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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Law
Revenue and Taxation Code
Division 2. Other Taxes
Part 1. Sales and Use Taxes
Chapter 1. General Provisions and Definitions
Section 6012
6012. "Gross receipts." (a) "Gross receipts" mean the total amount of the sale or lease or rental price, as the case may be, of the retail sales of retailers, valued in money, whether received in money or otherwise, without any deduction on account of any of the following:
(1) The cost of the property sold. However, in accordance with any rules and regulations as the board may prescribe, a deduction may be taken if the retailer has purchased property for some other purpose than resale, has reimbursed his or her vendor for tax which the vendor is required to pay to the state or has paid the use tax with respect to the property, and has resold the property prior to making any use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business. If that deduction is taken by the retailer, no refund or credit will be allowed to his or her vendor with respect to the sale of the property.
(2) The cost of the materials used, labor or service cost, interest paid, losses, or any other expense.
(3) The cost of transportation of the property, except as excluded by other provisions of this section.
(4) The amount of any tax imposed by the United States upon producers and importers of gasoline and the amount of any tax imposed pursuant to Part 2 (commencing with Section 7301) of this division.
(b) The total amount of the sale or lease or rental price includes all of the following:
(1) Any services that are a part of the sale.
(2) All receipts, cash, credits and property of any kind.
(3) Any amount for which credit is allowed by the seller to the purchaser.
(c) "Gross receipts" do not include any of the following:
(1) Cash discounts allowed and taken on sales.
(2) Sale price of property returned by customers when that entire amount is refunded either in cash or credit, but this exclusion shall not apply in any instance when the customer, in order to obtain the refund, is required to purchase other property at a price greater than the amount charged for the property that is returned. For the purpose of this section, refund or credit of the entire amount shall be deemed to be given when the purchase price less rehandling and restocking costs are refunded or credited to the customer. The amount withheld for rehandling and restocking costs may be a percentage of the sales price determined by the average cost of rehandling and restocking returned merchandise during the previous accounting cycle.
(3) The price received for labor or services used in installing or applying the property sold.
(4) (A) The amount of any tax (not including, however, any manufacturers or importers excise tax, except as provided in subparagraph (B)) imposed by the United States upon or with respect to retail sales whether imposed upon the retailer or the consumer.
(B) The amount of manufacturers or importers excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for which the purchaser certifies that he or she is entitled to either a direct refund or credit against his or her income tax for the federal excise tax paid or for which the purchaser issues a certificate pursuant to Section 6245.5.
(5) The amount of any tax imposed by any city, county, city and county, or rapid transit district within the State of California upon or with respect to retail sales of tangible personal property measured by a stated percentage of sales price or gross receipts whether imposed upon the retailer or the consumer.
(6) The amount of any tax imposed by any city, county, city and county, or rapid transit district within the State of California with respect to the storage, use or other consumption in that city, county, city and county, or rapid transit district of tangible personal property measured by a stated percentage of sales price or purchase price, whether the tax is imposed upon the retailer or the consumer.
(7) Separately stated charges for transportation from the retailers place of business or other point from which shipment is made directly to the purchaser, but the exclusion shall not exceed a reasonable charge for transportation by facilities of the retailer or the cost to the retailer of transportation by other than facilities of the retailer. However, if the transportation is by facilities of the retailer, or the property is sold for a delivered price, this exclusion shall be applicable solely with respect to transportation which occurs after the sale of the property is made to the purchaser.
(8) Charges for transporting landfill from an excavation site to a site specified by the purchaser, either if the charge is separately stated and does not exceed a reasonable charge or if the entire consideration consists of payment for transportation.
(9) The amount of any motor vehicle, mobilehome, or commercial coach fee or tax imposed by and paid to the State of California that has been added to or is measured by a stated percentage of the sales or purchase price of a motor vehicle, mobilehome, or commercial coach.
