Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers
Industry Topics

Here you will find additional information, examples, and industry topics specific to sellers and telecommunication service suppliers (service suppliers). If you are a service supplier, you may want to review the information under the Sellers heading if you also make sales of prepaid mobile telephony services (MTS) to prepaid MTS consumers.

Sellers

The 911 surcharge, 988 surcharge, (flat rate fee per transaction) and applicable local charges (percentage of total gross prepaid MTS sales) generally applies to all retail sales of prepaid MTS in this state that consumers purchase upfront prior to using the service. Examples of items that have the 911 surcharge, 988 surcharge, and local charges (if applicable) applied include prepaid wireless cards or minutes and prepaid wireless refill or top-up cards. The 911 surcharge, 988 surcharge, and local charges (if applicable) apply regardless of where the minutes are actually used.

Unless the sale of prepaid MTS is otherwise exempt, the 911 surcharge, 988 surcharge, and local charges are imposed on the prepaid MTS consumer at the time of the retail sale. The 911 and 988 surcharges applies to the transaction even if sold in combination with itemized non-prepaid MTS items.

Local charges apply to the entire sale unless the seller can identify the portion attributable to prepaid MTS from its books and records kept in the ordinary course of business (except cell phones). Local charges apply to the combined selling price of prepaid MTS sold with a cell phone, unless the price of the cell phone is disclosed to the prepaid MTS consumer on a receipt, invoice, or other written documentation provided to the prepaid MTS consumer.

Pay-As-You-Go cell phone with minutes/airtime

If you sell a cell phone with prepaid wireless minutes/airtime for a single price, the 911 surcharge and 988 surcharge applies to the transaction.

If local charges apply to the sale of prepaid MTS, the entire charge may be subject to the local charges unless:

• The amount of prepaid wireless minutes/airtime is a minimal amount, that is, $5 or less, or 10 minutes or less, or
• The price of the cell phone component of the bundled charge is disclosed and provided to the prepaid MTS consumer on a receipt, invoice, or other written documentation.

The following examples show how to compute the 911 surcharge, 988 surcharge, local charges and/or sales tax on sales of cell phones and prepaid minutes of airtime. These examples use a 911 surcharge rate of $0.30 cents, a 988 surcharge rate of $0.08 cents, local charges at a rate of 10 percent (0.10), and a sales tax rate of 9 percent (0.09).

Example 1: Separately Stated Selling Price of a Cell Phone with Prepaid Airtime

The charges for the cell phone and prepaid airtime are separately stated on the invoice or other document provided to your customer. The 911 surcharge and 988 surcharge applies to the transaction. Local charges apply to the separately stated charge for the prepaid airtime. Sales tax applies to the separately stated charge for the cell phone.

The invoice, receipt, or other similar document must show the amount of the prepaid phone, the 911 surcharge ($0.30 cents), the 988 surcharge ($0.08 cents), the amount of local charges ($3.99), and the amount of sales tax ($9.00) at the time of the retail sale of prepaid MTS.

Example 2: Sales Tax, 911 Surcharge, 988 Surcharge, and Local Charges Included in Selling Price

The cell phone and prepaid airtime charges are separately stated on the invoice, but the seller advertises that sales tax is included in the $69.99 selling price of the phone, and the 911 surcharge, 988 surcharge, and local charges are included in the $39.99 selling price of the minutes.

Local Charges Included Computation:

To compute the selling price of the airtime without the local charges, first subtract the 911 surcharge amount of $0.30 and the 988 surcharge amount of $0.08 ($0.30 + $0.08 = $0.38) from the $39.99 airtime selling price. Then, divide the amount excluding the 911 and 988 surcharges by 1.10 (1.00 plus the surcharge rate of .10):

($39.99 - $0.38) ÷ 1.10 = $36.00 (this is the selling price of the airtime without the 911 surcharge, 988 surcharge, and local charges)

To compute the local charges, subtract the airtime selling price without the 911 and 988 surcharges. This will give you the airtime selling price without the surcharge. Then, subtract the amount of the selling price or airtime without the 911 surcharge, 988 surcharge, and local charges (computed above) from this amount. This is the amount of local charges included in the airtime:

($39.99 − $0.38) - $36.00 = $3.61

The invoice, receipt, or other similar document must show the amount of the 911 surcharge ($0.30), the amount of the 988 surcharge ($0.08), and the amount of local charges ($3.61) at the time of the retail sale of prepaid MTS.

