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Cell phone sales tax changes in Mass. - The Sun Chronicle : Local News

Cell phone sales tax changes in Mass.

Dept. of Revenue sets new rules that mean a hit in wallet for some

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Posted: Wednesday, July 27, 2011 12:00 am

State Rep. Jay Barrows was a little confused the other day when he received an email from a constituent about a big jump in the state sales tax on cell phones.

Barrows, R-Mansfield, said he was confused because he knew the Legislature had not approved any tax increases.

But the constituent said her niece's daughter had saved babysitting money to buy an iPhone only to be hit with the higher tax.

The phone was discounted to $200, but she was charged sales tax on the full price of the phone - $600.

"That's crazy," said Theresa Payne, the aunt. "The sales tax should be on the regular price."

As it turns out, Barrows was correct in his understanding the Legislature never raised the tax.

What happened is the state Department of Revenue sent out a directive with new rules for the tax on cell phones in an attempt to clarify regulations and put all sales outlets on the same footing.

Beginning July 1, the sales tax on cell phones is based on the price charged to the customer, or the price the store paid for it, whichever is higher.

For example, if a phone has a suggested retail price of $400, but a store bought the phone wholesale for $100, and sold it at a discount for $50 because it came with a service contract, the state's 6.25 percent sales tax would be based on $100.

Phil Dardeno, an accountant hired by cell phone franchise store owners to represent them on the issue, said his clients urged the Department of Revenue to change the rule.

He said the franchise stores were at a competitive disadvantage compared with stores owned by phone service carriers.

The confusion, he said, came because the stores owned by carriers offer large discounts on phones when they are bundled with service contracts.

That led to questions about whether the sales tax should be based on the actual sale price, the retail price or the price the store paid for it.

Independent franchise owners were told to base the tax on the higher retail price, even though most customers did not pay full price, he said.

Stores owned by the service carriers were taxing the phones based on the heavily discounted sale price, giving those stores an advantage, he said.

The new rule levels the playing field, and in some cases actually lowers the sales tax that's paid, he said.

"My clients like it because it puts them on the same footing as the carriers," he said.

Naturally, not everyone agrees.

Barrows said he is going to look into the situation and determine if the Legislature needs to step in.

"I don't want to rush to judgment, but I need to investigate this a little," he said.

Robert Bliss, a spokesman for the Department of Revenue, said the change in regulation was made at the request of the franchise owners.

It updates the rules to reflect changes in an industry that is far different than it was in the 1990s, when the original rules were written, he said.

Bliss said the new practice is actually consumer friendly because it means taxes do not have to be paid on the higher list price of a phone.

Some phone stores have not noticed much of a difference since July 1.

Mustafa Alparslan, manager of the MetroPCS store in downtown Attleboro, said he has not heard any complaints.

"It's not causing a problem that I know of," he said.

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