News Column

Prepaid phones subject to further sales tax

May 8, 2014

By Tim Steere, The Anniston Star, Ala.

May 08--When Anniston resident Ashley Johnson had to choose a cell phone service provider, the decision was simple. Johnson, who uses the prepaid wireless service Straight Talk, said she prefers such services because they are straightforward and affordable.

"It's cheaper and I don't have any hidden fees," Johnson said. "If my service gets cut off, it doesn't affect my credit."

Even with the allure of prepaid cellular services, which typically cost around $35 to $45 per month, Alabamians who use those services may see a rise in costs after lawmakers voted earlier this year to levy sales tax on certain elements of prepaid transactions.

The new measure is an amendment of two sections in state law, which previously defined prepaid wireless service as having a tangible telephone calling card or authorization number.

Under the new bill, prepaid wireless service is subject to sales tax regardless of whether or not it uses cards or authorization numbers. Prepaid phone services have been a common form of cellular service for some time, however when the original law was drafted in 1997, services such as texting and wireless Internet access had not been considered.

Johnson, who works at Family Dollar and the Anniston Army Depot, explained that the new sales tax will undoubtedly affect those already struggling to pay for cellular telephone service.

"That's just going to make it harder for people to pay," she said. "I'm not about to pay for something that I hadn't paid for before. I'm already hurting to pay and I work two jobs."

The decision to update the law comes after Alabama Department of Revenue Administrative Law Judge Bill Thompson ruled that the pre-existing code defining what could be considered a tangible prepaid wireless phone service did not address newer means of buying the same product.

The Alabama Department of Revenue in 2011 audited Montgomery store owner Ashraf Hijaz for four years' worth of prepaid phone sales, ultimately resulting in the trial that produced Thompson's decision, which spearheaded the effort to implement the new law.

The Department of Revenue maintains that Hijaz must pay $13,553.59 in uncharged sales tax on prepaid phone minutes sold between April 1, 2008, and March 31, 2011. However, Hijaz's attorney, Dwight Pridgen, a former attorney for the Department of Revenue, claims that the decision to retroactively tax his client's sales is unconstitutional.

"Not once did the state update the law since it originally passed in 1997," Pridgen said. "What they are taxing today did not even exist in 1997."

The bill's proponents claim that the decision to include intangible prepaid services, such as minutes or downloads, was simply an effort to clarify what could be taxed. Rep. Bill Poole, R-Tuscaloosa, the bill's primary sponsor, said that the revisions are a means of taxing everybody equally.

"If a product is being sold, everybody that is purchasing it should be taxed equally," said Poole. "This was not about revenue generation. This was an effort to avoid court confusion over an inadequate statute."

Though Poole feels that the new revisions will clear up any existing confusion over prepaid phone sales tax, there seems to be confusion among his committee members as to what the primary motivation behind the revision was.

Rep. Alan Boothe, R-Troy, said that he could think of few motives behind the bill other than fundraising.

"It was proposing something that wasn't taxed before," he said. "I don't know of any underlying reason it was taxed other than generating revenue."

Regardless of the inconsistencies among Ways and Means Committee members, it is clear to some that the bill may place a heavier burden on low-income and elderly Alabamians, the primary users of prepaid phone services.

"Broadly put, the tax system in this state is upside down," Chris Sanders of the Arise Citizens' Policy Project, a nonprofit group advocating for people in poverty, said. "This will not help anyone in the lower income tiers."

No lawmakers voted against the bill, though 14 voted "pass," and one legislator abstained. Gov. Robert Bentley signed the bill into law April 8.


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Source: Anniston Star (AL)

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