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California says the iPhone costs $599 (clipperhouse.com)
48 points by mwsherman on Oct 22, 2009 | hide | past | web | favorite | 34 comments

This sounds like double taxation. The "subsidy" is something you pay for every month on your bill, which you also pay taxes on. So they get you for their imaginary cost of the phone, then they get the actual cost (minus what you paid upfront) as part of the taxes on your monthly bill.

I am all for paying my fair share of taxes, but when two groups in the same organization can't communicate and it costs me money, that upsets me.

They do communicate, it's only CA law that sales tax on phones are for the unsubsidized price; it's not like either party is unaware of this.

You also don't ostensibly pay a 'subsidy', they're 'giving' you the $400 in exchange for a 2 year service contract, not explicitly baking the subsidy into the price (e.g. after your contract is up, you do not start paying less just because you've 'paid off' the phone). That's also not the imaginary cost of the phone; as someone who's lost an iPhone, there's nothing imaginary about that $400 :)

What about the taxes I'll pay for the 2 years of service? IIRC, there are quite a lot of taxes built into my phone bill.

Why don't Apple/AT&T legal representatives argue this in court? It sounds like it's in their interest not to be doubly taxed. From the business class I took, sales tax is effectively split between the seller and the buyer, even if it's the buyer who formally pays it.

Because double-taxation isn't illegal (AFAIK -- I certainly haven't passed the CA state bar). The state can tax whatever it wants, with a few exceptions like interstate trade specified in the federal constitution. If the people don't like the taxes their government decides on, the proper solution is to pick a government with more popular policy choices.

To be fair: There are taxes and fees on phone service, but sales tax on subsidized equipment isn't one of them. You could equally argue that rolling a hardware purchase into a monthy "service" bill is an effort to avoid taxation on what would otherwise look like a purchase on credit.

This is one of the reason why policy wonks prefer a VAT instead of a pure sales tax; the accounting is easier and more objective.

I've been wondering about this, and I guess this is a good a thread to ask as any:

Why does the iPhone cost $599? The iPod touch, with similar components, costs $199. Are the phone chips that expensive, or are there licensing fees, additional regulatory requirements, etc?

Simple: Because Apple can get people to pay $599 for the iPhone.

More specifically, they can get people to sign up for $XX/month plans, which means Apple can get AT&T to pay them $399 for the hardware. There's no such deal to be made for the touch, thus it's $199.

As for the components, I'd be surprised if an iPhone off of the line in China would cost much more than $50.

The components in a 16GB 3GS are estimated to cost $178.96: http://blogs.barrons.com/techtraderdaily/2009/06/24/apple-ip...

Wasn't the old rule of thumb that you price manufactured goods at 3x the production cost?

I've seen 5x used in pro audio from BOM to retail.

Simple: Because Apple can get people to pay $599 for the iPhone.

apple can get people to pay over $1000 for an iphone. those phones that are sold unlocked in other countries that aren't subsidized go for well over $599 on ebay:


Beware California's hidden cell phone tax


I'm guessing they do this in California on ALL phones that are subsidized right? This isn't just an iPhone thing. Any Nokia or Motorola should have the same thing happening to it. Unless it is an 'Apple tax' in which case that's just wrong.

While the State spends plenty of money, they also need to take it in. Last I checked the State was nearly bankrupt and needed to do whatever it could to raise money. Seems they are doing it.

Well, in Italy the iphone costs 600 € (but you can put any kind of SIM inside, so it's not carrier blocked).

>An effective 25% tax on the iPhone is a great way to ensure that iPhones are only purchased by people of means. So egalitarian!

Oh come off it; taxing baby formula at a higher rate than other goods might suck for people who aren't of means, but taxing luxury goods like iphones?

Sales taxes on anything -- luxury or not -- are regressive taxes on the poor, because the poor spend a higher portion of their income on consumption than the non-poor do.

For example, let's say we have a uniform sales tax of 5%. A poor person with an income of $20k will spend almost all of that $20k during the year, paying 5% of her salary in taxes. (She might even borrow money and spend more than her income, meaning relative to her income the rate increases to more than 5%.)

Say for the sake of argument unpoor me makes $40k and I spend $30k, saving the remaining $10k. I pay $1.5k in taxes, more in absolute terms but less as a percentage of income (3.75%), which is the definition of a regressive tax.

