GIVEN THE prices associated with too-good-to-be-true cellphone deals - “get a phone valued at $650 for just $149, if you just sign our two-year contract!’’ - it’s no surprise that people balk when hefty tax charges greet them at the checkout counter. Massachusetts is one of two states with a sales tax rule that specifically pertains to cellphone underpricing: Regardless of the discount offered on the phone, taxes are levied according to the actual retail price, which means the $150 phone in this scenario would cost the buyer about $40 in taxes, in addition to the price of the phone.
Consumers aren’t the only ones complaining; retailers are asking the Legislature to eliminate the rule, which they say puts stores at a competitive disadvantage. In truth, it’s hard to imagine a flood of people crossing state lines to buy iPhones, especially since Rhode Island is the other state that taxes phones this way.
And consumers should be aware, when they sign these cellphone deals, that the tax isn’t the only extra cost. The price of the phone isn’t lowered so much as spread out across the life of the contract. And that sleight-of-hand comes with a price of its own: Those long-term deals wind up restricting consumers’ ability to shop for less-costly options as competition increases and technology improves.
There is a case to be made that cellphones are overtaxed in general - that governments have used the huge rise in cellphone use as a revenue bonanza. According to data compiled last winter by the Tax Foundation, a Washington-based think tank, the average wireless consumer pays combined state, local, and federal taxes and fees of 16.26 percent on phone service contracts. (In Massachusetts, it’s worth noting, residents pay taxes of 12.9 percent; by this measure, the state ranks 36th out of 50.)
On the other hand, these smartphones are hardly bare necessities. And given their increasing cost - and a state budget gap that has forced painful cuts in basic services - the tax proceeds aren’t insignificant. Disclosure is important; a tax bill shouldn’t take anyone by surprise, and retailers shouldn’t face customers’ wrath for simply following state law. A full-retail tax policy, posted clearly in stores and on contracts, is reasonable. It could even be a useful tool, making consumers more aware of what they’re paying for a deal that seems too good to be true.