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

Sellers of prepaid wireless services are people that sell prepaid mobile telephony services (MTS) to a consumer in a retail transaction.

On September 25, 2020, California enacted Senate Bill 1441 (Stats. 2020, ch, 179) which extends a seller's requirement to collect applicable local charges until December 31, 2025.

Beginning January 1, 2023, the Emergency Telephone Users Surcharge Act was expanded to include a 988 surcharge in addition to the 911 surcharge. These surcharges are imposed on consumers of prepaid MTS at a flat rate. Sellers of prepaid MTS will be required to collect, report, and pay the 911 and 988 surcharges on each purchase made by a prepaid MTS consumer. The 911 and 988 surcharges will be due on each retail transaction that involves a sale of prepaid MTS.

In addition to the 911 and 988 surcharges, sellers of prepaid MTS may also have a collection requirement for local charges. This collection requirement was extended by legislation through December 31, 2025. If you are a seller of prepaid MTS, you must collect, report, and pay any applicable local charges. The rate is based either on your retail location or the location of your customer if you make sales online or remotely to California customers. Local charges (if applicable) are imposed on consumers of prepaid MTS as a percentage of the sales price of each retail transaction of prepaid MTS.

The amount of the 911 surcharge, 988 surcharge, and local charges (if applicable) must be separately stated on an invoice, receipt, or other similar document provided to the prepaid MTS consumer by the seller, or otherwise disclosed electronically to the prepaid consumer, at the time of the retail transaction.

Notes

  1. Certain sellers are not required to collect local charges. For more information, see Certain Small Sellers Are Not Required to Collect Local Charges.

Collecting the 911 Surcharge, 988 Surcharge, and Local Charges

To determine whether local charges apply to your sales of prepaid MTS made at your retail location or sales made online or remotely to California customers, please see the 911 Surcharge, 988 Surcharge, and Local Charge Rates section of this guide.

Unless the sale of prepaid MTS is otherwise exempt, the 911 surcharge, 988 surcharge, and local charges (if applicable) apply to the retail sale. The 911 and 988 surcharges apply to the entire transaction even if sold in combination with itemized non-prepaid MTS items.

Except on sales of cell phones, local charges apply to the entire transaction 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 them.

The 911 surcharge, 988 surcharge, and local charge generally apply 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 eCards.
  • Prepaid mobile data or any other services when sold with any of the above. If local charges apply, they must be collected on the total combined selling price unless the seller can identify the price of the mobile data services and other services from its books and records.
  • Any product (except a cell phone) or service when sold with prepaid MTS for a single price. If local charges apply, they must be collected on the total combined selling price unless the seller can identify the price of the product or service from its books and records.
  • A cell phone sold with prepaid MTS for a single non-itemized price. If local charges apply, they must be collected on the total bundled selling price of the cell phone and prepaid MTS, 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), or
    • The price of the cell phone component of the bundled charge is disclosed to the prepaid MTS consumer on a receipt, invoice, or other written documentation provided to the prepaid MTS consumer.

Please note: Service suppliers have different collection requirements than sellers of prepaid MTS. For more information about the collection requirements of the 911 and 988 surcharges by service suppliers, see Telecommunication Service Supplier.

Registration

A seller of prepaid MTS is anyone making retail sales of prepaid MTS. All sellers of prepaid MTS must register with us as a prepaid MTS seller to obtain a prepaid MTS account.

If you sell prepaid MTS and your business is a service-only business where you do not sell merchandise (tangible personal property), you must still register with us. As a prepaid MTS seller, you must obtain a prepaid MTS account and hold a California seller's permit.

To register with us for a seller's permit or a prepaid MTS account, visit our Online Services Portal.

The online registration for the prepaid MTS account will ask you to enter your seller's permit number, and in most instances you can transfer your seller's permit information to your prepaid MTS account, including individual location information.

