Is a separately stated charge recapturing a retailer's invoice-related administrative expenses subject to California use tax?

Plain-English summary

A separately stated administrative-expense charge was subject to California use tax when it recaptured the retailer's costs associated with the invoice and sale. The retailer calculated the charge as a percentage of the merchandise amount.

The Board explained that use tax is measured by the tangible personal property's "sales price." Under section 6011, that measure includes labor, service, and administrative costs associated with the sale, including the invoice-related expenses described by the retailer. Separately listing the charge did not remove it from the taxable price.

Citations and references

• California Revenue and Taxation Code section 6011, described as including all labor, service, and administrative costs associated with a sale in the sales price of tangible personal property (as cited)
• November 5, 1996 retailer letter, received by the Board on November 23, requesting written advice about a percentage-based invoice line recapturing administrative expenses — request, attachments, and receipt record not reproduced in the official PDF
• Redacted California use-tax collection account, merchandise sales, invoices, administrative expenses, recapture line, and percentage calculation — registration record, sales records, invoices, expense ledgers, calculation methodology, customer payments, returns, and remittances not reproduced in the official PDF
• November 26, 1996 assistant-chief-counsel response signed by Gary J. Jugum — no retailer reply, implementation record, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1479's out-of-state-retailer characterization, registration, invoice charge, percentage method, section 6011 analysis, taxable conclusion, and November 26, 1996 date — supporting letter says only that the retailer was registered with California and does not establish an out-of-state location; annotation omits the request and receipt dates, redacted account, missing 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/295-1479.pdf

Original ruling text

295.1479

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 445-3723
FAX (916) 323-3387

November 26, 1996

Mr. D--- G--C--- N--- Vendors
XXXXX --- Way
---, --- XXXXX
Account No. SZ – XX-XXXXXX
Dear Mr. G---:
This is in response to your letter of November 5, 1996, which was received in this office on November 23. We understand that you are registered with California for the collection of California Use Tax. You have sought our written advise with respect to the following. You are adding a line on your invoices for administrative expenses. This charge represents a recapture of your administrative expenses associated with the invoice (sale). The charge is calculated as a percentage of the merchandise amount on the invoice. Your question is: Does the State of California tax this recapture? The recapture question is subject to California tax. The use tax is measured by the “sales price” of the tangible personal property. The “sales price” includes all charges for labor, service, or administrative costs associated with the sale of the property, including administrative expenses associated with the invoice. Calif. Rev. and Tax. Code section 6011. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel

GJJ:sr