Was a handling or release charge taxable when a custom-forms manufacturer stored completed forms and shipped requested quantities?

Plain-English summary

A manufacturer produced custom business forms, moved the completed forms into storage, maintained customer inventory records, and released requested quantities to California locations. Its invoice added a handling or release charge based on the number of lines in the release.

The Board treated that charge as taxable. Handling tangible personal property that the manufacturer sold at retail was a service that was part of the sale under the cited sales-price and gross-receipts definitions.

Citations and references

• California Revenue and Taxation Code sections 6011, 6011(b)(1), 6012, and 6012(b)(1), described as computing use and sales tax on sales price and gross receipts and including services that are part of a sale (as cited) — the live annotation supplies no statutory citation
• August 11, 1988 corporate-tax-manager letter describing one way redacted D's custom-business-form transactions could be structured and referring to an attached sample — request, original attachment, other transaction formats, and correspondence history not reproduced beyond quoted excerpts in the official PDF
• Described production, California distribution, storage facility, customer inventory reporting, less-than-carton releases, quantity-times-price billing, and line-based handling or release charge — customer agreement, production order, inventory ledger, storage record, release request, distribution record, and actual invoice not reproduced in the official PDF
• Quoted sample for an ATM Cash Sheet and Com-IA showing redacted dates, quantities 100 and 400, unit prices .042550 and .01665, amounts 4.26 and 6.66, two lines, product total 10.92, freight .00, and handling 10.00, with tax and total fields blank — original sample, calculation support, payment, and tax treatment not reproduced
• September 22, 1988 tax-counsel response signed by Ronald L. Dick to a redacted corporate tax manager and account — no company reply, implemented transaction, return, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1502's manufacturer, production, storage, distribution, customer-release billing, handling-or-release charge, service-part-of-sale conclusion, and September 22, 1988 date — annotation omits the request, transaction-format qualification, inventory reporting, less-than-carton and line-based details, quoted sample and blank fields, sections 6011 and 6012, 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/295-1502.pdf

Original ruling text

295.1502

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

September 22, 1988

Mr. F. E. H---, Jr.
Corporate Tax Manager
D--- P---, Inc.
P. O. Box XXXX
---, --- XXXXX
SZ – XX-XXXXXX
Dear Mr. H---:
This is in reply to your August 11, 1988 letter regarding the application of sales and use tax to a handling charge in connection with sales by D--- P---, Inc. You explained the following facts: D--- manufactures custom business forms. The following format is one of the ways a transaction can be structured. A customer has D--- produce, store, and distribute the forms to various locations in California. After production, the various forms are moved to a D--- storage facility. At this facility, inventory levels of each of the customer’s forms are recorded and reported to the customer. As the customer requests forms in less than carton quantities, they are billed for the amount released. D--- will then invoice the customer as follows: quantity released x price per item. Total the number of lines and add a handling or release charge based on the number of lines on a release (see attached sample).”

Mr. F. E. H---, Jr.

-2-

September 22, 1988
295.1502

The example you attached shows the following:
“EXAMPLE

ATM Cash Sheet
Com – IA

x/x/88
x/x/88

Quantity

Price/Ea.

Amount

100
400

.042550
.01665

4.26
6.66

Lines

Product

Freight

Handling

2

10.92

.00

10.00”

Tax

Total

The California use tax and sales tax are respectively computed on the “sales price” and “gross receipts” of the sale. (Rev. & Tax. Code §§ 6011, 6012.) Both “sales price” and “gross receipts” are defined to include, “any services that are a part of the sale.” (Rev. & Tax. Code § 6011, subd. (b)(1); 6012, subd. (b)(1).) Your charge to your customer for handling tangible personal property that you sell at retail is subject to tax as a service that is part of the sale. We hope this has answered your question; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Tax Counsel

RLD:sr