Tax Guide for
Mobile Phone Vendors

Tax Guide for Mobile Phone Vendors

Helping your business succeed is a key goal of the California Department of Tax and Fee Administration (CDTFA). Taxes you collect and pay to the state help fund state and local services and programs important to you and your community. We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so that you can focus on your starting and growing your business.

To help you better understand the tax obligations for the cell phone and wireless device industry, we have created this guide to tax issues and information important to your business.

How to Use This Guide

Each section of this guide contains information important to your business. The Industry Topics section covers many topics, each in an at-a-glance format that can be expanded to provide more extensive information if you need it.

The Getting Started section provides key resources related to registration, filing returns, account maintenance and other important information you need.

Lastly, the Resources section provides links to a wealth of information, including web-based seminars, forms and publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that this information included is general in nature and is not intended to replace any law or regulation.

If You Need Help

If at any time you need assistance with topics included in this guide – or with topics not included – feel free to contact us by telephone or email. Contact information and hours of operation are available in the Resources section.

If you have suggestions for improving this guide, please contact us via email.

If you own a business in California, and you expect to be making taxable sales, you must register with us for a seller's permit and file regular sales and use tax returns. Whether you are new mobile phone vendor or growing your existing business, you'll find these tools helpful in maintaining your account with us.

Registration

Online Registration – Register with us for your seller's permit, or add a business location to an existing account.

Filing and Payments

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.

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.

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).
Example (assuming an 8.5% sales tax rate):
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
Example (assuming an 8.5% sales tax rate):
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.

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.

Example (assuming an 8.5% sales tax rate):
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

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.

Example (assuming an 8.5% sales tax rate):
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.

Example (assuming an 8.5% sales tax rate):
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.

The value of a trade-in accepted on the purchase of a mobile phone, tablet, or other wireless device is taxable.

Example (assuming an 8.5% sales tax rate):
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.

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.

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Cell Phone and Wireless Communication Devices – Specific Resources

Publications

Sales and Use Tax Regulations

Other Helpful Resources

  • Sign Up for CDTFA Updates – Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides – These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates – A listing of current and historical tax rates.
  • Special Notices – CDTFA special notices are issued whenever there is a change in law, tax rates, or CDTFA procedures.
  • CDTFA Online Services – Learn about the online services CDTFA offers.
  • Verify a Permit or License – You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • CDTFA Offices – A comprehensive listing of all CDTFA offices and contact information.
  • Get It In Writing! – The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Taxpayers' Rights Advocate (TRA) – The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels, when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.
  • Contact Us – A listing of CDTFA contacts for your questions and concerns.
  • Local and District Tax Guide for Retailers – A tax guide for retailers to learn more about how to properly collect, report, and pay local and district taxes.