Sales tax question for California

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frootmall said: [Q]Imagine, for example, an appliance store that gives away free refrigerators with payment of a $699.95 mandatory delivery charge. They wouldn't have to pay sales tax on their refrigerators, right? After all they are free. Great tax loophole.

Welcome to e.Bay.

Actually this topic got me thinking about the state charging tax on the pre-rebate price. The laws seem to be a bit flawwed in this area. Why not refund the excess sales tax collected when people qualify for a rebate? So they could simply add this sales tax refund along with the rebate check. That actually makes more sense since the people buying the item at full price pay the correct taxes due, and people submitting and qualifying for the rebate then have the correct net taxes due on the purchase.

However the state is greedy and would like to maximize taxes collected. I wouldn't be surprised if the state + feds want people to treat rebate checks as income and pay taxes on it again!

In California, sales tax should generally be based on the amount of money paid at the time of the transaction. Even if there were discounts, the sales tax will be based on the amount AFTER discounts, and not pre-discounted amount as some people are suggesting (See Calif. Rev. & Tax. Code Sec. 6011(c)(1), Rev. & Tax. Code Sec. 6012(c)(1)).

gt2swish said: [Q]In California, sales tax should generally be based on the amount of money paid at the time of the transaction. Even if there were discounts, the sales tax will be based on the amount AFTER discounts, and not pre-discounted amount as some people are suggesting (See Calif. Rev. & Tax. Code Sec. 6011(c)(1), Rev. & Tax. Code Sec. 6012(c)(1)).

Actually, not true...

link1
link2

So unless someone challenges the law, the cell phone companies ARE supposed to charge tax on the pre-discount.

I think what makes this different from any other discount or instant rebate is that you only get the discounted price if you also sign up for service. You also have the option of paying full price w/ no service plan. In the case of other product discounts/instant rebates, everyone qualifies for the discount/instant rebate. No one will get it at the non-discounted price.

jackone said: [Q]I just purchased a phone from a Tmobile store. The price is $29.99, but they charged me $5.22 sales tax. I asked why, and the csr said that CA law required them to charge taxes of the values of their (tmo's) purchase price. So I ended up paying a 17.4% tax. Is it legal for tmo to do this?

NO, it is not legal in california. Instant rebates count as cash discounts and are not taxable. I used to have the page bookmarked at calaw.gov

I am going to go out on a limb here and guess that they are not even going to report the tax in question. Most of these Authorized Resellers do not know any of the business laws that they are supposed to abide to.

dolmar said: [Q]That makes little to no sense. You know all retail stores must keep reciepts and record as proof in case the state franchise board does aduit you on the sales tax you collect. So if they collect $5 or $3 in sales taxes they are not keeping it but turning it over to the state. What motivation do they have to raise thier cost on the phone if they cant pocket the difference on

LOL, maybe in a perfect world... I used to supply to cellphone stores and can tell you, that most do not do this.

They pay employees under the table.
They buy counterfeit parts (batteries) from china and sell them as OEM.
They have customers fill out rebates for other phones that they already sold overseas, so that the customer can actually get the advertised rebate.
They never report taxes on cash transactions.

California Sales Tax Law

Instant rebates are considered retailer coupons/cash discounts. ESPECIALLY with T-Mobile. T-Mobile and the phone manufacturers do not trust and would NEVER give the stores manufacturer instant rebates.

Cash discounts are not taxable. Tax applies to the selling price of the item less the amount of the discount.

Wow, this is an eye opener. And thanks everybody for the sources.

The article in sfgate basically pointed out the the CA tax board is printing its own license to rape the consumers. Just because "It's never been challenged" does not mean it is lawful.

Besides, my/our situation is completely different than the situation that would apply to this UNlawful regulation regarding contracted cell phone sales. We are referring to a prepaid To-go phone that requires no contractual obligation and plans.

You left out an important fact in your OP. The fact that you did not buy a bundled package makes a big difference.

When purchased with a bundled service plan, the phone is supposed to be taxed on its unbundled price. Someone who did not really understand the rule probably went overboard and programmed the cash registers to charge on the undiscounted price in all circumstances.

