Was a separately stated $3 governmental-compliance fee charged by a welding-supply seller taxable?

Plain-English summary

A welding-supply seller's separately stated $3 governmental-compliance fee was taxable. The charge recovered part of the company's cost of complying with transportation, hazardous-materials, and other government regulations, making it an ordinary business expense passed to customers.

The opinion explained that taxable gross receipts include the retailer's materials, services, and expenses connected with a retail sale unless a specific statute excludes them. Separately itemizing the compliance fee on the invoice did not create an exclusion.

Citations and references

• California Revenue and Taxation Code sections 6012 and 6051 (as cited)
• March 27, 1995 letter to the Union City Board office asking whether tax applied to governmental-compliance fees passed to customers — letter and attachments, other than the quoted passage, not reproduced in the official PDF
• Sample invoice showing a separately stated $3 governmental-compliance fee — invoice date, customer, other charges, transaction amount, and copy not included in the official PDF
• Welding-chemical, gas and supply sales and company costs of complying with transportation, hazardous-material and other government regulations — sales records, invoices, regulatory fee notices, compliance costs, calculations, and accounting records not reproduced in the official PDF
• May 18, 1995 staff-counsel response copied to the Oakland District Administrator — no taxpayer reply, invoice change, return treatment, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1242's nongovernment-business, $3 fee, government-regulation cost, separately-stated, taxable-gross-receipts conclusion, and May 18, 1995 date — annotation omits the redacted welding-supply seller, March 27 request, sample invoice, transportation and hazardous-material examples, sections 6012 and 6051, copied administrator, 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/295-1242.pdf

Original ruling text

295.1242

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 94279-0082)
Tele: (916) 324-2637
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

May 18, 1995

KATHLEEN CONNELL
Controller, Sacramento
────────
BURTON W. OLIVER
Executive Director

Ms. S--- L. S--Vice President
S--- B--- W--- Supply Co.
XXXXX --- Pkwy. S.W.
---, CA XXXXX
Re: SY --- XX-XXXXXX
Dear Ms. S---:

Your March 27, 1995 letter to the Union City Board office was referred to the Legal Division for a response. You ask if tax applies on governmental compliance fees imposed on your company which are passed on to your customers. We understand that your company sells various chemicals, gases and supplies for use in welding operations. You state: "In our business we charge a Governmental Compliance Fee. This fee is charged to recoup a portion of the fees that the company incurs complying with imposed Government Regulations (i.e., D.O.T., HAZMAT, etc.). This charge to our customers is a $3.00 fee on their invoice, as a separate line item." You ask whether this $3.00 charge to your customers is subject to tax. To facilitate our response, you included a sample invoice containing your company's charge for a "government compliance fee" for our review. Discussion Sales tax is imposed on a retailer's gross receipts from the retail sale of tangible personal property in this state. (Rev. & Tax. Code § 6051.) Taxable gross receipts include all amounts received with respect to the sale, with no deduction for the cost of the materials, service, or expenses of the retailer passed on to the purchaser, unless there is a specific statutory exclusion. (Rev. & Tax. Code § 6012.) Thus, unless a specific exclusion exists, expenses incurred by a retailer which are part of the retail sale of tangible personal property, such as governmental

Ms. S--- L. S---

-2-

May 18, 1995
295.1242

compliance fees, are included in the taxable gross receipts, as are any other costs of the retailer which are passed on to the end customer (even if those costs are separately itemized). We understand that the "government compliance fee" your company charges is a cost of doing business which it passes on to its customers. Thus, the "government compliance fee" is part of the cost of materials sold to your company's customers at retail and must be included in your company's taxable gross receipts whether or not they are separately stated in a sales invoice provided to your company's customers. If you have any further questions, please write again. Sincerely,

Warren L. Astleford
Staff Counsel
WLA:plh
cc:

Oakland District Administrator - CH