Avoiding Federal Cell Phone Tax

[Aahz]

I've heard various complaints/grumblings about state and federal taxes on cell phone usage.  Afterall, very few people are willing to give up the convenience of their smartphone in order to bleed the beast of another $2-$20 per month.  But I recently stumbled across a way to avoid paying those taxes (at least directly) and still be able to use all my Android Apps.

When my last cell phone was stolen I signed up with Virgin Mobile prepaid because they had the cheapest phone/text/data service in my area without a contract.  My teenage daughter also chose to change her service to Virgin about a month later.

I have been paying using Virgin "Top Up" cards which can be bought at local retailers (though I buy mine on line for a discount).  When I buy these cards online I simply pay face value for them - $25 card for $25 (actually about 3% less online) just like buying a gift card.  I'm not sure if local retailers charge sales tax.  I then enter the code on the Virgin site and when my next monthly bill is due they deduct the $25 from my account.

Meanwhile my daughter (on the same $25/month plan) was paying with her credit card and was being billed $27.10/month.  When we inquired about this, Virgin informed us that the extra $2.10 was taxes.  Needless to say, she now buys Top Up cards as well.

I assume Virgin is still probably paying some taxes in our name, but it's the best we can do until "Liberty Mobile" goes live 

Virgin has most of the latest phones available and uses the Sprint "phone lines" (or whatever it's called for cell service) so we've got great phones and coverage, just pay a lot less AND avoid the tax man.

Might be worth looking into a prepaid plan from your provider or switching to one like Virgin.  The cards for all major suppliers can be found discounted online with a simple google search, or I can provide a referral link to my source to anyone interested.

NOTE: I have no association with Virgin or any other cell phone/service/card provider.  Just thought y'all might be interested in reducing that tax burden a bit more.

-Aahz

[MaineShark]

Sprint doesn't have all that great of a network in NH.  Just about the only decent coverage is through Verizon.

I use Verizon prepaid, and they don't charge separate tax.  I'm sure it's simply included in the price, so you're still paying it; it's just not itemized for you.

Sounds more like Virgin was double-dipping when paid by credit card.

[Aahz]

I use Verizon prepaid, and they don't charge separate tax.  I'm sure it's simply included in the price, so you're still paying it; it's just not itemized for you.

I have no doubt that Virgin (in my case) and Verizon (in yours) is still paying federal (and state and local) taxes.  But at least we aren't paying them anymore.

 I don't believe an individual is responsible for what others do with their money once it's been spent.  Otherwise one would have to operate under the belief that everyone is paying for everything everywhere.  If responsibility for expenditures doesn't stop at the first step, where would it stop?

-Aahz

[MaineShark]

I use Verizon prepaid, and they don't charge separate tax.  I'm sure it's simply included in the price, so you're still paying it; it's just not itemized for you.

I have no doubt that Virgin (in my case) and Verizon (in yours) is still paying federal (and state and local) taxes.  But at least we aren't paying them anymore.

No, the situation is identical, except they have not itemized the tax.

I don't believe an individual is responsible for what others do with their money once it's been spent.  Otherwise one would have to operate under the belief that everyone is paying for everything everywhere.  If responsibility for expenditures doesn't stop at the first step, where would it stop?

By that standard, you never paid the tax, because it was always paid by the cell phone company.

You are responsible for the choices you make, including whom you support with your money.  Of course, since taxes are extracted by force, your level of responsibility is the same as that of any other victim of mugging (ie, not bloody much).

[Aahz]

But cell phone taxes are not taken by force.  No one is forced to purchase a cell phone plan.

