Massachusetts Sales Tax Holiday: A Good Time to Buy a Cell Phone
- Aug 13, 2015 | Gail Cole
Typically, when a cell phone is purchased in Massachusetts, sales tax is based on the asking price of the phone, not the price actually paid by consumers. Savvy customers pay less than asking for phones, usually by bundling the purchase of a new phone with a service contract. Yet they pay sales tax on the original price. At 6.25%, the tax is felt.
Over the years, the Massachusetts Department of Revenue blog has published many posts on this topic. Back in January 2012, the blog highlighted a Boston Globe article on it, which it called “a fair recitation of the history of the policy.” Globe reporter Michael Farrell explained that customers were noticing the high tax as the price of cell phones “soared to as high as $850.”
The tax treatment of cell phones in Massachusetts is distinctly different than that of other taxable goods. For most products, “[c]ash discounts allowed and taken at the time of sale are excluded from the sales price of tangible personal property upon which the sales tax is based” (DOR). Cell phone vendors have been understandable confused and sales tax on cell phones has not always been properly collected.
Tax the highest amount
In 2011, the Department of Revenue issued a new Directive on “the subject of the sales/use taxation of cellular telephones in bundled transactions.” It explained “that the tax must be calculated on the higher of the amount actually paid by the retail customer or the wholesale cost of the phone or other wireless communication device.” However, it also made it clear that, beginning July 1, 2011, the vendor has a choice.
“In situations where the wholesale cost of the phone or other device is used for calculating the tax (because it is higher than the amount paid by the customer), the seller may collect and remit tax from the customer on the wholesale cost. Alternatively, the vendor may elect to assume a portion of the tax by collecting only on the lesser amount actually paid by the customer, in which case the vendor must also remit tax on the difference between that lesser amount and the wholesale cost.”
Two bills currently under consideration seek to impose tax “upon the price paid by the consumer at the point of sale of the mobile telecommunications device:” Senate Bill 1487 and House Bill 2446. Similar legislation has been considered in the past, to no avail.
What’s a shopper to do?
For the time being, consumers are advised to purchase cell phones during the upcoming sales tax holiday, August 15-16, when most tangible personal property with a sales price of $2,500 or less is exempt from Massachusetts sales tax. Sales tax holiday FAQS.
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