Was an auto dealer's separately stated documentary preparation charge included in California taxable gross receipts?

Plain-English summary

The memorandum concluded that an auto dealer had to include a separately stated documentary preparation charge in taxable gross receipts. Preparing the necessary sale documents was both a dealer business expense and a service forming part of the vehicle sale under the cited definition of gross receipts.

Separately breaking out the charge did not change that result. The memorandum stressed that sellers could not reduce the tax measure merely by labeling a necessary selling cost as a separate service or labor charge.

Source-amount note

The 1978 supporting memorandum describes a then-authorized maximum charge of $20. CDTFA's annotation description later states $35. Because both figures are historical and the source does not establish today's cap, this page states the tax treatment without presenting either amount as current law.

Citations and references

• California Revenue and Taxation Code sections 6012(a)(2) and 6012(b)(1) (as cited)
• Assembly Bill 3391 (Ingalls), Chapter 632 of 1970 (as cited)
• California Vehicle Code section 11713.1 (identified by the live annotation, not the supporting memorandum)
• Internal question from Vic Anderson about whether an auto dealer's documentary preparation charge entered gross receipts — separate request, conversation record, and attachments, if any, not supplied
• Vehicle advertisements, documentary preparation, final customer prices, sales tax, registration fees, finance charges, and separately broken-out fees — advertisements, sale documents, invoices, fee calculations, returns, and accounting records not reproduced in the official PDF
• Discussion with Bob Nunes and planned inclusion of taxability information in the December Tax Information Bulletin — discussion date and notes, bulletin year, issue, article, publication record, and copy not supplied
• October 6, 1978 assistant-chief-counsel memorandum copied to R. Nunes and L. A. Augusta — no recipient response, bulletin implementation, transaction treatment, audit, assessment, refund claim, agency adoption beyond publication, appeal, or later outcome supplied
• Supporting memorandum's $20 maximum versus Official Annotation 295.1315's $35 maximum and section 11713.1 attribution — no amendment, effective date, source, or explanation for the difference supplied
• Official Annotation 295.1315's section 11713.1, $35 cap, dealer-gross-receipts conclusion, and October 6, 1978 date — annotation omits AB 3391 and its $20 figure, sections 6012(a)(2) and (b)(1), internal question and discussion, planned Tax Information Bulletin, copied staff, 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/295-1315.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

295.1315

To:

Mr. Vic Anderson, Pasadena

From:

Thomas P. Putnam, Assistant Chief Counsel

Subject:

Taxability of Auto Dealers Documentary Preparation Charge (AB 3391)

Date:

October 6, 1978

AB 3391 (Ingalls), chapter 632 of 1970, among other things, permits an auto dealer to add to the advertised price of a vehicle a "documentary preparation charge" not to exceed $20. Under existing law, an auto dealer may not advertise the total cost of a vehicle without including all costs to the purchaser; however, the amount of the sales tax, vehicle registration fees and finance charges need not be included in the advertised price, and may be added onto the advertised price when calculating the final price to the consumer. AB 3391 would add the “documentary preparation charge” to the list of items that can be added onto the advertised price. You have asked whether the documentary preparation charge is includible in the gross receipts subject to the sales tax. In my opinion the charge is properly included. Section 60l2(a) (2) of the Revenue and Taxation Code defines “gross receipts” to mean "(a)… the total amount of the sale or lease or rental price… without any deduction on account of
… (2) The cost of the materials used, labor or service cost, interest paid, losses, or any other expense Subdivision (b) (1) of that section provides "(b) The total amount of the sale or lease or rental price includes all of the following: (1) Any services that are a part of the sale...” It is my view that a fee for preparing necessary documents is an expense of the sale and also a fee for services that are a part of the sale. As such, such a fee is subject to tax. This treatment of this fee involves a very important principle. The cost of preparing documents is a necessary cost of doing business, as are many other costs similar and dissimilar. We have been very careful to avoid attempts to reduce the measure of the tax by "breaking out" particular costs as separate charges on the claim that they are "services" or "labor" and not part of the price for tangible personal property. I have discussed this matter with Bob Nunes, and he will include information on the taxability of this charge in the December Tax Information Bulletin. TPP:po cc:

R. Nunes
L. A. Augusta