The hidden taxes behind cell phone plans

December 9, 2010 7:51:38 PM PST
There's a hidden tax many of you will have to pay this holiday. If people aren't paying attention, they might not even be aware they've paid it.

Russell Hayes of San Jose likes his new cell phone and he liked the price he paid too

"I thought I was getting it at a super price, that would be a great deal," he said.

He bought a $500 smart phone on sale for $150. But the tax he paid was $50 -- 33 percent of the sale price and Hayes wondered why so much?

"Basically I just asked for a clarification on it and they just gave me a piece of paper saying that it's a government tax, welcome to California," he said.

He called 7 On Your Side and we contacted the Chairwoman of the Board of Equalization.

"This has been California law and it's been a change that's been in place for quite some time," California Board of Equalization Betty Yee said.

It seems Hayes received his steep discount because he also agreed to a service plan. It's a common practice among cell phone companies. This phone is on sale for $50 with a two year service plan and another is yours for $30. There are even phones offered for free, but all the deals require you to agree to a service plan.

"That's what we called a bundled transaction and the tax that would be applied on that particular transaction is still on the true price of the phone. It would not be on the discounted price," Yee said.

"I think it's stupid. I don't agree with it. I don't know why we're paying tax on something that on a cell price we didn't pay for," Hayes said.

The Board of Equalization put the law in place in 1998 and 12 years later, consumers still are questioning the law.

"I wonder how far they're going to go with this whether we're going to start paying on all electronics now or services. Are we going to have to pay a higher price when a TV is discounted or a laptop," Hayes said.

The 1998 law applies to all bundled transactions, but the board says it comes up most often with cell phones.

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