(10) (A) The amount charged for intangible personal property transferred with tangible personal property in any technology transfer agreement, if the technology transfer agreement separately states a reasonable price for the tangible personal property.
(B) If the technology transfer agreement does not separately state a price for the tangible personal property, and the tangible personal property or like tangible personal property has been previously sold or leased, or offered for sale or lease, to third parties at a separate price, the price at which the tangible personal property was sold, leased, or offered to third parties shall be used to establish the retail fair market value of the tangible personal property subject to tax. The remaining amount charged under the technology transfer agreement is for the intangible personal property transferred.
(C) If the technology transfer agreement does not separately state a price for the tangible personal property, and the tangible personal property or like tangible personal property has not been previously sold or leased, or offered for sale or lease, to third parties at a separate price, the retail fair market value shall be equal to 200 percent of the cost of materials and labor used to produce the tangible personal property subject to tax. The remaining amount charged under the technology transfer agreement is for the intangible personal property transferred.
(D) For purposes of this paragraph, "technology transfer agreement" means any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright interest.
(11) The amount of any tax imposed upon diesel fuel pursuant to Part 31 (commencing with Section 60001).
For purposes of the sales tax, if the retailers establish to the satisfaction of the board that the sales tax has been added to the total amount of the sale price and has not been absorbed by them, the total amount of the sale price shall be deemed to be the amount received exclusive of the tax imposed. Section 1656.1 of the Civil Code shall apply in determining whether or not the retailers have absorbed the sales tax.
(12) (A) The amount of tax imposed by any Indian tribe within the State of California with respect to a retail sale of tangible personal property measured by a stated percentage of the sales or purchase price, whether the tax is imposed upon the retailer or the consumer.
(B) The exclusion authorized by subparagraph (A) shall only apply to those retailers who are in substantial compliance with this part.
History—Stats. 1943, p. 2454, operative July 1, 1943, added (c) to first paragraph and (d) and former (e) to third paragraph. Stats. 1945, p. 1724, operative July 1, 1945, added "valued in money, whether received in money or otherwise" to first paragraph and deleted same words from (a) in second paragraph; added last sentence to (a) in first paragraph; added to (b) in third paragraph a provision respecting return of property within 90 days from sale. Stats. 1947, p. 506, in effect February 6, 1947, added present (e) and (f) to third paragraph and relettered former (e) in third paragraph as (g). Stats. 1953, p. 1958, in effect September 9, 1953, in (b) of third paragraph deleted "upon rescission of the contract of sale" and the provision respecting return of property within 90 days from sale and added the language following "credit." Stats. 1957, p. 1688, in effect September 11, 1957, added last sentence to (b) of third paragraph. Stats. 1960, p. 18, in effect June 25, 1960, added (h). Stats. 1961, p. 4536, in effect September 15, 1961, added (d) to second paragraph. Stats. 1962, p. 6, in effect July 3, 1962, substituted "except as excluded by other provisions of this section" for "prior to its sale to the purchaser" in (c) of the first paragraph; and deleted "On and after February 1, 1947" from (e) and (f) of the last paragraph, and completely revised (g). Stats. 1968, p. 1792, in effect November 13, 1968, deleted (d) of second paragraph relating to a tax that is presumed to be on the consumer and added words "rapid transit district" in (e) and (f) of the last paragraph. Stats. 1971, p. 2781, operative July 1, 1972, relettered the section and added paragraph (a)(4). Stats. 1978, Ch. 1211, effective January 1, 1979, added new last sentence to (c) (8). Stats. 1982, Ch. 1589, in effect January 1, 1983 added "mobilehome, or commercial coach" after each "vehicle" in subsection (8) of subdivision (c). Stats. 1983, Ch. 844, in effect September 16, 1983, operative January 1, 1984, substituted "that entire amount" for "the full sale price" after "when" in the first sentence of, and added the third sentence to, subsection (2) of subdivision (c). Stats. 