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Prepaid Mobile Telephony Services Regulations

Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration — Business Taxes
Chapter 5.7. Local Charges on Prepaid Mobile Telephony Services

Regulation 2461

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Regulation 2461. Exemptions, Deductions, Credits, and Specific Applications of Tax.

Reference: Sections 41028, 42101, 42101.6, 42101.7, 42101.9 and 42103, Revenue and Taxation Code.

(a) Sales for Resale. The burden of proving that prepaid MTS was purchased for resale in the regular course of business is upon the seller unless the seller timely takes in good faith a certificate from the purchaser that the prepaid MTS is purchased for resale. It is rebuttably presumed that a purchase of prepaid MTS is for the purpose of resale in the regular course of business, if such a certificate is timely taken in proper form as set forth in subdivision (a)(1)(A) and in good faith from a person who is engaged in the business of selling prepaid MTS and has an emergency telephone account or a prepaid MTS account if the purchaser is required to register or has voluntarily registered with the Department pursuant to Regulation 2437 or 2460. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the prepaid MTS, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the prepaid MTS to the purchaser. A resale certificate remains in effect until revoked in writing.

(1) Form of Certificate.

(A) Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a resale certificate with respect to the sale of the prepaid MTS described in the document if it contains all of the following essential elements:

(i) The signature of the purchaser, purchaser's employee or authorized representative of the purchaser.

(ii) The name and address of the purchaser.

(iii) The number of the purchaser's emergency telephone account or prepaid MTS account if the purchaser is required to register or has voluntarily registered with the Department pursuant to Regulation 2437 or 2460. If the purchaser does not have an emergency telephone account or a prepaid MTS account because the purchaser is not a seller in this state and they are not required to collect local charges pursuant to subdivision (e) of Regulation 2460, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to register with the Department under Regulation 2437 and 2460 in lieu of an emergency telephone account or a prepaid MTS account number.

(iv) A statement that the prepaid MTS described in the document is purchased for resale. The document must contain the phrase "for resale." The use of terms or phrases such as "nontaxable," "not subject to local charges," "exempt," or similar terms and phrases is not acceptable.

(v) Date of execution of document. (An otherwise valid resale certificate will not be considered invalid solely on the grounds that it is undated.)

(B) A document containing the essential elements described in subdivision (a)(1)(A) is the minimum form which will be regarded as a resale certificate. However, to preclude potential controversy, the seller should timely obtain from the purchaser a certificate substantially in the form shown in Appendix A of this regulation. A resale certificate containing the essential elements described in subdivision (a)(1)(A), including a certificate substantially in the form shown in Appendix A of this regulation, may be used to establish that prepaid MTS was purchased for resale in the regular course of business for purposes of local charges and the 911 and 988 surcharges.

(C) Blanket Resale Certificate. If a purchaser issues a general (blanket) resale certificate that applies to all of its purchases of prepaid MTS and subsequently issues a purchase order for prepaid MTS that indicates that the transaction covered by the purchase order is a retail transaction subject to local charges, the blanket resale certificate does not apply with respect to that transaction. Also, the seller will bear the burden to establish that the prepaid MTS covered by the purchase order was purchased for resale in the regular course of business, or that the local charges were paid to the Department. A seller may avoid this situation if its purchasers use the procedures described in subdivision (a)(1)(D) below.

(D) Qualified Resale Certificate. If a purchaser wishes to designate on each purchase order whether the prepaid MTS being purchased is for resale, the seller should obtain a qualified resale certificate from the purchaser that expressly directs the seller to the purchase orders, i.e., one that states "see purchase order" in the space provided for a description of the property to be purchased. Each purchase order must then specify whether or not the prepaid MTS covered by the order is purchased for resale. The use of the phrases "for resale," "resale = yes," "not subject to local charges," "local charges = no," or similar phrases on a purchase order, indicating that local charges should not be added to the sales invoice will be regarded as designating that the prepaid MTS described in the purchase order is purchased for resale provided that the combination of the purchase order and the qualified resale certificate contains all the essential elements provided in subdivision (a)(1)(A). However, a purchase order where the applicable amount of local charges is shown as $0 or is left blank will not be accepted as designating that the prepaid MTS described in the purchase order is purchased for resale, unless the purchase order also includes the phrase "for resale" or one of the other phrases described above to specify that the prepaid MTS is purchased for resale. If a purchase order does not so specify, or is not issued timely within the meaning of subdivision (a), it will be rebuttably presumed that the prepaid MTS covered by that purchase order was not purchased for resale and that sale or purchase of the prepaid MTS was subject to local charges. If a purchase order includes both prepaid MTS to be resold and prepaid MTS to be used, the purchase order must specify which prepaid MTS is purchased for resale and which prepaid MTS is purchased for use.

