Can I get my money back?
December 5, 2008 8:24 AM   Subscribe

Is it legal for AT&T to charge sales tax on the un-discounted price of a new phone (versus the actual purchase price)? Why?

I recently bought a BlackBerry Curve online from AT&T. Since it was an older model, the phone was discounted significantly. The web checkout process indicated that my "Total Due Today" was $50. There was an asterik by this total and fine print reading that "Total Due Today" excluded taxes and activation. I already knew I was getting a free activation with my package, but I never would have assumed that the "taxes" would be anything more than sales tax on my $50 purchase.

When I got the invoice, I discovered I was billed $87 - $50 for the phone and $27 tax. I was shocked. Apparently they based the sales tax on a "Taxable Unit Value" of $330 (and I don't even know where that number came from, since the original package "value" was listed at $280 online).

I know $27 is not that big of a deal, but overall $87 is about 50% more money than I made a decision to spend, and I am really struggling financially at this time. I could have understood normal sales tax on a $50 sale (~$4 in CA), but how do they justify doing this? After all, if I were to go to the mall and buy a $100 sweater on sale for $20, I would only pay sales tax on $20.

In summary:

1) Is this common practice for cell providers? This is my first new phone in like, 6 years, so I would have no way of knowing if it were. I am also new to AT&T.

2) How is it legal for AT&T to do this (charge sales tax on far more money than was actually invloved in the sale)?

AND, 3) if there is some legal basis for them doing this, shouldn't they at least be required to notify me of the total charges up front, before I push the purchase button?

I'm pretty frustrated and ready to just box it back up and tell AT&T to forget the whole thing. I know it's only $27 but I really feel like I was tricked. Thanks in advance for any insight into this situation.
posted by FuzzyVerde to Work & Money (18 answers total) 1 user marked this as a favorite
If they did it as a "rebate" then they can tax you for the whole amount then discount some.

as for telling you upfront, they probably should, but salespeople are often cagey about letting you read the fine print
posted by arniec at 8:40 AM on December 5, 2008

Almost all cell phone discounts are done by giving you a 'store credit' to spend on a phone, in this case they gave you $280 towards your purchase, you chipped in $50 and got a phone with a theoretical value of $330. The state/county/city tax board doesn't care who paid for what portion of the phone, they care that you purchased a $330 product and would like to collect the sales tax on that purchase. You can be almost certain that AT&T isn't pocketing the money they collect for sales tax.
posted by foodgeek at 8:43 AM on December 5, 2008

Any and all prices quoted by cell phone salesmen should be treated with the same suspicion you'd treat the offer of a two-bit blowjob. And as arniec says, you're being taxed on a pre-rebate price.
posted by notsnot at 8:45 AM on December 5, 2008

(Disclosure: I work in sales and use tax, and used to be a contract auditor. But not for California, so don't take this to the bank)

AT&T owes the state the tax on the difference between the price they pay and the price you pay. And the discounts they give are usually at a loss in every single instance, while most retail clothing stores rarely mark down clothing below wholesale costs.

States have been cranking up audits trying to make up their budget shortfalls. The lost tax on cell phone discounts is sorta a new issue and providers have been hit hard. We're talking millions and millions in penalties, plus providers are having to pony up even more to revamp their system to become compliant.

While their previous 'discounts' were provided before tax, I don't doubt that AT&T has changed the fine print to provide the 'discounts' after tax to try and recoup their losses from this. So it's entirely probable that this is above the board.

Of course, Washington is taking Expedia to court, saying their tax collection was not clearly marked to the customer and equaled fraud. But that is because they didn't split out their 'taxes and management fees' and didn't disclose that the actual taxes and management fees were much smaller, and that a a portion of the management fees was out and out profit. So there is still some room that this isn't entirely kosher.
posted by politikitty at 8:57 AM on December 5, 2008

Response by poster: That does help somewhat - I suspected it had to do with "credits", but I bought the phone ONLINE. There was no salesperson. I read ALL the fine print (I even printed copies of the webpages of the checkout process). It is referred to as an "$230 Online Instant Discount", not a rebate, and nowhere was I told of the total charges before I pushed the purchase button.
posted by FuzzyVerde at 9:02 AM on December 5, 2008

Wow, good question. You might also get some clarification on 2 and 3 by calling the state's department of revenue.
posted by chinston at 9:13 AM on December 5, 2008

If there was a $230 online instant discount and you paid $50, they should be collecting tax on $280 not $330.
posted by foodgeek at 9:17 AM on December 5, 2008

Response by poster: I guess maybe my real issue here is not how they calculate the tax (before or after discounts, rebates, whatever) but that the web checkout process was VERY misleading.

I think if I had bought the phone in a brick & mortar store I would have seen the total price before I paid. The tax thing probably would have still aggrivated me, but I would have been aware of it when I paid. Online it makes it look like you will pay $50 plus tax, but there is no way of telling that the tax will be calulated in some different manner than you are familiar with.

politikitty, in my limited experience with a business license, I was obligated to collect sales tax on my sales revenue. The wholesale or purchase price of the goods sold never entered the equation. Is this different somehow for telecom?