These taxes are provided voluntarily and specifically agreed to when signing a cell phone contract and/or accepting the provider's terms of service.  In the case of Virgin, their ToS states-

Taxes and Surcharges

Stated prices for our services do not include certain taxes or surcharges. We charge state and local sales taxes on all purchases made through our website at www.virginmobileusa.com, including Top-Up transactions that we process directly. In certain states, retailers (including Virgin Mobile) are required to collect e-911 fees for Top-Up transactions that they process. Charges may also include a surcharge for federal and state Universal Service Fund contributions and state and local 911 fees, as well as a cost recovery surcharge. The amount of these surcharges is subject to change and may vary from time to time and by geographic area. Surcharges are assessed to help defray our costs incurred in complying with federal and state telecommunications regulations. Surcharges are not taxes or fees that the government requires from consumers. Taxes, fees and surcharges are subject to change without notice.

The Verizon ToS states-

What Charges Are Set by Verizon Wireless?

You agree to pay all access, usage and other charges that you or the user of your wireless device incurred. For Postpay Service, our charges also include Federal Universal Service, Regulatory and Administrative Charges, and we may also include other charges related to our governmental costs. We set these charges; they aren't taxes, they aren't required by law, they are not necessarily related to anything the government does, they are kept by us in whole or in part, and the amounts and what they pay for may change.

Government Taxes, Fees and Surcharges

You must pay all taxes, fees and surcharges set by federal, state and local governments. Please note that we may not always be able to notify you in advance of changes to these charges.

So, it seems to me that in both cases using a prepaid plan reduces the various fees and taxes that we pay.  If we chose to go with a postpay option we'd be spending more out of pocket for these charges.  I suppose one can look at it as postpay we're paying the same taxes/gov't fees as postpay customers, but they're paying more into the provider's profit margin.  Money is, afterall, fungible.  But I consider any fee or tax that I don't specifically agree to (ie. has been itemized) to be paid by the recipient of my funds, not by myself.  Otherwise I'd have to consider myself responsible for their power & water bills as well.

-Aahz

[MaineShark]

But cell phone taxes are not taken by force.  No one is forced to purchase a cell phone plan.

These taxes are provided voluntarily and specifically agreed to when signing a cell phone contract and/or accepting the provider's terms of service.

You aren't required to buy things, so does that make a sales tax voluntary?  You could just make everything you need.

You aren't required to drive, so does that make fuel taxes voluntary?

You aren't required to earn an income, so does that make income taxes voluntary?

If there were two cell phone companies, and one charged taxes while the other did not, then you could call the taxes voluntary.  But if someone wants to provide me with cellular phone service, and I want to purchase that service, and a third party is going to step in and demand payment for not murdering us, that's not voluntary; it's mugging.

So, it seems to me that in both cases using a prepaid plan reduces the various fees and taxes that we pay.  If we chose to go with a postpay option we'd be spending more out of pocket for these charges.  I suppose one can look at it as postpay we're paying the same taxes/gov't fees as postpay customers, but they're paying more into the provider's profit margin.  Money is, afterall, fungible.

That's more accurate.  It really sounds more like Virgin is running a scam, than anything else.

But I consider any fee or tax that I don't specifically agree to (ie. has been itemized) to be paid by the recipient of my funds, not by myself.

That's an interesting assumption, but it's completely arbitrary on your part.  If one restaurant sells hamburgers for $1, plus tax, then they collect $1.09 and remit the tax to the government.  If another sells hamburgers for $1.09, including tax, then they collect $1.09, and remit the exact same amount to the government.  Either way, the government got the same number of pennies as a result of the sale of that hamburger.

[Aahz]

If there were two cell phone companies, and one charged taxes while the other did not, then you could call the taxes voluntary.

Which is exactly what's happening here.  Except that it's a single cell phone company offering both a plan w/ taxes and a plan without. "Stated prices for our services do not include certain taxes or surcharges."

The stated price for their services (at least for my plan) is $25 per month.  If I pay with a credit card I have to add taxes because, as they say, they are not included.  However, if I purchase prepaid cards online I pay no taxes, only the stated $25.

So, it seems to me that in both cases using a prepaid plan reduces the various fees and taxes that we pay.  If we chose to go with a postpay option we'd be spending more out of pocket for these charges.  I suppose one can look at it as postpay we're paying the same taxes/gov't fees as postpay customers, but they're paying more into the provider's profit margin.  Money is, afterall, fungible.