Certain Sellers are Not Required to Collect Local Charges

Certain prepaid MTS sellers (other than a service supplier) with less than $15,000 of sales of prepaid MTS in the previous calendar year are not required to charge and collect the local charges from their customers. However, these sellers are still required to collect the 911 and 988 surcharge on their sales of prepaid MTS made to a consumer even when sales of prepaid MTS are below the threshold requiring them to collect local charges.

Sellers (other than service suppliers) of prepaid MTS are responsible for annually determining if they are required to collect the local charges from their customers based on their sales of prepaid MTS in the prior calendar year. Currently, the annual sales threshold is $15,000. However, the threshold is subject to annual adjustment. For sellers that have more than one location, the sales of prepaid MTS from all locations must be used to determine annual sales. Small sellers must maintain adequate records to show that their annual prepaid MTS sales are less than the current annual threshold. However, because consumers are responsible for the local charges, sellers who are not required to collect local charges may voluntarily continue to charge and collect the local charges and report and pay the amounts to us as a courtesy to their customers.

If you are a seller (and are not a service supplier) with sales under the $15,000 threshold and you do not want to continue to voluntarily collect the local charges from your customers, you must still have a prepaid MTS account to collect, report, and pay the 911 and 988 surcharges on each transaction involving a sale of prepaid MTS.

Agency Agreements

In certain instances, a retail store owner or operator may act as an agent for a service supplier with respect to retail sales of prepaid MTS. An agent is defined as a person who represents another, called the principal, in dealing with third parties. Such representation is called agency.

When a retail sale of prepaid MTS occurs in person at a retail store location, the store owner or operator is generally considered the seller of the prepaid MTS. If the service supplier wishes to establish themselves as the seller of prepaid MTS instead of the retail store owner or operator, the service supplier are responsible for entering into an agency agreement with the retail store owner or operator. The agency agreement must be signed by both parties, and must establish an agency relationship for the purposes of selling prepaid MTS. The agreement must make it clear the service supplier is the seller of the prepaid MTS, and the store owner or operator is acting as an agent of the service supplier in selling prepaid MTS and collecting, reporting, and paying any applicable taxes or fees imposed on such services from customers, including the 911 surcharge, 988 surcharge, and local charges. Unless there is a valid agency agreement, the retail store owner or operator must register, collect, report, and pay to us the surcharge amount from their customer on their retail sales of prepaid MTS.

Prepaid MTS sellers must collect and separately state the 911 surcharge, 988 surcharge, and local charge amount (if applicable) on an invoice, receipt, or other document provided to the customer at the time of the sale, even if the prepaid MTS is sold for a flat charge or is sold by an agent on behalf of a service supplier. The invoice, receipt, or other document may be provided electronically at the time of the sale.

Charging the Correct 911 Surcharge, 988 Surcharge, and Local Charge Rates

The 911 and 988 surcharges are subject to change each year. For more information, see 911 Surcharge, 988 Surcharge, and Local Charge Rates. As with changes in the sales tax rate for different cities and counties, you will be responsible for knowing and charging the correct 911 surcharge flat rate and local charges (if local charges apply) on your retail sales of prepaid MTS. We will post the annually-determined flat rates for the 911 and 988 surcharges and the percentage rates for local charges by December 1 of each year on our 911 Surcharge Rate, 988 Surcharge Rate, and Local Charge Rates for Sellers of Prepaid Mobile Telephony Services (MTS) webpage.

Filing Returns

Sellers of prepaid MTS are required to file returns with us electronically. You must electronically file your prepaid MTS return separately from any other reports or returns you are required to file with us.

Seller Reimbursement for Local Charges

A seller of prepaid MTS (other than a service supplier), may retain two percent of the local charges collected, reported, and paid as reimbursement for collecting the local charges.

This amount is claimed on your prepaid MTS return and reduces your overall local charge liability.

The electronic prepaid MTS return will include instructions for sellers on how to claim the two percent reimbursement.

The two percent reimbursement does not apply to amounts collected, reported, and paid for the 911 and 988 surcharges.