The seller shall retain copies of a purchaser's purchase orders along with the purchaser's qualified resale certificates in order to support the sales for resale to that purchaser.

(E) If the seller does not timely obtain a resale certificate for a sale of prepaid MTS, the fact that the purchaser deletes the local charges from the seller's billing, provides the purchaser's emergency telephone account or prepaid MTS account number to the seller, or informs the seller that the transaction is "not subject to local charges" does not relieve the seller from the burden of proving the sale of the prepaid MTS was for resale.

(2) Good Faith. In the absence of evidence to the contrary, a seller will be presumed to have taken a resale certificate in good faith if the resale certificate contains the essential elements described in subdivision (a)(1)(A) and otherwise appears to be valid on its face.

(3) Improper Use of Certificate. Any person who gives a resale certificate for the purchase of prepaid MTS that they know at the time of purchase is not to be resold by them in the regular course of business is liable for the amount of local charges due on the purchase of the prepaid MTS.

(4) Other Evidence. A resale certificate which is not timely taken is not retroactive and will not raise the rebuttable presumption that a sale of prepaid MTS is for the purpose of resale in the regular course of business. Consequently, if a seller does not timely obtain a resale certificate containing the essential elements described in subdivision (a)(1)(A), the seller will be liable for the local charges due on a sale of prepaid MTS, unless the seller shows, or the Department otherwise determines that:

(A) The prepaid MTS was in fact resold by the purchaser in the regular course of business;

(B) The prepaid MTS is in fact being held by the purchaser for resale in the regular course of business;

(C) The purchaser reported the applicable local charges due on the sale of prepaid MTS directly to the Department on the purchaser's return; or

(D) The purchaser paid the applicable local charges due on the sale of prepaid MTS to the Department pursuant to an assessment against or audit of the purchaser developed either on an actual basis or test basis.

(5) Use of XYZ Letters. A seller who does not timely obtain a resale certificate may use any verifiable method to establish that a sale of prepaid MTS was for resale. One method that the Department authorizes to assist a seller in satisfying its burden to establish that a sale of prepaid MTS was for resale or that the local charges were paid on a sale of prepaid MTS, is the use of "XYZ letters." XYZ letters are letters in a form approved by the Department which are sent to some or all of the seller's purchasers inquiring as to the purchaser's disposition of the prepaid MTS purchased from the seller. An XYZ letter will include certain information and request responses to certain questions, as set forth below. An XYZ letter may also be further customized by agreement between the Department's staff and the seller to reflect the seller's particular circumstances.

(A) An XYZ letter will request that a purchaser, the purchaser's employee, or the purchaser's authorized representative respond to the questions below regarding the purchaser's purchase or purchases of prepaid MTS from the seller, provide the purchaser's name, purchaser's emergency telephone account or prepaid MTS account number, and describe the nature of the purchaser's business. An XYZ letter will also request that the purchaser's response be signed by the purchaser, purchaser's employee or authorized representative, and include the printed name, title, and telephone number of the person signing the response, and the date signed.

An XYZ letter may include the following information: seller's name and emergency telephone account or prepaid MTS account number, dates of invoices, invoice numbers, purchase order numbers, amounts of purchases, descriptions of the prepaid MTS purchased, and other information identifying purchases of prepaid MTS from the seller. Copies of actual invoices may be attached to an XYZ letter.

(B) An XYZ letter will request that the purchaser, purchaser's employee or authorized representative check one of the boxes provided inquiring as to whether the prepaid MTS in question was:

(i) Purchased for resale and resold in the regular course of business;

(ii) Purchased for resale and presently in resale inventory being held for sale in the regular course of business; or

(iii) Purchased for a purpose other than resale.

