How should a seller tax a handling charge on an invoice containing taxable, resale, or mixed items?

Plain-English summary

A handling charge was taxable when it related to a taxable retail sale, even if separately stated. It was nontaxable when it related entirely to a sale for resale because the underlying transaction was not a taxable retail sale.

When one invoice contained both taxable merchandise and resale items and the handling charge covered both, the seller could prorate the charge between the two categories. The letter's example taxed $1.50 of a $3 handling charge on an evenly divided $100 invoice. But if the handling charge related only to the taxable property, the entire charge was taxable even though the same invoice also listed an unrelated nontaxable service.

Citations and references

• California Revenue and Taxation Code sections 6012 and 6051, described as imposing sales tax measured by retail-sale gross receipts and including related charges unless statute excludes them (as cited)
• May 4, 1994 director-of-operations letter asking about handling charges on invoices containing only taxable items, only nontaxable items, or a mixture — request, attachments, company sales practices, and correspondence history not reproduced in the official PDF
• Hypothetical $100 retail sale plus $3 handling producing $103 taxable receipts, $100 resale plus $3 handling producing no taxable receipts, and half-retail/half-resale beauty-product sale plus $3 handling producing $51.50 taxable receipts if handling related to all items — actual invoices, item lists, resale certificates, charge methodology, and allocation records not reproduced in the official PDF
• Hypothetical mixed invoice with $50 taxable property, $50 unrelated nontaxable service, and $3 handling related solely to the property, producing $53 taxable receipts — actual invoice, service agreement, handling records, and allocation support not reproduced in the official PDF
• September 8, 1994 tax-counsel response signed by Victor G. Matl and copied to a redacted district administrator — no company reply, implemented invoice, return, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1507's taxable, resale, mixed-sale, and property-only handling rules, $50/$50/$3/$53 example, and September 8, 1994 date — annotation omits the request, first three examples including beauty products and $51.50 result, sections 6012 and 6051, copied administrator, 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/295-1507.pdf

Original ruling text

295.1507

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-2641

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

September 8, 1994

────────
BURTON W. OLIVER
Executive Director

Mr. J--- M--Director of Operations
XXst --- --- Products
XXXX --- Avenue, Suite A
--- ---, CA XXXXX
Dear Mr. M---:
I am responding to your letter of May 4, 1994. I apologize for the delay in our response. You ask whether a "handling charge" is taxable on an invoice which is composed of only taxable items, only non-taxable items, or a mixture of taxable and non-taxable items. When you make a taxable retail sale of tangible personal property in California, you owe sales tax measured by your gross receipts from that sale. (Rev. & Tax. Code § 6051.) Your taxable gross receipts include all charges related to the taxable sale of tangible personal property except those charges specifically excluded from taxation by statute. (Rev. & Tax. Code § 6012.) There is no provision which would exempt or exclude handling charges from taxation. Thus, a handling charge is subject to tax when part of a taxable sale of tangible personal property, even if separately stated. Therefore, if you make a taxable sale of tangible personal property, the handling charge is subject to tax. If you make a sale of property that is not subject to sales tax, such as a sale where all items are purchased for resale, the handling charge is not subject to tax. If you make a sale, part of which is a taxable retail sale and part of which is a nontaxable sale (such as partly for resale), the handling charge is prorated between the taxable part of the sale and the nontaxable part of the sale, provided that the handling charge relates to both parts of the sale.

Mr. J--- M---

-2-

September 8, 1994
295.1507

For example, if you make a taxable retail sale of property for $100 plus $3 handling, your taxable gross receipts from that sale are $103. The charge for handling cannot be deducted from the measure of tax even if separately stated. If you make a sale for resale for $100 plus $3 handling, tax applies to none of your charges because the entire charge relates to a nontaxable sale for resale. If you make a sale of property for $100 plus $3 handling where one-half the charge is for a sale of property subject to sales tax (e.g., beauty products to be used by the purchasing salon) and one-half the charge is for a sale of property for resale (e.g., beauty products to be resold by the salon), assuming the handling charge relates to all items sold, onehalf of the handling charge would be attributable to the taxable sale and one-half would be attributable to the nontaxable sale for resale. Your taxable gross receipts from the retail portion of that sale would be $51.50. However, as noted above, if the handling charge relates solely to the retail sale of tangible personal property, it is fully taxable even if part of a mixed invoice. For example, you make a taxable sale of tangible personal property for $50 and provide a nontaxable service for $50 unrelated to the taxable sale. You add a $3 handling charge to the invoice which relates to your handling of the tangible personal property. Your taxable gross receipts would be $53 since the handling charge relates solely to the taxable sale. If you have further questions, feel free to write again. Very truly yours,

Victor G. Matl
Tax Counsel
VGM:cl

cc:

--- --- District Administrator