1988, Ch. 500, in effect August 22, 1988, added "A" and "except as provided in subparagraph (B)) in subdivision (c)(4) and added subparagraph (B). Stats. 1988, Ch. 1647, in effect October 1, 1988, operative January 1, 1989, added present subsection (8) and relettered former subsection (8) as subsection (9) in subdivision (c). Stats. 1993, Ch. 887, in effect October 8, 1993, but operative April 1, 1994, substituted "any" for "such" and added "or her" following "his" in the first sentence of, and substituted "that" for "such a" and added "or her" following "his" in the second sentence of, subdivision (a)(1), substituted "that" for "such" and substituted "the" for "such" following "whether," in subdivision (a)(6), deleted "; provided that" and added ". However," in subdivision (c)(7), and added paragraph (10) to subdivision (c). Stats. 1994, Ch. 912, in effect September 28, 1994, but operative July 1, 1995, added "4081 or" after "Section" in subparagraph (B) of paragraph (4) of subdivision (c) and added paragraph (11) to subdivision (c). Stats. 2000, Ch. 923 (AB 2894), in effect January 1, 2001, added "or for which … Section 6245.5" after "excise tax paid" in subparagraph (B) of paragraph (4) of subdivision (c). Stats. 2002, Ch. 593, (AB 2701), in effect September 16, 2002, but operative January 1, 2003, added paragraph (12).
Note.—Section 3 of Stats. 1987, Ch. 1280, added Section 1793.25 to the Civil Code to provide that the Board shall reimburse the manufacturer of a new motor vehicle for an amount equal to the sales tax which the manufacturer includes in making restitution to the buyer pursuant to subparagraph (d) (2) (B) of Section 1793.2 (commonly known as Californias "Lemon Law"), when satisfactory proof is provided that the retailer of the motor vehicle for which the manufacturer is making restitution has reported and paid the sales tax on the gross receipts from the sale of that motor vehicle. Section 1793.25 specifically states that this provision for reimbursement to manufacturers does not in any way change the general application of the sales and use tax to the gross receipts from the sale, and the storage, use or other consumption in this state of tangible personal property.
Note.—Section 4 of Stats. 1988, Ch. 500, adds an uncodified section as follows. (a) With respect to sales of diesel fuel made during the period of April 1, 1988, through September 30, 1988, a purchaser entitled to either a direct refund or credit against his or her income tax for the federal excise tax paid may so certify to the seller of the diesel fuel not later than December 31, 1988, in a form prescribed by the board.
(b) A seller receiving the certificate referred to in subdivision (a) may claim a refund or may claim credit on his or her return for the reporting period in which he or she receives the certificate with respect to sales or use tax reported by the seller which would not have been part of the sales price under subparagraph (B) of paragraph (4) of subdivision (c) of Section 6011 or part of the gross receipts under subparagraph (B) of paragraph (4) of subdivision (c) of Section 6012 if Sections 1 and 2 of this act had been in effect on and after April 1, 1988. The seller shall return the amount of the refund or credit to the purchaser.
Credits.—The sales price at which a wholly owned subsidiary corporation sold property to its parent or to another subsidiary constituted "gross receipts" of the wholly owned subsidiary where the buyer and seller were operated as separate corporate entities and the buyer gave the seller credit on its books for the amount of the sales price. Northwestern Pacific Railroad Co. v. State Board of Equalization (1943) 21 Cal.2d 524.
Allowance for "trade-in."—The value fixed by agreement between seller and buyer of property exchanged as a part of the purchase price of other property, rather than the appraised or market value, constitutes "gross receipts" upon which the tax is imposed. The difference between the agreed and appraised values is not deductible from gross receipts as a cash discount. Hawley v. Johnson (1943) 58 Cal.App.2d 232.
Aircraft wings exchange.—Where the taxpayer modified aircraft wings, installed them on customers aircraft, and took the aircrafts original wings in exchange as trade-ins, the exchange was a retail sale, the gross receipts of which included the taxpayers charges for labor in modifying the wings. Aircraft Tank Service, Inc. v. State Board of Equalization (1964) 224 Cal.App.2d 582.
