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Mobile phone sales taxes in California

I'm considering writing about the fact that when you buy a discounted or subsidized mobile phone in CA, you pay sales tax on the "list price." CA is the only state that has this provision in its code, and it strikes me as unfair. It's an old issue but with the new, expensive smartphones we're all buying it's even more of a problem. I'm looking into it.

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If the company is booking the full price

In reply to: Mobile phone sales taxes in California

then that is the tax basis.

Buying a phone under a contract is not really a discount, just a deferred payment scheme designed to make it look less expensive. Therefore, the sales and other taxes are appropriately applied to the full price - since that's what's being paid. (Just as it would be if I bought with a credit card at full price - and, in fact, this is the same as buying with a credit card but with an unknown interest rate on a usually two-year term. In fact, it's worse that a credit card, because after I've paid for two years, if I keep the phone and continue paying - the interest continues as well - the monthly cost doesn't drop.)

If the service provider or phone manufacturer wanted to further disguise the fact that there is not a real discount, they could pay part or all of the tax from the contract proceeds - but so far they haven't found that necessary, as the misplaced anger is directed at the government for having the "audacity" to tax the actual price.

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Just what do you mean by that?

In reply to: If the company is booking the full price

Um, how exactly is it a "deferred payment scheme"? My monthly phone bill is exactly the same whether I opt for a new phone or not. If you're making some generalization that my monthly costs include a little bit for the phone, just because the phone cost is an operating cost of the provider, then I would point out that I'm already paying taxes on the full monthly fees, so, again, I'm being double taxed for the phone, aren't I?

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Yes, you are, and in fact

In reply to: Just what do you mean by that?

you're being quadruple taxed if you continue to pay the same amount after the two year (usual) contract obligation. But that's not the government's fault. It's the service provider that doesn't unbundle the costs, thus making both the original price and the monthly payment taxable.

The service provider could easily show the non-taxable amount on the bill (and just as easily defend the non-taxable status of the phone cost as having been already taxed). But it won't. Because that would allow the consumer to do accurate (albeit, still difficult) top-to-bottom price comparisons.

Now, according to Rafe, "only" California has the provision whereby it taxes the phone at actual price. Rather than suggest they're crooks or dummies on this issue, the other states appear to be unaware they're being screwed out of tax revenue by fictitious discounts. Score one for California.

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