Sales Tax Included Computation:

To compute the amount of sales tax reimbursement included in the selling price of the phone, divide the $69.99 selling price by 1.09 (1.00 plus the sales tax rate of .09):

$69.99 ÷ 1.09 = $64.21 (this is the selling price of the phone without the sales tax)

Next, subtract the selling price of the phone without the sales tax from the total selling price to get the sales tax amount:

$69.99 − $64.21 = $5.78

The sales tax due on this sale is $5.78.

Note: If you do not separately state an amount for sales tax, you must post on the premises, or include on the price tag, in an advertisement, or other printed material, a notice stating: "All prices of taxable items include sales tax reimbursement."

Example 3 – Cell Phone and Prepaid Airtime Bundled

The cell phone and 200 minutes of prepaid airtime are sold for a single price of $139.99 (bundled transaction), and the customer is required to purchase the minutes with the cell phone as part of a package deal. The price of the cell phone component of the bundled charge is not disclosed to the prepaid MTS consumer. The amount of airtime in the bundled transaction is not considered minimal because it is more than 10 minutes. The 911 surcharge and 988 surcharge applies to the transaction and the sales tax and local charges apply to the entire bundled charge for the prepaid phone and airtime.

The invoice, receipt, or other similar document must show the amount of the 911 surcharge ($0.30), the amount of the 988 surcharge ($0.08), the amount of local charges ($13.99), and the amount of sales tax ($12.60) at the time of the retail sale of prepaid MTS.

Example 4 – Cell Phone Bundled with Minimal Prepaid Airtime

The cell phone and 10 minutes of prepaid airtime are sold for a single price of $59.99, and the customer is required to purchase the minutes with the cell phone as part of a package deal (bundled transaction). The amount of airtime in the bundled transaction is considered minimal because it is 10 minutes or less. Therefore, the local charges do not apply because there is only a minimal amount of prepaid wireless minutes/airtime included in the bundled transaction. The 911 and 988 surcharges still apply still applies to the transaction and sales tax applies to the entire charge.

The invoice, receipt, or other similar document must show the amount of the 911 Surcharge ($0.30), the amount of the 988 surcharge ($0.08), and the amount of sales tax ($5.40) at the time of the retail sale of prepaid MTS.

Example 5 – Cell Phone and Prepaid Airtime Bundled; Phone Price Stated

The cell phone and prepaid airtime minutes are sold for a single price of $119.99 (bundled transaction); however, you provide your customer with an invoice that states that the actual selling price of the cell phone is $99.99.

Therefore, the 60 minutes of prepaid airtime is sold for $20.00 ($119.99 − $99.99). The 911 and 988 surcharges apply to the transaction. Since you disclosed the selling price of the cell phone to your customer, the local charges apply only to the $20.00 selling price of the prepaid minutes. Sales tax applies to the $99.99 selling price of the cell phone.

The invoice, receipt, or other similar document must show the amount of the prepaid smartphone (cell phone), the amount of the 911 surcharge ($0.30), the amount of the 988 surcharge ($0.08), the amount of local charges ($2.00), and the amount of sales tax ($9.00) at the time of the retail sale of prepaid MTS.

Prepaid data service plans or cards

Sales of prepaid data service plans (minutes) that can be used for data, text, or as cell phone airtime minutes are subject to the 911 surcharge, 988 surcharge, and local charges apply (if applicable).

In general, purchasers of prepaid data plans, including prepaid plans marketed as data-only plans provide their wireless (cell phone) number when purchasing the plans. If these types of prepaid data service plans can be used to make or receive cell phone calls, as well as for data or text, the sales are subject to the 911 and 988 surcharges, plus any applicable local charges.

Prepaid telephone calling cards vs. prepaid wireless calling cards

Prepaid wireless calling cards that are loaded onto a cell phone and give the purchaser the ability to use the cell phone are subject to the 911 surcharge, 988 surcharge, and local charges (if applicable). However, prepaid telephone calling cards that allow the purchaser to use minutes from either a landline or a cell phone by calling an 800 number, or by PIN-less calling are not subject to the 911 surcharge and 988 surcharge of local charges.

SIM cards sold with prepaid wireless airtime/minutes

If you sell SIM cards loaded with prepaid wireless airtime/minutes for a single price, the 911 and 988 surcharges apply. The entire selling price is subject to any applicable local charges unless you can identify the price of the SIM card (from your books and records kept in the ordinary course of business) or the amount of prepaid wireless minutes/airtime is a minimal amount, that is, $5 or less, or 10 minutes or less.