That's more accurate.  It really sounds more like Virgin is running a scam, than anything else.

If they're scamming someone it would be the government, not their customers.  They don't advertise "no taxes if you use Virgin".  I think it's far more likely a loophole (in either the tax law or their ToS or procedures) than a scam of any sort.

If one restaurant sells hamburgers for $1, plus tax, then they collect $1.09 and remit the tax to the government.  If another sells hamburgers for $1.09, including tax, then they collect $1.09, and remit the exact same amount to the government.  Either way, the government got the same number of pennies as a result of the sale of that hamburger.

But that example is not comparable, as this is not an "including tax" situation.  In fact, tax is specifically excluded.

In this case one restaurant sells a hamburger for $1 plus tax, collects $1.09, and remits the tax.
The other restaurant, also sells a hamburger for $1, collects $1.00, and what they give to the government is none of the customer's concern.

[MaineShark]

They're sending in the taxes on the prepaid cards.  I'll nearly guarantee it.  They're too big of a company to sneak around that.

They're just double-charging them on the credit card payments.  Probably because processing credit cards costs them money, but the credit card companies prohibit retailers from charging a fee, so they just tack on the taxes twice in order to get the money they want, because almost no one is likely to complain.  They'll just write it off as the inevitability of taxes, and never call to question it.

In either case, they're sending the government the same tax payments.

[Aahz]

In either case, they're sending the government the same tax payments.

See, on that statement, we agree.

I'm just not willing to accuse Virgin of defrauding their customers, without any supporting evidence 

[MaineShark]

In either case, they're sending the government the same tax payments.

See, on that statement, we agree.

I'm just not willing to accuse Virgin of defrauding their customers, without any supporting evidence 

If they're sending in the same payment, but charging some customers twice...

[KBCraig]

I guess the determining point is whether the $25+tax, and $25 without tax, purchase exactly the same service.

If yes, then either the credit card customers are being ripped off, or Verizon finds the attractiveness of marketing the $25 PAYG cards to be worth the cost of paying the tax out of their profits.

[Aahz]

I guess the determining point is whether the $25+tax, and $25 without tax, purchase exactly the same service.

If yes, then either the credit card customers are being ripped off, or Verizon finds the attractiveness of marketing the $25 PAYG cards to be worth the cost of paying the tax out of their profits.

Yes, the service itself is identical and indistinguishable.

So, the debate only comes down to whether or not you think Virgin is defrauding their credit card customers.  And I'm not willing to believe or state that based on someone's assumptions.  I believe they're paying it themselves.  Hence, prepaid card customers are not.

-Aahz

[LiveFreeandLineDance]

Sprint doesn't have all that great of a network in NH.  Just about the only decent coverage is through Verizon.

Even in the big cities like Manchester or near Boston? I have Virgin Mobile service down here and loved it most of the times. What are Verizon's prepaid phones like? Are they very expensive or somewhat relative in price to Virgin?

[Dalebert]

Net10 has good coverage and rates. It's been fine for me in Keene and Manchester. All phones suck on the long drives between cities. Poor coverage on NH highways.

[MaineShark]

Sprint doesn't have all that great of a network in NH.  Just about the only decent coverage is through Verizon.

Even in the big cities like Manchester or near Boston? I have Virgin Mobile service down here and loved it most of the times. What are Verizon's prepaid phones like? Are they very expensive or somewhat relative in price to Virgin?

Probably in the big cities, but you're into rural areas within a few miles of most of those cities, and coverage drops off rapidly.

I have Verizon's $1.99/day unlimited plan.  Any day I make or receive a call, I pay $1.99 out of my prepaid balance, and then I can make unlimited calls for that day.  If you pay in monthly, they expire $15/month if you don't use that much.  If you pay $100, it lasts a year.  Since I only use the phone once or twice a week, but those are usually days when I'm shopping and will need to make numerous calls, it's an excellent deal for me.