Tax Guide for
Prepaid Mobile Telephony
Services (MTS) Surcharge

Prepaid Mobile Telephony Services (MTS) Surcharge

Beginning January 1, 2016, a prepaid mobile telephony services (MTS) surcharge is imposed on purchasers (consumers) of prepaid MTS as a percentage of the sales price of each retail transaction involving prepaid wireless cards/service in this state.

Sellers of prepaid MTS (or prepaid wireless services) will be required to charge and collect the prepaid MTS surcharge from the purchaser at the time of the retail transaction.

The California Department of Tax and Fee Administration (CDTFA) annually calculates the prepaid MTS surcharge rate by adding the:

  • Prepaid 911 surcharge rate as determined by the Office of Emergency Services (OES).
  • California Public Utilities Commission's (CPUC) reimbursement fee and telecommunications universal services surcharges.
  • Local charges, if applicable.

Please see our MTS Rates section for the rates for each city or county and additional information about the components of the prepaid MTS surcharge.

Prepaid MTS surcharge generally applies to amounts charged for:

  • Prepaid wireless airtime cards.
  • Prepaid wireless cards compatible with pay-as-you-go cell phones.
  • Prepaid wireless minutes.
  • Prepaid wireless plans.
  • Prepaid wireless refill or top-off cards.
  • Prepaid wireless 'e-Cards'.
  • Prepaid mobile data or any other services when sold with any of the above.
  • Any product or service (except a cell phone), when sold with prepaid MTS for a single non-itemized price.
  • A cell phone sold with prepaid MTS for a single non-itemized price, unless only a minimal amount of prepaid MTS is transferred. A minimal amount of prepaid MTS is $5 or less, or 10 minutes or less.

Telecommunication or VoIP service suppliers who are required to be registered with the California Public Utilities Commission and sell prepaid MTS directly to consumers are considered direct sellers for purposes of the prepaid MTS surcharge and special rules apply to sellers who are direct sellers. Please see our Telecommunication Service Suppliers (Direct Sellers) section for information and requirements of direct sellers of prepaid MTS.

How to Use This Guide

Please note – we will continually update this Guide as more information becomes available.

See the Seller section for information and requirements for sellers of prepaid MTS, other than direct sellers.
See the Telecommunication Service Suppliers (Direct Seller) section for information and requirements for direct sellers.
See the MTS Rates section for links to the current rates and other rate information.
See the Local Jurisdictions section for information about contracting with the CDTFA.
See the Industry Topics section for information and examples that may be relevant to you.
See the Resources section for links to additional information and references.

If You Need Help

If at any time you need assistance, feel free to contact us.

If you have suggestions for improving this guide, please contact us by email.

Sellers of prepaid wireless products/services are persons that sell prepaid mobile telephony products/services (MTS) to a consumer in a retail transaction.

If you are a seller of prepaid MTS, you are required to:

  • Register with the California Department of Tax and Fee Administration (CDTFA) as a prepaid MTS seller (this is a separate account from your seller's permit account).
  • Know the correct prepaid MTS surcharge rate, plus any applicable local rates.
  • Charge and collect the correct prepaid MTS surcharge rate from your customers who purchase prepaid wireless cards/service on and after January 1, 2016.
  • Separately state the prepaid MTS surcharge, including any applicable local charges, on the invoice, receipt, or other document provided to your customer.
  • Electronically file your prepaid MTS returns and pay the amounts to CDTFA.

Beginning January 1, 2017, certain sellers are no longer required to register and collect the surcharge. See heading below, Certain Small Sellers No Longer Required to Collect Surcharge.

Note: Telecommunication service suppliers (direct sellers) have different reporting requirements than other "sellers" of prepaid MTS. Please see our Telecommunication Service Supplier (Direct Seller) section for additional information.

Registration

If you sell prepaid MTS to consumers, you are required to register with the CDTFA as a prepaid MTS seller, regardless of whether or not you have a seller's permit. See heading below, Certain Small Sellers No Longer Required to Collect Surcharge.

If you sell prepaid MTS and do not currently hold a CDTFA seller's permit because you do not sell any tangible personal property (that is your business is a service only business and you do not sell merchandise), you must still register with the CDTFA as a prepaid MTS seller and receive a prepaid MTS account number.

To register, select Register a business activity with CDTFA and select number 15, Retail Sales of Prepaid Wireless Services and follow the prompts.

The online registration for the prepaid MTS account will ask you to enter your seller's permit number if you have one, and in most instances you can transfer your seller's permit information to your prepaid MTS account, including sub location information.

Certain Small Sellers No Longer Required to Collect Surcharge (beginning 1/1/17)

A "small seller" is a prepaid MTS seller (other than a telecommunication service supplier) with less than $15,000 of sales of prepaid MTS in the previous calendar year. Beginning January 1, 2017, small sellers are no longer required to charge and collect the prepaid MTS surcharge from their customers. For sellers that have more than one location, the sales of prepaid wireless services and products from all locations must be used to determine annual sales.

Sellers (other than telecommunication service suppliers) of prepaid wireless services are responsible for annually determining if they are required to collect the prepaid MTS surcharge from their customers based on their sales of prepaid MTS in the prior calendar year. Currently, the annual sales threshold is $15,000; however, the threshold is subject to annual adjustment. Small sellers must maintain adequate records to show that their annual prepaid wireless services and products sales are less than the current annual threshold. However, because consumers are responsible for the surcharge, as a courtesy to their customers, small sellers may voluntarily continue to charge and collect the prepaid MTS surcharge and report the amounts to the CDTFA.

