Two Important Changes to California MTS Surcharge Regulations Impacting Prepaid Wireless Providers


Beginning January 1, 2017, certain small sellers of prepaid mobile telephony services (MTS) no longer have to collect the surcharge from their customers. In addition, all sellers who make online sales and know their customer’s address should no longer use their customer’s mobile phone number to determine if they have to collect the surcharge. (California SBE Special Tax Notice No. L-470, 09/01/2016 .)

Exemption for small sellers.

Under recent law changes, small sellers are exempt from collecting the prepaid MTS surcharge under specified circumstances. A small seller of prepaid MTS means a seller (other than a telecommunication service supplier) that sold less than $15,000 in prepaid MTS sales during the previous calendar year. Beginning January 1, 2017, small sellers are no longer required to collect the prepaid MTS surcharge from their customers and report and pay those amounts to the California State Board of Equalization (SBE). Note that when sellers have more than one location, the sales of prepaid MTS from all locations must be used to determine if the seller qualifies for the exemption. However, consumers are still responsible for the surcharge. As a courtesy to their customers, small sellers may voluntarily continue to charge and collect the prepaid MTS surcharge and report the amounts to the SBE. Persons who qualify as a small seller based on their 2016 prepaid MTS sales (and who are not a telecommunication service supplier), and who choose not to voluntarily collect the surcharge from their customers, can close-out their prepaid MTS account beginning January 1, 2017. To close their account, such persons should submit a BOE-65 (Notice of Closeout), available at Persons who have additional questions about closing their prepaid MTS account can also contact either their local SBE office (see or the Customer Service Center at 1 (800) 400-7115 (TTY:711). Small sellers are responsible for maintaining records to show that their annual prepaid MTS sales are below the qualifying sales threshold (currently $15,000). The sales threshold to qualify for the exemption is subject to annual adjustment.

Effect of California mobile phone number. 

Generally, prepaid MTS sales that are made to customers at the seller’s California business location or to a customer with a California address are subject to the prepaid MTS surcharge. Prior to January 1, 2017, if a customer’s mobile phone number was associated with a California location, the surcharge applied to the prepaid MTS sale, regardless of whether the customer’s shipping or billing address was known. Beginning January 1, 2017, sellers (including telecommunication service suppliers) should use the customer’s mobile phone number to determine if the surcharge applies only when the seller does not know the customer’s address and the sale does not occur at the seller’s business location.

Clients with questions regarding the announced changes in California’s MTS surcharge regulations should contact Jonathan S. Marashlian at or 703-714-1313.  Clients utilizing Tax Calculation Engine software, such as CCH SureTax, Avalara, Vertex and others, may need to consult with their vendor to properly capture and address the changes detailed above. 

ATTORNEY ADVERTISING DISCLAIMER: This information may be considered advertising in some jurisdictions under the applicable law and ethical rules. The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise. No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers

Sign Up To Receive Our
Advisories and Compliance Alerts

Sign up for our email list to receive notifications regarding new advisories and news