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How To Save On Your Subsidized Mobile Phone Sales Tax In CA, MA & RI

When people buy a new smartphone with a new two-year contract in California, Massachusetts & Rhode Island, they typically forget that the sales tax is calculated based on the MSRP of the phone, NOT the subsidized price that most people think it should be. But they still buy the phone anyway, and then forget about it. Then they repeat the same process every two years.

Today I'll show you how to pay the tax based on the subsidized price. But first, you need to understand that charging sales tax based on the full retail price of all cell phones is actually legal in the above-mentioned states. It is because the seller is required by that state's law to pay tax on the retail price of the phone (not just the stated price) if the phone is purchased with a service plan. So tomorrow when the new iPhone 6 comes out, most people will be paying a whole lot more than they actually think (don't forget that you'll also have to pay somewhere around a $40 activation / contract renewal / upgrade fee when you sign a new two-year contract, regardless of where you buy your phone).

Let's use an example using an 8% tax rate. The iPhone 6 starts at $199 with a two-year contract, or $649 contract-free. Believe it or not, you'll end up paying $199 + (0.08 x $649 = $51.92) = $250.92.

So are you ready to save some $$$? Long story short, just buy your iPhone 6 at Walmart. Here's why:

1) As far as I know, Walmart is the only place in these three states that charges sales tax for all mobile phones based on the subsidized price.

2) The lines in Walmart are at least 10 times shorter than the lines in the Apple store on the phone's release date. My waiting time was around 30 minutes with about five to six people before me on the day of iPhone 5's release a couple years ago.

3) The phones will sell out later than at the Apple store on the phone's release date. I went to Walmart in the evening and they still had the iPhone.

So the big question is, why is Walmart the only place in these states that does this? I actually asked a Walmart employee, and what he said is that the company probably just eats the cost in hopes that consumers will buy other stuff to make up the difference.

Let's go back to the example above and see what the actual difference is in price:

Instead of paying $199 + (0.08 x $649 = $51.92) = $250.92, you'll pay $199 + (0.08 x $199 = $15.92) = $214.92. That's an instant savings of $36 for the same exact phone, just by buying it at Walmart. And for those that never paid attention in their math classes, $36 = 0.08 x ($649 - $199 = $450).

While you're at Walmart though, one last thing to do is to check out their contract-free plan called Family Mobile. I won't go into details (this is for a future blog post), but it's something to look at if you're sick and tired of renewing your contract and want to get out of it. I've been using it for well over a year now and love it so much that I'll never sign a phone contract ever again.

The only catch here is that you need to provide your own phone, so you'll have to pay the full retail price of at least $649 plus tax if you really want that new iPhone 6. But do a quick math and you'll realize that this still ends up much cheaper than renewing contracts.

If you decide to go this route, don't forget also that there's always someone in your area on Craigslist selling a brand new iPhone on its release date for at least around $100 less than the retail price. So instead of paying $649 plus tax, you should be able to find prices of around $550 (which is actually about $150 less since you're also saving on tax) or less, and so on for the more expensive models.

The type of person who does this is the one who is eligible for an upgrade, but already has an old smartphone that's still in excellent condition and is willing to use it for another two years. So the person goes out and buys a new iPhone and immediately sells it on Craigslist because that person is smart enough to know that he / she would be losing money every month (since part of that monthly fee is what is supposed to be subsidizing a new phone). Just make sure you get the receipt though, which the seller should have if the phone has just been bought and is not a stolen one.

And that's it. Good luck! :)

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