As of January 1, 2017, if you qualify as a small seller (and are not a telecommunication service supplier) and you do not want to continue to voluntarily collect the surcharge from your customers, you may close your prepaid MTS account. To close-out your prepaid MTS account, you may use Form CDTFA-65, Notice of Closeout, or you may contact us for assistance.

Agency Agreements

In certain instances, a retail store owner or operator may act as an agent for a telecommunication service supplier with respect to prepaid MTS sales. An agent is defined as one who represents another, called the principal, in dealing with third parties. Such representation is called agency.

When a sale of prepaid MTS occurs in person at a retail store location, the store owner or operator is generally considered the seller of the prepaid MTS. If the telecommunication service supplier wishes to establish itself instead of the retail store owner or operator as the seller of prepaid MTS, they are responsible for entering into an agency agreement with the retail store owner/operator. The agency agreement must be signed by both parties and must establish an agency relationship for purposes of selling prepaid MTS. Specifically, the agreement must make it clear that the telecommunication service supplier is the seller of the prepaid MTS, and that the store owner or operator is only acting as an agent of the telecommunication service supplier in selling prepaid MTS and collecting any applicable taxes or fees imposed on such services from customers, including the prepaid MTS surcharge and local charges. Unless there is a valid agency agreement, the retail store owner/operator must register and collect the surcharge amount from their customer on their sales of prepaid MTS and pay those amounts to the CDTFA.

As a reminder, prepaid MTS sellers must collect and separately state the surcharge amount on an invoice, receipt, or other document that is provided to the customer at the time of the sale, even if the prepaid MTS is sold for a flat charge or is sold by an agent on behalf of a telecommunication service supplier. The invoice, receipt, or other document may be provided electronically at the time of the sale.

Charging the correct prepaid MTS surcharge rate

The prepaid MTS surcharge is subject to change each year (see the MTS Rates section). As with changes in the sales tax rate for different cities and counties, you will be responsible for knowing and charging the correct prepaid MTS surcharge rate for your sales of prepaid MTS. We will post the rates to our website by December 1st of each year.

Filing Returns

Sellers of prepaid MTS are required to file their return with the CDTFA electronically. The return for prepaid MTS is separate from other accounts you may have with the CDTFA and you must electronically file your prepaid MTS return separately from any other reports or returns you are required to file with the CDTFA.

Seller Reimbursement

A seller of prepaid MTS (other than a direct seller), may retain 2% of the prepaid MTS surcharge collected as reimbursement for collecting the prepaid MTS surcharge. This amount is claimed on your prepaid MTS return and reduces your overall surcharge liability.

The electronic prepaid MTS return will include instructions for sellers on how to claim the 2% reimbursement.

This section is for the Emergency Telephone Users Surcharge Program. If you are registered for a Prepaid Mobile Telephony Services Surcharge account, visit the Sellers section of this guide.

A direct seller means a prepaid mobile telephony services (MTS) provider or supplier (per section 41007), that sells prepaid MTS (or prepaid wireless service) directly to a consumer for any purpose other than resale in the regular course of business. Direct sellers are required to be registered with the California Public Utilities Commission and with the California Department of Tax and Fee Administration (CDTFA) (under the Emergency Telephone Users Surcharge Law). Examples of prepaid MTS can be found on the Overview section.

A direct seller includes a:

A direct seller is required to:

  • Register with the CDTFA under the Emergency Telephone Users (911) Surcharge law (if not currently registered).
  • Know the correct prepaid MTS surcharge rate and any applicable local rates.
  • Charge and collect the prepaid MTS surcharge from your customers on sales of prepaid MTS.
  • Separately state the prepaid MTS surcharge, including any applicable local charges, on the invoice or other document provided to your customer.
  • Electronically file your form CDTFA-501-TE, Emergency Telephone Users Surcharge Return, and include the portion of the prepaid MTS surcharge that consists of the prepaid 911 surcharge and pay the reported amounts to the CDTFA.
  • Pay the portion of the prepaid MTS surcharge that consists of the California Public Utilities Commission (CPUC) surcharges directly to the CPUC.
  • Pay any applicable local charges directly to the local jurisdiction or local agency imposing the local charge.

Agency Agreements

In certain instances, a retail store owner or operator may act as an agent for a telecommunication service supplier (service supplier) with respect to prepaid MTS sales. An agent is defined as one who represents another, called the principal, in dealing with third parties. Such representation is called agency.

When a sale of prepaid MTS occurs in person at a retail store location, the store owner or operator is generally considered the seller of the prepaid MTS. If the service supplier wishes to establish itself instead of the retail store owner or operator as the seller of prepaid MTS, they are responsible for entering into an agency agreement with the retail store owner/operator. The agency agreement must be signed by both parties and must establish an agency relationship for purposes of selling prepaid MTS. Specifically, the agreement must make it clear that the service supplier is the seller of the prepaid MTS, and that the store owner or operator is only acting as an agent of the service supplier in selling prepaid MTS and collecting any applicable taxes or fees imposed on such services from customers, including the prepaid MTS surcharge and local charges. Unless there is a valid agency agreement, the retail store owner/operator must register and collect the surcharge amount from their customer on their sales of prepaid MTS and pay those amounts to the CDTFA.

As a reminder, prepaid MTS sellers must collect and separately state the surcharge amount on an invoice, receipt, or other document that is provided to the customer at the time of the sale, even if the prepaid MTS is sold for a flat charge or is sold by an agent on behalf of a service supplier. The receipt may be provided electronically at the time of the sale.

