Virginia Communications Sales and Use Tax: Activation Fees for Cell Phones Not Subject to Tax

Virginia Tax Commissioner Craig M. Burns ruled that cellular telephone “activation” fees charged to cellular telephone providers’ customers are not subject to the communications sales and use tax. A taxpayer contested that the activation fees it charged to its customers only occurred when the customer purchased a phone from the taxpayer or from a separate retail store and not when the customer used its own phone to obtain cellular phone service from the taxpayer. Accordingly, the fee was related to the activation of the equipment and not the activation of the account.

Virginia Code § 58.1-648 A states that “there is levied and imposed, in addition to all other taxes and fees of every kind imposed by law, a sales or use tax on the customers of communications services in the amount of 5% of the sales price of each communications service that is sourced to the Commonwealth in accordance with § 58.1-649.” Furthermore, Virginia Code § 58.1-647 defines Communications services, and it was determined that the activation fees were not considered part of this definition and thus not subject to the Virginia communications sales and use tax.

TECHNICAL INFORMATION CONTACTS:

Jim Kranjc
Principal
Ryan
630.515.0477
jim.kranjc@ryan.com

Bradley O’Donnell
Principal
Ryan
973.532.7212
bradley.odonnell@ryan.com