The following examples show how to compute local charges and/or sales tax on SIM cards sold with prepaid airtime. These examples assume a 911 surcharge rate of $0.30, a 988 surcharge rate of $0.08, local charges at a rate of 13.76 percent (0.1376) and a sales tax rate of 9 percent (0.09).

Example 1 – SIM Card and Prepaid Airtime Bundled

You sell a SIM card loaded with prepaid airtime for a single price. The 911 and 988 surcharges apply to the transaction. The total selling price of the SIM card with prepaid airtime is subject to local charges because the price of the airtime is not minimal and cannot be identified since you didn’t keep books and records indicating the standalone price of the airtime.

The invoice, receipt, or other similar document must show the amount of the 911 surcharge ($0.30), the amount of the 988 surcharge ($0.08), and the amount of local charges ($6.88) at the time of the retail sale of prepaid MTS.

Note: Unless there is a separately stated charge for the SIM card, sales tax generally does not apply to the prepaid SIM card sold with minutes or airtime since the SIM card (tangible personal property) is typically considered incidental to the sale of the minutes or airtime.

Example 2 – Sim Card Sold without Prepaid Airtime or Minutes

You sell a SIM card (starter kit) without any prepaid minutes or airtime. The sale is not subject to the 911 surcharge, 988 surcharge, or local charges. The sale is subject to sales tax because it is a sale of tangible personal property.

Prepaid products and services sold for use outside of California

The 911 surcharge, 988 surcharge, and local charges (if applicable) apply to all sales of prepaid MTS sold in a retail transaction in California regardless of where the services or products are actually used.

Example

You sell SIM cards that are loaded with prepaid wireless minutes for international use. The sales are made at your California store. Although your customer intends to use the SIM card and minutes outside of the U.S., the 911 surcharge, 988 surcharge, and local charges (if applicable) apply because the sale was made at your California store. The sales price used to compute the local charges (if applicable) depends on whether the price of the prepaid wireless minutes can be identified from your books and records or if the amount of prepaid wireless minutes sold is minimal.

Known address transaction

In general, there are three circumstances under which a retail sale of prepaid MTS occurs in California and is subject to the 911 surcharge, 988 surcharge, and local charges (if applicable). First, sales of prepaid MTS from your California business location are subject to the 911 surcharge, 988 surcharge, and local charges (if applicable). Second, if the sale is a "known address transaction" it occurs in California and is subject to the 911 surcharge, 988 surcharge, and local charges (if applicable).

A "known address transaction" occurs in this state and the 911 surcharge, 988 surcharge, and local charges (if applicable) apply under any one of the following circumstances:

1. The item is shipped to, or picked up by, your customer at a California location, or
2. Your records show that the customer's address is located in California, or
3. Your customer provides you an address in California during the sales transaction (for example, a billing address).

Third, when you make online sales and do not know your customer's address, the sale of prepaid MTS occurs in California and the 911 surcharge, 988 surcharge, and local charges (if applicable) apply if your customer has a mobile telephone number that is associated with a location in California.

To determine local charges properly for your online sales, you should charge the rate in effect based on the above known California location or address of your customer in the order listed.

Example 1

You sell a prepaid wireless refill card online that is loaded with 400 prepaid wireless minutes to your customer who downloads it directly to his cell phone. Your customer provides you his Arizona address and a mobile number that is associated with a California location. Because you know your customer's address, you should determine if the 911 surcharge, 988 surcharge, and local charges apply based on the address, not on your customer's mobile number. Therefore, your online sale to the Arizona customer is not subject to the 911 surcharge, 988 surcharge, or local charges, even though his mobile phone number is associated with a California location.

Example 2

You sell a prepaid wireless refill card online that is loaded with 200 prepaid wireless minutes to your customer who downloads it directly to her cell phone. Your customer pays with her PayPal account. Your customer also provided you a cell phone number that is associated with a location in California; however, your customer did not provide her address and you do not have a record of her address. Because you do not know your customer's address, you must rely on her mobile phone number to determine if the 911 surcharge, 988 surcharge, and local charges apply. Therefore, because your customer provided a mobile phone number that is associated with a California location, the online sale is subject to the 911 surcharge, 988 surcharge, and local charges (if applicable).

Example 3

You sell a prepaid wireless refill card online that is loaded with 200 prepaid wireless minutes to your customer who downloads it directly to her cell phone. Your customer's billing address is in Sacramento, California. Your customer also provided you with her mobile phone number that is associated with a location outside of California. Since you know your customer's address, you should use her address to determine if the 911 surcharge, 988 surcharge, and local charges apply. Because your records show your customer is located in California, the 911 and 988 surcharge apply, even though your customer has a mobile phone number not associated with a California location. Further, you should charge your customer any applicable local charges at the rate listed for the City of Sacramento.

