95-071
Response
October 17, 1995
Request
State Tax Commission
160 E. 300 South
Salt Lake City, Utah 84134
Re: XXXXX
Dear Gentlemen:
On XXXXX, our general counsel, XXXXX, requested a ruling on the
following fact situation. To date we have received no response; and therefore
remain unclear as to the proper tax treatment.
Fact Situation
XXXXX, is a retailer of cellular telephones. The cellular phones are
purchased in Texas from manufacturers and resold at retail in Utah. In addition
to selling cellular phones, XXXXX, acts as (agent for independent providers of
cellular telecommunication services.
XXXXX, does not purchase and resell, provide, bill or receive any
consideration from its customers for the telecommunication services and does
not collect any taxes for those services. XXXXX, receives an activation
commission from the telecommunication service provider for each of its customers
who signs a service contract with the telecommunication service provider. The
telecommunication service provider can accept or reject applications for
service processed through XXXXX.
XXXXX, sells telephones al retail to the public for a nominal charge such
as one cent or one dollar in anticipation of receiving activation commissions
from the telecommunication service provider. These telephones cost XXXXX
between $200 and $500.
Questions
Should Utah sales/use tax be collected and paid on cellular telephones
costing between $200 and $500 brought into Utah and sold for between one cent
and one dollar on the condition that the purchaser of the phone activate
cellular service through XXXXX?
If sales/use tax should be collected and paid, what amount should be
used to calculate that tax?
Your prompt response to these question will help us comply with the
Utah tax laws. Please respond as soon as possible as this is our second
request. If you require additional information regarding this request, please contact
me at XXXXX.
Sincerely,
XXXXX
XXXXX
RE: Advisory Opinion -
Application of sales and use tax to your company's sales of cellular phones
sold in conjunction with sales of cellular phone service agreements.
Dear XXXXX,
We have received your request for an advisory opinion on the issue of
sales and use tax applied to sales of cellular phones and cellular phone
service agreements. The Utah State Legislature has hired a consultant to
research a variety of questions related to taxation of telecommunications
services. Unfortunately, the project will not be finished in time for the
legislature to act in the upcoming XXXXX session. In the meantime, we have
taken the following position with regard to sales and use tax when cellular phones
are sold in conjunction with sales of cellular phone service agreements:
1. Your purchases of cellular
phone equipment are exempt from sales tax if you purchased the property for
resale. However, if your purchase the cellular equipment for your personal use
you are the end consumer and you must pay sales tax on your cost of the
equipment.
2. When you give a phone away
as a premium or incentive to purchase a cellular phone service contract, you
are the end consumer of the phone and you must pay sales tax on your cost of
the equipment.
3 . If you sell the phone
equipment as part of a package which includes the phone equipment and the phone
service, you must collect sales tax on the entire contract price. However, if
the contract covers only the cellular service, and you give the cellular phone
equipment away as a premium or incentive to purchase the service, you are the
end consumer of the phone and you must pay sales tax on your cost of the
equipment.
4. Your commissions are not
subject to sales tax.
Please let us know if we can answer any other questions.
For the Commission,
Alice Shearer
Commissioner