Mark wrote:

- quote -

Hmmm. This is interesting. It would not be unusual for
sales tax to be due on the retail value of the phone; that's
what would happen in California, for example. But it looks
to me as though your Massachusetts retailer is taking an
aggressive position and might be called on it (no pun
intended <G> ).

Mass. Regs Code (MRC) Sec. 64H.1.4(1) provides that if a
retailer sells an item for a price substantially below cost,
the item is considered a promotional item and the retailer
is the consumer of it for sales and use tax purposes. The
retailer owes sales or use tax on the cost of the item, and
can claim credit for any sales tax collected from its
customer. Example 5 of the regulation describes a cellular
phone carrier that sells a phone that cost $200 wholesale to
its customer for $19.95 if the customer signs up for a
one-year service contract. The sales tax rate is 5%. The
retailer owes $10 use tax on the phone (5% of $200) and can
collect $1 of sales tax (5% of $19.95) from the customer,
which is allowed as a credit. The retailer remits $10 to
the state, including the $1 the customer paid.

MRC Sec. 64H.1.4(3) deals with manufacturer's rebates, which
applies to your transaction as well. When an item is sold
to a customer who will receive a rebate from the
manufacturer, the sales tax is based on the entire sales
price with no deduction for the rebate, and the customer is
not entitled to a refund of the sales tax on the rebate
amount.

So it appears to me that your carrier should have charged
you sales tax on the $70 you paid for the phone (the base
includes the $50 rebate), and itself owes use tax, not on
the $320 retail price of the phone, but on its wholesale
cost, which presumably is something less. It would get a
credit against its use tax liability for the sales tax it
collected from you.

Thus your carrier has made out like a burglar here -- it
seems to have collected more tax from you than it actually
owes. Of course it had better remit the entire amount to
the state -- otherwise it will be in a lot of trouble <G> .

You might want to check with the Mass. DOR about this.

Katie in San Diego

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Mark wrote:

- quote -

Go to the website of the MA DOR and search for Directive
93-9 in the Legal Library or in a Google search box, enter
"bundled cellular telephones Massachusetts" without quotes.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Mark" <bababooie[at]mailinator.com> wrote:

- quote -

Sounds like they're excluding 'a deduction'.....taken on
account of......service cost'

http://www.mass.gov/legis/laws/mgl/64h-1.htm

[Definition of "Sales price'' as amended by 2005, 163, Secs.
31 and 32 effective April 1, 2006. See 2005, 163, Sec. 61.
For text effective until April 1, 2006, see above.]

"Sales price'', the total amount paid by a purchaser to a
vendor as consideration for a retail sale, valued in money
or otherwise. In determining the sales price, the following
shall apply: (a) no deduction shall be taken on account of
(i) the cost of property sold; (ii) the cost of materials
used, labor or service cost, interest charges, losses or
other expenses; (iii) the cost of transportation of the
property prior to its sale at retail; (b) there shall be
included (i) any amount paid for any services that are a
part of the sale; and (ii) any amount for which credit is
given to the purchaser by the vendor; and (c) there shall be
excluded (i) cash discounts allowed and taken on sales; (ii)
the amount charged for property returned by purchasers to
vendors upon rescission of contracts of sale when the entire
amounts charged therefor, less the vendors' established
handling fees, if any, for such return of property, are
refunded either in cash or credit, and when the property is
returned within ninety days from the date of sale, and the
entire sales tax paid is returned to the purchaser;
provided, however, that where a motor vehicle is returned
pursuant to a rescission of contract such motor vehicle must
be returned within one hundred and eighty days of the date
of sale; (iii) the amount charged for labor or services
rendered in installing or applying the property sold; (iv)
the amount of reimbursement of tax paid by the purchaser to
the vendor under this chapter; (v) transportation charges
separately stated, if the transportation occurs after the
sale of the property is made; (vi) the amount of the
manufacturers' excise tax levied upon motor vehicles under
section 4061(a) of the Internal Revenue Code of 1954 of the
United States, as amended; and (vii) a "service charge'' or
"tip'' that is distributed by a vendor to service employees,
wait staff employees or service bartenders as provided in
section 152A of chapter 149.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Mark wrote:

- quote -

I've often wondered about this as well. Same thing happens
with discount coupons. While I'm sure it's correct
treatment, I can only guess you're taxed on the VALUE of the
item e.g. what willing seller and willing buyer would agree
to as FMV.

The cellphone scenario on its own raises a good point
however because I doubt that hadly anyone actually pays the
"retail price" since there are so many discounts and tie-ins
to service plans. Could argue that "retail" is a "phantom
price" and does not reflect FMV, that it's just an arbitary
setting by the manufacturer/vendor.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I bought a cell phone today and it was discounted down to
$20 if I agree to 2 years - nothing unusual there.

The question/problem I have is that I was charged state
sales tax on the RETAIL price of the phone ($320) even
though my actual cost of the phone was $70 ($50 mail in
rebate).

I questioned this in the store and was given typical
salestalk mumbo that was clearly double talk because they
didn't know either.

Does anyone have a reference to laws on this? I didn't have
much luck via the Google route.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >