Tax Guide for Cell Phone and
Wireless Telecommunication Devices

Helping your business succeed is a key goal of the Board of Equalization. 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

Mobile

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.



Mobile

If You Need Help

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

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

Getting Started

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

Industry Topics

Sales and Use Taxes in General

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.

Types of Transactions

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.

Sales with a Service Plan

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).

Examples (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
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.

'Unbundled' Sales Price Is Less Than 50% of Cost

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.

Examples (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 BOE on your cost ($250 × 8.5%) $21.25

Optional Warranty Plans

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 BOE on your purchase of replacement parts, phones or other devices provided by you to your customer under optional warranty plans.

Examples (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 BOE 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.

Examples (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 BOE ($8.50 + $33.92) $42.42

Refurbished Mobile Phones

Your sales of refurbished mobile phones are taxable at the 'unbundled' sales price.

Trade-Ins

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.

'Bundled' Transactions That Include Accessories

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.

Pay-As-You-Go or Prepaid Service Plans

Your sales of prepaid airtime or minutes are not taxable.

Devices Sold Under Pay-As-You-Go Plans

Your sales of mobile phones, tablets, or other wireless devices to customers that are required to purchase any wireless service plan that is longer than one month, including prepaid plans where the customer must contract for more than one month of service, are taxable at the 'unbundled' sales price.

Charge-Backs to Retailer for Customer's Early Termination of Service Plan

When payments or rebates from your service provider are charged-back to you because one of your customers ends their service plan before the end of the contract period, you may be entitled to a bad debt deduction on your sale of the mobile phone, tablet, or other wireless device sold.

In general, you may claim a bad debt deduction for charge-backs based on the 'unbundled' sales price of the device, less any amounts collected from your customer, excluding sales tax amounts.

See Regulation 1642, Bad Debts, for information on computing bad debt deductions on taxable sales.

Resources

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

Special Notices and Articles

Sales and Use Tax Regulations

Other Helpful Resources

  • Sign Up for BOE 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 — BOE special notices are issued whenever there is a change in law, tax rates, or BOE procedures.
  • BOE Online Services — Learn about the online services BOE 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.
  • BOE Field Offices — A comprehensive listing of all BOE field offices and contact information.
  • Find Your Board Member — You can use this application to quickly identify your elected BOE representative.
  • 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 BOE contacts for your questions and concerns.