Trading Stamps.—Trading stamps issued by a retailer to customers who pay cash for their purchases and redeem the stamps in merchandise at the redemption office or store of the company furnishing the stamps to the retailer constitute a "cash discount" within the meaning of this section, and the retailer is not, therefore, required to pay sales tax upon the portion of gross receipts equivalent to the amount paid by him for the stamps so issued. Eisenbergs White House, Inc. v. State Board of Equalization (1945) 72 Cal.App.2d 8.
Tips.—To the extent of the minimum wages provided by law, tips received and retained by restaurant waitresses and which are credited to employer as payment of minimum wages, pursuant to the contract of employment, are a part of the employers gross receipts and subject to tax. Anders v. State Board of Equalization (1947) 82 Cal.App.2d 88.
Transportation charges.—Separately stated charges for transportation are included in gross receipts and subject to tax where the merchandise is consigned to the buyer and shipped f.o.b. cars at the destination point, transportation charges collect and allowed. Meyer v. State Board of Equalization (1954) 42 Cal.2d 376. Where a contract obligated a retailer to deliver concrete blocks or decomposed granite to a point designated by the customer without any mutual understanding as to where title would pass, title passed at the destination, and separately stated charges for transportation are subject to sales tax, even though the same transportation charges were subject to tax under the Motor Vehicle Transportation License Tax Law. OKelley-Eccles Co. v. State of California (1958) 160 Cal.App.2d 60; Select Base Materials, Inc. v. State Board of Equalization (1959) 51 Cal.2d 640.
Returned merchandise━prior law.—Return of merchandise within 90 days pursuant to an agreement to credit customers with purchase price constitutes timely refund and rescission under (b) of the third paragraph prior to 1953 amendment, even though entries in records were not made until after the 90-day period. Youngstown Steel Products Co. v. State Board of Equalization (1957) 148 Cal.App.2d 205.
Lease of equipment with option to purchase.—When tangible personal property is leased with an option to purchase and, upon exercise of the option a charge is made for "interest on deferred balance" during the term of the lease, such charge is includable in gross receipts and is subject to sales tax. Peterson Tractor Company v. State Board of Equalization (1962) 199 Cal.App.2d 662.
Damages.—The sellers payments to the purchasers, termed "voluntary price adjustments" in the settlement of Clayton Act anti-trust actions, were damage payments rather than true price adjustments. No change occurred in the price on which the tax must be computed. Southern California Edison Co.; and San Diego Gas and Electric Co. v. State Board of Equalization (1972) 7 Cal.3d 652.
Board Classification of Drapes as Tangible Personal Property Upheld.—Plaintiff, L.A.J., Inc., sold and installed custom drapes to builders of apartment houses pursuant to lump-sum contracts, on the basis that the drapes were tangible personal property, with the tax being measured by the total sales price. Taxpayer asserted that the drapes were fixtures, in which case only the cost of the material used in the drapes would be subject to tax. The trial court classified the drapes as fixtures, ignoring the classification made by the Board. On appeal, the court held that the trial court had no authority to disregard the Boards classification of the drapes as tangible personal property in the absence of a finding that the classification was arbitrary or capricious, or had no reasonable or rational basis. The trial court had made no such finding, nor could it have done so in light of the testimony at the trial. Resolving the issues raised by plaintiffs suit, the court held that taxpayer had failed to carry its burden of proof that the classification was unreasonable since the uncontradicted evidence supported the conclusion that there was a reasonable basis for the Boards classification. The trial court was thus directed to enter judgment for the Board. L.A.J., Inc. v. State Board of Equalization (1974) 38 Cal.App.3d 549.
Subsidies to Cafeteria Operators.—Subsidies paid by employers to operators of employee cafeterias are not includable within the operators’ gross receipts and not subject to tax. Szabo Food Service, Inc. of California v. State Board of Equalization (1975) 46 Cal.App.3d 268.
