Was the sale of a prepaid telephone debit card a taxable sale of the physical card?

Plain-English summary

California treated a telephone debit card as evidence of prepaid telephone value, not as tangible personal property sold to the subscriber. The amount paid for the issued card therefore was not subject to sales or use tax as a property sale.

The physical card still had a taxable consumption point. The person who first issued the card as an indicator of prepaid value was generally the consumer, so sales or use tax applied when that issuer acquired the blank card.

What this means for you

Prepaid telephone-card issuers

The customer payment represented prepaid calling value, while the issuer consumed the physical card used to evidence that value.

Card manufacturers and distributors

The sale of blank physical cards to the first issuer was taxable under the opinion's treatment.

Accountants and tax professionals

Separate the prepaid service value from the physical medium and verify current telecommunications and stored-value rules.

Common questions

Q: Was the issued telephone debit card taxable as tangible property?

A: No. It was an indicator or token of prepaid value.

Q: Was the blank card itself outside the tax system?

A: No. The first issuer was generally the consumer, and tax applied to the sale or use of the card by that issuer.

Q: Did the opinion cite a specific statute or regulation?

A: No. It referred generally to the California Sales and Use Tax Law.

Citations and references

• California Sales and Use Tax Law (no numbered provision cited in the opinion)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0005.700
• Original supporting opinion: 515.0005.700 PDF

Original ruling text

515.0005.700

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 445-5550
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

March 9, 1995

BURTON W. OLIVER
Executive Director

REDACTED TEXT
Re: REDACTED TEXT
Dear REDACTED TEXT:
This is in response to your letter dated March 2, 1995 regarding the application of sales tax to sales of phone debit cards. We do not consider sales of debit cards to be sales of tangible personal property within the meaning of the Sales and Use Tax Law. The debit cards are, in legal terms, indicia of their prepaid value. The owner of the card acquires the card as a token of value. The sale of a phone debit card as an indicia of its prepaid value is not subject to sales or use tax. (Generally, the person who first sells the card as an indicia of its prepaid value would be the consumer of the card, and sales or use tax would apply to the sale of the card to that person.) If you have further questions, feel free to write again. Sincerely,

David H. Levine
Supervising Staff Counsel
DHL:cl
cc: REDACTED TEXT District Administrator