why do we have to pay tax on a free phone?

[psamf24]

Nokia Lumia 920 - Matte Black cell phone from AT&T

 

[Laura Knotek]

It has to do with federal and state tax laws. Taxes are always extremely complicated to figure out.

 

[JaiMento]

Phones aren't free. They are subsidized.

Edit: The phone you linked has a cost of $299.99 + tax. If you sign a 2 year contract, AT&T will contribute $299.00 to the cost. For purchasing online, they will also grant a $0.99 discount. However, the base price is still $299.99 and taxes for that amount are still collected by the government.

 

[psamf24]

I just put da link as an example but I've seen this all my life but why pay for tax on a CERO dls purchase im ok when they advertise the phones for a penny.
Are phones same like cars? If someone gave a car for free and when DMV ask you how much you paid for the car and then you say I got it for free then you don't pay for tax you just pay for registration and tags if they are not expired...

 

[JaiMento]

When you sign a contract, the carrier is not discounting the price of the phone, they merely give you a credit to use toward the purchase of the phone. The cost of the phone still remains the same and if you look at your receipt, it will also show that the cost of the phone has not been discounted. You still pay taxes on the full amount of the phone, because that is what is being reported to the government as the cost of the goods sold. Another reason that probably factors into why the phones are subsidized rather than discounted is to not affect reporting on sales revenue.