How was a separately stated handling charge taxed on invoices containing taxable items, resale items, or both?

Plain-English summary

California treated handling as part of the underlying transaction rather than as an independently exempt charge. Separately stating it did not remove it from taxable gross receipts when it related to a taxable retail sale.

If all property was sold for resale, the related handling charge was nontaxable. If one invoice combined taxable retail property and resale property and the handling charge related to both, the charge could be prorated between the taxable and nontaxable portions.

If the charge related only to the taxable property, it remained fully taxable even when the same invoice also included an unrelated nontaxable service or other nontaxable amount.

Common questions

Is a separately stated handling charge automatically exempt?

No.

What happened on an all-resale sale?

The related handling charge was not subject to sales tax.

When could the charge be prorated?

When a mixed sale contained taxable and nontaxable portions and the handling charge related to both.

Citations and references

• Cal. Rev. & Tax. Code § 6051 — sales tax measured by gross receipts from retail sales
• Cal. Rev. & Tax. Code § 6012 — gross receipts include charges related to a taxable sale unless specifically excluded

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/557-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/557-0256.pdf

Original ruling text

557.0256

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 C--- P--- P--XXXX --- Avenue, Suite --- ---, 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. 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

Mr. J--- M---

-2-

September 8, 1994
557.0256

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:

San Jose District Administrator