9% and 18.7% of each original bill, respectively.

To compute the increased cost in terms of a percentage, simply tally all the TFS', divide by the original amount of charges and multiply by 100%.

Some people (especially those who are collecting these TFS') will likely say that the TFS' are a percentage of the TOTAL cost (i.e., the TFS' divided by the sum of the original amount plus the TFS' and then times 100%) rather than the original cost. This computation changes the basis to which the TFS' are compared. It increases the denominator, which means the percentage amount is lowered. This is supposed to make the taxation less onerous.

For the situation described above, using the same numbers for electricity, water and phone, the new percentage comparisons are 13.7% and 15.7%, respectively.

Even though these numbers explain the percentage of TFS' in the total bill, the actual amount coming out of your wallet or checking account is the same. Only the percentage comparison has been changed to hide the facts. And the TFS' are supposed to be computed based on the original amount of the bill; hence they really are add-ons.

In short, it isn't that either comparison is wrong; it's just that a judicious choice of the basis can camouflage the true taxation rate.

There are similar, even more expensive additional charges involved in travel. Look at the cost of your airline tickets, hotel charges and car rental bills. The worst, however, involves car rentals.

During the summer of 2009, we rented a car for two weeks at Midway Airport (MDW), Chicago, IL. The initial cost of the car rental was $262.98. After the addition of a 20% state tax, a $2.75 per rental motor vehicle tax and a $3.75 per day customer facility charge, our rental was increased by $113.85 (to a total cost of $376.83). This translates into a rental cost escalation of 43.3%. If we play with the numbers and compare the TFS' to the total cost, the TFS' are only 30.2% of the total cost.

I thought this was excessive. That is, until I rented a car at Sky Harbor Airport (PHX), Phoenix, AZ. There, my two-day rental of $44.78 soared by $32.76 to a total amount of $77.54. Here the TFS' amounted to a mind-boggling increase in my rental rate of 73.2%. If we juggle the numbers a bit, we find that TFS is only 42.2% of the total car rental bill.

Still, the transportation privilege tax (10.3%), the stadium surcharge (3.25%), the vehicle license surcharge (5%), the concession recovery fee (11.11%), the customer facility charge ($6.00 per day) and a frequent flyer service charge ($3.00 total) take their toll.

With such hidden taxation raising its head even further as local governments try to balance their strained budgets, and with the Federal government looking for new revenue sources, it shouldn't take much time for these TFS' to top 100% somewhere. I think this will happen sooner rather than later.

It might just be a good time to start paying serious attention to the line items on your bills (regardless of the source) to get a better handle of just how much taxation is being levied on you today.

I intend to keep checking my car rental and other bills. If I find one that exceeds the 73.2% rate documented here, I'll report it immediately in an update to this article.