Registration

Every telecommunication service supplier, VoIP provider and direct seller in California is required to register with the CDTFA under the Emergency Telephone Users Surcharge (ETUS) law. If you are currently registered under ETUS as a service supplier or VoIP provider, you do not need to register again as a "direct seller."

Review the Emergency Telephone Users Surcharge Registration Information for information on the registration requirements.

You may register for an account using online registration. Online registration is the convenient way to register and is available 24 hours a day.

Breakdown of the prepaid MTS surcharge

The CDTFA will annually calculate the prepaid MTS surcharge by adding the:

  • Prepaid 911 surcharge rate as determined by the Office of Emergency Services (OES).
  • CPUC's reimbursement fee and the telecommunications universal service surcharges.
  • Local charges, if applicable.

In addition to posting the prepaid MTS rate, the CDTFA will also post the individual rates for:

  1. The prepaid 911 surcharge rate for prepaid MTS services.
  2. Each of the CPUC surcharges.
  3. Each of the local charges.

As a direct seller, you will need to know each of the above individual rates to determine the correct portion of the prepaid MTS surcharge collected to pay to the CDTFA, CPUC, and local jurisdictions.

Filing Returns with the CDTFA

Direct sellers are required to file the Emergency Telephone Users Surcharge Return online. If you have reported sales of prepaid MTS to the CDTFA, you will no longer receive the paper CDTFA-501-TE, Emergency Users Surcharge Return. The online return is available for all feepayers filing the Emergency Telephone User Surcharge Return.

How to File Online

To file your return online, on the Log In page, enter your Express Login Code (located at the top of your return) and Account Number or your User ID and Password and then click on the reporting period to access the return.

You can create a User ID and Password for your account on the Log In page by clicking on the link "Create a User ID" at the bottom of the "Express Login" box. If you already have a User ID and would like to add your Emergency Telephone Users Surcharge account, log on with your User ID and Password and click "Link An Account."

Please note, you must be identified with the CDTFA as the owner, partner, corporate officer, LLC Member, etc., associated with the account to create a User ID. To update your account or if you need assistance with online filing, contact our Customer Service Center at 1-800-400-7115 (TTY:711) Monday through Friday, 8:00 a.m. to 5:00 p.m., Pacific Time, excluding state holidays.

Filing Requirements for CPUC and local jurisdictions

As a direct seller, you will pay the portion of the prepaid MTS surcharge related to the CPUC surcharges directly to the CPUC with reports as required by the CPUC.

As a direct seller, you will pay any applicable local charges directly to the local jurisdiction or local agency imposing the local charge. For questions about paying the local charges, please contact the local jurisdiction directly. See Contact Information for Cities and Counties with Local Prepaid Mobile Telephony Services Charges.

Minimum Annual Funding Guarantee – Prepaid MTS 911 Account

The Emergency Telephone Users Surcharge Law requires a minimum annual funding amount of $9,900,000 per fiscal year for the Prepaid MTS 911 Account (R&TC section 41033). The CDTFA will calculate the prepaid 911 surcharge amount collected, net expenses, for each fiscal year (FY) beginning with the 2016-17 FY and post the calculation on its website by December 15th each year.

The guaranteed funding amount is calculated based upon the prepaid 911 surcharge revenue remitted to the CDTFA during each FY from retailers (excluding the retailer's 2% cost reimbursement) and direct sellers of prepaid MTS less the CDTFA's administrative costs to implement and administer the prepaid 911 surcharge.

If the calculation results in an amount less than $9,900,000 in annual funding, the deficiency becomes the responsibility of each direct seller. Should this occur, the direct sellers will receive a notice of determination (bill) from the CDTFA representing their pro rata share of the deficiency based upon their percentage share of the total California intrastate prepaid mobile telephony services revenues, as reported to the Public Utilities Commission pursuant to PUC section 319.

Guaranteed Minimum Annual Funding Calculation

Fiscal Year 2017-18

The prepaid 911 surcharge revenue exceeded the minimum annual funding amount for the 2017-18 FY. Direct sellers will not receive a bill from the CDTFA for amounts associated with guaranteed minimum funding of the Prepaid MTS 911 Account for FY 2017-18.

Prepaid 911 surcharge revenue from retailers (excludes 2% reimbursement)
$1,869,892.23
Prepaid 911 surcharge revenue from direct sellers
$8,663,438.42
Less CDTFA's administrative costs
$371,831.03
Total:
$10,161,499.62

Additional information

Emergency Telephone Users Surcharge

California Public Utilities Commission

Find your prepaid MTS surcharge rate

Please visit our Prepaid Mobile Telephony Services (MTS) Surcharge Rates page to find your rate.

CDTFA is required to calculate the prepaid MTS surcharge rate

The California Department of Tax and Fee Administration (CDTFA) will calculate the prepaid MTS surcharge rate for each year by November 1st, to be effective the following January 1st to December 31st. The prepaid MTS surcharge is a percentage to be applied to the selling price of prepaid wireless service or prepaid MTS sold at retail.

In addition, local charges may apply, depending on the place of sale. Local charges must be collected at the same time and in the same manner as the prepaid MTS surcharge.

You can look up the current prepaid MTS rate by city or county on our Prepaid Mobile Telephony Services (MTS) Surcharge Rates page.

The CDTFA calculates the prepaid MTS surcharge rate by adding the:

  • Prepaid 911 surcharge rate as determined by the Office of Emergency Services (OES).
  • California Public Utilities (CPUC) reimbursement fee and telecommunications universal services surcharges.
  • Local charges, if applicable.