(C) When the purchaser answers the third question affirmatively by checking the corresponding box, the XYZ letter will inquire further whether:

(i) The local charges due on the purchase(s) of prepaid MTS were paid directly to the Department on the purchaser's return, and if so, in what amount;

(ii) The local charges due on the purchase(s) of prepaid MTS were added to the billing of the seller and remitted to the seller, and if so, in what amount;

(iii) The local charges due on the purchase(s) of prepaid MTS were paid directly to the Department by the purchaser pursuant to an assessment against or audit of the purchaser developed either on an actual basis or test basis;

(iv) The purchaser confirms that the purchase(s) were subject to local charges.

(D) A response to an XYZ letter is not equivalent to a timely and valid resale certificate. The Department may, in its discretion, verify the information provided in the response to an XYZ letter, including making additional contact with the purchaser or other persons to determine whether a purchase was for resale or whether the local charges were paid by the purchaser. When the Department accepts a purchaser's response to an XYZ letter as establishing that a sale of prepaid MTS was for resale or that the purchaser paid the local charges due on a sale of prepaid MTS, the seller shall not be liable for collection of the local charges on that sale.

(E) When a purchaser does not respond to an XYZ letter, the Department will consider whether it is appropriate to try to contact the purchaser again, for example, by calling the purchaser or sending the purchaser a second XYZ letter.

(6) Alternative Methods. A seller may use other methods to establish that a sale of prepaid MTS was for resale in the regular course of business, in addition to or instead of using XYZ letters. The Department should also consider whether it is appropriate for the Department to use an alternative method, including, but not limited to, calling a purchaser, to ascertain whether the seller is liable for the local charges on a sale of prepaid MTS under subdivision (a)(4).

(7) Purchaser's Liability for Local Charges. A purchaser that purchases prepaid MTS which they know at the time of purchase is not to be resold by them in the regular course of business is liable for the local charges on the purchase price of the prepaid MTS at the time of purchase.

(b) Bad Debts. A seller of prepaid MTS is relieved from liability to collect local charges insofar as the base upon which the local charges are imposed is represented by an account or accounts found worthless and charged off for income tax purposes by the seller, which includes circumstances where the seller's income is reported on a related person's income tax return and the account is charged off on that return, or if the seller is not required to file income tax returns and the seller's income is not reported on another person's return, charged off by the seller in accordance with generally accepted accounting principles. A seller that has previously paid the local charges may claim a bad debt deduction.

This deduction must be taken on the return filed for the period in which the account or accounts were found worthless and charged off for income tax purposes or, if the seller is not required to file income tax returns, charged off in accordance with generally accepted accounting principles.

Failure to take the deduction on the proper return will not in itself prevent the allowance of a refund measured by the amount for which the seller could have taken a timely deduction provided a claim for refund is filed with the Department within the limitation periods specified in sections 55222, 55222.1, and 55222.2 of the Revenue and Taxation Code.

(1) Amount Subject to Deduction.

(A) Amounts Subject to Local Charges. If an account found to be worthless and charged off is comprised, in part, of amounts not subject to local charges, such as charges for sales for resale, and, in part, of amounts subject to local charges, a bad debt deduction may be claimed only with respect to the unpaid amount upon which the local charges have been paid. The allowable amount of deduction shall be adjusted for amounts claimed as retailer reimbursement as provided by Regulation 2460. It shall be presumed that retailer reimbursement was claimed on all previously reported amounts subject to local charges.

In determining that amount of a bad debt deduction, all payments and credits to the account may be applied: (1) ratably against the various elements comprising the amount the purchaser contracted to pay (pro rata method); or (2) as provided in the contract between the seller and purchaser (contract method). After having applied payments and credits using one method and claiming a deduction or refund based on such method, a seller shall not thereafter reapply the payments or credits using another method.

(B) Expenses of Collection. No deduction is allowable for expenses incurred by the seller in attempting to enforce collection of any account receivable, or for that portion of a debt recovered that is retained by or paid to a third party as compensation for services rendered in collecting the account.

