Was a separately stated energy surcharge on industrial gases and welding supplies taxable?

Plain-English summary

The seller's energy surcharge was included in taxable gross receipts. It represented the company's cost of heating and cooling its office, warehouse, or distribution center and was passed through as part of retail sales of industrial gases or welding supplies.

Separately stating the surcharge on the invoice did not change the result. Without a specific statutory exclusion, a retailer's materials, services, and business expenses passed to the purchaser remain in the sales or use tax measure.

Citations and references

• California Revenue and Taxation Code sections 6011, 6012, 6051, 6201–6203, and 6401 (as cited)
• California Civil Code section 1656.1 and California Sales and Use Tax Regulation 1700 (as cited)
• June 25, 2001 letter requesting a legal opinion on energy-surcharge taxability and quoting a temporary surcharge effective June 15, 2001 — letter and attachments, other than quoted passage, not reproduced in the official PDF
• Industrial-gas and welding-supply sales to exempt and nonexempt customers, separately stated surcharge, and energy costs for an office, warehouse or distribution center — surcharge amount and formula, invoices, exemption certificates, energy bills, sales records, returns, and accounting records not reproduced in the official PDF
• August 17, 2001 tax-counsel response copied to an unnamed District Administrator — no taxpayer reply, surcharge duration or change, invoice treatment, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1319's industrial-gas and welding-supply facts, nonexempt-customer surcharge, business-cost, separately-stated, taxable-gross-receipts conclusion, and August 17, 2001 date — annotation omits the June 25 request, temporary status and June 15 start, permit reference, cited authorities, unnamed administrator, missing surcharge amount and transaction 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/295-1319.pdf

Original ruling text

295.1319

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 17, 2001

Re:
Permit No. --Dear --- ---,
This is in response to your letter dated June 25, 2001, addressed to the Legal Department of the State Board of Equalization. In your letter you state that it was suggested you contact us regarding a legal opinion on whether tax applies to energy surcharge fees your company charges its customers. We understand that your company sells industrial gases and supplies for use in welding operations. Specifically, you state: "At present we are taxing only customers who are not tax exempt. This surcharge is temporary and became effective with our company on June 15, 2001. I am requesting clarity, as to whether these surcharges actually warrant tax?" I understand you to ask whether the energy surcharge your company charges its customers as part of its sale of industrial gases or welding supplies is part of your company's taxable gross receipts. DISCUSSION As a starting point, California imposes a sales tax on a retailer's gross receipts from the retail sale of tangible personal property inside this state unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.)1 When sales tax does not apply, such as when the sale takes place outside the state, use tax is imposed on the sales price of property purchased from a retailer for the storage, use or other consumption of that property in California. (Rev. & Tax. Code §§ 6201, 6401.)2 Taxable gross receipts or sales price include all amounts received with respect to the sale, with no deduction for the cost of the materials, service, or expense of the retailer passed on to the purchaser, unless there is a specific statutory exclusion. (Rev. & Tax. Code §§ 6011, 6012.) Thus, unless a specific exclusion exists, expenses incurred by a retailer which are part of the retail sale of tangible personal property, such as energy surcharge fees, are

included in the taxable gross receipts, as are any other costs of the retailer which are passed on to the end customer (even if those costs are separately itemized). We understand that the "energy surcharge fee" your company charges is a cost of doing business (i.e., energy charges incurred to heat and cool an office, warehouse and/or distribution center) which it passes on to its customers. Thus, the "energy surcharge fee" is part of the cost of materials sold to your company's customers at retail and must be included in your company's taxable gross receipts whether or not they are separately stated in a sales invoice provided to your company's customers. These charges are not tax exempt. I hope this answers your question. If you have any further questions, please write again.

Sincerely,

Trecia M. Nienow
Tax Counsel

TMN:sr
cc:

District Administrator

1This tax is imposed on the retailer who may collect reimbursement from its customer if the contract of sale so provides. (Civ. Code § 1656.1; Reg. 1700.) 2This tax is imposed on the person actually storing, using, or otherwise consuming the property. (Rev. & Tax. Code § 6202.) A retailer engaged in business inside this state is required to collect this tax from its customers and remit it to this Board. (Rev. & Tax. Code §§ 6202, 6203.)