Local charges imposed by a city or county or other local jurisdiction include utility user taxes (UUT) and/or local 911 emergency telephone service access. For more information about local charges, see our Local Jurisdictions section.

What rate do I charge my customers for prepaid MTS?

If you are making sales of prepaid MTS products/services from your business location, you should generally charge and collect the correct prepaid MTS rate for the city and/or county where your business is located.

However, even if you do not make the sale at your business location (for example, when you sell prepaid MTS online), the sale of prepaid MTS occurs in California and the prepaid MTS surcharge applies when:

  1. The item is shipped to, or picked up by, your customer at a California location, or
  2. Your records show that the customer's address is located in California, or
  3. Your customer provides you an address in California during the sales transaction (for example, a billing address).

When you make online sales or over the phone sales and do not know your customer's address, the sale of prepaid MTS occurs in California and the prepaid MTS surcharge applies if your customer has a mobile telephone number that is associated with a location in California.

For purposes of determining the correct prepaid MTS rate to charge, when you do not sell prepaid MTS to the customer at your business location, but one of the above scenarios applies, you should charge the prepaid MTS rate that applies to the above known California location or address of your customer, in the order listed above.

Note: Prior to January 1, 2017, if a customer's mobile phone number was associated with a California location, the surcharge applied to the retail sale of prepaid MTS, regardless of the customer's address. Beginning January 1, 2017, sellers who make sales and know their customer's address should no longer use their customer's mobile phone number to determine if the surcharge applies.

How will I know if the rate changes?

When the prepaid MTS surcharge rate changes, the CDTFA notifies registered prepaid MTS sellers by providing information in a Special Notice. You may also sign up to receive email notifications from us and to get the latest news and updates.

Additional information about the prepaid 911 surcharge rate and CPUC charges

For more information about the prepaid 911 surcharge rate, see Senate Bill 1211, Chapter 926, amendments to section 41030 of the Revenue and Taxation Code.

For more information about the CPUC charges, see Assembly Bill No. 1717, Chapter 885, Sections 1 through 3 for amendments to the Public Utilities Code.

Local Jurisdictions Must Contract with CDTFA

Under the Local Prepaid Mobile Telephony Services Collection Act (42100-42111), cities and/or counties (local jurisdictions) that have an ordinance that applies its local charges to prepaid mobile telephony services (MTS) must contract with the California Department of Tax and Fee Administration (CDTFA) in order to receive the local revenue charges. These local revenue charges include utility user taxes (UUT), local 911 charges, and any other local charges imposed on consumers of prepaid mobile services.

Beginning January 1, 2016, if the local jurisdiction does not contract with the CDTFA, local charges imposed upon prepaid MTS will not be collected by sellers and the local jurisdictions will not receive local charge revenue from prepaid MTS.

How to Contract with CDTFA

To contract with the CDTFA for collection of the local charge revenue imposed on consumers of prepaid MTS, please contact our Local Revenue Branch (LRB). You may reach LRB at 916-324-3000, or by email.

LRB will send you the contract package which includes:

  • Local Charge Agreement – for state collection and administration of local charges
  • Certification – of ordinance that applies to local charges
  • Resolution – to authorize representative(s) for the local jurisdiction

LRB will also provide you instructions for the package and a checklist of the required documents that must be submitted to CDTFA.

New Charges or Increases in Rate

If a local jurisdiction adopts a new local charge after September 1, 2015, the local jurisdiction must contract with the CDTFA on or before December 1st for collection of the local charge revenue imposed on prepaid MTS to begin April 1st of the next calendar year.

If a local jurisdiction that has contracted with CDTFA increases an existing local charge after September 1, 2015, the local jurisdiction must provide written notice of the increase to the CDTFA on or before December 1st for collection of the local charge revenue at the new rate to begin April 1st of the next calendar year.

Decrease in Rate or Expiring Charges

If a local charge is about to expire or decrease in rate, the local jurisdiction should timely notify the CDTFA in writing at least 110 days prior to the date the rate is going to decrease or expire.

Rates Posted on CDTFA Website

To find the current rate for each local jurisdiction, please visit our Prepaid Mobile Telephony Services (MTS) Surcharge Rates page.

The prepaid MTS surcharge rate is calculated by adding:

  • Prepaid 911 surcharge rate as determined by the Office of Emergency Services (OES).
  • California Public Utilities Commission (CPUC) reimbursement fee and telecommunications universal service surcharges.
  • Local charges, if applicable.

Local Rates Charged by Sellers

Sellers of prepaid MTS are responsible to charge and collect the proper prepaid MTS rate, including any applicable local charges. For more information, go to the MTS Rates section).

Inaccurate Rate Posted on CDTFA's website

If the local charge rates posted on the CDTFA website are inaccurate, including if a rate has decreased, expired, or if the local jurisdiction failed to provide advance written notice, the local jurisdiction must notify the CDTFA in writing of the inaccuracy of the posted rate. The recalculated (corrected) rate for the local jurisdiction will become operative on the first day of the calendar quarter commencing more than 60 days from the date the CDTFA receives the written notification.

