The Taxpayer is able to sell the phones at a reduced price because the mobile data plan providers issue a rebate to the Taxpayer if the cell phone purchaser signs a two year data plan contract. However, if a customer purchases a replacement phone without updating an existing phone plan or signing up for a new phone plan, the Taxpayer charges a significantly higher price for the phone.
The Taxpayer requested guidance regarding the taxability of the cell phones sold for less than the cost to purchase them as well as if the cell phones sold through the website were subject to use tax.
The Comptroller determined that the Taxpayer’s sales of cell phones are subject to Texas sales and use tax. The amount of sales tax due is based on the total price of the phone to the purchaser after all discounts by the data plan provider have been applied and any additional charges such as shipping and handling have been included.
The Taxpayer is not required to accrue use tax on the cell phones that are resold regardless of the sales price. Tax Code Sec. 151.006(b) provides that a sale for resale includes the “transfer of a wireless voice communication device as an integral part of a taxable service, regardless of whether there is a separate charge for the wireless voice communication device or whether the purchaser is the provider of the taxable service, if payment for the service is a condition for receiving the wireless voice communication device.”
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