California: Sales Tax Handbook
What is included in California's sales tax basis?
Many times, an otherwise-taxable transaction will include bundled fees like excise taxes, installation fees, or finance charges or be modified with coupons, installment payment plans, etc. One question that will often arise is whether or not a certain payment or fee is included in a transaction's taxable basis.
The taxable basis refers to the portion of an entire transaction that is subject to California's sales tax. This page answers common questions about which common fees are included in the sales tax basis in California, and which are excluded.
- Are coupons and discounts included in the sales tax basis?
- Are excise taxes included in the included in the sales tax basis?
- How are installment-based sales taxed?
- Are installation fees included in the sales tax basis?
- Are finance charges included in the sales tax basis?
- Can I get a refund on sales taxes paid on returned or repossessed items?
- Can I get a refund on sales taxes paid on bad debts?
Inclusion in Sales Tax Basis
Are coupons and cash discounts included in the California sales tax basis?
What is not included is any retailers cash discounts or any sort of retailer coupons. However, if a third party or a manufacturer reimburses the retailer, then what is included is the amount of the coupon or discount.Top
Are excise taxes included in the California sales tax basis?
Excise taxes are separate levies added by many states to the price of commodity items such as alcohol, gasoline, etc. What is not included is federal excise taxes on retail sales, local rapid transit district sales and use taxes, state motor vehicle fees and taxes that are added to or measured by a vehicle's price, and diesel fuel excise tax. What is included are federal manufacturers and importers excise taxes on gasoline, diesel, or jet fuel for which the purchaser is entitled to a direct income tax credit or refund also not included, and import duties (so long as the importer of record is a consignee and the consignee is the buyer). State motor vehicle fuel license taxes are also included; along with some other manufacturers and importers excise taxes.Top
How are installment-based sales taxed?
Many businesses offer customers payment plans that allow them to pay the full price for a product over time in installments, often leading to confusion about when and how much sales tax is collected and remitted to California. The state has implemented the following provisions regarding installment sales:
Total sales price reported at time of sale
Note: Lay-away sales taxable at transfer of title
Are installation charges included in the California sales tax basis?
While the taxation of tangible goods is relatively straightforward, some states consider the installation costs associated with a tangible object (like carpeting, a home or vehicle fixture, etc) to be taxable. California policy states:
Installation charges are generally included in the taxable price of a tangible product.
Are finance charges included in the California sales tax basis?
Many businesses offer customers financing on higher-value products, and include financing charges in the overall cost of the item. These finance charges may also be subject to sales taxes. California policy states:
Finance charges are generally included in the taxable price of a tangible product.
Note: Must be separately stated
How can I get reimbursed for sales taxes paid on items that are returned or repossessed?
If a taxable good for which sales tax has been collected is returned or reposessed by the merchant, the state may allow the amount of sales tax collected to be either deducted from the merchant's current sales tax balance or refunded to the merchant by the state. California's policies state that returns and repossessions are:
Deductible, if the purchaser receives a full refund of the sales price including tax, and the purchaser is not required to purchase other property at a price greater than the returned merchandise in order to obtain a refund or credit
Note: Repossessions are deductible if the entire amount paid by the purchaser is refunded, or if a credit for a worthless account is allowable
How can I get reimbursed for sales taxes paid on bad debts?
If a merchant offers goods to a consumer on credit and the payment for those goods becomes delinquent, the merchant may be eligible to be reimbursed any sales tax they paid to the state on the consumer's behalf when the transaction was made. The method of reimbursement varies state by state.
Tax paid on bad debts can generally be recovered by the merchant as a deduction.
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