Local Utility User Tax (UUT) Rates

The utility user tax (UUT) rate specified in the local jurisdiction's ordinance that applies to prepaid MTS is suspended and replaced by the applicable tiered rates under the Local Prepaid Mobile Telephony Services Collection Act as follows:

UUT Rate in Ordinance New UUT Rate for Prepaid MTS
If less than 1.5 percent 0 percent
If 1.5 percent, but less than 2.5 percent 1.5 percent
If 2.5 percent, but less than 3.5 percent 2.5 percent
If 3.5 percent, but less than 4.5 percent 3.5 percent
If 4.5 percent, but less than 5.5 percent 4.5 percent
If 5.5 percent, but less than 6.5 percent 5.5 percent
If 6.5 percent, but less than 7.5 percent 6.5 percent
If 7.5 percent, but less than 9.0 percent 7.5 percent
If 9.0 percent or more 9.0 percent

Local 911 Charges

The rates for local 911 charges for access to communication services or access to local 911 emergency telephone systems specified in the local jurisdiction's ordinance that applies to prepaid MTS is suspended and replaced by the applicable rates under the Local Prepaid Mobile Telephony Services Collection Act as follows:

  • If the rate under the ordinance is less than one dollar ($1) per month per access line, including any adjustments for inflation, the new rate is 0 percent.
  • If the rate under the ordinance is a specified percentage rate or one dollar ($1) or more per month per access line, including any adjustments for inflation, the new rate will be either the specified percentage or the rate obtained by dividing the dollar amount by 50, rounded to the nearest one-tenth of 1 percent. For example, if the rate in the ordinance per month per access line is:
    One dollar ($1); the rate is calculated as 2% ($1 ÷ 50 = .02; rounded to the nearest one-tenth of 1 percent = .02 or 2%).
    One dollar and fifty cents ($1.50), the rate is calculated as 3% ($1.50 ÷ 50 = .03; rounded to the nearest one-tenth of 1 percent = .03 or 3%).

CDTFA Administration and Collection Costs

Each local jurisdiction that contracts with the CDTFA for collection of the local charges imposed on the consumption of prepaid MTS will be responsible for its pro rata share of the CDTFA's collection and administrative costs (subdivision (e) of section 42020). Local charges collected by the CDTFA will be transmitted quarterly to the local jurisdictions, less payments for refunds and the CDTFA's costs.

Local Jurisdiction's Responsibilities

It is the local jurisdictions' responsibility to contract with CDTFA for collection of the local charges imposed on the consumption of prepaid MTS by submitting the required documents to the CDTFA (see above, How to Contract with CDTFA). In addition, local jurisdictions are responsible for:

  • Defending claims regarding the validity of their ordinance.
  • Interpreting any provision of the ordinance (expect those specifically superseded by statute).
  • Responding to consumer claims for refunds.
  • Refunding taxes when ordered to under the local ordinance.
  • Reallocating local charges that were collected in error for up to two past quarters from the date of knowledge.
  • Enforcing and auditing the collection and remittance of local charges on prepaid MTS by direct sellers (see Telecommunication Service Supplier Direct Seller section).
  • Their pro rata share of the CDTFA's collection and administrative costs; netted from the CDTFA's quarterly transmittals to the local jurisdictions.

The prepaid MTS surcharge generally applies to all sales of wireless services and plans that customers purchase upfront prior to using the service, such as prepaid wireless cards or minutes, and prepaid wireless refill or top-up cards, regardless of where the minutes are actually used.

In addition, products such as prepaid mobile data or text that include prepaid airtime/minutes when sold for a single price are subject to the prepaid MTS surcharge.

The sale of prepaid wireless products and services sold in a retail transaction occurring in California are subject to the surcharge regardless of where the minutes are actually used.

If you sell a cell phone with prepaid wireless minutes/airtime for a single price, the entire charge may be subject to the prepaid MTS surcharge.

However, the entire charge for the cell phone and prepaid minutes will not be subject to the surcharge if:

  • The sales price of the cell phone is separately stated on the invoice or other document given to the customer, or
  • The amount of prepaid wireless minutes/airtime is a minimal amount, that is, $5 or less, or 10 minutes or less.

If the price of the cell phone is separately stated, only the charge for the prepaid wireless airtime/minutes (excluding the separately stated cell phone price) is subject to the surcharge.

The examples below show how to compute the surcharge and/or sales tax on sales of cell phones and prepaid minutes of airtime. These examples assume a prepaid MTS rate of 18.26% (0.1826) and a sales tax rate of 9% (0.09).

Example #1 – Separately Stated Selling Price of a Cell Phone with Prepaid Airtime

The charges for the cell phone and prepaid airtime are separately stated on the invoice or other document provided to your customer. The surcharge applies to the separately stated charge for the prepaid airtime. The sales tax applies to the separately stated charge for the cell phone.

Prepaid phone
$99.99
200 minutes of airtime
$39.99
Prepaid MTS surcharge due ($39.99 × 18.260%)
$7.30
Sales tax due ($99.99 × 9%)
$9.00
Total due on sale (Price of Phone + Airtime + Surcharge + Sales Tax)
$156.28

The invoice must show both the amount of the prepaid MTS surcharge ($7.30) and the amount of sales tax ($9.00).

Example #2 – "Sales Tax" and Surcharge Included in Selling Price

The cell phone and prepaid airtime charges are separately stated on the invoice, but the seller advertises that "sales tax" is included in the $69.99 selling price of the phone, and the prepaid MTS surcharge is included in the $39.99 selling price of the minutes.

Prepaid phone (Sales Tax Included – see computation below)
$69.99
1000 minutes of airtime (Surcharge Included)
$39.99
Prepaid MTS surcharge included in selling price (see computation below)
$6.17
Total due on sale* (Price of Phone + Price of Airtime)
$109.98

Surcharge Included Computation:
To compute the selling price of the airtime without the prepaid MTS surcharge, divide the $39.99 airtime selling price by 1.1826 (1.00 plus the surcharge rate of .1826):

$39.99 ÷ 1.1826 = $33.82 (this is the selling price of the airtime without the surcharge)

Next, subtract the airtime selling price without the surcharge from the total selling price to get the surcharge amount:

$39.99 − $33.82 = $6.17

The surcharge amount must be separately stated on your invoice, receipt, or other document that is provided to your customer.

