Was a mandatory $35 bookkeeping and vehicle-insurance service charge added to a used-car sale taxable?

Plain-English summary

A redacted used-car dealer's absent March 28, 1994 letter said the dealer was adding a $35 charge for bookkeeping and handling a customer's vehicle-insurance account. Staff counsel understood “adding” to mean that a customer had to pay the charge at the time of a car sale.

The Board concluded that the charge was taxable. California imposed sales tax on a retailer's gross receipts from retail sales of tangible personal property, and the cited definition of gross receipts included service costs that were part of the sale. Because payment of the $35 fee was mandatory with the car purchase, it was included in the dealer's taxable gross receipts.

The response invited further questions and copied a redacted District Administrator. The PDF supplies no dealer reply, completed transaction, return, audit, assessment, refund, appeal, or later-outcome record.

What this means

• Calling an amount a service charge did not remove it from the taxable measure.
• The decisive stated fact was that the customer had to pay the charge to buy the car.
• The letter did not decide how an optional service purchased independently of the car would be treated.

Citations and references

• California Revenue and Taxation Code section 6051 — cited for sales tax on retailers measured by gross receipts from California retail sales of tangible personal property unless specifically exempt by statute; complete text, version, and exemptions not supplied
• California Revenue and Taxation Code sections 6012(a)(2), (b)(1), and (b)(2) — described as defining gross receipts to include all receipts, cash, credits, property of any kind, and service cost that is part of the sale; quoted statutory text, complete subdivisions, version, and later history not supplied
• March 28, 1994 redacted dealer letter stating that the dealer was adding a $35 bookkeeping and vehicle-insurance-account service charge and asking whether it was taxable — request, sale contract, insurance account, invoice, fee calculation, customer disclosure, accounting records, and tax records not reproduced in the official PDF
• May 13, 1994 Staff Counsel Pat Hildebrand response understanding the proposed fee as mandatory at the time of a car sale and concluding it was taxable gross receipts — no dealer reply, completed transaction, return, audit, assessment, refund claim, appeal, or later outcome supplied; copy sent to a redacted District Administrator
• Official Annotation 295.1675's used-car-dealer, mandatory bookkeeping and insurance-account charge, gross-receipts, tax, and May 13, 1994 rules — annotation omits the $35 amount, March 28 request and proposed-fact provenance, counsel's explicit understanding, numbered statutes, absent records, copied administrator, 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/295-1675.pdf

Original ruling text

295.1675

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) 324-2642

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
────────

May 13, 1994

BURTON W. OLIVER
Executive Director

Mr. B--- M--B--- M--- A--- Sales
XXXX E. --- Ave.
---, CA XXXXX

Re:

SR --- XX-XXXXXX

Dear Mr. M---:
This is in response to your letter dated March 28, 1994. You state that you are a used car dealer. You also state that you are adding a $35 service charge for bookkeeping and handling a customer's vehicle insurance account, and ask whether this charge is taxable. From your statement that you will be "adding" this service charge, our understanding is that you add this service charge when you sell a car and you require the customer to pay the
$35 charge for bookkeeping and handling the customer account for vehicle insurance at the time the car is sold. A sales tax is imposed on all retailers measured by their gross receipts from retail sales of tangible personal property in this State unless the sale is specifically exempt by statute. (Rev. & Tax. Code § 6051.) As explained in Revenue and Tax Code sections 6012(a)(2), (b)(1), and (b)(2), "gross receipts" means the total amount of a retail sale of a retailer, including all receipts, cash, credits, property of any kind, and service cost that is a part of the sale. Based on the facts you supplied and our understanding that when your customers purchase a car, they must also pay the service charge, the service charge is, therefore, includible in the gross receipts of sale. Accordingly, the $35 charge is subject to tax.

Mr. B--- M---

-2-

If you have further questions, feel free to write again.
Sincerely,

Pat Hildebrand
Staff Counsel

PH:cl

cc:

--- District Administrator

May 13, 1994
295.1675