There are other ways sales taxes tend to favor the unpoor. For example, a poor person will typically buy almost all goods locally and thus be subject to tax on all of them. This is not necessarily true of non-poor people -- more than half of my monthly purchases are tax-exempt because of where I make the purchase. (For example, when I buy software from American companies, neither Japan nor my locality nor most US states tax me.)

There are tweaks you can make to sales taxes which make them marginally "fairer" to the poor: exempting food and clothing, for example, which the poor tend to spend more on as a percentage of income than the rich. However, these tweaks get very complicated very fast (a lot of governments actually have a policy which sounds like "Exempting food sales but taxing prepared food sold for immediate consumption unless it is take-out except taxing hot take-out." I wish I was joking. My sympathies in advance to anyone who writes POS software for French bistros.) These exemptions also tend to cost the state a lot of money, because non-poor people spend lots of money on food, clothing, etc.

Anyhow, long story short: sales taxes are, and must always be, a regressive tax on the poor.

a lot of governments actually have a policy which sounds like "Exempting food sales but taxing prepared food sold for immediate consumption unless it is take-out except taxing hot take-out."

This sort of thing is absolutely true here in SF. For example, buying a sandwich at Subway doesn't usually incur a sales tax. But answer "yes" to "Would you like it toasted?" and suddenly your $5 footlong is now ~$5.50 courtesy the State of California. See http://thomashawk.com/2008/06/cheap-bastard-says-dont-order-...

Thank you for correcting my mistaken impression that there was a silver lining to any Californian tax policy.


“Hot prepared food products” means those products, items, or components which have been prepared for sale in a heated condition and which are sold at any temperature which is higher than the air temperature of the room or place where they are sold. The mere heating of a food product constitutes preparation of a hot prepared food product, e.g., grilling a sandwich, dipping a sandwich bun in hot gravy, using infra-red lights, steam tables, etc. If the sale is intended to be of a hot food product, such sale is of a hot food product regardless of cooling which incidentally occurs. For example, the sale of a toasted sandwich intended to be in a heated condition when sold, such as a fried ham sandwich on toast, is a sale of a hot prepared food product even though it may have cooled due to delay. On the other hand, the sale of a toasted sandwich which is not intended to be in a heated condition when sold, such as a cold tuna sandwich on toast, is not a sale of a hot prepared food product. When a single price has been established for a combination of hot and cold food items, such as a meal or dinner which includes cold components or side items, tax applies to the entire established price regardless of itemization on the sales check. The inclusion of any hot food product in an otherwise cold combination of food products sold for a single established price, results in the tax applying to the entire established price, e.g., hot coffee served with a meal consisting of cold food products, when the coffee is included in the established price of the meal.

Good golly, I am so glad I don't have to program anything like that in my shopping cart...

While you are correct in principle, if we were talking about taxing, e.g. cars that sold for over 100 000 dollars, it would be silly to argue that it was hurting the homeless more than rich people (I am ignoring potential side-effects of the tax with respect to employment, etc. here, so I'm oversimplifying massively, but I contend that the rough outline of my point is legitimate).

That said, I will immediately concede that the iPhone falls into a somewhat different price bracket than that.

>Anyhow, long story short: sales taxes are, and must always be, a regressive tax on the poor.

Doubtful; how about a sales tax that exclusively applies to mega-yachts?

Massachusetts does the exact same thing.

They don't call it Taxachusetts for nothing, hmm?

If the providers advertised this fact more, they could pocket a little bit more profit by selling the phone with a payment plan. This would reduce the service part of the monthly bill and so reduce the utility taxes for those who live in a city run by thieves.

Sounds as if the problem is different taxes for physical devices and for mobile operator subscriptions (or whatever the categories are). If one is 25% and the other is 10%, of course the iPhone will eventually cost nothing.


Sorry, the link was broken, now fixed.

I thought the iPhone was already supposed to be purchased by people of means.

Buy it out of state

So California is close to being the first failed state despite high taxes on luxury items.

Let me guess, CA has low taxes on property, so they have to tax everything else?

The alternative to Prop 13 is that people who lived their whole lives in CA can't afford the taxes to retire there.

This is an interesting line of thought, but you'd be better off if you followed it to its conclusion.

Assuming the same level of property taxes, others must pay more, making the state unattractive long-term. Does this mean overall tax revenue declines eventually?

This statement is true for everywhere, not just CA. Why should it be different here?

From a European perspective, I was surprised by the fact that California is home to some of the most powerful US industries and countless wealthy individuals while at the same time, the state is broke.

That's just not right...

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