Retailers Brace for Prepaid Phone Tax
Oregon businesses must start collecting a 75-cent excise tax on prepaid cell phones, airtime and SIM cards like these at the Electronic Super Store in Lincoln City starting Oct. 1, 2015. Owner Bruce Polvi says he is debating dropping prepaid phones because of the added expense and time the tax creates. (Photo by Larry Coonrod)
By Larry Coonrod
LINCOLN CITY—A prepaid phone excise tax passed by the Oregon Legislature in 2014 is catching small retailers by surprise.
Oregon House Bill 4055 requires stores to collect 75 cents for each prepaid mobile phone, airtime card and SIM sold starting Oct. 1, 2015. The excise tax goes toward the state’s 9-1-1 services. Those with landline and contract cellphone plans already pay the tax, which is built into their monthly payments.
“We got this in the mail, and this was the first we had heard about it,” said Bruce Polvi - owner of the Electronic Super Store in Lincoln City, pointing to an April 3 letter from Oregon Revenue Department alerting him to the tax start date.
Excise Tax or Sales Tax
"Welcome to Oregon’s first ever sales tax,” Polvi says.
Consumers already pay excise taxes on many products. For example, firearms and ammunition have a federal excise tax. In Oregon, whether they realize it or not, purchasers of electronic items such as televisions are paying an excise tax to fund the state’s E-CYCLE recycling program.
But those excise taxes are collected upstream from the point of retail sale, usually at the distributor or manufacturer level. Polvi asserts that by forcing merchants to collect the 9-1-1 excise tax at the time of sale, the State Legislature in effect created a sales tax.
“It’s the first time in 25 years I’ve had to do this,” he says.
For Polvi and other retailers, that means reprogramming cash registers to add the tax to all the many different prepaid brands they carry. Businesses must also compile quarterly reports and submit tax payments.
For their efforts, the state rewards them with a 2 percent fee.
“I get about a penny and a half for each one,” says Polvi.
The collection requirement puts a burden on small mom and pop businesses for a product with an already slim profit margin, he says.
Retailers receive a 4 percent commission on most airtime cards. For example, a $10 card pays 40 cents. For businesses like the Electronic Super Store that help customers activate cards and deal with the phone companies, it is more of a loss leader.
"A lot of times a credit card will wipe out our 4 percent, so we're making nothing,” says Polvi. “And if you figure out the labor and time to transaction it, it is actually a loss for us, but we do it as a service to bring customers into the store."
Regressive Tax
Polvi says that because the tax applies to each airtime card, regardless of its value, it makes the excise tax regressive. To illustrate the point, he gives the example of a customer who can afford a $100 prepaid cellular card versus the customer who can only afford to buy minutes $10 at a time. Although they may end up with the same amount of phone minutes for their $100, the $100 customer pays just 75 cents, while the others end up paying $7.50 in excise tax for their 10 $10 cards.
"The saddest thing (about the tax) is that with prepaid cell phones, it’s the people who can afford it the least," says Polvi.
Polvi worries that lawmakers will try to create more excise taxes as they look for new revenue streams.
"My biggest fear is this is a foot in the door to a tax on other categories because the politicians are talking about a satellite tax now; they're talking about an ammunition tax, a tax on beauty products," he said.
Online Loophole
Polvi faults Oregon lawmakers for putting the collection burden on retail businesses.
"If they would have done it right, they would have had the cellphone companies collect it, because mom and pop stores, we can't afford to re-program all our software," he said.
According to Polvi, prepaid cellphone customers can bypass the Oregon excise tax by purchasing phones and recharging airtime online through the companies themselves.
"I've had my customers tell me they are going to start buying online because it gets around this,” he said.
"We're debating if we even want to be in this business come October 1st.”
Contact Reporter Larry Coonrod by emailing editor@LincolnCountyDispatch.com
