Providers of cellular service that either furnish free phones or for a nominal fee may buy the phones tax free because it is part of the service. Retailers who sell phones for a nominal fee and don't provide the service will owe use tax on the cost of the phone. Some retailers sell phones for a nominal fee upon condition the purchaser subscribes to a cellular service from a company the retailer is representing. The retailer of the phone would then get a commission from the service provider for the activation of the service. In this case the retailer is still liable for use tax because he did not sell the phone along with providing the service themselves.
Companies selling debit cards have two options for collecting and remitting tax.
They may include the tax in the price of the card and send the state the appropriate state and local tax on the retail sales price of the service as it is used. Amounts are not subject to Telecommunications Infrastructure Fund assessment. Once a subscriber has accessed the Internet, various other charges can occur and possibly be subject to sales tax as data processing or information services, etc. Local Tax on Telecommunication Services Telecommunication services were exempt from local sales and use tax until October 1, 1987. The local taxing jurisdiction may vote to impose tax on the telecommunication services.