Could a retailer deduct federal tire excise tax or a trade-in allowance from California gross receipts?

Plain-English summary

California classified the federal excise tax on tires and inner tubes as a manufacturer's tax. The retailer could not deduct that federal charge from gross receipts, so the tire example used the full $40.95 selling price.

The source also addressed a battery trade-in. California included the agreed $3.50 allowance for the old battery in the full $22.50 selling price of the replacement battery, with no trade-in deduction.

Common questions

Was federal tire excise tax deductible from gross receipts?

No.

Was the trade-in allowance deductible?

No.

What tax measures did the source use?

$40.95 for the tire example and $22.50 for the replacement-battery example.

Citations and references

• Historical Sales and Use Tax Ruling 65
• Historical Sales and Use Tax Ruling 57, last paragraph
• Prentice Hall's "Tax Service" — review identified as supporting classification of the tire and inner-tube charge as a manufacturer's tax; edition, date, volume, section, page, and quoted text not supplied in the official PDF
• Requester's April 14, 1950 letter, including battery and tire examples — questions and results described; full letter and computations not reproduced in the official PDF
• Battery sale for $22.50 with $3.50 old-battery allowance and tire sale with a $40.95 measure including federal excise tax — examples described; underlying contracts, invoices, trade-in record, property records, federal-tax computation, payments, and returns not reproduced in the official PDF
• Enclosed copies of Sales and Use Tax Rulings 65 and 57 — identified as enclosed but omitted from the official PDF
• Possible later return treatment, audit, assessment, refund claim, appeal, or other transaction outcome after the advice — no follow-up or final outcome supplied 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/235-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/235-0180.pdf

Original ruling text

State of California
Board of Equalization

235.0180
April 20, 1950

REDACTED TEXT
Dear Sir:
This is in answer to your letter of April 14 with respect to the application of the State sales tax to transactions involving allowances for trade-ins and to the amount of federal excise tax imposed in connection with sales of tires. The application of the tax to transactions in which property is traded in is governed by Sales and Use Tax Ruling 65, copy enclosed. As therein indicated, the tax applies to the full sales price of the property sold, including the agreed allowance for the property traded in. Accordingly, in the example given in your letter, the measure of the tax would be the full price of $22.50 for which the battery was sold, without deduction for the 3.50 allowed for the old battery traded in. The application of the State sales tax to federal excise taxes is governed by Ruling 57, copy enclosed. As indicated by the last paragraph thereof, a retailer's gross receipts subject to the State sales tax include the amount of any manufacturer's or importer's excise tax included in the price of the property sold. A review of Prentice Hall’s "Tax Service" indicates that the federal excise tax imposed in connection with sales of tires and inner tubes is a manufacturer's tax. Therefore, the sales tax applies to the full sales price of the tire without deduction for the amount of the federal excise tax. In the example given in your letter, the measure of the sales tax would be $40.95. Very truly yours, R. G. HAMLIN Associate Tax Counsel RGH:HB cc: REDACTED TEXT