Cell Phones and Other Wireless Telecommunication Devices
(Publication 120)
Examples

Example—Bundled transaction
As a seller, you purchase a cell phone for $100. Your customer, who agrees to activate the cell phone with a specific service provider for a one-year period, can purchase the cell phone for $25 (bundled or discounted price). Customers who purchase the same model cell phone without the activation agreement are charged $110 (unbundled sales price). You should calculate tax based on the $110 unbundled sales price of the cell phone. You may collect tax reimbursement from your customer.

Please note: It is particularly important to keep records establishing the cell phone's typical unbundled sales price when the markup is less than 18 percent, as shown in the example above.

Example—Bundled transaction, accessories included with no separate amount charged
As a seller, you purchase a cell phone for $100 and a car adapter for $25. Your customer, who agrees to activate the cell phone with a specific service provider for a one-year period, purchases the cell phone for $40 (bundled or discounted price) and receives a free car adapter. Customers who purchase the same model cell phone without the activation agreement are charged $150 (unbundled sales price). You should calculate the tax for the cell phone, including the free adapter, based on the cell phone's $150 unbundled sales price. You may collect tax reimbursement from your customer.

Example—Bundled transaction, unbundled sales price determined by fair retail selling price, accessories sold for a separate price
As a seller, you purchase a cell phone for $100 and a car adapter for $25. During a special promotion, customers can purchase a car adapter for $15 with the purchase of a cell phone. Your customer, who agrees to activate the cell phone with a specific service provider for a one-year period, can purchase the cell phone for $25 (bundled or discounted price) and the adapter for $15. You do not sell this type of cell phone in unbundled transactions; therefore, the unbundled sales price of the cell phone equals its fair retail selling price. To determine the fair retail selling price, you may add an 18-percent markup to the cost of the cell phone ($100 cost × 118% = $118). You should calculate the tax on the cell phone based on the cell phone's $118 fair retail selling price or unbundled sales price. You should separately calculate tax on the adapter's $15 sales price. In this transaction, you may collect tax reimbursement from your customer.

Example—Cell phone sold for less than 50 percent of your cost
As a seller, you purchase a cell phone for $100. Your customer, who agrees to activate the cell phone with a specific service provider, receives the cell phone for free. Customers who purchase the same model cell phone without the activation agreement are charged $40 (unbundled sales price). Since the $40 unbundled sales price of the cell phone is less than 50 percent of your cost of the cell phone ($100 cost × 50% = $50), you owe tax based on your $100 cost of the cell phone. You may not collect tax from your customer on this type of sale.