Was a trailer seller's optional federal periodic-inspection charge taxable when the inspection occurred after the sale?

Plain-English summary

Federal motor-carrier rules required trailers to pass a periodic inspection, but the seller offered that inspection as an optional service. The opinion assumed the inspection occurred after the trailer was sold and that the contracts or sales literature showed the customer was free to obtain it elsewhere.

On those assumptions, the charge was not taxable. The Board's stated position was that an optional inspection conducted after the sale is not a service that is part of the sale under Revenue and Taxation Code section 6012(b)(1).

Citations and references

• California Revenue and Taxation Code sections 6012(a), 6012(b)(1), 6051, and 6201 (as cited)
• Federal Motor Carrier Safety Regulation section 396.17 (as cited)
• October 16, 1990 requester letter that the Board says it did not receive — letter, delivery record, and attachments not supplied
• November 27, 1990 letter asking whether federal periodic-inspection fees were subject to California sales and use tax — letter and attachments, if any, not reproduced in the official PDF
• Trailer sales, post-sale annual inspections, optional charges, motor-carrier or commercial-garage alternatives, inspection reports, contracts, and sales literature — sales agreements, invoices, inspection dates and reports, contracts, literature, and customer records not reproduced in the official PDF
• May 9, 1991 tax-counsel response based on express timing-and-optionality assumptions and blind-copied to the Out-of-State District Administrator — no taxpayer reply, verified contract or literature, transaction treatment, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1248's annual-inspection rule, twelve-month report requirement, optional charge, post-sale timing and documentation assumptions, no-part-of-sale conclusion, and May 9, 1991 date — annotation omits both request letters and the first letter's nonreceipt, alternative inspectors, sections 6012, 6051 and 6201, blind-copy recipient, 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/295-1248.pdf

Original ruling text

295.1248

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-8485

May 9, 1991

RE: Taxability of Inspection Fees
Dear ---:
This is in response to your letter of November 27, 1990, inquiring whether fees charged by --- to perform the U.S. Dept. of Transportation Federal Highway Administration Periodic Inspection are subject to California sales and use tax. Please be advised that we had not received your prior letter dated October 16, 1990. Facts and Assumptions You described the facts as follows: The U.S. Dept. of Transportation requires an annual inspection on trailers. Pursuant to Federal Motor Carrier Safety Regulation Section 396.17, the motor carrier cannot use the trailer unless it has passed such an inspection at least once during the preceding twelve months and a copy of the inspection report is in the vehicle. --- offers this inspection to its customers in conjunction with the sale of trailers. You contend that this is an optional charge and that alternatively, the trailer can be purchased and the motor carrier or a commercial garage could do the inspection the next day. (We assume for the purposes of this opinion that the inspection occurs after the trailer is sold and that the contract documents and/or the sales literature substantiate that this is truly an optional charge.) Sales and Use Tax - General Discussion Except to the extent specifically excluded or exempted by statue, the California Revenue and Taxation Code imposes sales or use tax on the gross receipts from the retail sale of all tangible personal property sold or purchased for use in this state. (Sections 6051 and 6201). (All statutory citations are to the California Revenue and Taxation Code, unless otherwise noted herein.) Services That are a Part of the Sale Section 6012 provides in relevant part:

"Gross Receipts". (a) "Gross Receipts" mean the total amount of the sale or lease or rental price, as the case may be, of the retail sales of retailers, valued in money, whether received in money or otherwise ... (b) The total amount of the sale or lease or rental price includes ... (l) [a]ny services that are a part of the sale. The Board of Equalization has long-taken the position that a charge for an optional inspection conducted after the sale of the item inspected is not a service that is part of the sale under Section 6012 (b)(l). Consequently, the inspection service charge should be excluded from the measure of gross receipts which are subject to California sales and use tax. If you have any further questions, please do no hesitate to write to us again.

Cordially,

Victoria Lani Arena
Tax Counsel

VLA:es 37971
bc: Out-of-State District Administrator