(2) Worthless Account Subsequently Collected. If any account found worthless and charged off by the seller is thereafter collected, in whole or in part, from anyone, including a third party that purchased the account from the seller, the amount collected is subject to local charges until the total amount subsequently collected exceeds the base subject to local charges on which relief was provided or a deduction or refund was claimed. Amounts so collected shall be included in the first return filed after such collection and the local charges shall be paid on such amounts with the return.

(3) Records. A seller must maintain adequate and complete records to support relief of liability, deductions or claims for refund for bad debts showing:

(A) The date of the original sale of prepaid MTS.

(B) Name and address of purchaser.

(C) Amount purchaser contracted to pay for all the items purchased in the sale, including the prepaid MTS.

(D) Base upon which the seller paid the local charges.

(E) The local jurisdiction(s) where the local charges were allocated.

(F) All payments or other credits applied to the account of the purchaser.

(G) Evidence that the uncollectible portion of the base on which the local charges were paid actually has been found worthless and legally charged off as required by subdivision (b).

(H) The percentage of the amount charged off as a bad debt properly allocable to the amount on which the seller reported and paid the local charges.

(c) Bundled Transactions.

(1) Local charges apply to the entire selling price when there is a sale of prepaid MTS in combination with mobile data services or any other services or products for a single price, unless the seller can identify the mobile data services and other services or products from its books and records kept in the ordinary course of business.

(2) Local charges apply to the entire selling price when there is a sale of prepaid MTS with a mobile telephone service communication device for a single nonitemized price, unless the purchase price for the mobile telephone service communication device in the bundled charge is disclosed to the prepaid consumer on a receipt, invoice, or other written or electronic documentation provided to the prepaid consumer. In such an instance, the local charges shall only apply to the remaining charge after excluding the separately stated price of the mobile telephone service communication device.

(3) Local charges shall not apply to a transaction in which a minimal amount of prepaid MTS is sold for a single nonitemized price with a mobile telephone service communication device. For the purposes of this subdivision, a service allotment denominated as 10 minutes or less or five dollars ($) or less is a minimal amount.

(d) Credit for Local Charges Paid to Another State. A credit shall be allowed against, but shall not exceed, the local charges imposed on any prepaid consumer with regard to the purchase of prepaid MTS to the extent that the prepaid consumer has paid local charges on the purchase to any other state, political subdivision thereof, or the District of Columbia. The credit shall be apportioned to the charges against which it is allowed in proportion to the amounts of those charges.

(e) De Minimis Sellers. A seller, other than a direct seller, with de minimis sales of prepaid MTS during the previous calendar year that were less than the de minimis sales threshold provided by Revenue and Taxation Code section 42101.7 is not required to collect local charges under the Local Prepaid MTS Collection Act (commencing with Revenue and Taxation Code section 42100) and this chapter. Nothing prevents a seller, other than a direct seller, from voluntarily collecting and remitting local charges even if the seller had de minimis sales during the previous calendar year.

History—Adopted January 26, 2016, effective January 11, 2017.

Amended August 29, 2018. Changes without regulatory effect to replace "Board" with "Department" in subdivisions (b)(4)(C) and (D), (5), (5)(B)5, (C) and (D), and (6), and (c), and replace "Board's" with "Department's" in subdivision (b)(5).