The 911 surcharge, 988 surcharge, and local charge rates may be viewed on our webpage (see 911 Surcharge, 988 Surcharge, and Local Charge Rates for Sellers of Prepaid Mobile Telephony Services (MTS)).

Collecting local charges properly

In general, you should charge and collect local charges for the city and/or county where your business is located. When the sale is not made at your business location, then the prepaid consumer's address (known address transaction) must be used to identify the proper local charges (see Known address transactions topic above).

When you make online sales and do not know your customer's address, the sale of prepaid MTS occurs in California and the 911 surcharge, 988 surcharge, and local charges (if applicable) apply if your customer has a mobile telephone number that is associated with a location in California.

You can look up the local charge rates by city (see 911 Surcharge, 988 Surcharge, and Local Charge Rates for Sellers of Prepaid Mobile Telephony Services (MTS)).

Example 1

A customer who lives in San Francisco purchases prepaid wireless airtime from you at your store location in San Jose. In addition to the 911 and 988 surcharges, you charge and collect the local charges at the rate in effect where your business is located (City of San Jose), because that's where the sale occurred.

Example 2

The same customer in Example 1 who lives in San Francisco, purchases a prepaid wireless e-card from your website and downloads the minutes to their phone. This customer gives you their San Francisco billing address during the Internet sales transaction. Because the sale does not occur at your San Jose store, the customer's known California address determines where the sale occurs and the proper local charges. For this Internet sale, you should charge and collect the 911 surcharge, the 988 surcharge, and the local charges at the rate in effect for the City and County of San Francisco, indicated on the billing address provided by your customer.

Out-of-State prepaid MTS sellers

Out-of-state sellers who make retail sales of prepaid MTS to customers with an address known to be in California (see Known address transaction section above) are required to register as a prepaid MTS seller and collect the 911 surcharge, 988 surcharge, and any applicable local charges, and pay the collected amounts to the California Department of Tax and Fee Administration (CDTFA).

Example

You are a seller located outside of California who makes online retail sales of prepaid MTS. A customer purchases prepaid wireless airtime from your website. The customer's billing information shows they live in Sacramento, CA. This sale is subject to the 911 and 988 surcharges since your records (that is., the customer's billing address) show that customer is located in California. Additionally, you should charge your customer local charges at the rate listed for the city of Sacramento (if any). The 911 Surcharge rate, 988 Surcharge rate, and local charge rates may be viewed on our webpage (see 911 Surcharge, 988 Surcharge, and Local Charge Rates for Sellers of Prepaid Mobile Telephony Services (MTS)).

To register online for a prepaid MTS account, visit our Taxpayer Online Services Portal.

Invoicing

The 911 and 988 surcharges are flat fees that apply to each retail transaction involving a sale of prepaid MTS to a prepaid MTS consumer. When local charges apply, the charges are applied as a percentage, to the selling price. The amounts for the 911 surcharge, the 988 surcharge, and local charges should be separately stated on the invoice, receipt, or other similar document that is provided to the prepaid consumer, or otherwise disclosed electronically to the prepaid consumer, at the time of the retail transaction. As with sales and use tax, the local charge rate varies depending on the location of the sale and in some instances local charges will not apply (for example, sellers with de minimis sales of prepaid MTS of less than $15,000 during the previous calendar year are not required to collect local charges).

Example

You sell prepaid wireless airtime for $50. This example assumes a 13.76 percent local charge rate.

The invoice, receipt, or other similar document must show the amount of the 911 surcharge ($0.80), the amount of the 988 sSurcharge ($0.08), and the amount of the local charges ($6.88) at the time of the retail sale of prepaid MTS. If the sale is also subject to sales or use tax, the sales/use tax does not apply to the 911 surcharge, 988 surcharge, or local charge amounts.

Kiosks selling prepaid top-up airtime/minutes

In general, a kiosk owner that sells prepaid top-up airtime/minutes is required to register as a prepaid MTS seller and is responsible for collecting and paying the 911 surcharge, 988 surcharge, and any applicable local charges to CDTFA.

Independently owned kiosks operating inside a retail store are considered the seller of the prepaid MTS sold at the kiosk. The retail store is generally not the owner or operator of the kiosk, and as such, is not responsible for the collection of the 911 surcharge, 988 surcharge, and any applicable local charges.

Consumers that want to file a claim for refund for local charges

If you purchased prepaid MTS and overpaid the 911 surcharge, 988 surcharge, and/or local charges, you may file a claim for refund. Where you submit your claim depends on the reason for the refund and where the purchase was made.

