patrick.net

Makes sense to me since the actual purchase price of the phone is . . . $599 and it's being rolled into your monthly billing.

If you buy a car on payments, do you pay sales tax on your down payment or the full price?

Not that I think sales taxes are all that great, economics-wise.

Troy,
When you buy a car, do you pay taxes on the retail price of the car, or the price offered by the dealer? The actual price of the phone is what I pay out the door, and the service plan is not payment toward the phone...at least it is not stated to be such, therefore I should not have to pay on some made up price that I did not actually fork out money for. When the phone companies add that the service plan is payment for the phone, then I will agree with you...until then, this is BS.

Tax at t 10% on $600 is 60 bucks...that works out to be 30% of the cost of the phone I paid for, out the door.

One more thing...if indeed we were paying for the phone by accepting this two year contract...why not just pay for the whole thing up front so you can choose the service plan yourself? It makes no sense for the carrier to tie payment of the phone to the service plan your get through them....the incentive is a reduced price phone in exchange for being made a debt slave for 2 years.

The actual price of the phone is what I pay out the door, and the service plan is not payment toward the phone…at least it is not stated to be such, therefore I should not have to pay on some made up price that I did not actually fork out money for

Try not paying your monthly phone bill and seeing how much of that retail price is "made up".

^ fwiw my main phone is $20 phone from Virgin. I'm grandfathered on a plan that costs $80/yr minimum (20c per minute flat rate with automatic renewal).

I've got two iPod Touches for PDA needs.

Troy,
Again, it is not stated that the payment toward the service plan also goes toward the phone. When the deal is offered, it is for a reduced price phone contingent on fulfillment of a 2 year service plan. If you don't pay the bill, you break the deal...and you should pay full price for the phone.

That is irrelevant to my point.

That is irrelevant to my point.

It's not irrelevant if the total amount you're paying for the phone over the contract term *isn't* taxed at the sales tax rate. If sales tax WERE charged on that, then it would be double taxation and therefore "wrong".

If there were no early termination fee, then, too, you shouldn't be taxed for the full retail price of the phone.

This isn't rocket science. The phone company is charging you more per month to give you an up-front price break on the phone; this is exactly analogous to putting a downpayment on the device and paying it off over the term of the contract. By engineering this structure the phone company is engaging in sales tax arbitrage and I should hope the State closes this loophole, even if the terms of sale aren't as crystal clear as you desire.

The total amount I am paying for the phone, over the 2 year contract would be $199, not $599. The service plan is completely separate and has nothing to do with increasing the amount of sales taxes the state can levy.

And no, they don't charge you more per month for the phone...you can get the same plan with a different phone that is paid for, and pay the exact same amount as you would with the new phone. As I have said before, many times, what you pay for the phone is $199, and the service plan is not, in any way, tied to the price of the phone.

The total amount I am paying for the phone, over the 2 year contract would be $199, not $599.

u-huh. And Verizon is going to eat the loss on their COGS for the phone when you stop paying on the contract?

You're being rather obtuse about the wireless carriers' business models here.

And no, they don’t charge you more per month for the phone…you can get the same plan with a different phone that is paid for, and pay the exact same amount as you would with the new phone

ALL phones are subsidized by the two year agreement, some more than others.

As I have said before, many times, what you pay for the phone is $199, and the service plan is not, in any way, tied to the price of the phone.

Verizon's $350 ETF that declines $10/month rather belies that claim.

Good luck with your campaign. You're going to get absolutely nowhere with it, but points for trying since I detest the phone companies greatly.

Troy,
I understand that they use the 2 year plan to subsidize the phones, but nowhere is it EXPLICITLY stated that it is used to recoup the cost of the phone...if it did, then I agree with you.

This is the point I am trying to make...the plan does not state this and is SEPARATE from the price paid for the phone. Because of this I come to the conclusion that the taxes paid on the phone are based on the reduced price, not on the full retail price since I would never have paid that. The fact that they skim some money from the service plan to pad their bottom line is not my concern...

Your experience actually sounds very odd, unless CA is truly more broken than it was a few years ago. The Best Buy people might be trying to screw you here, or are misinformed.

I recently bought two droids in washington, and we paid tax on what we paid -- $299 each (the $100 rebate is separate, though best buy refunds it on the spot)

About 2 years ago I bought an iphone i CA and only paid tax on the $199 "retail" price.

Troy says

erizon’s $350 ETF that declines $10/month rather belies that claim.

