Just an update.
I called the ca tax board and asked about the regulation 1585. The person who was an expert at the regulation said that it applies to postpaid plans (as said in the regulation), BUT it does not mention any thing about prepaid phones. He will do more research on it and get back to me tomorrow.
From our point of view (hopefully it is inline with the state's), if the regulation does not include prepaid phones, then prepaid phones are not included in the regulation (or excluded).
Here is the BIG catch. It is not correct for retailers to overcharge taxes, BUT it is not illegal for them to over charge taxes as long as they pay the overcharged amounts to the state. There is no legal mean for the state/tax board to force retailers to charge the appropriate amount of tax AS LONG AS THE RETAILERS PAY THE STATE THE AMOUNT THAT THEY CHARGED. His words were that the tax board could educate and advise retailers to charge the correct taxes, but they have "no teeth" to force the retailers to charge the correct taxes (again, as long as they pay the charged taxes to the state).
So basically, the state does not have any practical incentive or want to do away with tax overcharges. But he said that in principle, the tax board/state wants the retailers to charge correct taxes because the state's incentive is to serve the people (in theory, but in real life? ya right).
In theory, a clerk/store owner can choose screw over a consumer that is in a bind by charging $1000000 of sales tax on a $1 water bottle and there is nothing illegal about it as long as the store pay the state the $1000000 of tax that it collected to the state. The only 'recourse/leverage' that a consumer have in this situation is to not buy from that retailer. So if you are stranded in the Mojave desert and need a bottle of water to survive, an ahole clerk can just screw you over by overcharging you on taxes, and it would be perfectly OK with the state. Or if you are black (or white) and go into a white (or black) restaurant in CA, the bigot management/waitress can legally overcharge you taxes for your meal just to screw you over, and there is nothing that you can do about it legally other than boycotting the restaurant (of course you can sue them in a civil court, but they can just say that it was a mathematical mistake).
