Taxes on prepaid plans can be very confusing. With some providers there are no taxes and with others taxes can be as high as 30%. That makes comparing different providers plans difficult. This post is my attempt to make some sense out of the taxes on prepaid.
There are basically two kinds of taxes that telecom providers can collect on prepaid airtime and plan renewals:
Point of Sale taxes: These taxes are supposed to be collected directly from the customer when they make a purchase. Examples include state and local sales taxes, the e911 fees in some states and cities and California's mobile telephony services (MTS) surcharge.
Brick and mortar retailers are legally obligated to collect all applicable point of sales taxes. With online purchases it gets more complicated. Online Business are only required to collect point of sale taxes in states and localities where they have a physical presence such as an office or equipment like cell towers. AT&T, T-Mobile, Verizon and Sprint have stores, offices and towers in every state where they provide service so they are required to report and pay all applicable point of sale taxes pretty much everywhere. Most of the operator prepaid brands like Boost Mobile and GoPhone collect those taxes from customers in all states. MetroPCS and Cricket are exceptions. For a many years, going back well before their acquisition by T-Mobile and AT&T, MetroPCS and Cricket plan prices have included all taxes and fees. It's my understanding that Metro and Cricket actually pay their customer's point of sale taxes. Since 2107, Sprint's Boost Mobile is also including all taxes and government fees in their plan prices.
Most small MVNOs only have a physical presence in one state and are not required to collect point of sale taxes on online purchases by out of state residents. In most states the customer is supposed to report un-taxed online purchases and pay the tax on them, but I believe that very few do.
What follows is my off the top of the head understanding of which prepaid operators do and don't collect which taxes. This is a work in progress. I haven't personally used all these operators so there are almost certainly errors. Please feel free to offer corrections in the comments.
The list is ordered approximately from the least taxes to the most.
MetroPCS, Boost Mobile and Cricket pay their customer's taxes and do not charge any taxes on prepaid airtime. They do charge sales taxes on phones.
Most small MVNOs don't charge telecom taxes and only collect point of sale taxes from customers in the state where the MVNO has its offices. Here are some popular MVNOs that I believe follow this pattern along with the state they are based in: Airvoice (Michigan), Boom Mobile (Oklahoma), Ecomobile (California), FreedomPop (California), H2O (New Jersey), Red Pocket Mobile (California), Selectel (Nebraska), SpeedTalk (California).
Pure TalkUSA (Georgia) used to be tax free, but beginning sometime in 2016 they have been charging all point on sale taxes to customers in all states and also passing along all telecom taxes and recovery fees. Pure TalkUSA customers who activated their service before the change are grandfathered and still pay no taxes.
Lycamobile adds a 5% recovery fee to all top ups and auto refills purchased directly from Lyca. For top ups purchased from dealers and online PIN sellers, the recovery fee is a flat $1 per top up. Lycamobile is based in New Jersey but reportedly does not collect New Jersey sales tax from New Jersey residents.
Ultra Mobile adds a $1 per month surcharge to all plans for regulatory cost recovery. Ultra is based in California and also collects California MTS from California residents.
AT&T GoPhone, T-Mobile Prepaid, Verizon Prepaid, and Virgin Mobile charge all applicable state and local point of sale taxes in all states, but do not pass on telecom taxes or charge cost recovery fees.
TracFone brands (TracFone, Safelink, NET10, StraightTalk, Simple Mobile, Page Plus, Total Wireless, Walmart Family Mobile, Telcel America and GoSmart) charge 1.5% for the Federal USF and 0.2% for cost recovery plus all applicable state and local point of sale taxes in all states.
Tello, Project FI, Chit Chat, TPO, Consumer Cellular, Ting and Pure TalkUSA (only on lines activated since sometime 2016) use the postpaid model and pass along all telecom taxes and recovery fees and charge point on sale taxes to customers in all states.These taxes and fees can easily exceed 30% in some states.
For some operators it's possible to avoid paying some or all taxes by buying airtime from online vendors. See our Master List of Reputable Discounted Prepaid Airtime Vendors for some good options. Keep in mind that in most states your are still liable for uncollected taxes on online purchases and are supposed to report and pay them on your state income tax return.
Updated 9/07/2017: Boost Mobile no longer collecting taxes on airtime.
Image: "Taxes - Illustration" (CC BY 2.0) by DonkeyHotey