Commentary on cell phone sales tax

Wrong number on cell phone sales tax

By Rep. Josh Cutler and Rep. Jay Barrows

Next time you buy that shiny new smart phone check your sales receipt; the $99 you might pay for an iPhone, Galaxy or Blackberry with calling plan could run you $50 or more in sales tax.

Under our state’s 6.25 percent sales tax, a purchase of $99 should cost an additional $6.19, yet most consumers are paying four and five times that amount at the register. So what’s the disconnect?

Thanks, or no thanks, to a directive from the state Department of Revenue consumers are charged sales tax not on the actual sales price of the phone they buy, but on the usually much higher manufacturer’s list price. In other words, if you paid $99 at the cash register for an iPhone but your phone is actually valued at $799 by Apple, you’d be forced to pay sales tax on $799. For an older model or a used cell phone you might actually pay more in sales tax than you would for the actual price of the phone.

This absurdity arises because of the way mobile phones are treated when they are bundled with service contracts. The Department of Revenue views the taxable sales amount of a mobile phone as either the consumer’s retail price or the manufacturer’s wholesale price, whichever is higher.

While it may be true that mobile phones are heavily discounted in order to package service contracts, the sales price remains the sales price. No other consumer product is taxed in such an illogical fashion. When a flat screen television originally priced at $899 is discounted on sale for $499, we don’t ask the consumer to pay sales tax on $899.

Massachusetts is one of just two states to single out mobile phones for such disparate treatment. It is a practice that is unfair to consumers and also a headache for retailers, often putting franchise owned stores at a competitive disadvantage over stores owned by mobile phone service carriers.

The original mobile phone sales tax policy dates back to 1993, but new regulations were issued in 2011 to reflect the changing business models for selling cell phones and the fact that numerous retailers were unaware of this unique sales tax policy and ended up owing thousands in back tax. Retailers still have to charge the same sales tax but now they can choose to absorb this extra cost instead of passing it on to consumers. That’s an improvement, but it doesn’t change the underlying confusion, and in some cases creates even more.

For instance dueling mobile phone retailers in the same shopping mall could have distinct sales tax policies whereby a customer in one store would pay $99 plus $6.19 tax and in the other store in the same mall pay $99 plus $49.94 in tax for the exact same phone and service contract.

It’s time to treat mobile phones like any other consumer product and tax them on the actual purchase price. A pair of bills we have sponsored under consideration before the Massachusetts Legislature’s Joint Committee on Revenue would do exactly that.

Our legislation would level the playing field and treat a mobile phone purchase the same whether it was bundled with a calling plan or not. The price you pay at the register is the price you are taxed on.

This pro-consumer legislation is a logical and equitable solution that will end all the confusion. So get those overtaxed cell phones out and call your state legislators to spread the message: it’s time to fix this taxing problem.

State Rep. Josh Cutler, D-Duxbury, represents the 6th Plymouth district and State Rep. Jay Barrows, R-Mansfield, represents the 1st Bristol district. This commentary was originally published in the Boston Herald.

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Rep. Josh S. Cutler
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Phone: 617-722-2810

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