Could a retailer deduct telephone and inbound shipping costs incurred to obtain special parts for customers?

Plain-English summary

An unidentified retailer's absent March 23, 1953 letter to Assistant Sales Tax Administrator W. T. Danny said that obtaining special parts for customers sometimes required telephone calls to the supplier and payment of transportation charges to the retailer.

Tax Counsel E. H. Stetson treated the telephone calls as seller expenses and services forming part of the sale under section 6012. He treated inbound transportation as nondeductible because it occurred before the sale—described under section 6006 as passage of title, or possession under a conditional-sale contract.

The published PDF's section 6012 quotation and final sentence are incomplete or garbled. The readable analysis supplies the two reasons, and the live annotation expressly confirms that telephone expense and transportation charges incurred to obtain special parts may not be deducted from gross receipts. The source references an auditor and possibly County of Kings material but supplies no audit, material, assessment, appeal, or later outcome.

Citations and references

• California Revenue and Taxation Code section 6012 — quoted in part for gross receipts without deduction for materials, labor or service cost, interest, losses, other expenses, or transportation before sale, and described as including services that are part of the sale; the official PDF's quotation is visibly incomplete, and complete text, subdivisions, version, and later history are not supplied
• California Revenue and Taxation Code section 6006 — described as defining sale by passage of title to the customer or possession under a conditional-sale contract; complete text, subdivisions, version, and later history not supplied
• March 23, 1953 unidentified retailer letter addressed to Assistant Sales Tax Administrator W. T. Danny and stating that obtaining special parts sometimes required supplier telephone calls and transportation charges — request, purchase orders, telephone records, supplier invoices, freight bills, customer contracts and invoices, title terms, conditional-sale records, and tax records not reproduced in the official PDF
• March 26, 1953 Tax Counsel E. H. Stetson response treating supplier calls as seller expense and part-of-sale service and inbound transportation as occurring before sale, while referring to an auditor's inclusion of the charges — the PDF's concluding sentence and part of its section 6012 quotation are visibly incomplete or garbled; no audit, County of Kings material, requester reply, assessment, refund claim, appeal, or later outcome supplied; copy marked Fresno
• Official Annotation 295.1720's telephone-expense, transportation, seller, special-parts, gross-receipts, and March 26, 1953 rules — annotation confirms that the charges may not be deducted, resolving the supporting PDF's garbled conclusion, but omits the March 23 request provenance, W. T. Danny, statutory quotation and title analysis, auditor reference, missing records, copied office, 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/295-1720.pdf

Original ruling text

295.1720

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 26, 1953

Attention:
Gentlemen:
This is in answer to you letter of March 23 addressed to the attention of Mr. W. T. Danny, Assistant Sales Tax Administrator. You stated that sometimes it is necessary in securing special parts for your customers to make telephone calls to the supplier and to pay the transportation charge for shipping these parts to you. The sales tax is applicable to a retailer’s “gross receipts”. Section 6012 of the Sales and Use Tax Law defines “gross receipts” to be the total amount of the sale price without any deduction on account of “(b) the cost of the materials used, labor or service cost, interest paid, losses, or any other expenses. (c) the cost of transportation of the property prior to its sale to the purchaser”. The section also provides that the total amount of the sale”. We believe that the telephone calls necessary to obtain special parts are clearly an expense of the seller and a service that is a part of the sale within the meaning of Section 6012. Similarly, the transportation cost cannot be deducted since it occurs prior to the “sale” which, under Section 6006, means passage of title to the customer (or possession in the case of a conditional sale contract). Accordingly, it appears that our auditor correctly included these charges in the furnish to the County of Kings if you wish.

Very truly yours,

E. H. Stetson
Tax Counsel

EHS:ph
Cc: Fresno