Was a vehicle manufacturer's reimbursement to dealers for filling new-car fuel tanks part of the dealers' taxable gross receipts?

Plain-English summary

A vehicle manufacturer's automatic reimbursement to dealers for filling new vehicles' fuel tanks was not part of the dealers' taxable gross receipts. The Board treated the credit as an adjustment reducing the dealer's vehicle purchase cost, like other manufacturer incentive allowances designed to reduce cost of sales.

Gasoline already in the tank transferred to the customer as part of the vehicle. But the manufacturer's full-tank program generally required dealers to add the missing fuel for customer satisfaction and credited the dealer based on tank capacity less the factory-supplied gallons. That manufacturer credit did not become extra consideration from the retail customer.

The operative source combines the original July 13, 1988 audit opinion with a May 20, 1996 Legal Division memorandum agreeing with and publishing that conclusion.

Citations and references

• The memoranda cite no numbered statute or regulation.
• June 27, 1988 Oakland Auditing memorandum requesting an opinion on manufacturer fuel reimbursements — described; copy and supporting materials not reproduced in the official PDF
• Manufacturer Full Tank of Fuel Program, apparently in effect for continental-U.S. dealers since 1986, generally requiring a full tank with limited exceptions and using a tank-capacity formula — described; program terms, dealer list, amendments, and copy not reproduced in the official PDF
• Dealer payment statements automatically crediting fuel cost alongside dealer-preparation, conditioning, and floor-plan-assistance allowances — described; statements, dates, dealers, amounts, and underlying records not reproduced in the official PDF
• Longstanding treatment of tank gasoline as part of the vehicle and prior manufacturer incentive allowances as dealer-cost reductions — described but no ruling, memorandum, program, audit, or other supporting record identified or reproduced in the official PDF
• July 13, 1988 Principal Tax Auditor memorandum and May 20, 1996 Legal Division “Non-Attorney Opinions” review — both reproduced in the official PDF; Legal Division agrees with the earlier conclusion
• Official Annotation 295.0377's full-tank program, capacity-based dealer reimbursement, gasoline-title transfer, customer-satisfaction purpose, purchase-price-adjustment conclusion, July 13, 1988 date, and May 20, 1996 date — annotation omits the June 27 request provenance, “apparently” and since-1986 limits, continental-U.S. scope, limited exceptions, automatic statement credit and companion allowances, unidentified longstanding and incentive-program precedent, non-attorney-opinion review provenance, absence of numbered legal authority, missing records, and later outcome and supplies no additional program or transaction record
• Possible program terms or change, dealer participation, vehicle sale, fuel purchase, statement credit, customer payment, return filing, audit, assessment, refund claim, appeal, or other later agency action — not 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/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0377.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Oakland – Auditing (BAB)

From:

Glenn A. Bystrom
Principal Tax Auditor

Subject:

295.0377

Date:

July 13, 1988

In your memo of June 27, 1988, you requested my opinion on the application of tax to reimbursements by [A] to [B] for fuel provided under [A]’s “Full Tank of Fuel Program.” Apparently, this program has been in effect for all [A] dealers in the Continental United States since 1986. Under this program, retailers are to ensure that customers receive a full tank of fuel with the purchase of a new vehicle. Dealers are reimbursed for their cost, based on the difference between the vehicle’s fuel tank capacity and the number of gallons placed in the tank at the factory. Automatic reimbursement for the fuel cost is made through a credit on the dealer payment statement, as are allowances for dealer preparation, conditioning and floor plan assistance. We have long considered gasoline in the fuel tank of a vehicle at the time of sale to be sold as part of the vehicle because title and possession of the fuel transfers to the buyer along with the vehicle. In this instance, [A] is asking dealers to promote their customer satisfaction program by requiring (with limited exceptions) the sale of all new vehicles with a full tank of fuel. In the past, allowances made under manufacturer’s incentive programs have not been considered part of the dealer’s gross receipts, where the intent of the program was to reduce the dealer’s cost of sales. Likewise, I believe that the credit granted by the manufacturer under the “Full Fuel Tank” program should be characterized as an adjustment to the purchase price of the vehicle and not part of the dealership’s gross receipts.

GAB:gjm
0258W

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
295.0377

To:

Mr. Glenn Bystrom

From:

Gary Jugum

Subject:

Non-Attorney Opinions

Date:

May 20, 1996

I have reviewed your memorandum of July 13, 1988 to Oakland Auditing. We are in agreement with his conclusion, as follows:

Manufacturer’s Fuel Cost Reimbursement to Dealers. A vehicle manufacturer has a program where its dealers are to ensure that customers receive a full tank of fuel with the purchase of a new vehicle. Dealers are reimbursed for their cost, based on the difference between the vehicle’s fuel tank capacity and the number of gallons placed in the tank at the factory. Gasoline in the tank of a vehicle at the time of sale is considered to be sold as part of the vehicle because title and possession of the fuel transfers to the buyer along with the vehicle. In this situation, the manufacturer is asking dealers to promote the program by requiring a full tank of fuel with the sale of all new vehicles. The credit granted by the manufacturer under the above fuel tank program should be characterized as an adjustment to the purchase price of the vehicle and not part of the dealership’s gross receipts. 7/13/88.

Gary Jugum