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Mass. Consumers Could Soon Pay More In Taxes On Cell Phones

BOSTON (CBS) -- Who pays full price for a cell phone? They almost always come with a deep discount as long as you get the service plan too.

But there's a change coming in the way your next cell phone could be taxed this summer. It means many of us will end up paying more, despite those enticing ads we've seen in the Sunday circulars which promise hundreds in savings.

Starting on July 1, the state is telling stores they can no longer collect sales tax based on those low, discounted prices. Shoppers in Brookline's Coolidge Corner think this change is unfair. They told us shoppers should be taxed on what they actually pay. One woman compared it to buying a TV on sale, saying you pay tax on the lower price.

WBZ-TV obtained a directive issued by the Department of Revenue which outlines these changes for retailers.

WBZ-TV's Joe Shortsleeve reports.

Commissioner Navjeet Bal said, "Whether you buy your cell phone directly from a wireless carrier or a retail store, which frankly is where most people buy their cell phones now, you will be charged a sales tax on the higher of the wholesale price, or the amount that you actually pay."

So imagine one of those circulars with an advertisement for a phone retailing at $599, but on sale for just $99 with a service contract. Now you wouldn't pay sales tax on $599, but you'd wouldn't pay sales tax on $99 either. You would have to find out a third price.

That third price, the wholesale price, would be used as the basis for the tax if you are buying the cell phone with a service plan. Bal said a consumer would have to find out that third price from the retailer.

Even though this sounds confusing, Bal makes the case this will simplify the process for consumers. She also said that the vendors will now have the option of absorbing the higher tax.

When asked if there was a real probability that retailers would absorb the tax and make this good news for cell phone shoppers, Bal replied, "It may, or it may not."

Bal contends large retailers should have been collecting the tax on the higher retail price all along, and that using the wholesale price is actually good news for consumers.

We went to a number of popular stores which sell electronics with our undercover camera. At store after store, we were told that our sales tax would be calculated on the low discount price, not the retail price. That means that come July 1, we would actually be paying more.

One shopper said, "I don't think that's right. I don't think they should be able to do that."

Edgar Dworsky, of, also thinks this new directive is unfair.

"I think its double dipping in a sense, "said Dworsky. "They are saying you are buying a plan with this so we are going to charge you full tax on what the whole cost of the phone is, but the are also collecting tax on the service plan each month the plan is rendered."

Commissioner Bal said the regulations haven't been changed since the early 1990s, and that the wireless industry has changed dramatically. But for consumers, the changes could be more expensive, and harder to understand.

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