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How states are charging more taxes on your cell phone

Marketplace Staff Oct 28, 2010

How states are charging more taxes on your cell phone

Marketplace Staff Oct 28, 2010


Jeremy Hobson: Imagine you’re a state government. Your tax revenues are down because of the recession, you need to make some money fast. What do you do? You go after something everyone has and try to make as much money as you can from it. Of course, sometimes states get carried away.

Here with a story about that is our regular columnist David Lazarus. He’s a consumer columnist for the Los Angeles Times. David, welcome back to the show.

David Lazarus: Thank you.

Hobson: So we’re talking about a product that everyone has — what is it?

Lazarus: It’s the cell phone! And according to the wireless industry, nearly 300 million of these things are around in the United States right now — that’s almost 93 percent of the population sporting one of these handsets.

Hobson: And the states — they all want to get a piece of this action?

Lazarus: Well who wouldn’t? With a product that ubiquitous, the thing is how to get at it? For example, some states like New York go after the service plan, and they put these big taxes on the actual amount that’s being charged for the service. That’s why there’s a law in Congress right now that says, ‘Uh uh. You’ve got to scale that back.’ Lawmakers are trying to decide whether that’s a good idea. Other states, however, go after the actual cell phone, the handset.

Hobson: And how do they do that?

Lazarus: In places like California, Massachusetts, Rhode Island — the way they do it is they have laws and rules that say, “We’re not going to tax you on the discounted price, we’re going to tax you on the full rate of the actual retail price, even though you might have gotten it bundled with a service plan that gave you a discount or even got you the phone for free.”

Hobson: So if I buy a cell phone that’s say, $200, you’re saying I’m actually getting taxed on what the full price of that phone was? I’d never see that price but it might be $400, $500?

Lazarus: Let’s say you’re offered a jacket that normally retails for $500, but they’re selling it to you for $200. Under no circumstances would you ever be taxed on the $500 value; you’d be taxed on the $200. What they’re doing on cell phones — and as best as I can tell, only cell phones — is taxing you on the full value of the thing as opposed to the actual price.

Hobson: And how is that fair?

Lazarus: It’s not! Not too put too fine a point on it. I put that question to Californian tax authorities, and they said, “Well, even though the tax code says one thing, tax regulations say another and we’re just going to go with tax regulations until anyone tells us otherwise.” What they’ve done is essentially created a loophole whereby they can get more money for this ubiquitous consumer product until someone tells them to stop.

Hobson: Loopholes are always good when they give you more money. All right, David Lazarus, consumer columnist for the Los Angeles Times. Thanks so much.

Lazarus: Thank you.

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