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.
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.
Sounds like they're excluding 'a deduction'.....taken on account of......service cost'
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[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.
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 ). 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 . You might want to check with the Mass. DOR about this.
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