Cell Phones and Other Wireless Telecommunication Devices
(Publication 120 LDA)
Examples

Example—bundled transaction
As a seller, you purchase a phone for $100. Your customer, who agrees to activate the phone with a specific service provider for a one-year period, can purchase the phone for $25 (bundled/discounted price). Customers who purchase the same model phone without the activation agreement are charged $110 ("unbundled sales price"). Tax is calculated based on the $110 "unbundled sales price" of the phone. You may collect tax reimbursement from your customer.

Please note: It is particularly important to keep records establishing the typical "unbundled sale price" of the phone when the markup is less than 18 percent as shown in the example above.

Example—bundled transaction, accessories included with no separate amount charged
As a seller, you purchase a phone for $100 and a car adapter for $25. Your customer, who agrees to activate the phone with a specific service provider for a one-year period, purchases the phone for $40 (bundled/discounted price) and receives a free car adapter. Customers who purchase the same model phone without the activation agreement are charged $150 ("unbundled sales price"). Tax for the phone, including the free adaptor, is calculated based on the $150 "unbundled sales price" of the phone. You may collect tax reimbursement from your customer.

Example—bundled transaction, "unbundled sales price" determined by fair retail selling price, accessories sold for a separate price
As a seller, you purchase a phone for $100 and a car adapter for $25. During a special promotion, customers can purchase a car adapter for $15 with the purchase of a phone. Your customer, who agrees to activate the phone with a specific service provider for a one-year period, can purchase the phone for $25 (bundled/discounted price) and the adapter for $15. You do not sell this type of phone in unbundled transactions; therefore, the "unbundled sales price" of the phone equals its fair retail selling price. To determine the fair retail selling price you may add an 18 percent markup to the cost of the phone ($100 cost × 118% = $118). Tax on the phone is calculated on the $118 fair retail selling price/"unbundled sales price" of the phone. Tax is separately calculated on the $15 sales price of the adapter. In this transaction, you may collect tax reimbursement from your customer.

Example—phone sold for less than 50 percent of your cost
As a seller, you purchase a cell phone for $100. Your customer, who agrees to activate the phone with a specific service provider, receives the phone for free. Customers who purchase the same model phone without the activation agreement are charged $40 (unbundled sales price). Since the $40 "unbundled sales price" of the phone is less than 50 percent of your cost of the phone ($100 cost × 50%=$50), you owe tax based on your $100 cost of the cell phone. You may not collect tax from your customer on this type of sale.