"Sales Tax" Included Computation:
To compute the amount of sales tax reimbursement included in the selling price of the phone, divide the $69.99 selling price by 1.09 (1.00 plus the sales tax rate of .09):

$69.99 ÷ 1.09 = $64.21 (this is the selling price of the phone without the sales tax)

Next, subtract the selling price of the phone without the sales tax from the total selling price to get the sales tax amount:

$69.99 − $64.21 = $5.78

The sales tax due on this sale is $5.78.

*If you do not separately state an amount for "sales tax," you must post on the premises, or include on the price tag, in an advertisement, or other printed material, a notice to the effect: "All prices of taxable items include sales tax reimbursement."

Example #3 – Cell Phone and Prepaid Airtime Bundled

The cell phone and 200 minutes of prepaid airtime are sold for a single price of $139.99 (bundled transaction), and the customer is required to purchase the minutes with the cell phone as part of a package deal. The amount of airtime in the bundled transaction is not considered minimal because it is more than 10 minutes. The prepaid MTS surcharge applies to the entire bundled charge for the prepaid phone and airtime.

Prepaid phone + 200 minutes of airtime
$139.99
Prepaid MTS surcharge ($139.99 × 18.260%)
$25.56
Sales tax ($139.99 × 9%)
$12.60
Total due on sale (Single Price of Phone and Airtime + Surcharge + Sales Tax)
$178.15

The sales tax is computed on the bundled charge of $139.99, before the surcharge amount is added.

The surcharge amount must be separately stated on your invoice, receipt, or document that is provided to your customer.

Example #4 – Cell Phone Bundled with Minimal Prepaid Airtime

The cell phone and 10 minutes (or less) of prepaid airtime are sold for a single price of $59.99, and the customer is required to purchase the minutes with the cell phone as part of a package deal (bundled transaction). The amount of airtime in the bundled transaction is considered minimal because it is 10 minutes or less, or $5 or less. The prepaid MTS surcharge does not apply to the charge because there is only a minimal amount of prepaid wireless minutes/airtime included in the bundled transaction. The sales tax applies to the entire charge.

Prepaid phone + 10 minutes of airtime (or $5 in airtime)
$59.99
Prepaid MTS surcharge (not applicable)
$0.00
Sales tax ($59.99 × 9%)
$5.40
Total due on sale (Price of Phone + Airtime + Sales Tax)
$65.39

Example #5 – Cell Phone and Prepaid Airtime Bundled; Sales Tax and Surcharge Included

(This example was corrected and posted on January 28, 2016)

The cell phone and prepaid airtime are sold for a single price of $100.00 and the customer is required to purchase the minutes with the cell phone as part of a package deal (bundled transaction); both the sales tax and prepaid MTS surcharge are included in the $100.00 selling price.

Prepaid phone and 100 minutes of airtime (Sales Tax and Surcharge Included – see computation below)
$100.00
Prepaid MTS surcharge included in selling price (see computation below)
$14.35
Sales tax included in selling price (see computation below)
$7.07
Total due on sale* (Single Price of Phone and Airtime)
$100.00

Computation of Selling Price without Surcharge or Sales Tax:
To compute the selling price without the surcharge or sales tax, divide the bundled selling price of $100 by 1.2726 (1.00 plus the surcharge rate of .1826 and sales tax rate of .09):

$100.00 ÷ 1.2726 = $78.58 (this is the base selling price without the surcharge or tax amounts)

Next, compute the surcharge and sales tax amounts by separately multiplying the rates by the base selling price:

$78.58 × .1826 = $14.35 (surcharge amount)

The surcharge amount must be separately stated on your invoice, receipt, or document that is provided to your customer.

$78.58 × .09 = $7.07 (sales tax amount)

The sales tax due on this bundled sale is $7.07.

*If you do not separately state an amount for "sales tax," you must post on your premises, or include on the price tag, in an advertisement, or other printed material, a notice to the effect: "All prices of taxable items include sales tax reimbursement."

Example #6 –Cell Phone and Prepaid Airtime Bundled; Phone Price Stated

The cell phone and prepaid airtime minutes are sold for a single price of $119.99 (bundled transaction); however, you provide your customer with a separate document or statement (including online advertisement) that states the actual selling price of the cell phone is $99.99.

Therefore, the 60 minutes of prepaid airtime is sold for $20.00 ($119.99 − $99.99). Since you disclosed the selling price of the cell phone to your customer, the surcharge applies only to the $20.00 selling price of the prepaid minutes. The sales tax applies to the $99.99 selling price of the cell phone.

Prepaid Smartphone and 60 minutes of airtime
$119.99
Prepaid MTS surcharge ($20.00 × 18.260%)
$3.65
Sales tax ($99.99 × 9%)
$9.00
Total due on sale (Prepaid Smartphone and 60 minutes of airtime + Prepaid MTS Surcharge + Sales Tax)
$132.64

The surcharge amount must be stated on your invoice, receipt, or other document that is provided to your customer.

Sales of prepaid data service plans (minutes) that can be used for data, text, or as cell phone airtime minutes are subject to the prepaid MTS surcharge.

