CA court rules discounted phone bundled with wireless plan to be taxed at full price

CALIFORNIA — A California appeals court ruled, February 27, that customers who buy cellphones at a discounted price bundled with a wireless plan must pay taxes on the full price of the phone.

Plaintiffs in the case argued that it violates the Revenue and Taxation Code.

Tax on bundled phone plan

Alina Bekkerman, one of the plaintiffs in the case, says she bought a Samsung Galaxy S5 from Verizon for $249.99 as part of a bundled plan. The bundle required Bekkerman to sign a two-year wireless service contract with Verizon.

Bekkerman paid Verizon sales tax reimbursement that was calculated based on her cell phone’s unbundled sales price of $599.99.

Bekkerman along with three other Plaintiffs filed a complaint to stop the practice.

Is the bundled price a discount?

The disputed taxation comes from California Department of Tax and Fee Administration Regulation 1585, established in 1999. According to Justice Shama Hakim Mesiwala, it measures sales tax on a cell phone purchased in a bundled transaction by the cell phone’s unbundled, full price.

One of the arguments Mesiwala along with Justices Harry Hull and Stacy Boulware make is that the agreed price for the cell phones is not a discount — the cell phone and the wireless services price is commingled.

“Where the cell phone is sold below wholesale cost, the vendor must be making up the difference through the sale of wireless services . . . . Obviously, if the vendor does not make up for selling the cell phone below cost through additional sales, it will be operating at a loss, and the laws of business say that it will not be operating very long,” states the court document.

Attorney Tony Tanke, who represents the plaintiffs, said they would appeal to the state Supreme Court.

To read the full court decision visit: https://www.courts.ca.gov/opinions/documents/C093763.PDF