A South Carolina administrative law judge (ALJ) determined that cell phone insurance is not subject to South Carolina sales tax even though the wireless provider sells it with taxable communication services.
Alltel provided its wireless customers with an option to purchase insurance for the loss, theft or damage to their cell phones (cell phones have a way of accidently finding their way into toilets). Alltel remitted the monthly premiums its customers paid for insurance coverage to Alltel’s insurance agent, who then remitted the premiums to an insurance company.
The ALJ concluded that this cell phone insurance arrangement constituted insurance under South Carolina law, which is not subject to sales tax. Even though Alltel offered the insurance with its taxable communication service, the ALJ reasoned that the insurance was not inextricably intertwined with the communication service because the insurance was optional. Additionally, Alltel did not provide the insurance. Rather, a licensed insurance agent and insurance company provided the coverage. Therefore, the insurance charges were not subject to South Carolina sales tax. Alltel Commc’ns, Inc. v. South Carolina Dep’t of Rev., Dkt. No. 11-ALJ-17-0603-CC (S.C. Admin. Law Ct. Nov. 13, 2015).