Amendments filed July 16, 2025, and operative October 1, 2025 (Register 2025, No. 30). The amendments deleted old subdivision (a), which provided "In general. This regulation explains the specific applications of the prepaid MTS surcharge and local charges to, and applicable exemptions, deductions, and credits for the following types of transactions: (1) Sales for resale. (2) Bad debts. (3) Bundled transactions. (4) Lifeline transactions. (5) Transactions in which a surcharge or local charge was paid to another state"; renumbered old subdivisions (b), (c), and (d) as new subdivisions (a), (b), and (c), respectively; replaced "a sale of prepaid MTS is not at retail" with "prepaid … for resale in the regular course of business," "are" with "is" before "purchased," "If" with "It is rebuttably … a certificate is," "(b)" with "(a),"and "who holds a Prepaid MTS Account as required by Regulation 2460, Administration, the certificate relieves the seller from the duty of collecting the prepaid MTS surcharge and local charges" with "has … 2460" in new subdivision (a); reformatted new subdivisions (a)(1)(A)1, 2, 3, 4, and 5 as new subdivisions (a)(1)(A)(i), (ii), (iii), (iv), and (v) respectively; replaced all the text in reformatted subdivision (a)(1)(A)(iii), which provided "The number of the Prepaid MTS Account held by the purchaser. If the purchaser is not required to hold a Prepaid MTS Account because the purchaser makes no sales of prepaid MTS in this state, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a Prepaid MTS Account in lieu of a Prepaid MTS Account number"; inserted "terms or" and replaced "surcharge" with "local charges" and "terminology" with "terms and phrases" in reformatted subdivision (a)(1)(A)(iv); replaced "(b)" with "(a)," deleted "in order" from before "to," and inserted the least sentence in new subdivision (a)(1)(B); replaced "which provides a general description of the items to be purchased" with "that … of prepaid MTS" and all the text after "a purchase order" in new subdivision (a)(1)(C), which provided "which indicates that the transaction covered by the purchase order is subject to the prepaid MTS surcharge or local charges, the resale certificate does not apply with respect to that transaction. However, the purchaser will bear the burden of establishing either that the purchase order was sent to and received by the seller within the seller's billing cycle or prior to delivery of the prepaid MTS to the purchaser (whichever is the later), or that the prepaid MTS surcharge or local charges were paid to the seller. The purchaser may avoid this burden by using the procedures described in subdivision (b)(1)(D) below"; replaced "are" with "is" before "for resale," "'not subject to surcharge,' 'surcharge = no,' or similar terminology on a purchase order, indicating that the prepaid MTS surcharge or" with "'not subject to local charges,' … indicating that," "(b)" with "(a)" in two places, "other terminology" with "one of the other phrases," "each" with "a" before "purchase order does," "is subject to the prepaid mobile telephony services surcharge or" with "of the prepaid MTS was subject to," "the" with "a" before "purchaser order includes," and "are" with "is" in two places in the second to last sentence, and "the" with "a purchaser's" in new subdivision (a)(1)(D); inserted "from … purchaser orders" in the first sentence, "in the purchase order" and "that" in the third sentence, "described in the purchaser order" in the fourth sentence, "rebuttably" in the fifth sentence, and "purchaser's" after "the" and "to that purchaser" in the last sentence in new subdivision (a)(1)(D); deleted "the prepaid MTS surcharge or" from before "local" in the fourth sentence in new subdivision (a)(1)(D); inserted "for a sale of prepaid MTS" and "of the prepaid MTS," deleted "prepaid MTS surcharge or" from after "deletes the" and "from the liability for the prepaid MTS surcharge or local charges nor" from before "from the burden," and replaced "a Prepaid MTS Account" with "the purchaser's … or prepaid MTS account" and "the surcharge" with "local charges" before the closing quotation mark in new subdivision (a)(1)(E); inserted "the" before "absence," replaced "(b)" with "(a)," and deleted "as" from before "described" and the last sentence in new subdivision (a)(2), which provided "If the purchaser insists that the purchaser is buying for resale prepaid MTS of a kind not normally resold in the purchaser's business, the seller should require a resale certificate containing a statement that the specific prepaid MTS is being purchased for resale in the regular course of business"; deleted ", including any officer or employee of a corporation," from before "who" and "prepaid MTS surcharge or" from before "local," inserted "the purchase of" after "for," and replaced "which he or she knows" with "that they know," "him or her or the corporation" with "them," and "that would be due if he or she had not given such resale certificate" with "due … MTS" in new subdivision (a)(3); replaced all the text after "Other Evidence" in new subdivision (a)(4), which provided "to Rebut Presumption of Imposition