You will of course get nowhere talking to the shop clerks. They have no authority. You need to talk to the manager or owner of the store. If that doesn't work, xpguy has already posted the phone number of the Board of Equalization. Call them. Tell them the store is misapplying Regulation 1585. Use the words "bundled" and "unbundled" appropriately. But don't mention anything about rebates, since there was apparently no rebate involved here. (I have no idea why people are going on and on about rebates in this thread.)


Just an update.

I called the ca tax board and asked about the regulation 1585. The person who was an expert at the regulation said that it applies to postpaid plans (as said in the regulation), BUT it does not mention any thing about prepaid phones. He will do more research on it and get back to me tomorrow.

From our point of view (hopefully it is inline with the state's), if the regulation does not include prepaid phones, then prepaid phones are not included in the regulation (or excluded).

Here is the BIG catch. It is not correct for retailers to overcharge taxes, BUT it is not illegal for them to over charge taxes as long as they pay the overcharged amounts to the state. There is no legal mean for the state/tax board to force retailers to charge the appropriate amount of tax AS LONG AS THE RETAILERS PAY THE STATE THE AMOUNT THAT THEY CHARGED. His words were that the tax board could educate and advise retailers to charge the correct taxes, but they have "no teeth" to force the retailers to charge the correct taxes (again, as long as they pay the charged taxes to the state).

So basically, the state does not have any practical incentive or want to do away with tax overcharges. But he said that in principle, the tax board/state wants the retailers to charge correct taxes because the state's incentive is to serve the people (in theory, but in real life? ya right).

In theory, a clerk/store owner can choose screw over a consumer that is in a bind by charging $1000000 of sales tax on a $1 water bottle and there is nothing illegal about it as long as the store pay the state the $1000000 of tax that it collected to the state. The only 'recourse/leverage' that a consumer have in this situation is to not buy from that retailer. So if you are stranded in the Mojave desert and need a bottle of water to survive, an ahole clerk can just screw you over by overcharging you on taxes, and it would be perfectly OK with the state. Or if you are black (or white) and go into a white (or black) restaurant in CA, the bigot management/waitress can legally overcharge you taxes for your meal just to screw you over, and there is nothing that you can do about it legally other than boycotting the restaurant (of course you can sue them in a civil court, but they can just say that it was a mathematical mistake).

Good info jackone...

I know that this does not apply to the topic, but it is a related issue.

It is illegal in California to impose a credit card surcharge.

-Also it violates visa/MC's rules making it not acceptable in any state.
-If the store accepts Visa/MC and AMEX then it also violates AMEX rules, as a surcharge cant be applied to AMEX and not Visa.

There are tons of shady and not so shady businesses that impose credit card surcharges because they do not know the law, do not care about the law, and never pay attention to vendor contracts.

Update....

The expert at the CA tax board actually called me back to let me know about his research of the CA cell phone regulation. His research of the law agreed that the tax was overcharged and the regulation does not apply to prepaid cell phone. BUT as previous stated, the retailer does NOT have the obligation to refund the overcharged tax to the consumer(s) as long as they give that tax to the state.

I also asked how I would report tmo to the tax board, but he did not give any specific other than restated that the tax board can't do anything, because they don't have any mean of enforcing the law.

riznick said: [Q]Good info jackone...

I know that this does not apply to the topic, but it is a related issue.

It is illegal in California to impose a credit card surcharge.

-Also it violates visa/MC's rules making it not acceptable in any state.
-If the store accepts Visa/MC and AMEX then it also violates AMEX rules, as a surcharge cant be applied to AMEX and not Visa.

There are tons of shady and not so shady businesses that impose credit card surcharges because they do not know the law, do not care about the law, and never pay attention to vendor contracts.

LOL you know how stores in CA get around credit card surchage and it is perfectly leagal? They mark the normal price on all items in the store and on the shelf. Then they give you a cash discount. Price Club used to do that years ago. State of CA took them to court and lost because the court ruled that Price Club was not charging a surchage to accept accept credit cards as they would charge you advertised price in there ads, on the shelf and on the item itself. Stores are free to give any discount they want to anyone for any reason.



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