Why did California sales tax apply to separately stated beverage Cash Redemption Value?

Plain-English summary

An Assembly member asked why sales tax applied to the CRV portion of beverage purchases. California explained that tax covered the retailer's entire charge unless a statute excluded an amount.

CRV was imposed upstream and passed from wholesaler to retailer to consumer, making it a retailer expense included in gross receipts. Separate advertising or cash-register disclosure did not create an exclusion.

CRV also was not a true deposit: the retailer did not repay it when the customer returned the container; the customer recovered value from a third-party recycling center.

Common questions

Did separate statement make CRV nontaxable?

No. Disclosure changed presentation, not the sales-tax analysis.

Why was CRV not a deposit?

The retailer did not return the amount to the customer.

Citations and references

• Assemblyman Peter Frusetta's July 3, 1996 letter, received July 9 — asks why sales tax applied to CRV amounts; separate letter not reproduced in the official PDF
• Watsonville constituent letter — objection to sales tax on the CRV portion of beverage purchases described; date, author, and copy not supplied in the official PDF
• Board publication Tax Tips for Grocery Stores — cited as identifying CRV amounts as taxable; edition date and copy not supplied in the official PDF
• California gross-receipts rule and transportation-charge exclusion — applied without a statutory or regulatory citation in the official PDF
• September 1987 CRV program start and unidentified 1989 CRV-law change — separate-statement history described without a bill, chapter, or code citation in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/195-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/195-0245.pdf

Original ruling text

195.0245

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 445-3723
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

E. L. SORENSEN, JR.
Executive Director

July 10, 1996

Honorable Peter Frusetta
Assemblyman, 28th District
321 First Street, Suite A
Hollister, CA 95023
Dear Assemblyman Frusetta:
This is in response to your letter of July 3, 1996, received here on July 9. We understand that you recently received a letter from a constituent in Watsonville who objects to the imposition of sales tax upon the cash redemption value (CRV) portion of beverages purchased. You are aware that our publication, “Tax Tips for Grocery Stores,” identifies CRV amounts as subject to tax, and you inquire as to the rationale for this rule. The California sales tax is imposed upon retailers of tangible personal property, although retailers normally pass on the cost of the tax to their customer as a separately billed amount identified as “sales tax.” Tax applies to gross receipts, that is, the entire amount of the charge made by the retailer to the customer for the goods sold, unless there is a specific exclusion, as there is typically for transportation charges. There is no exclusion for CRV amounts, even though those amounts may be itemized to the customer. The retailer cannot deduct from the amount subject to tax any expense that the retailer incurs. Legally, the CRV is imposed upon the wholesaler, who passes the cost on to the retailer, who passes the cost on to the consumer. So the CRV amount is an expense to the retailer, and a part of the “gross receipts” collected from the consumer. The CRV program went into effect in September 1987. prohibited from separately stating the CRV amount to the customer

Initially, retailers were

Honorable Peter Frusetta

-2-

July 10, 1996
195.0245

In 1989, the CRV law was changed to require retailers to separately state the CRV amount in advertising and on self-pricing, although retailers were permitted (but not required) to add the amount as a separate amount at the cash register. This change in the CRV law did not change the sales and use tax analysis. The amounts in question are an expense of the retailer and part of the price of the goods to the customer. The change has led to confusion, because the CRV amount looks like a deposit when separately stated. It is not a true deposit for sales and use tax purposes, because the CRV amount is not returned by the retailer to the customer, but is recovered from a third party at the recycling center. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel
GJJ:sr