of the Prepaid MTS Surcharge or Local Charges. A sale for resale is not subject to the prepaid MTS surcharge or local charges. A person who purchases prepaid MTS for resale and who subsequently uses the prepaid MTS owes the prepaid MTS surcharge or local charges on that use. A resale certificate which is not timely taken is not retroactive and will not relieve the seller of the liability for the prepaid MTS surcharge or local charges. Consequently, if the seller does not timely obtain a resale certificate containing the essential elements as described in subdivision (b)(1)(A), the seller will be relieved of liability for the prepaid MTS surcharge or local charges only where the seller shows that the prepaid MTS"; replaced all of the text in new subdivisions (a)(4)(A), (B), and (C), which provided "(A) Were in fact resold by the purchaser and was not used by the purchaser for any purpose other than retention, demonstration, or display while holding them for sale in the regular course of business, or (B) Are being held for resale by the purchaser and has not been used by the purchaser for any purpose other than retention, demonstration, or display while holding them for sale in the regular course of business, or (C) Were consumed by the purchaser and the prepaid MTS surcharge or local charges were reported directly to the Department by the purchaser on the purchaser's return, or"; replaced "Were consumed by the purchaser and the prepaid MTS surcharge or local charges were paid to the Department by the purchaser" with "The purchaser … Department" in new subdivision (a)(4)(D); replaced "of establishing that it should be relieved of liability for the prepaid MTS surcharge or local charges under subdivision (b)(4)" with "to … resale" in the first sentence, "that the sale was for resale or that the prepaid MTS surcharge was paid" with "to establish … MTS" in the second sentence, and "The" with "An" in the fifth sentence, and inserted "as" before "set" in new subdivision (a)(5); added a new first paragraph to and replaced all the text after the first "and" in the second paragraph of new subdivision (a)(5)(A), which provided "Prepaid MTS Account number, date of invoice(s), invoice number(s), purchase order number(s), amount of purchase(s), and a description of the prepaid MTS purchased or other identifying information. A copy of the actual invoice(s) may be attached to the XYZ letter. The XYZ letter will request the purchaser to complete the statement and include the purchaser's name, seller's Prepaid MTS Account number and nature of the purchaser's business. The statement shall be signed by the purchaser, purchaser's employee or authorized representative, and include the printed name of person signing the certificate, title, date, telephone number and city"; replaced "were" with "was" in new subdivision (a)(5)(B); renumbered new subdivisions (a)(5)(B)1, 2, and 4, as new subdivisions (a)(5)(B)(i), (ii), and (iii), respectively, and deleted new subdivisions (a)(5)(B)3 and 5, which provided "3. Purchased for resale but consumed or used; or" and "5. When the purchaser answers either (3) or (4) affirmatively (box checked), the XYZ letter will inquire further whether:"; deleted ", without any use other than retention, demonstration, or display while being held for sale" from after "resold" in new subdivision (a)(5)(B)(i) and ", without having been used for any purpose other than retention, demonstration, or display while" from after "inventory" in new subdivision (a)(5)(B)(ii); inserted "or" in new subdivision (a)(5)(B)(ii) and replaced "use" with "a … resale" in new subdivision (a)(5)(B)(iii); added new subdivision (a)(5)(C) and reformatted subdivisions (a)(5)(B)5A, B, C, and D as new subdivisions (a)(5)(C)(i), (ii), (iii), and (iv), respectively; deleted "prepaid MTS surcharge or" from before and inserted "due … MTS" after "local charges" in new subdivisions (a)(5)(C)(i), (ii), and (iii); replaced "purchase is" with "purchase(s) were" and deleted "the prepaid MTS surcharge or" from before "local" in new subdivision (a)(5)(C)(iv); reformatted subdivision (a)(5)(C), as new subdivision (a)(5)(D); deleted the second and third sentences from new subdivision (a)(5)(D), which provided "A purchaser responding affirmatively to questions reflected in subparagraphs 1, 2, or 3 of subdivision (b)(5)(B) will be regarded as confirming the seller's belief that a sale was for resale for purposes of subdivision (b)(6). However, the Department is not required to relieve a seller from liability for the collection of the prepaid MTS surcharge or local charges based on a response to an XYZ letter"; replaced "the" with "an," "the" with "a," and "for use or whether the prepaid MTS surcharge or" with "whether the" in the new second sentence in renumbered subdivision (a)(5)(D); replaced ""the" with "a" before "purchaser's" and "as a valid response, the Department shall relieve the seller of liability for collection of the prepaid MTS surcharge or local charges" with "as … sale" in the last sentence in new subdivision (a)(5)(D); reformatted subdivision (a)(5)(D) as new subdivision (a)(5)(E); replaced "there is no