I understand what you're trying to say here, Troy, but monstro is technically correct. If you don't have a contract with Verizon you're going to pay the exact same monthly rate as the guy who does, regardless of how much they subsidized the other guy's phone. The contract just ensures that you don't switch carriers during the 2 year period.

What bothers me about carriers more than anything (yes, even more than their shitty customer service) is that they're obviously colluding on pricing and yet no anti-trust action has been taken. You can't possibly tell me that it's a coincidence that AT&T, Verizon, and Sprint all charge more or less the exact same prices for everything.

Read the article I linked...it explains everything...

I understand what you’re trying to say here, Troy, but monstro is technically correct. If you don’t have a contract with Verizon you’re going to pay the exact same monthly rate as the guy who does, regardless of how much they subsidized the other guy’s phone. The contract just ensures that you don’t switch carriers during the 2 year period.

No it doesn't, the contract ensures they get their money back on the phone; that people who are bringing their own phones are ~really~ getting screwed by the phone cartel doesn't change this. Verizon itself instituted a separate $350 ETF on high-value phones, indicating how much it costs them to subsidize the phones.

This is perfectly akin to say car dealers selling cars for $10000 but with $1000/mo service plans you can't cancel without paying $20,000. The real sales price would be $30,000 no matter how cute the tax-avoidance scam is.

Assuming the monthly phone plans AREN'T taxed at the county level, the retail price + ETF of the phone should be the taxable sales price.

The best solution going forward would be to make ETFs illegal, then phone providers would have to subsidize their phones the way all other retail does, via consumer credit.

Troy,
Wow...amazing how you cannot distinguish between the phone and the service plan. The ETF applies to termination of payment toward the service...not toward the phone.

The taxes apply to sale of the phone, not the service.

Clear?

And a link to the verizon ETF:

http://www.engadget.com/2009/11/04/verizon-looking-to-bump-early-termination-fee-to-350-on-advanc/

Troy,
I did not see anything regarding institution of the ETF due to lack of payment toward the phone...I did see it instituted due to lack of payment to the service.

Service != Phone.

The laws in California contradict regulation 1585. This will have to be challenged.

The ETF applies to termination of payment toward the service…not toward the phone.

Keep workin' that angle. . . LOL. The fact that different phones have different ETFs is of course evidence that service plans and new hardware is in fact a linked transaction.

Plus of course the fact that the $350 ETF declines $10 every month of service.

The laws in California contradict regulation 1585. This will have to be challenged.

The article you linked has the counter-argument to this already. The law doesn't care what vendors call things -- the optics -- it cares about the actual physics of the situation, and the reality is phone companies are rolling the costs of the hardware into the service contract. If they weren't there would be no ETF.

"The cost of smart phones is considerably higher than feature phones for which the early termination fees were created years ago at $175," said Verizon spokesman Jim Gerace. He added that the new $350 ETF declines by $10 per month through the life of the contract and customers can avoid it by buying their devices off contract and paying full retail price."

Well, gee, ETF is related to the actual hw cost. Color me surprised.

If you don’t mind loosing your local area code, the taxes on you monthly bill are linked to area code not where your phone is used. You could change it to a state that has a low tax on cells and pay a lot less.

http://www.askstudent.com/money/cell-phone-taxes-by-state/

Troy says

No it doesn’t, the contract ensures they get their money back on the phone; that people who are bringing their own phones are ~really~ getting screwed by the phone cartel doesn’t change this. Verizon itself instituted a separate $350 ETF on high-value phones, indicating how much it costs them to subsidize the phones.

I can't tell if you're being intentionally obtuse or just aren't a native English speaker. Of course the point of the two year contract is to recoup the subsidy. That doesn't change the fact that if you don't get a contract you still pay the exact same price as the guy who does.

There are carriers out there who don't subsidize, by the way, and most of them are dirt cheap if you only care about voice and text. If you care about data plans and quality phones, though, there aren't any good options but the big telcos and their outrageous pricing structures.

lookforevan says

“That doesn’t change the fact that if you don’t get a contract you still pay the exact same price as the guy who does.”

True, but the droid does not sell for $199 without a contract. The contract is the additional consideration included in the retail selling price and is measured as the difference between the price with and without the contract. I think that is pretty clear and the law/reg is reasonable.

The people who pays full amount to the carriers without hardware subsidy are overpaying.

In the case of a network-locked phone, yes, probably, but in the case of phones that can be used on multiple networks ("unlocked", if you will), perhaps not.

If I can buy phone X for $500 and have the freedom to choose carriers at any time, that may well be worth not getting the $300 subsidy. After all, it only really takes a $20 a month difference to make up for the subsidy.