I'm sure they do sell the phones at something of a loss, but that was so they can make money on the mandatory 2-year service contract, right? And I really rather doubt AT&T paid $330 for this phone. I'm sure they are getting wholesale pricing of some kind.
posted by FuzzyVerde at 9:31 AM on December 5, 2008

If you paid $50 for the phone and the value of the phone was $280, then I don't see why the "Taxable Unit Value" is $330 - the sum of the actual and theoretical price. Definitely follow up with them on that.
posted by kamelhoecker at 9:31 AM on December 5, 2008

The $280 package value was probably the discount, and with $50 that makes $330. I am not sure what politikitty is talking about though. I am pretty sure that sales tax has nothing to do with the price the store paid for the goods, and everything to do with the sale price.
posted by caddis at 9:41 AM on December 5, 2008

I investigated this after getting sticker shock after buying a new phone, and the exact taxed amount seems to vary by state. Might explain why some people run into this problem and other don't.
posted by meowzilla at 10:01 AM on December 5, 2008

While tax revenue is generally collected on the retail price, that is based on an assumption that the retail price is higher than the wholesale price. Most (if not all) states have language that explains that if the wholesale cost is higher than the retail price, tax must be paid on some of all of the difference. In Texas there is some leeway. You can sell the good for 25% less than the purchase price without incurring any additional tax.

In most retail circumstances, it happens infrequently enough that it's not worth pursuing.

The cell phone business runs on the practice of losing money on the phone every single time, with the understanding they'll make it up on the service side. Because of this, they are attracting a lot of state scrutiny.

It should also be noted that this extra tax is due by the retailer, not the customer. It is merely to explain that AT&T has changed the way they apply their discount.
posted by politikitty at 10:20 AM on December 5, 2008

Best answer: To address your initial question - in California, at least, yes, it is legal to charge sales tax on the (theoretical) full price of the phone. I ran into the same issue with my "free" phone from AT&T (ordered online), and found this article illuminating. Basically, it will continue to be legal until there is a successful case brought to court to challenge that legality, which apparently...hasn't happened yet.

To address the title question - can you get your money back? - the answer is yes. Again, I encountered the same issue ordering a new "free" cell phone from AT&T online while renewing my plan. The total at checkout was $0 (I failed to note any asterisk at the bottom of the page about sales tax, etc.), so I was mystified when a $15 dollar charge from AT&T showed up on my credit card bill. Long story short, I called AT&T and made a giant stink about it, and they refunded my money. So yes, it is possible to get your money back.

In case you need some talking points - I called and claimed complete ignorance about where the credit card charge came from, and asked them to explain it. When they finally figured out that it was the California sales tax from my cell phone purchase, I then pointed out that I had at no point authorized them to make such a charge to my credit card, and that their online checkout system presented me with a price of $0, not a price of $15. After a few back and forth exchanges about this (them claiming that the state assessed the tax, and that they couldn't do anything about it, myself reiterating incredulity at an unauthorized charge), they refunded the money.

Good luck! Channel your indignation into victory!
posted by Wavelet at 11:17 AM on December 5, 2008 [1 favorite]

AT&T appears to have a value that they must put on the phones for sales tax purposes. AT&T isn't necessarily the bad guy -- in fact, I'd bet they'd prefer not to collect sales tax at all. They have to have a huge staff to manage it as well as build the infrastructure for their website and point of sale terminals. But you're right, they should have disclosed the phone value for tax purposes before you had to commit to the sale.

Although I'm not a fan of AT&T, I have found they are willing to bend on these types of things (they can't not charge you tax, but that can credit your account in the amount of the tax or waive your activation fee or generally give you a credit to make you happy... after all they want to be able to suck thousands of dollars out of you over the course of your relationship with them). Call 611 and talk to them about it. If you still within the quit period, they will want to keep you as a customer and might credit your account.
posted by birdherder at 11:21 AM on December 5, 2008

Response by poster: politikitty, thanks for the followup. I had no idea.

I called AT&T and they claimed they couldn't credit my card back, so they would have to give me a service credit. Except then they said they couldn't do that either, because I have a zero balance (as a new account). Then they opened some kind of "ticket" for resolution and claimed they would call me back within 72 hours, so I guess we'll see.

I hate that this is getting under my skin so much but thanks to that excellent article Wavelet linked (from 2005!) I know I am not the only one. I will persist for my own individual case and believe I will be successful... but I sure do wonder what it would take to have the legal dilemma the article describes truly resolved. Apparently CA consumer protections stop at state revenue. I wish I knew some bored lawyers or something.

Thank you MeFi, you always make me feel better!
posted by FuzzyVerde at 12:15 PM on December 5, 2008

I may be missing something here but if you were billed $50 for the phone and $27 tax, surely your total should be $77 and not $87
posted by TheRaven at 4:07 PM on December 5, 2008

Response by poster: You're right! Typo - it was $77 total.
posted by FuzzyVerde at 4:35 PM on December 5, 2008

Apparently CA consumer protections stop at state revenue.

Yeah, no kidding. Why do I suspect that the government's inaction could be due to the fact that it's making some bank off of the status quo?
posted by chinston at 9:59 PM on December 5, 2008

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