response" with "a purchaser … respond," "staff should" with "will," and "use an alternative method to ascertain whether the seller should be relieved of the prepaid MTS surcharge or local charges under subdivision (b)(4) with respect to the questioned or unsupported transaction(s)" with "try … letter" in new subdivision (a)(5)(E); added new subdivision (a)(6) and renumbered old subdivision (a)(6) as new subdivision (a)(7); deleted "the Prepaid MTS Surcharge or" from before "Local Charges" and replaced all the text after "A purchaser" in new subdivision (a)(7), which provided "who issues a resale certificate containing the essential elements as described in subdivision (b)(1)(A) and that otherwise appears valid on its face, or who otherwise purchases prepaid MTS that is accepted by the Department as purchased for resale pursuant to subdivision (b)(5) and who thereafter makes any storage or use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business is liable for the prepaid MTS surcharge or local charges on the purchase price of the prepaid MTS. The prepaid MTS surcharge or local charges are due at the time the prepaid MTS is first stored or used and must be reported and paid by the purchaser with the purchaser's return for the period in which the prepaid MTS is first so stored or used"; replaced "the prepaid MTS surcharge insofar as the measure of the surcharge" with "local charges … imposed," "(which include circumstances where the seller's income is reported on a related person's income tax return and the bad debt is charged off on that return)" with "by the seller … on that return," "or, if" with "or if," "A seller may claim a bad debt deduction provided that the prepaid MTS surcharge was actually paid to the state" with "A seller that … bad debt deduction," "should" with "must," "amount was" with "account or accounts were," and "an" with "the" before and "a" with "the" after "amount for which," and inserted "an account or" after "by" and "by the seller" after "off" in new subdivision (b); replaced the title and first three sentences in new subdivision (b)(1)(A), which provided "Receipts Subject to the Prepaid MTS Surcharge. If the amount of an account found to be worthless and charged off is comprised in part of receipts not subject to the prepaid MTS surcharge such as sales for resale or sales subject to a Lifeline exemption and in part of receipts subject to the prepaid MTS surcharge, a bad debt deduction may be claimed only with respect to the unpaid amount upon which the prepaid MTS surcharge has been paid. The allowable amount of deduction shall be adjusted for amounts claimed as retailer reimbursement. It shall be presumed that retailer reimbursement was claimed on all previously reported amounts subject to the prepaid MTS surcharge"; inserted "of a bad debt deduction," replaced "(2) may be applied as provided in the contract of sale (contract method); or (3) may be applied by another method which reasonably determines the amount subject to the prepaid MTS surcharge (alternative method). When claiming a bad debt deduction or refund using an alternative method, the seller must include a clear explanation of that method" with "or (2) … (contract method)," and deleted "with respect to such losses previously claimed" from after "another method" in new subdivision (b)(1)(A); replaced all the text after "charged off" in new subdivision (b)(2), which provided "is thereafter collected by the seller, in whole or in part, the amount subject to the prepaid MTS surcharge so collected shall be included in the first return filed after such collection and tax shall be paid on such amount with the return. The same percentage of the account which the seller claimed as an allowable bad debt deduction or refund shall be used to determine the percentage of the recovery subject to the prepaid MTS surcharge. The percentage subject to the prepaid MTS surcharge of any amounts received from a third party for the sale of an account after the seller has found them to be worthless and has claimed a bad debt deduction or refund are regarded as amounts subsequently collected for purposes of this provision, and the seller must include such amounts in the first return filed after receipt of such amounts and pay the prepaid MTS surcharge thereon"; replaced all the text in new subdivision (b)(3), which provided "In support of deductions or claims for refund for bad debts, sellers must maintain adequate and complete records showing," all the text in new subdivisions (b)(3)(A), (D), and (E), which provided "Date of original sale," "Amount on which seller paid the prepaid MTS surcharge," and "The jurisdiction(s) where the local charges, when applicable, were allocated," respectively; inserted "for … MTS" in new subdivision (b)(3)(C); replaced all the text after "of" in new subdivision (b)(3)(G), which provided "gross receipts on which the prepaid MTS surcharge was paid actually has been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed) or, if the seller is not required to file income tax returns and the seller's income is not reported on another person's return, charged off in accordance with