Tax Guide for Mobile Phone Vendors
Industry Topics
Sales and Use Taxes in General
In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt or touched.
Use tax is a companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under “Purchases Subject to Use Tax” on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.
Types of Transactions
Sales of mobile phones, tablets, or other wireless devices are normally sold in one of two types of transactions:
‘Bundled’ Transaction – When you sell mobile phones or other wireless devices with a service plan that is longer than one month.
‘Unbundled’ Transaction – When you sell a mobile phone or other wireless device separately without a service plan.
The type of transaction will determine how tax applies to the sales of mobile phones or other wireless devices.
Sales with a Service Plan
If you sell a mobile phone or other wireless device along with a required service plan (bundled transaction), you need to charge tax on the ‘unbundled’ sales price.
The ‘unbundled’ sales price is either:
- The sales price you typically charge for the mobile phone or other wireless device without requiring the purchase of a service contract, or
- The fair retail selling price (if the above cannot be established using your records).
| Advertised sales price of phone with 2-year service plan | $199 |
|---|---|
| Service plan monthly charge | $59 |
| Sales price of phone without service plan (‘unbundled’) | $599 |
| Tax Due ($599 × 8.5%) | $50.92 |
| Advertised ‘free’ phone with a 2-year service plan | $0 |
|---|---|
| Service plan monthly charge | $79 |
| Sales price of phone without service plan (‘unbundled’) | $599 |
| Tax Due ($599 × 8.5%) | $50.92 |
Sales without a Service Plan
If you sell a mobile phone or other wireless device alone without a required service plan (unbundled transaction), you need to charge sales tax on the actual sales price you charge for mobile phones or other wireless devices sold separately.
‘Unbundled’ Sales Price Is Less Than 50% of Cost
If you sell a mobile phone or wireless device and the ‘unbundled’ sales price is less than 50 percent of your cost, you must pay tax on your cost of the device and you cannot collect tax from your customer on the transaction.
| Purchase price of device from your supplier | $250 |
|---|---|
| Tax paid to your supplier (purchased for resale inventory) | $0 |
| ‘Unbundled’ sales price (less than 50% of $250 cost) | $100 |
| Tax due from your customer | $0 |
| Tax due to CDTFA on your cost ($250 × 8.5%) | $21.25 |
Optional Warranty Plans
In general, plans that provide customers with a replacement phone or device if theirs is damaged, lost, or stolen are optional warranty plans.
That is, the customer is not required to purchase the warranty plan with their purchase. Your sales of optional warranty plans are not taxable.
You must either pay the tax to your supplier or directly to the CDTFA on your purchase of replacement parts, phones or other devices provided by you to your customer under optional warranty plans.
| Purchase price of replacement device from your supplier | $499 |
|---|---|
| Tax paid to your supplier (purchased for resale inventory) | $0 |
| Tax due to CDTFA on your cost ($499 × 8.5%) | $42.42 |
If your customer is required to pay a deductible before receiving a replacement phone or device under the optional warranty plan, in general, you need to charge tax to your customer on the deductible applied to the replacement phone or device.
| Purchase price of replacement device from your supplier | $399 |
|---|---|
| Tax paid to your supplier (purchased for resale inventory) | $0 |
| Deductible due from customer | $100 |
| Tax due from your customer on the deductible ($100 × 8.5%) | $8.50 |
| Tax due on your cost ($399 × 8.5%) | $33.92 |
| Total tax due to CDTFA ($8.50 + $33.92) | $42.42 |
Refurbished Mobile Phones
Your sales of refurbished mobile phones are taxable at the ‘Unbundled’ sales price.
Trade-Ins
The value of a trade-in accepted on the purchase of a mobile phone, tablet, or other wireless device is taxable.
| Sales price of mobile phone | $699 |
|---|---|
| Value of trade-in phone accepted from customer | $100 |
| Net amount due from customer | $599 |
| Tax due from your customer on full sales price of mobile phone ($699 × 8.5%) |
$59.42 |
Obsolete Mobile Phones
You are responsible for reporting and paying sales tax on the actual sales price charged to your customer for obsolete mobile phones, tablets, or other wireless devices.
‘Bundled’ Transactions That Include Accessories
If you include ‘free’ accessories (for example, chargers, adapters, cases, etc.) with your sales of mobile phones or other wireless devices in ‘bundled’ transactions, no additional tax is due on the sale of the accessories.
If you make a separate charge for the accessories and the sales price is at least 50 percent of your cost, you must pay tax on the separately stated sales price and you may collect the sales tax from your customer.
If you make a separate charge for the accessories and the sales price is less than 50 percent of your cost, you must pay tax on your cost of the accessories and you cannot collect sales tax from your customer.
Activation Fees
Generally, one-time activation fees for a new mobile phone or wireless device for which you make a separate charge on the invoice or contract are not taxable.
Service Plans and Data Plans
Service and/or data plans that do not include mobile phone, tablets or other wireless devices are not taxable.
Prepaid Mobile Telephony Services (MTS)
Sellers of prepaid mobile telephony services (MTS), such as prepaid minutes and airtime, have certain surcharge and local charge collection requirements.
Beginning January 1, 2020, sellers of prepaid mobile telephony services (MTS) will be required to collect, report, and pay the Emergency Telephone Users (911) Surcharge as a flat fee on each purchase of prepaid MTS made by a prepaid MTS consumer. The 911 Surcharge will be due on each retail transaction that involves a sale of prepaid MTS to a California consumer, unless otherwise exempt.
Sellers of prepaid MTS must continue to collect local charges as a percentage of total prepaid MTS retail sales (if local charges apply).
The 911 Surcharge and local charges (if local charges apply) generally applies to amounts charged for:
- Prepaid wireless airtime cards
- Prepaid wireless cards compatible with pay-as-you-go cell phones
- Prepaid wireless minutes
- Prepaid wireless plans
- Prepaid wireless refill or top-off cards
- Prepaid wireless ‘e-Cards’
- Prepaid mobile data or any other services when sold with any of the above
- Any product or service (except a cell phone), when sold with prepaid MTS for a single non-itemized price
- A cell phone sold with prepaid MTS for a single non-itemized price, unless only a minimal amount of prepaid MTS is transferred. (A minimal amount of prepaid MTS is $5 or less, or 10 minutes or less)
The current 911 Surcharge rate and local charge rates may be found on our 911 Surcharge and Local Charge Rates webpage.
If you sell prepaid wireless products and services to California consumers, you must register with the CDTFA as a prepaid MTS seller. The prepaid MTS account is a separate account from your seller's permit. For more information about your collection requirements as a sellers of prepaid MTS, please see our Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers.