Which tire-disposal and recycling charges were included in a retailer's taxable gross receipts?

Plain-English summary

The statutory $0.25 fee imposed on a purchaser of a new tire was not part of the retailer's taxable gross receipts or sales price, even though the retailer collected it and could retain 10% for collection costs.

A retailer's mandatory disposal or recycling charge above the statutory fee was taxable when imposed as a condition of selling a new tire. By contrast, an optional disposal fee was not taxable when the customer could take the old tire and avoid the charge, and a disposal-only service without a new-tire sale was also nontaxable.

Citations and references

• California Public Resources Code sections 42860 et seq. and 42885(a) and (c) (as cited)
• Assembly Bill 2108, enacted in 1996 and amending section 42885 effective January 1, 1997 — as cited; bill text, chapter, legislative materials, and enactment record not supplied
• California Business Taxes Law Guide Annotation 295.1302 dated January 27, 1995 — as cited; prior annotation text partly quoted, but supporting opinion and complete prior entry not supplied
• Undated Levine request asking whether AB 2108 changed the $0.25 tire-fee treatment and whether the retailer's ten-percent retention entered gross receipts — request and attachments, if any, not reproduced in the official PDF
• New- and used-tire sales, tire disposal, mandatory and optional charges, $0.25 purchaser fee, ten-percent retailer retention, quarterly remittances, excluded tire categories, and $2/$1.75 examples — sales records, invoices, customer choices, fee returns, remittances, retention records, and accounting records not reproduced in the official PDF
• March 21, 2000 internal legal memorandum copied to Vic Anderson and Leila Khabbaz and proposing replacement annotation text — no recipient response, implementation directive, return treatment, audit, assessment, refund claim, appeal, or later outcome supplied; live annotation substantially reflects the proposal
• Official PDF's first-page identifier 295.1302.500 versus continuation-page identifier 295.1320.500 — no correction or explanation supplied; official filename and live annotation use 295.1302.500
• Official Annotation 295.1302.500's purchaser fee, retailer retention, pre- and post-1997 examples, mandatory-versus-optional and disposal-only conclusions, March 21, 2000 date, and literal (Am. 2000-3) marker — annotation omits AB 2108's enactment details, undated request, prior Annotation 295.1302 provenance, section 42885(c) tire definition, copied staff and proposed-text posture, conflicting continuation stamp, 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/295-1302-500.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum
295.1302.500
To :

Mr. David H. Levine
Acting Assistant Chief Counsel

From :

Janice L. Thurston
Senior Tax Counsel

Subject:

California Tire Recycling Act

Date:

March 21, 2000

This is in response to your request regarding the application of tax on the fees imposed on tire purchasers pursuant to AB 2108, enacted in 1996. You specifically ask whether AB 2108 alters the application of tax on the $0.25 per tire disposal fee as set forth in Annotation 295.1302 (1/27/95) and whether the ten percent (10%) amount retained by the retailer collecting this fee is part of that retailer’s taxable gross receipts. The Legislature originally adopted the California Tire Recycling Act in 1990 as set forth in Public Resources Code section 42860 et seq. The original section 42885(a) imposed a $0.25 per tire disposal fee on every person who leaves a tire for disposal with a seller of new or used tires. The seller was required to collect the fee and remit it to the state, but may retain ten percent (10%) of the fee as reimbursement for any costs associated with the collection of the fee. (Pub. Resources Code § 42885(a).) We concluded that the $0.25 fee collected by the tire vendor for tire disposal was not part of the vendor’s taxable gross receipts since the $0.25 tire recycling fee was imposed by statute on the purchaser and not on the tire vendor. (BTLG Annot. 295.1302 (1/27/95).) AB 2108 amended Public Resources Code section 42885 effective January 1, 1997 and provided that the $0.25 per tire fee is imposed on every person who purchases a new tire from a retail seller of new tires. The seller is required to collect this fee at the time of sale, may retain 10 percent of the fee as reimbursement for costs, and must remit the remainder to the state on a quarterly basis. Subsection (c) of Public Resources Code section 42885 defines a “new tire” and excludes from the definition, retreaded or recycled tires, or tires that are mounted on wheels and sold as part of a vehicle or equipment.1 1

