Could a used-car seller exclude an abandonment charge from the sales-tax measure?

Plain-English summary

An audit proposed adding so-called abandonment charges to the taxable measure on used-car sales. Board staff concluded that the charges could not properly be taxed under former Ruling 61's treatment of carrying and finance charges.

The exclusion had conditions. Each abandonment charge had to be separately stated and could not be disproportionate to the car's selling price. Staff also asked the field office to determine whether the seller had included the charge when calculating tax reimbursement passed on to customers; the memorandum did not state the answer.

What this means for you

Used-vehicle sellers

Under this historical view, a finance-related charge needed both separate disclosure and a reasonable relationship to the vehicle price.

Accountants and tax professionals

Check not only the invoice label and amount but also whether tax reimbursement was collected from the customer on the charge.

Common questions

Q: Did staff include the abandonment charges in the tax measure?
A: No, subject to the stated conditions.

Q: Did the charge have to be separately stated?
A: Yes.

Q: Could the amount be unusually large compared with the car price?
A: No. Staff warned against recognizing disproportionate charges.

Q: Did the memorandum establish whether tax reimbursement was collected?
A: No. It asked the recipient to investigate and report back.

Citations and references

• Former California Sales and Use Tax Ruling 61, as cited in the memorandum
• Recipient's March 1 memorandum and February 2 audit report — years and separate documents not supplied in the official PDF
• Recent office discussion and consultation with Harry L. Say — dates and separate records not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 200.0020
• Original supporting opinion: 200.0020 PDF

Original ruling text

State of California

Board of Equalization

200.0020

Memorandum
To:

REDACTED TEXT

From:

E. H. Stetson

Subject:

REDACTED TEXT

Date:

April 18, 1950

I have discussed with Mr. Harry L. Say the contents of your memo of March 1 and your audit report dated February 2, proposing to include within the measure of the determination the amount of so-called "abandonment charges". You will recall that we discussed this question on my recent visit to your office. Mr. Say concurs with the opinion I expressed that we could not properly impose the tax upon the amount of the abandonment charges in view of the provisions of Ruling 61 relating to carrying and finance charges generally. Mr. Say asked the question, however, as to whether or not REDACTED TEXT included the amount of the abandonment charges in the measure of tax reimbursement passed on to his customers. I assume that he did not, but could not say so definitely. Please advise us in this connection. As indicated in our discussion, we should be careful not to recognize as a legitimate exclusion from the measure of tax any so-called abandonment charges that appeared disproportionate to the selling price of the car. The amount of the charge must, of course, be separately stated as specified in Ruling 61.

EHS:ph