Tax Type
Retail Sales and Use Tax
Description
Cellular Telephone Sales; Sales Price
Topic
Taxability of Persons and Transactions
Date Issued
12-16-1996
December 16, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear***************
This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to sales of cellular telephones in certain situations on behalf of ********* (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a retailer of cellular telephones. In addition to selling cellular telephones, the Taxpayer acts as an agent for independent providers of cellular telecommunication services. The Taxpayer receives an activation commission from the telecommunication service provider (the "carrier") for each of its customers who signs a service contract with the carrier. The carrier can accept or reject applications for service processed through the Taxpayer.
The Taxpayer sells telephones at retail to the public for a nominal charge (e.g., $1 ) in anticipation of receiving activation commissions from the carrier. The cost price of the telephones to the Taxpayer is between $200 and $500.
You ask if sales and use tax should be collected and paid on the cellular telephones sold in connection with the service contract and, if so, what is the proper measure of the tax.
RULING
The department recently addressed this issue in Public Document (P.D.) 96-361 (12/09/96). The department ruled that the retailer should collect tax based on the sales price paid by the customer for the cellular telephone (i.e., the discounted price). The charge for the telephone service contract is not subject to the Virginia sales and use tax. I have enclosed a copy of the ruling for your review.
If you have any questions regarding this matter, you may contact*************of the department's Office of Tax Policy at**************
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/1 01 58F
Rulings of the Tax Commissioner