Is California beverage-container cash redemption value included in the amount subject to sales tax?

Plain-English summary

California beverage-container cash redemption value was included in taxable gross receipts. The Board explained that CRV was legally imposed on the wholesaler, passed to the retailer, and then passed to the consumer, making it a retailer expense included in the amount charged for the beverage.

Separately stating CRV did not change that result. The letter said CRV only looked like a deposit: the retailer did not return it to the customer. Instead, the consumer recovered value from a third party at a recycling center, so CRV was not a true refundable retailer deposit for sales-and-use-tax purposes.

Citations and references

• The letter cites no numbered statute or regulation for its conclusion.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0035-820.pdf

Original ruling text

295.0035.820

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
295.0035.820

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