Goods exchanged for trading stamps.—Regulation 1671 defines the selling price for sales tax purposes of goods exchanged for trading stamps as the average amount paid to the trading stamp operator by its customers for the stamps surrendered in exchange for the goods. This average price may properly be calculated by excluding cash rebates and stamps given without charge to customers when the rebates and extra stamps are given in return for promotional advertising, guaranteed large distributions, or other services by the customers. Botney v. Sperry and Hutchinson Co. (1976) 55 Cal.App.3d 49.
Concrete Pumping Service.—Plaintiff sold concrete and pumped such concrete to areas difficult to reach. Where no agreement existed passing title to the concrete to the customer prior to the pumping, the pumping operation was a taxable transportation function which occurred before the sale of the concrete was completed. Tobi Transport, Inc. v. State Board of Equalization (1980) 104 Cal.App.3d 730.
Lease in lieu of cash was valuable consideration.—Where seller and buyer agreed to an actual purchase price for sale of cranes, but seller acknowledged receipt of valuable consideration in lieu of cash by buyer’s execution of lease agreement, sales tax was properly measured by actual purchase price. U. S. Lines, Inc. v. State Board of Equalization (1986) 182 Cal.App.3d 529.
Prime contractor not subcontractor’s vendor.—A subcontractor claimed a credit on its return for sales tax which it had refunded to the prime contractor after realizing that the sale was of “machinery and equipment” and thus, not taxable. A claim for refund was not timely filed. The court held that the provisions of Section 6012 do not apply because the prime contractor could in no way be considered to be the subcontractor’s vendor. Philips and Ober Electric Co. v. State Board of Equalization (1991) 231 Cal.App.3d 723.
Technology transfer agreement.—In sales made pursuant to technology transfer agreements under sections 6011 and 6012 of the Revenue and Taxation Code, when licenses to use copyrighted or patented software are transferred on disposable storage media, and the storage media is not physically useful to the purchaser's post-transfer use of such copyrights or patents, then only the portion of the gross receipts attributable to the storage media and written instructions is subject to the sales and use tax. Lucent Technologies, Inc. v. State Board of Equalization (2015) 241 Cal.App.4th 19.
Computer Service Contracts.—Optional computer service contracts were not taxable. The service contracts were not tangible personal property and were not part of the sale of the computers, but a separate object of the transaction at a readily ascertainable value, even without itemized invoices. Dell, Inc. v. Superior Court (2008) 159 Cal.App.4th 911.
Telephone switching software qualifies for treatment under technology transfer agreement statutes.—Certain agreements under which the taxpayer licensed software programs to run telephone switches it sold to its customer qualified as technology transfer agreements (TTAs). The portions of the lump-sum charges attributable to licenses of intangible patent and copyright interests were excluded from tax. The Court of Appeal further held that licenses of certain prewritten programs that provided the taxpayer's customer various administrative functions in connection with the operation of the switches also qualified for TTA treatment. In so holding, the Court of Appeal held invalid a portion of Sales and Use Tax Regulation 1507 providing that sales of prewritten software could never qualify for TTA treatment. Nortel Networks Inc. v. Board of Equalization (2011) 191 Cal.App.4th 1259.
Gratuity.—A restaurant operator challenged the validity of Regulation 1603, subdivision (g), and disputed whether a 15- or 18-percent gratuity that restaurant managers automatically added to parties of eight or more without first conferring with the customer amounted to a "mandatory payment designated as a tip, gratuity, or service charge" under Regulation 1603, subdivision (g), and therefore part of the company's taxable gross receipts. The court of appeal upheld the validity of Regulation 1603, subdivision (g), and affirmed the trial court's conclusion that the large-party gratuity amounted to a mandatory payment under Regulation 1603, subdivision (g). GMRI, Inc. v. California Department of Tax and Fee Administration (2018) 21 Cal.App.5th 111.