This holiday weekend, the Webman played Santa Claus for the family, just like many of you.  One of the stops was to the Verizon store for an early smartphone upgrade for one of my daughters. (And yes, she is using my upgrade yet again)  Anyway, the upgrade price for a iPhone 4, white, is $99 so I am feeling pretty good about this purchase.

And then it broke down.  First news from the Verizon representative, was that their was a $20 charge for an early upgrade.  Hmm, so they have their hand in my pocket here as it does not cost them anything to do this, but they need to subsidize some cost or just boost the revenue line a bit.  I like this as much as I like change fees on airlines – NOT ONE BIT.  But hey, I am still doing pretty well by getting a new iPhone for $119 right.  So feeling a bit screwed but can tolerate.

And then the bomb hit…  The Verizon representative tells me to slide my credit card and that the total bill was $154.31 including the sales tax.  Hmm, I am pretty good with numbers and quickly realize that I am getting charged more than 20% tax on this transaction.  Here is a picture of the credit card receipt:

What the heck is going on here?  $34.31 for tax on a $119 purchase?  You have got to be kidding me.  So the Verizon representation calming talks about Taxachusetts (He has had to explain this before I presume) and about how they need to pay tax to the state not on the sales price but on the “Value” of the smartphone, which as you can see on the receipt is $549.  So I am paying the 6.25% tax rate on $549 and not on the $99.  So I choose not to shoot the messenger and do a little research myself.

Apparently this law is today only for cell phone because they come bundled with a plan.  Here is what I found on the State of Massachusetts Blog- http://revenue.blog.state.ma.us/blog/2011/04/new-directive-on-sales-tax-for-cellphone-bundled-transactions.html

“Starting July 1, 2011, D 11-2 announces rules amended in part because in the ensuing years since D 93-9 business models have changed. It may not be readily apparent to the retail customer who actually owns the cell phone store where they are making a purchase and which of the existing salestax rules would apply. The new Directive makes it clear that the tax must be calculated on the higher of the amount actually paid by the retail customer or the wholesale cost of the phone or other wireless communication device.”

“But it also provides — and this is new — that the vendor responsible for collecting and remitting the sales tax now has a choice. In situations where the wholesale cost of the phone or other device is used for calculating the tax (because it is higher than the amount paid by the customer), the seller may collect and remit tax from the customer on the wholesale cost. Alternatively, the vendor may elect to assume a portion of the tax by collecting only on the lesser amount actually paid by the customer, in which case the vendor must also remit tax on the difference between that lesser amount and the wholesale cost.  The seller may collect part or all of that tax from the retail customer.”

And there you have it.  A 22.2% tax on cellular phones in Massachusetts.  Be afraid, be very afraid of where this might lead.  You cannot make this stuff up.

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Happy Holidays!

Webman