generally accepted accounting principles"; deleted "subject to the prepaid MTS surcharge" from before "of" and replaced "prepaid MTS surcharge" with "local charges" in new subdivision (b)(3)(H); replaced "The prepaid MTS surcharge and local" with "Local" in new subdivisions (c)(1) and (2); inserted the text after "single price" in new subdivision (c)(1); deleted "in combination" from before "with," inserted "service" after "a mobile telephone," and replaced "except as provided in subparagraphs (A) or (B)" with "unless … of the mobile telephone service communication device" in new subdivision (c)(2); deleted new subdivisions (c)(2)(A) and (B), which provided "(A) The purchase price of the mobile telephone communication device in the bundled transaction is disclosed to the customer on a receipt, invoice, or other documentation provided to the customer. In such an instance, the prepaid MTS surcharge and local charges shall only apply to the remaining charge after excluding the selling price of the mobile telephone communication device; or (B) The amount of the prepaid MTS sold with the mobile telephone communication device is a minimal amount. In such an instance, the prepaid MTS surcharge and local charges do not apply to the entire selling price. For the purposes of this subdivision, the amount of prepaid MTS will be deemed as minimal if the service allotment is for 10 minutes or less or is five dollars or less"; added new subdivision (c)(3); deleted old subdivision (e), which provided "Lifeline Transactions. A lifeline transaction is a transaction is which a person purchases prepaid MTS from a seller authorized to provide lifeline service under the state or federal lifeline programs. The state lifeline program means the program furnishing lifeline voice communication service pursuant to the Moore Universal Telephone Service Act. The purchase in a retail transaction in this state of prepaid MTS, either alone or in combination with mobile data or other services, by a consumer is exempt from the prepaid MTS surcharge if all of the following apply: (1) The prepaid consumer is certified as eligible for the state or federal lifeline programs. The seller must retain sufficient documentation supporting amounts claimed as subject to the lifeline program. (2) The seller is authorized to provide lifeline service under the state or federal lifeline programs. If the seller is not an authorized provider of lifeline service, the exemption does not apply. (3) The exemption is applied only to the amount paid for the portion of the prepaid MTS that the lifeline program specifies is exempt from the prepaid MTS surcharge"; renumbered old subdivision (f) as new subdivision (d); replaced "Transactions in Which a Surcharge or" with "Credit for" and "Charge was" with "Charges," deleted "prepaid MTS surcharge and" from after "exceed, the" and "emergency telephone users charges, state utility regulatory commission fees, state universal service charges, or" from after "paid," and inserted "with regard to the purchase" in new subdivision (d); added new subdivision (e); replaced "Sections 42020 and" with "Section" in the authority note; replaced "42010, 42012, 42018 and 42020" with "41028 … 42103," in the reference note; deleted the paragraph after the title in Appendix A, which provided "The burden of proving that a sale of prepaid MTS is not a retail transaction is upon the seller unless the seller timely takes in good faith a certificate from the purchaser that the prepaid MTS are purchased for resale. If timely taken in proper form and in good faith from a person who is engaged in the business of selling prepaid MTS and who holds a Prepaid MTS Account as required by Regulation 2460, Administration, this certificate relieves the seller from the duty of collecting the prepaid MTS surcharge and local charges. If the purchaser is not required to hold a Prepaid MTS Account because the purchaser makes no sales of prepaid MTS in this State, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a Prepaid MTS Account in lieu of a Prepaid MTS Account number"; deleted "a" from before "valid," replaced "Prepaid MTS Account" with "emergency … MTS account," and inserted "or … reason(s):" in paragraph 1 in Appendix A; replaced "property" with "prepaid MTS" in paragraph 2 and 4 in Appendix A; and replaced "item(s)" with "prepaid MTS" and deleted the text after "operations" in paragraph 3 in Appendix A, which provided ", and I will do so prior to making any storage, use, or other consumption of the item(s) other than retention, demonstration, and display while holding the item(s) for sale in the regular course of my business. I understand that if I use the item(s) purchased under this certificate in any manner other than as just described, I will owe the prepaid MTS surcharge and local charges, based on the sales price of the prepaid MTS, or as otherwise provided by law. I further understand that if any tangible personal property is involved, the transaction might also be subject to sales or use tax in this state, and this certificate does not relieve me of any obligations imposed pursuant to California's Sales and Use Tax Law."