In general, purchasers of prepaid data plans, including prepaid plans marketed as "data-only plans" provide their wireless (cell phone) number when purchasing the plans. If these types of prepaid data service plans can be used to make or receive cell phone calls, as well as for data or text, the sales are subject to the prepaid MTS surcharge.

Prepaid wireless calling cards that are loaded onto a cell phone and give the purchaser the ability to use the cell phone are subject to the prepaid MTS surcharge. However, prepaid telephone calling cards that allow the purchaser to use minutes from either a landline or a cell phone by calling an 800 number, or by PIN-less calling are not subject to the surcharge.

Example #1

A customer purchases a prepaid calling card to make international phone calls in order to avoid paying a higher rate when using a cell phone. The sale of this calling card is not subject to the prepaid MTS surcharge as the customer is not buying minutes to be able to use the phone. The customer already has a service plan which allows calls to be made from the cell phone without the calling card. The calling card provides a less expensive option for making calls while travelling internationally.

Example #2

A customer purchases a prepaid wireless calling card to load minutes onto a pay-as-you-go phone. The sale of this prepaid wireless calling card is subject to the prepaid MTS surcharge as the customer is buying minutes to be able to use the phone. Without the purchase of prepaid minutes, the customer would not be able to use the pay-as-you-go phone.

If you sell SIM cards loaded with prepaid wireless airtime/minutes for a single price, the entire charge is subject to the prepaid MTS surcharge.

The surcharge applies to the total price charged for both the SIM card and the airtime/minutes, including if the seller offers the SIM card for free with the purchase of airtime/minutes, or free minutes with the purchase of the SIM card.

If the seller makes a separate charge for the SIM card and a separate charge for prepaid wireless airtime/minutes, the surcharge applies only to the sale of the prepaid MTS (prepaid wireless airtime/minutes).

The examples below show how to compute the surcharge and/or sales tax on SIM cards sold with prepaid airtime. These examples assume a prepaid MTS rate of 13.76% (0.1376) and a sales tax rate of 9% (0.09).

Example #1 – SIM Card and Prepaid Airtime Bundled

You sell a SIM card loaded with prepaid airtime for a single price. The total selling price of the SIM card with prepaid airtime is subject to the surcharge, even if the amount of airtime included is minimal (that is 10 minutes or less or $5 or less).

SIM card + One Month Unlimited Talk & Text
$49.99
Prepaid MTS surcharge ($49.99 × 13.760%)
$6.88
Sales tax* (Not Applicable)
$0.00
Total due on sale (SIM Card + One Month Unlimited Talk & Text + Surcharge)
$56.87

The surcharge amount must be stated on your invoice, receipt, or other document that is provided to your customer.

*Unless there is a separately stated charge for the SIM card, sales tax generally does not apply to the prepaid SIM card sold with minutes or airtime since the SIM card (tangible personal property) is typically considered incidental to the sale of the minutes or airtime.

Example #2 – Sim Card Sold Without Prepaid Airtime or Minutes

You sell a SIM card (starter kit) without any prepaid minutes or airtime. The sale is not subject to the prepaid MTS surcharge. The sale is subject to sales tax because it is a sale of tangible personal property.

SIM Card Starter Kit
$4.99
Prepaid MTS surcharge (not applicable)
$0.00
Sales tax (4.99 × 9%)
$0.45
Total due on sale
$5.44

The prepaid MTS surcharge applies to all sales of prepaid wireless phone cards, products and/or services sold in a retail transaction in California regardless of where the services or products are actually used.

Example

You sell SIM cards that are loaded with prepaid wireless minutes for international use. The sales are made at your California store. Although your customer intends to use the SIM card and minutes outside of the U.S., the prepaid MTS surcharge applies because the sale was made at your California store. The sales price subject to the surcharge depends on whether the prepaid wireless minutes are separately stated or sold with the SIM card for a single price (see SIM Cards Sold with Prepaid Wireless Airtime/Minutes topic).

In general, sales of prepaid MTS from your California business location are subject to the prepaid MTS surcharge. However, even if you do not make the sale at your business location (for example, you make sales through your website), your sales of prepaid MTS occur in California (referred to as a "known address transaction") and the surcharge applies under certain circumstances that are regarded as occurring in this state.

A "known address transaction" occurs in this state and the surcharge applies if any one of the scenarios below applies:

  1. The item is shipped to, or picked up by, your customer at a California location.
  2. Your records show that the customer's address is in California.
  3. You customer provides you a California address during the sales transaction (for example, a billing address).

When you make online sales and do not know your customer's address, the sale of prepaid MTS occurs in California and the prepaid MTS surcharge applies if your customer has a mobile telephone number that is associated with a location in California.

To determine the correct MTS rate for your online sales, you should charge the prepaid MTS rate based on the above known California location or address of your customer in the order listed above. You can look up the surcharge rate by city (see the Prepaid MTS Surcharge Rates page).

Note: Prior to January 1, 2017, if a customer's mobile phone number was associated with a California location, the surcharge applied to the retail sale of prepaid MTS, regardless of whether the customer's shipping and billing address was known. Beginning January 1, 2017, sellers (including telecommunication service suppliers) should only use the customer's mobile phone number to determine if the surcharge applies if the seller doesn't know the customer's address and the sale does not occur at the seller’s business location.

Example #1

You sell a prepaid wireless refill card online that is loaded with 400 prepaid wireless minutes, which your customer downloads directly to his cell phone. Your customer provides you his Arizona address and a mobile number that is associated with a California location. Because you know your customer's address, you should determine if the surcharge applies based on the address, not on your customer's mobile number. Therefore, your online sale to the Arizona customer is not subject to the prepaid MTS surcharge, even though his mobile phone number is associated with a California location. (Please note that prior to January 1, 2017 the surcharge would have been applied even though the known address was in Arizona because the phone number is associated with a California location.)