If you purchased prepaid MTS from a service supplier, you may contact your service supplier to request a refund of the 911 and 988 surcharges and/or local charges. If the service supplier has already paid the 911 and 988 surcharge to the state, you may file a Claim For Refund or Credit with CDTFA. If the service supplier has already paid the local charges directly to the local jurisdiction, you should contact your local jurisdiction to request a refund of the local charges.

If you purchased prepaid MTS from a retail seller and were charged the incorrect 911 surcharge, 988 surcharge, and/or local charge rate, you may file a Claim For Refund or Credit with CDTFA.

However, you must contact the local jurisdiction to request a refund of the local charges if you are filing a refund claim for local charges because you:

1. Dispute the location of the retail transaction,
2. Believe the transaction is exempt from the local charges, or
3. Dispute the validity of the local tax ordinance.

For local jurisdiction information, see our Contact Information for Cities and Counties with Local Prepaid Mobile Telephony Services Charges webpage.

Telecommunication Service Suppliers (Service Suppliers)

The 911 and 988 surcharge apply to all telecommunication access lines (wirelines, postpaid wireless lines, and VoIP lines) subscribed in California that allow the user access to the “911” communications system and “988” suicide and crisis lifeline.

911 and 988 surcharges exemptions

The 911 and 988 surcharges apply to all telecommunication access lines with the exception of:

• Customers whose place of primary use is outside of California.
• Toll lines used in the collection and dissemination of the news for public press.
• Access lines used in wide-area telephone service by common carriers in the conduct of their business.
• Access lines when imposition of the surcharge would be in violation of the Constitution of the United States, the United States Code, or the laws of the State of California. These include access lines to: (See Revenue and Taxation Code (RTC) section 41027)
  • The United States, its unincorporated agencies and instrumentalities, or any state of the United States;
  • Any incorporated agency or instrumentality of the United States wholly owned by either the United States, or a corporation wholly owned by the United States;
  • The American Red Cross, its chapters and branches;
  • Banks, including national banking associations, located within the limits of California;
  • Enrolled Indians who are service users subscribing for service from within the limits of an Indian reservation;
  • Federal credit unions organized in accordance with the provisions of the Federal Credit Union Act;
  • Nonprofit hospitals;
  • Nonprofit education organizations; and
  • Insurance companies, including title insurance companies, that pay the California gross premium insurance tax.
• Access line: (See RTC section 41046)
  • Supplying lifeline service,
  • Connected to public telephones, or
  • For which no charges are billed by a service supplier to a service user.
• Only applicable to 911 surcharge prior to 1/1/2020-Public purpose fund charges including: Access Recovery Charge; Universal Service Fund Charge (USF); Universal Lifeline Telephone Service (ULTS); California High-Cost Fund-A and Fund-B (CHCF-A & CHCF-B); California Teleconnect Fund (CTF); California Relay Service and Communications Devices Fund (CA Relay/Comm), also known as the Deaf and Disabled Telecommunication Program (DDTP); California Advanced Service Fund (CASF).

Medical alert devices and inmate call systems

Because medical alert devices and inmate call systems generally do not provide access to the 911 emergency communications system or the 988 suicide and crisis lifeline, the 911 and 988 surcharges usually will not apply.

Billing partial months

The 911 and 988 surcharges apply to partial month billings in the full amount.

Billing combined surcharges

Service suppliers may elect to combine the 911 and 988 surcharges into a single-line item on the service user billing. The combined surcharge must be labeled as the “911/988 Surcharge” on the bill. The service supplier shall remit the combined surcharges collected to CDTFA in separate amounts for each surcharge.

Telephone Company's Own Access Lines

The 911 and 988 surcharges do not apply to a telephone company's own access lines when the telephone company is not subject to charges for access lines that are billed by a service supplier.

Multiple Service Suppliers Furnishing Services Using the Same Access Line

In general, only one 911 surcharge and one 988 surcharge apply to each access line. If more than one service supplier utilizes the same access line in furnishing telephone communication services to the service user, only the service supplier that bills the service user shall collect the 911 and 988 surcharges from the user and remit them to CDTFA.

Private Branch Exchange Phone System

A Private Branch Exchange (PBX) phone system is commonly used in many business environments where multiple access lines are needed. The number of access lines subject to the 911 and 988 surcharges in a PBX phone system shall not exceed the total number of concurrent outbound calls that can be placed to the 911 emergency communications system or 988 suicide and crisis lifeline at the same time.