Were federal ozone-depleting-chemical taxes included in California sales- or use-tax measures?

Plain-English summary

The Board distinguished several federal ozone-depleting-chemical taxes rather than giving one answer for all of them.

Tax imposed under Internal Revenue Code section 4681 on a manufacturer, producer, or importer was treated as a manufacturer or importer excise tax. When included in the price of property sold, it was part of California taxable gross receipts even if separately stated.

By contrast, the section 4682 tax on chemicals held January 1, 1990 by someone other than a manufacturer, producer, or importer was not included in California use tax. The letter reasoned that it was self-declared after the sale, paid directly to the United States, and therefore not part of purchase price.

For an imported taxable product used by the importer as consumer, the self-declared section 4681 tax likewise was not part of purchase price for use tax. But if the importer sold the product and recovered the federal tax as an expense, that recovered amount was taxable whether separately stated or embedded in the selling price.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6201 (as cited)
• California Business Taxes Regulation 1617 (as cited)
• Internal Revenue Code sections 4681 and 4682(b) (as cited)
• April 11, 1990 letter asking whether federal ozone-depleting-chemical taxes were excluded from California's sales-and-use-tax measure — letter and attachments, if any, not reproduced in the official PDF; response is dated June 28, 1991 and gives no explanation for the interval
• Ozone-depleting chemicals held on January 1, 1990, manufacturer, producer and importer sales or use, imported taxable products, post-sale self-declaration and direct federal payment, and recovered tax expense — inventory, purchase, import, manufacturing, sales, invoice, federal-return, payment, and accounting records not reproduced in the official PDF
• June 28, 1991 tax-counsel response blind-copied to the San Diego District Administrator and to Lani Arena with “Please Annotate per Gary Jugum” — no taxpayer reply, annotation draft, transaction treatment, audit, assessment, refund claim, agency adoption beyond publication, appeal, or later outcome supplied
• Official Annotation 295.1266's section 4681 manufacturer and importer treatment, importer-use versus importer-sale distinction, recovered-expense conclusion, and June 28, 1991 date — annotation omits section 4682(b)'s January 1, 1990 held-chemical use-tax conclusion, April 11 request and response interval, sections 6051 and 6201, Regulation 1617, blind-copy recipients and annotation instruction, 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/295-1266.pdf

Original ruling text

295.1266

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

916-322-6083

June 28, 1991

Re: Ozone-Depleting Chemicals Taxes
Dear:
I am writing in response to your letter of April 11, 1990, concerning OzoneDepleting Chemical Taxes imposed in Sections 4681 and 4682 of the Internal Revenue Code. You question whether such federal taxes are excluded from the taxable measure for purposes of California’s Sales and Use Tax. In California, except where sales are specifically exempted or excluded, sales tax applies to the gross receipts of retailers from all retail sales of tangible personal property. (Rev. & Tax. Code § 6051). A use tax is imposed on the storage, use, or other consumption in the state of tangible personal property. (Rev. & Tax. Code § 6201). Business Taxes Regulation 1617 specifies that the gross receipts subject to sales tax and the sales price subject to use tax do not include the amount of any federal tax imposed upon or with respect to retail sales, whether imposed upon the retailer or upon the customer, and regardless of whether the amount of federal tax is stated to the consumer as a separate charge. However, gross receipts subject to the sales tax and the sales price subject to use tax include the amount of any manufacturers’ or importers’ excise tax included in the price of the property sold, even though the manufacturer or importer is also the retailer thereof. Again, it is immaterial whether or not the amount of such tax is stated as a separate charge. The Ozone-Depleting Chemicals Tax is imposed in Sections 4681 and 4682 of the Internal Revenue Code. Section 4681 imposed a tax on any ozone-depleting chemicals sold or used by the manufacturer, producer, or importer thereof, and on any imported taxable product sold or used by the importer thereof. Section 4682 (b) imposes a tax on any ozone-depleting chemical which is held by any person, on January 1, 1990, for sale or for use in further manufacture. The federal excise tax imposed by Section 4681 is a manufactures’ tax and, pursuant Business Taxes Regulation 1617, it is included in gross receipts subject to sales tax, whether or not the manufacturer or importer is also the retailer thereof, and whether or not the amount of such tax is stated as a separate charge.

The federal excise tax imposed by Section 4682 on any ozone-depleting chemicals held on January 1, 1990, by other than a manufacturer, producer or importer thereof is not subject to California use tax. The use tax is measured by the purchase price (Rev. & Tax. Code §6201), and the federal excise tax imposed after the sale, self declared and paid directly to the United States on tangible personal property is not subject to the use tax. Section 4681 also imposes the Ozone-Depleting Chemicals Tax on any imported taxable product sold or used by the importer thereof. The amount of the tax is the estimated value deemed to represent the cost of any ozone-depleting chemical used as material in the manufacture of the product and is paid directly to the United States. This self-declared federal excise tax is not to be included in the purchase price subject to California use tax if the product is used by the importer, as the consumer. However, if the product is sold and the federal excise tax is recovered as an expense, tax will apply whether the excise tax is recovered as an expense, tax will apply whether the excise tax is separately stated or included in the selling price. I hope that this letter has answered your questions. If I can be of further service, please do not hesitate to call.

Very truly yours,

Janet Vining
Tax Counsel
JV:wk
bc:

San Diego District Administrator
Ms. Lani Arena – Please Annotate per Gary Jugum