Example #2

You sell a prepaid wireless refill card online that is loaded with 200 prepaid wireless minutes, which your customer downloads directly to her cell phone. Your customer pays with her PayPal account. Your customer also provided you a cell phone number that is associated with a location in California; however, your customer did not provide her address and you do not have a record of her address. Because you do not know your customer's address, you must rely on her mobile phone number to determine if the surcharge applies. Therefore, your online sale is subject to the prepaid MTS surcharge because your customer's mobile phone number is associated with a California location.

Example #3

You sell a prepaid wireless refill card online that is loaded with 200 prepaid wireless minutes, which your customer downloads directly to her cell phone. Your customer's billing address is in Sacramento, California. Your customer also provided you her mobile phone number that is associated with a location outside of California. Since you know your customer's address, you should use her address to determine if the surcharge applies. Because your records show you customer is in California, the surcharge applies, even though your customer has a mobile phone number not associated with a California location. Further, you should charge your customer the prepaid MTS surcharge rate listed for the city of Sacramento on our website (see Prepaid MTS Surcharge Rates).

In general, you should charge and collect the correct prepaid MTS surcharge rate for the city and/or county where your business is located. When the sale is not made at your business location, then the prepaid consumer's address (known address transaction) must be used to identify the proper prepaid MTS surcharge rate (see Known Address Transactions topic).

You can look up the surcharge rate by city (see the Prepaid MTS Surcharge Rates).

Example#1

A customer who lives in San Francisco purchases prepaid wireless airtime from you at your store location in San Jose. You charge and collect the proper surcharge rate based upon your business location (city of San Jose), because that's where the sale occurred.

Example #2

One week later, the same customer in Example #1 who lives in San Francisco, purchases a prepaid wireless e-card from your website and downloads the minutes to their phone. This customer gives you their San Francisco billing address during the internet sales transaction. Because the sale does not occur at your San Jose store, the customer's known California address determines where the sale occurs and the proper surcharge rate. For this internet sale, you should charge and collect the surcharge rate for the city of San Francisco.

Out-of-state sellers who sell prepaid MTS to customers with an address known to be in California are required to register as a prepaid MTS seller and collect the surcharge and pay the surcharge amount to the California Department of Tax and Fee Administration (CDTFA).

Example

You are a seller located outside of California that makes online sales of prepaid wireless services and products. A customer purchases prepaid wireless airtime from your website. The customer's billing information shows they live in Sacramento, CA. This sale is subject to the prepaid MTS surcharge since your records (i.e., the customer's billing address) show that the customer is located in CA. To register online for a prepaid MTS account, beginning December 21, 2015, go to our Registration page, select Register a business activity with CDTFA and follow the prompts for Prepaid Mobile Telephony Registration.

The prepaid MTS surcharge rate is applied to the selling price of the products or services subject to the surcharge. The surcharge amount charged should be separately stated on the invoice. As with sales and use tax, the prepaid MTS surcharge rate varies depending on the location of the sale.

Example

You sell prepaid wireless airtime for $50. This example assumes a 13.76% prepaid MTS surcharge rate.

Selling price of prepaid wireless airtime card
$50
Prepaid MTS surcharge amount due ($50 × 13.76%)
$6.88
Total due on sale
$56.88

Your invoice (or other document that you provide to your customer) should separately show the selling price of $50 and the surcharge amount of $6.88. If the sale is also subject to sales or use tax, the sales/use tax does not apply to the surcharge amounts.

In general, the kiosk owner that sells prepaid top-up airtime/minutes is required to register as a prepaid MTS seller and is responsible for collecting and paying the surcharge to the CDTFA.

Independently owned kiosks operating inside a retail store are considered the seller of the prepaid MTS sold at the kiosk. The retail store is generally not the owner or operator of the kiosk and as such is not responsible for the collection of the surcharge.

If you purchased prepaid MTS and overpaid the local charge portion of the surcharge, you may file a claim for refund. Where you submit your claim depends on the reason for the refund and where the purchase was made.

If you purchased prepaid MTS from a telecommunication service supplier (direct seller), then you will need to contact your local jurisdiction to request a refund of the local charges

If you purchased prepaid MTS from a retail seller and were charged the incorrect rate, you may file a Claim For Refund or Credit with the CDTFA. However, if you are filing a refund claim for local charges because you 1) dispute the location of the retail transaction, 2) believe the transaction is exempt from the local charges, or 3) dispute the validity of the local tax ordinance, you must contact the local jurisdiction to request a refund of the local charges.

For local jurisdiction information, see our Contact Information for Cities and Counties with Local Prepaid Mobile Telephony Services Charges page.

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Laws and Regulations

Notices

Publications

Additional Sources

Other Helpful Resources

  • Contact Us – A listing of CDTFA contacts for your questions and concerns.
  • Sign Up for CDTFA Updates – Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides – These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates – A listing of current and historical tax rates.
  • Special Notices – CDTFA special notices are issued whenever there is a change in law, tax rates, or CDTFA procedures.
  • CDTFA Online Services – Learn about the online services CDTFA offers.
  • Verify a Permit or License – You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, Ewaste account, or Underground Storage Tank Maintenance Fee Account.
  • CDTFA Field Offices – A comprehensive listing of all CDTFA field offices and contact information.
  • Get It In Writing! – The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Taxpayers' Rights Advocate (TRA) – The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels, when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.