Subsection (c) states:
“For purposes of this section, ‘new tire’ means a pneumatic or solid tire intended for use with on-road or off-road motor vehicles, motorized equipment, construction equipment, or farm equipment that is sold separately from the motor vehicle, motorized equipment, construction

Mr. David H. Levine

-2-

March 21, 2000
295.1320.500

The provisions of AB 2108 continue to impose the $0.25 recycling fee on the purchaser (and not the retailer) of the new tire. Since the $0.25 recycling fee is imposed on the purchaser by statute and not on the tire retailer, the $0.25 fee is not a part of the retailer’s taxable gross receipts or sales price from the sale of tangible personal property even though the fee is now imposed when the sale of a new tire occurs. However, any charges for tire disposal or recycling in excess of $0.25 mandated by the retailer and made as a condition of the sale of a new tire are part of that retailer’s cost of doing business and are included in the retailer’s taxable gross receipts. If the customers have the option of leaving the old tire for disposal and incur an optional disposal fee, or to take the tires with them and not incur the fee, the optional disposal fee is not subject to sales or use tax. The first paragraph of Annotation 295.1302 should be revised to reflect that the fee is now imposed on every person who purchases a new tire. Furthermore, the second example contained in Annotation 295.1302 (1/27/95) is no longer accurate for the newly amended provisions. That example provides that “when a person purchases a tire from a dealer and is required to pay a $2.00 ‘disposal’ fee whether or not an old tire is left for disposal, the entire amount is taxable when no tire is left for disposal, and $1.75 is taxable when a tire is left for disposal . . . .” By copy of this memorandum to Leila Khabbaz, I suggest that Annotation 295.1302 be revised to reflect these changes to the California Tire Recycling Act. “Tire Disposal Fee. The California Tire Recycling Act, as amended, imposes a $0.25 per tire disposal fee on every person who purchases a new tire from a retail seller of new tires. The seller is required to collect the fee and remit it to the state, but may retain 10% of the fee as reimbursement for any cost associated with the collection of the fee. (Pub. Resources Code § 42885 (a).) “Prior to January 1, 1997, the California Tire Recycling Act imposed the
$0.25 per tire disposal fee on every person that left a tire for disposal with the seller of new or used tires. Where a tire dealer sold a new tire and charged $2.00 for tire disposal as a condition of that sale, the entire $2.00 charge was subject to tax except for that portion of the fee actually imposed on the customer for tire disposal. That is, the entire $2.00 was taxable if a customer did not leave a tire for disposal. If a customer left a tire for disposal, $1.75 of the disposal fee was subject to tax and the remaining $0.25 amount was a non-taxable fee imposed by the state directly on the customer.” “The amended provisions of the Act impose the $0.25 fee directly on the purchaser of a new tire whether or not an old tire is left for disposal. Thus, whether or not an old tire is left for disposal, the retailer of a new tire collects the equipment, or farm equipment. ‘New tire’ does not include retreaded or recycled tires or tires that are mounted on wheels and sold as part of a vehicle or equipment.”

Mr. David H. Levine

-3-

March 21, 2000
295.1320.500

$0.25 fee from its customer as a fee imposed on that customer by the state. That
$0.25 is not taxable. Any amount charged in excess of the $0.25 as a condition of the sale of a new tire is subject to tax ($1.75 in the above example). “None of the tire disposal fee charged by a tire dealer who simply disposes of a tire for a customer without selling a new tire is subject to tax because under such circumstances the charge relates entirely to the disposal of the old tire. Furthermore, the customers have the option of leaving the old tire for disposal and incurring an optional disposal fee, or of taking the tire with them and not incurring the fee, the optional disposal fee is not subject to sales or use tax.” JLT/cmm cc:

Mr. Vic Anderson (MIC:40)
Ms. Leila Khabbaz (MIC:40)