Postpaid vs. Prepaid Fees

by Don
(Lexington, KY)

I'm thinking of switching to prepaid from postpaid, but I'm unclear on taxes and fees. My family plan right now nominally costs $70 per month, but taxes and fees adds another $14. With prepaid, are there other hidden taxes and fees that would make the actual cost higher than the nominal cost? From what I've read, there should just be sales tax, but is there anything else like 911 fees and universal access fees, etc? So if I go with PAYG at $.10/minute and use 300 minutes, I buy a $30 card and that's it? Or if I go with a plan like Virgin's Beyond Talk for $25 a month, is it really just $25 a month? I can live with sales tax (say 6%), it's the nickel and diming that happens with postpaid that irks me and is why I'm considering switching.

Comments for Postpaid vs. Prepaid Fees

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Feb 03, 2016
New Tax in California
by: PrepaidWirelessGuy

Thank you for your question. Yes, this is a new tax in CA that has been avoided for years. The state is now caught up with collecting this tax now that prepaid is such a huge market.

The tax is for supporting e911, as well as government sponsored programs that offer free cellular service to low income households.

I actually wrote about this change in my January newsletter:

Feb 01, 2016
Prepaid Tax in CA
by: Mike Castaneda

I went a paid for prepaid phone and they charged me $5.00 for prepaid CA tax. So now my phone bill is 50.00 dollars instead of $45.00. I asked at the store what or where is this $5.00 dollar tax go to. They didn't have a answer???? Dose anyone know anything about this CA prepaid tax????

Feb 17, 2015
The Landscape Has Changed
by: PrepaidWirelessGuy

I'm not sure which part you found puzzling, however, in the years since that original post and response, the landscape has changed significantly.

Most (though not all) prepaid plans are now tax INCLUSIVE, so you don't pay telecom taxes on top of the plan price. Though depending on the State, you will pay sales tax.

With postpaid, you'll pay all of the telecom taxes, so all else being equal, you'll pay less overall for the same plan price on prepaid plans that are tax inclusive.

Please let me know if you have any other comments or questions.

Feb 15, 2015
Prepaid Phone Service-Much Lower Taxes
by: Anonymous

The above information is puzzling. I use a 1500 min/data plan prepaid at $30/mo and taxes are only 50 cents. When I had a plan of 1000 talk min. with same company, I paid $39.95 plus almost $10 in Taxes.

Also, I can elect not to active my phone for up to 3 or 4 months without losing my phone number.

Aug 05, 2010
Prepaid Wireless and Fees - Part 1
by: PrepaidWirelessGuy

This is a great question, and really gets to the heart of the cost structure of prepaid wireless, and the competitive forces that are now in play! Historically there were always additional fees charged on top of the plan amount. These types of fees include telecom taxes, regulatory fees, and e911 fees. In many cases per minute or per day type plans had these fees charged to the prepaid account balance each month, though that was not always the case.

For monthly/unlimited type plans these fees were classically ALWAYS charged on top of the monthly plan amount. So, as you note, a $50 plan wasn’t really $50 after these fees were added. In 2009 Boost re-launched its Unlimited by Boost plan as Monthly Unlimited, which now INCLUDES all fees. In early 2010 MetroPCS also moved to this model, and in August 2010 (this week!) Cricket moved to this all inclusive model as well. I believe that Virgin Mobile operates the same as Boost with respect to these fees.

NOTE, however, that there are a handful of states that require e911 fees to be charged at the point of sale. Some are charged as a percent of the total purchase amount, while some are charged as a fixed amount per transaction. The fee currently ranges from 2% to $0.25-$0.38 per transaction. I can get into more detail here, but I’m not sure that would be valuable. If you’re in a state that mandates these fees (i.e. it’s not at the prepaid carriers’ discretion), the only away around this would be to buy your replenishment in a state that doesn’t have these fees, though I don’t expect that would be practical.

Aug 05, 2010
Prepaid Wireless and Fees - Part 2
by: PrepaidWirelessGuy

You are correct regarding your statement about sales tax still applying, so any campaign that notes $50 = $50 or $45 = $45 will ALWAYS have a legal disclosure noting that applicable local sales tax still applies. Again, not something that the prepaid providers have any control over. In fact, when Boost first launched its “all inclusive” plan, they used this marketing campaign but later pulled it because it’s misleading. Legally accurate, but misleading if you want a no BS campaign that doesn’t have fine print! Cricket launched their all inclusive approach in the same way (with the fine print), which in my opinion is problematic. But that’s what this site/forum is here for – to untangle the confusion!

So, all in all, for Boost, Virgin Mobile, MetroPC, and Cricket, they will charge you only the face value of the plan (ex. $50, $45, etc.) each month. When you go to the store (or use a credit/debit card) you will be charged sales tax on the amount of the reload. And of course, the e911 fee as described as the exception depending on your state. Also note that some states don’t currently charge sales tax on wireless services. So, for example, if you buy a $50 topup in California, you won’t pay any sales tax, so $50 truly means $50, however, if you buy the same topup in New York you’ll pay sales tax in the store on that $50.

One last point to note is that some prepaid providers charge reload fees while others do not. For example, Boost does not, while Cricket still currently does. So when you’re looking at your “total cost of ownership,” you’ll want to look at which carriers are including telecom and regulatory taxes and which aren’t, as well as which are charging reload fees and which aren’t. I expect that most prepaid offerings will eventually be all inclusive (with no reload fees either), for customers are very savvy and are no longer tolerant of paying these fees. Particularly now that carriers are advertising this aspect more and more, customers will prefer those plans that offer the same services with lower (or no) fees.

The bottom line is that while some prepaid plans will feel a lot like postpaid in terms of these fees, you can avoid these extra costs with some prepaid providers, and more and more will follow suit. To the contrary, with postpaid plans, you currently cannot avoid these extra fees.

I hope this helps!

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