Did California tax deposits on returnable containers when the container was not returned or part of the charge was retained?

Plain-English summary

An internal memorandum reviewed earlier correspondence and concluded that deposits on returnable containers were not subject to tax, whether or not the container was returned and the deposit forfeited.

It cited one earlier letter treating a barrel deposit as nontaxable even when the barrel was not returned. Another example involved a $2 deposit and a $1.54 return credit; the retained 46 cents was treated as a nontaxable demurrage charge.

The memorandum also noted that the Audit Manual allowed grocery stores a deduction for bottle deposits.

Common questions

Did forfeiture automatically make the deposit taxable?

No, according to this historical memorandum.

Did the memorandum treat every retained amount as a deposit?

No. Its cited example characterized the 46-cent difference as demurrage.

Citations and references

• Sales and Use Tax Ruling 49 — historical deposit definition referenced
• Audit Manual § 0904.25 — bottle-deposit audit treatment referenced
• Eight attached prior-correspondence letters — underlined passages reviewed; Letter 4's barrel-deposit and Letter 8's retained-demurrage conclusions summarized, but all eight letters' dates, authors, identifiers, and copies are absent from 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/195-1460.pdf

Original ruling text

State of California

Memorandum

To:

Mr. Larry L. Augusta

From:

Joseph Manarolla

Subject:

“Deposits” as defined in ruling 49

Board of Equalization

195.1460

April 30, 1969

Research on previous correspondence regarding the taxability of deposits on containers is summarized as follows: From the eight letters attached, it is quite conclusive that deposits on returnable containers have not been considered subject to tax. (Please note the underlined portions of the attached letters.) Letter number 4, in the third paragraph, states that the deposit on returnable barrels is not subject to tax regardless of the fact tha the barrel is not returned. In letter number 8, where the deposit is $2 with the corresponding credit for the returne container of $1.54, the difference of $.46 was considered a nontaxable “demurrage” charge. Section 0904.25 of the Audit Manual dealing with bottle deposits in grocery stores provides that a deduction for bottle deposits should be allowed. This is the standard procedure in auditing such stores where bottle deposits are involved. In conclusion it appears that deposits on containers are not considered taxable whether forfieted or not.

JM:smb