Cellular Abroad Charges Tax On Security Deposit, Calls It A "Sale"

Joanna writes, “Here’s my tip for using Cellular Abroad: don’t.  They totally charged me tax on a ‘security deposit’ and then refused to refund my tax on the returned portion of the deposit.” When she wrote to Cellular Abroad to dispute the tax, she was told that technically it wasn’t a security deposit but a purchase, and that when they refunded her the difference after she returned the phone, that wasn’t a refund—they were buying it back from her, and because they have a reseller’s license they don’t have to pay taxes on their “re-purchase.” Whaaa?

We thought maybe it was a non-taxable, refundable security deposit, mainly because on their website, when you first select the phone to rent, it says DEPOSIT, and then when you agree to the transaction later on, they call it a SECURITY DEPOSIT and use the word “refund”:

con_cellularabroadagreement2.jpg

So now you know: if you do business with Cellular Abroad, be prepared to pay unnecessary taxes on your refundable security deposit we mean purchase price.

(thanks to Joanna!)

Comments

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  1. Buran says:

    Turn them in to the state AG for charging an illegal tax.

  2. Antediluvian says:

    It’d be interesting the confirm whether they’ve been turning the moneys over to the state all along. Some ought to audit their asses.

  3. jkaufman101 says:

    This is a classic case of bait and switch. These morons need to get their fat asses turned into the FTC, the BBB and every consumer blog there is. Hopefully they’ll go out of business soon. Companies like this make my stomach turn. Fuck you Cellular Abroad.

  4. Tux the Penguin says:

    @Antediluvian: It’d be even more interesting to see if they were recognizing revenue correctly. And that all depends on the contract. If at the end of the contract you can turn in your phone and get cash, then they need to hold some of that sale back and recognize an expense. Or, they could simply be trying to recognize a deposit as revenue (big accounting no-no). Either way, who are their auditors? Both tax and financial?

  5. Trick says:

    In the end does it really matter? How long do you suppose this company will last without the IRS or any other agency comes down on them?

  6. Antediluvian says:

    Er, “some ought to audit” –> “someone ought to audit”

    The accounting mechanics are beyond me but it seems reasonable that if what the CSR said is actually true, then they got some serous ‘splaining to do. /rickyricardo

  7. jamar0303 says:

    My god- I checked their website. Please don’t use their stuff. Even without this incident they’re a ripoff, plain and simple. Wherever you go, just buy a phone and SIM there. If you use Sprint/Verizon/Alltel then you’d have a bit of a harder time, but it can still be done (not a SIM, but there are loads of local shops that will take CDMA phones and reprogram them for local networks so that you don’t pay the insane roaming rates).

  8. NoWin says:

    @Buran: Ditto

  9. ColdNorth says:

    They are not being truthful. *gasp*

    If it is listed as a deposit, then no sales tax attaches.

    If they are selling it and then “buying it back”, we in retail call this a “return”. Sales tax must be refunded commensurate with the value of the returned value.

    Their claim, that they have a “resellers license” may be true, but since the OP is not a distributor, this defense does not apply. Unless the OP presented them with an invoice, this claim is balderdash.

    To no one’s surprise, they are just pocketing the collected tax as profit. Since tax reporting is based upon taxable sales, and a “deposit” is not taxable, they are most certainly not surrendering the collected tax to the state.

    A tax auditor MAY catch this, but a better route would be to direct the complaint to the AG. This is fraud.

  10. Mariallena says:

    If you are travelling to GSM countries (such as countries in Western Europe), it’s a lot cheaper to buy a SIM card when you get there. Some phone companies like Vodafone in the UK don’t even charge you for a SIM card.

    If you don’t have a GSM-enabled phone, you can always buy a cheap unlocked phone on eBay. Since you are going to use for a short period, you probably don’t need the latest model with all the bells and whistles.

  11. othium says:

    @ColdNorth:

    Is there some sort of reward system for reporting tax cheats to the IRS? Might be worth looking into..

  12. JustAGuy2 says:

    @othium:

    Yup, such a system does exist: You can get 1-15% of the taxes owed. Check out IRS publication 733.

  13. ColdNorth says:

    I believe the IRS program is for Federal income tax evasion and fraud…

    Sales Tax is a state matter. Depending on which state the business is incorporated, there may be a bounty offered by its Department of Revenue.

    Otherwise, there is always that warm, fuzzy feeling of nailing a rotten, no-good, evil-doing, swindling company to the wall.

  14. mroach says:

    Getting a local SIM is definitely the way to go. If I’m overseas on a short trip I typically just roam, but if I’m going to be calling people in that country a lot and using data, then I pick up a local prepaid. As has been said, a lot of providers give them away or charge very little for them.

    @jamar0303: What? You can’t “reprogram” a CDMA phone to work on GSM networks.

  15. jamar0303 says:

    @mroach: No, but depending on the country, you can reprogram it to work on local CDMA networks. This mostly applies to Asia and South America, though.

  16. RoxyGirl9802 says:

    Hi all, this is Joanna, I originally submitted the complaint. Just a follow-up, I took this to the BBB and finally got a rude, unprofessional response from Cellular Abroad (see http://www.joannag.yelp.com) stating that they don’t have enough time to “bicker” over my measly tax over-charge, and that they’re going to give me a credit so I stop bothering them.
    Dude– if they haven’t figured out that this isn’t about my small over-charged amount, but the PRINCIPLE of the matter, and the fact that they’re screwing over consumers and being deceptive then they’re not too quick on the uptick apparently.
    I’m taking these fuckers down. Next stop: IRS.