Could a retailer deduct a city charge equal to 3% of gross sales when computing California sales tax?

Plain-English summary

A catering business could not deduct a city charge equal to 3% of its gross sales when calculating taxable gross receipts. The business paid the charge because its lease placed it in a city facility, making the amount a cost of doing business rather than an exclusion from the sales-tax base.

The opinion said only the local city and county sales and use taxes imposed under Revenue and Taxation Code sections 7200 and following qualified for the cited exclusion. Other locally imposed taxes remained part of gross receipts even if the business called the payment a city tax.

Citations and references

• California Revenue and Taxation Code sections 6012(a) and 6012(c)(6) (as cited)
• California Revenue and Taxation Code sections 7200 et seq. (as cited)
• February 21, 1995 Return Analysis letter asking for support for the line 10(f) City Tax deduction on the third-quarter 1994 Sales and Use Tax Return — letter, return, deduction schedule, and attachments not reproduced in the official PDF
• March 11, 1995 taxpayer reply describing a Los Angeles Equestrian Center lease condition requiring payment of three percent of gross sales — reply, lease, city enactment or invoice, sales records, tax calculations, and payment records not reproduced in the official PDF
• Taxpayer file and subsequent returns consistently claiming the same deduction, plus local-tax amounts computed on return lines 14(b) and 17 — file, returns, schedules, and workpapers not reproduced in the official PDF
• December 13, 1995 senior-staff-counsel response at Return Analysis's request — no return adjustment, billing, taxpayer response, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1187's city-facility lease, three-percent charge, sections 7200 et seq. and 6012(c)(6), no-deduction conclusion, and December 13, 1995 date — annotation omits the redacted caterer, Equestrian Center, February 21 letter, March 11 reply, third-quarter 1994 return and line 10(f), subsequent returns, lines 14(b) and 17, underlying records, later outcome, and reliance status and supplies no additional proceeding record

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/295-1187.pdf

Original ruling text

295.1187

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego

Telephone No.: (916) 324-3828
Fax No: (916) 323-3387

BRAD SHERMAN
Fourth District, Los Angeles

December 13, 1995

KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. M--- M--M--- Catering
XXX --- Drive
---, California XXXXX
RE: SR -- XX-XXXXXX
City Tax Deduction
Dear Mr. M---:

Mr. Rick Wall of the Return Analysis Section has asked the Legal Division to reply to your letter to Mr. B. H. Watson, Section Supervisor, dated March 11, 1995, in which you replied to his letter to you dated February 21, 1995, asking for information supporting your deduction on line 10(f) of your Sales and Use Tax Return for the Third Quarter 1994 tax period for “City Tax.” In your letter you explained the your business is located in the Los Angeles Equestrian Center and, as a condition of your lease, you pay a city tax based on 3% of gross sales. That is the amount deducted on line 10(f). In reviewing your file, I note that you have consistently deducted this amount on subsequent returns. Unfortunately, this is not a legal deduction. Sales tax is measured by the gross receipts from sales. “Gross receipts” is defined as “the total amount of the sale… price…, of the retail sales of retailers, valued in money....” (Rev. & Tax. Code § 6012(a). All statutory citations are to the Revenue and Taxation Code.) No deductions are provided for costs of doing business. Local taxes imposed by the city and the county pursuant to sections 7200 et. seq.--that is, the tax amounts you compute on lines 14(b) and 17--are excluded from gross receipts (§ 6012(c)(6)), but all other locally-imposed taxes are included. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Senior Staff Counsel
JLW:sr