Could a gasoline station exclude a vapor-recovery certification fee passed on to customers from taxable gross receipts?

Plain-English summary

A gasoline station could not exclude a vapor-recovery certification fee or associated vapor-recovery costs that it passed on to customers. The opinion treated those amounts like rent and utility bills: they were costs of doing business included in taxable gross receipts, not separately excludable services.

The same letter also concluded, on its stated assumptions, that delivery charges were taxable when the retailer transported and sold fuel from its own trucks at the customer's site. Fuel-brokerage fees were also taxable when the operator bought and resold fuel on its own account. The letter identified federal gasoline excise tax and motor vehicle fuel license tax as the items gas stations could routinely exclude under the cited statute.

Citations and references

• California Revenue and Taxation Code sections 6012(a)(4), 6012(b)(1), 6012(c)(7), 6051, and 6091 (as cited)
• California Health and Safety Code sections 41950 et seq. and 41961 (as cited)
• California Civil Code section 1656.1 (as cited)
• California Sales and Use Tax Regulation 1628(b)(2) — as cited; source says a copy was enclosed, but the enclosure is absent from the official PDF
• California Sales and Use Tax Annotation 550.0050 dated May 13, 1992 on brokerage fees — as cited; prior staff opinion, facts, and copy not supplied
• June 15, 1995 letter asking about vapor recovery, fuel delivery, and fuel brokerage — letter and attachments, other than quoted vapor description, not reproduced in the official PDF
• Vapor-recovery equipment and certification or associated fees, customer fuel delivery and pumping, retailer-owned trucks, site-of-sale measurement, fuel-broker license, truck-and-trailer-load negotiations, common-carrier or supplier-truck delivery, and own-account trading — permits, certifications, fee notices, invoices, delivery records, pumping records, license, purchase and resale records, contracts, and accounting records not reproduced in the official PDF
• July 25, 1995 senior-tax-counsel response based partly on stated assumptions and copied to a redacted district administrator — no taxpayer reply, corrected facts, transaction treatment, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1303's sections 41950 et seq. and 41961, vapor-recovery certification and associated fees, business-cost conclusion, and July 25, 1995 date — annotation omits the June 15 request, express assumptions and error warning, fuel-delivery and brokerage issues, statutory and regulatory authorities, Annotation 550.0050, missing Regulation 1628 enclosure, 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/295-1303.pdf

Original ruling text

295.1303

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)

DEAN ANDAL
Second District, Stockton

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

ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL

Controller, Sacramento
────────

July 25, 1995

BURTON W. OLIVER

Executive Director

Mr. G--- T. D--M--- P--P.O. Box XXX
---, California XXXXX
RE:

SR -- XX-XXXXXX1
Services as Part of Sale

Dear Mr. D---:
I am responding to your letter to the Legal Division dated June 15, 1995. You state that you perform various services as part of your operation and ask about the application of sales tax to them. You have particular questions about three parts of your business: vapor recovery; fuel delivery to customers; and fuel brokerage operations. OPINION A. Sales and Use Tax Generally. In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes a sales tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise noted, all statutory references are to the Revenue and Taxation Code.) The total amount of the sale price includes any services that are a part of the sale. (§ 6012(b)(1).) "It shall be presumed that all gross receipts are subject to tax until the contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon the person who makes the sale . . . ." (§ 6091.) The retailer owes the sales tax but may collect sales tax reimbursement from the purchaser pursuant to agreement. (Civ. Code § 1656.1.)

Mr. G--- T. D---

-2-

July 25, 1995
295.1303

B. Tax Consequences.

1. Vapor Recovery.
   You describe this operation as follows:
   "The first area of concern is Vapor Recovery. This a mandatory function of all service stations. It is our contention that this is a service to our customer. Our customer comes to our place of Business with a Tank full of Gasoline Vapor which is introduced in our Vapor Recovery sustem. This system includes Special nozzle, Hoses, Piping and a Vapor Processor." (Emphasis in original.) We assume from your description that you are talking about the Vapor Recovery System which gasoline stations are required by Health and Safety Code Sections 41950 et. seq. to install. You are apparently asking why the Certification Fee mandated by Health and Safety Code Section 41961 (and other associated fees, if any) must be included in your taxable gross receipts. These are costs of doing business just as are your rent and utility bills. Under the above authority, they may not be excluded from gross receipts. The only items which gas stations may routinely exclude from gross receipts are federal excise taxes on the sale of gasoline and Motor Vehicle Fuel License Tax. (§ 6012(a)(4).)
2. Fuel Delivery Charges. You state that you deliver gasoline and diesel fuel to some of
   your customers and provide pumping services at the site. You ask if these transportation charges can be excluded from gross receipts. We assume that, while the customer orders from you a certain amount of gas/fuel to be delivered to the customer's location, you deliver it in your own trucks and you actually sell it at the site as measured by the actual amount pumped. Consequently, your transportation charges are specifically included in your gross receipts. (§ 6012(c)(7); Reg. 1628(b)(2). Sales and Use Tax Regulations are issued by the Board to aid in the enforcement and administration of the Sales and Use Tax Law and have the force and effect of law.) 3. Brokerage Fees. You state that you maintain a fuel broker's license and that customers negotiate with you to buy a truck and trailer load of fuel, and you indicate that you also arrange for the delivery of the fuel via common carrier or the supplier's trucks. We thus assume that you operate as a trading house for customers and suppliers and so buy and sell the fuel on your own account. We have previously determined that, under this scenario, brokerage fees are costs of doing business and are included in gross receipts under the above authority. (See, e.g. Annot. 550.0050. (5/13/92) Sales and Use Tax Annotations are excepts from previous Board staff opinion letters and serve as guides to Staff positions.)

Mr. G--- T. D---

-3-

July 25, 1995
295.1303

Please note that our conclusions are based in part on the assumptions we have drawn from the facts you supplied. Errors in those assumptions can affect our conclusions. For your information, I have included a copy of Regulation 1628. 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 Tax Counsel
JLW:sr
Enclosure: Reg. 1628
cc:

--- District Administrator - --