How much of a pre-need burial contract fee entered taxable receipts when it covered future merchandise and service cost increases?

Plain-English summary

The taxable gross receipts included both the stated price of burial merchandise and the part of the pre-need contract fee attributable to future increases in that merchandise's cost. The merchandise examples were a vault, liner, and urn.

The portion of the fee attributable to future service costs was not part of the tangible-personal-property sales price. The contract separately listed opening and closing services such as opening the grave and setting up a tent.

Under Regulation 1505(c), no sale occurred for sales-and-use-tax purposes until the promised burial services were performed. The merchandise amount and merchandise-related fee portion were therefore reported for the period when those services were rendered.

Source and live-annotation limits

The memorandum does not reproduce J. W. Cornelius's November 15, 1996 memorandum or the taxpayer's Agreement to Purchase Pre-Need Burial Rights, Endowment Care, Merchandise and Services. It supplies no taxpayer representative, customer, merchandise, burial, fee or tax amount, Board of Directors record, current pre-need fund, current liability, number of agreements sold, allocation calculation, invoice, tax return, completed services, audit, assessment, or later outcome. The taxpayer's staff explanation is reported but not separately documented.

The live annotation preserves the four fee categories, future-cost purpose, merchandise allocation, and reporting period. It omits the internal request, redacted district, grave and tent examples, Board-set fee and its fund/liability/agreement-count inputs, sections 6012 and 6051, missing agreement and records, and later-outcome gap.

What this means for you

Cemeteries, morticians, pre-need sellers, and tax professionals

Document each merchandise and service price, the method and evidence used to allocate any future-cost fee, the pre-need fund and liability calculations, when services are actually rendered, and the return period. A fee label alone did not remove its merchandise-related portion from taxable receipts.

Common questions

Was the entire pre-need fee taxable?

No. Only the portion representing future merchandise-cost increases entered the taxable merchandise receipts.

When was the taxable amount reported?

In the return period when the burial services were rendered.

What did the contract price separately?

Merchandise, opening and closing services, the pre-need contract fee, and sales-tax reimbursement.

Citations and references

• California Revenue and Taxation Code sections 6012 and 6051 — gross-receipts measure and general retail-sales tax rule
• California Code of Regulations, title 18, section 1505(c) — timing rule for pre-need funeral and cemetery agreements
• November 15, 1996 memorandum, pre-need agreement, Board of Directors fee determination, fund, liability, agreement-count, and transaction records — described or referenced but not included

Verbatim support

From the official December 30, 1996 memorandum:

In this case, the gross receipts from the sale of the tangible personal property include the charge for the merchandise and the portion of the pre-need contract fee which represents the amount to offset the future increase in cost for the merchandise.

This amount should be reported on the tax return for the period in which the burial services are rendered.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/370-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/370-0115.pdf

Original ruling text

State of California

Board of Equalization

Legal Division-MIC: 82

Memorandum

370.0115

To:

Mr. J. W. Cornelius, Supervisor (MIC: 40)
Audit Evaluation and Planning Section

From:

Sophia H. Chung
Tax Counsel

Subject:

G--- C--- District
Account No. SR -- XX-XXXXXX

Date:

December 30, 1996

Your memorandum dated November 15, 1996, to Mr. Gary J. Jugum, Assistant Chief Counsel, has been referred to me for response. You request a legal opinion regarding the proper measure of tax for the sale of a burial vault in connection with the execution of a pre-need agreement. The taxpayer has provided a copy of an Agreement to Purchase Pre-Need Burial Rights, Endowment Care, Merchandise and Services. This contract separately lists the following fees: (1) cash price for merchandise (vault, liner, urn); (2) cash price for opening/closing; (3) cash price for pre-need contract; and (4) sales tax reimbursement. The taxpayer has explained to a member of your staff that the opening/closing fee is for services such as opening the grave and setting up a tent, and that the pre-need contract fee is an amount set by the Board of Directors to offset the increase in costs at the time of burial for both the merchandise and the services. The amount of the pre-need contract fee is determined based on the current pre-need fund, the current liability, and the number of pre-need agreements sold. DISCUSSION As you know, Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales in this state of tangible personal property, unless the sale is specifically exempt from taxation by statute. Revenue and Taxation Code section 6012 provides that “gross receipts” mean the total amount received from the retail sale of tangible personal property.

Mr. J. W. Cornelius

2

December 30, 1996
370.0115

Sales and Use Tax Regulation 1505 provides that tax applies to the sales of caskets, boxes, vaults, and clothing by morticians, and to the sales of other tangible personal property furnished by morticians in connection with rendering their services if a separate charge is made for such property. Where a mortician, cemetery association or other person enters into an agreement with a customer to provide services upon the death of the customer, no sale occurs for sales and use tax purposes until the services are rendered. (Reg. 1505(c).) In this case, the gross receipts from the sale of the tangible personal property include the charge for the merchandise and the portion of the pre-need contract fee which represents the amount to offset the future increase in cost for the merchandise. This amount should be reported on the tax return for the period in which the burial services are rendered.

SHC:rz