Publication 82, Prepaid Sales Tax and Sales of Fuel
- Precollection of Sales Tax
- Registration and Reporting Requirements
- Additional Information
If you are a wholesaler or supplier of certain fuels, you are required to collect a prepayment of a portion of the sales tax when you remove fuel at the terminal rack, enter the fuel into California, or sell the fuels at any point after removal from the terminal rack. If you are a retailer or other seller of fuel who has prepaid the sales tax to your suppliers, you can claim a credit for the prepaid tax you paid to your supplier when you file your sales and use tax returns.
Prepaid sales tax is imposed on each gallon of fuel removed, entered, or sold. The rate varies depending on the type of fuel involved and may be adjusted annually or more frequently if necessary. The Board of Equalization (BOE) will give you prior notification of any rate change. The prepayment rate does not affect the current sales and use tax rate on retail sales.
Fuels subject to the precollection provisions
Fuels subject to the requirement to precollect sales tax include:
- Gasoline and gasohol (motor vehicle fuel)
- Diesel, including dyed diesel
- Aircraft jet fuel
The following fuels are specifically excluded from the requirement to collect prepayments: aviation gasoline used to propel an aircraft, liquefied petroleum gas, compressed or liquid natural gas, and methanol and ethanol containing not more than 15 percent gasoline, diesel fuel, or kerosene.
Note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted above. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, the decision will be based on the law and not on this publication.
Suppliers and wholesalers making only sales for resale
You must obtain a permit with an "SG" prefix if you qualify as a wholesaler or supplier and:
- Remove fuel from the terminal rack, or
- Sell fuel to wholesalers, suppliers, or retailers, or
- Sell fuel as a member in a cardlock network
You must have an "SG" permit in addition to your regular sales tax permit. You can apply online for a permit using eRegistration (eReg) available on our website at www.boe.ca.gov. eReg is also available in our field offices. Please contact our Taxpayer Information Section for assistance at 800-400-7115.
After you have registered for an "SG" permit, you will electronically file an "SG" return, which has a Schedule A for reporting your taxable removals, entries, or sales of fuel and a Schedule B to report any prepaid sales taxes you have paid to other wholesalers or suppliers. The "SG" return is due on or before the last day of the month following the period for which it relates.
Sellers making sales through cardlock networks
If you make sales through a cardlock network, you are required to have an "SG" permit. Your sales to other fuel distributors are considered sales for resale and should be reported on your "SG" and your regular sales and use tax return. However, under Revenue and Taxation Code section 6007, if the other fuel distributor is located out-of-state and not required to have a California sellerís permit, you are making a retail sale that should be reported on your "SG" and regular sales and use tax return.
Suppliers and wholesalers also making retail sales of fuel
If you qualify for an "SG" permit and you also make retail sales of fuel to consumers, you are required to file two separate returns: an "SG" return to report your removals, entries, and wholesale sales of fuel, and a regular sales and use tax return to report your retail fuel sales. On Schedule A of your "SG" return, you must list your sellerís permit number and report prepaid tax on any fuel that you have taken from your inventory to sell at retail. (You must also list removals, entries, and sales to other sellers or retailers.) When you report the retail sales of this fuel on your regular sales and use tax return, you can claim a credit for the prepaid tax by including the transaction on Schedule G and listing your "SG" permit as the source of supply.
Sales tax prepayments for fuel in two-party exchanges
Two-party exchange reporting is allowed in California effective January 1, 2007. Sales tax prepayments for motor vehicle fuel and diesel fuel that are the subject of a two-party exchange must be paid by the receiving supplier.
For more information, please visit our website for a copy of our June 2007 Fuel Taxes Newsletter that provides an article on Two-Party Exchange Transaction Reporting Requirements or read Regulation 1125, Two–Party Exchange.
Note: A two–party exchange actually has three participants in the transaction: the delivering supplier, the receiving supplier, and the terminal operator.
Sellers making only retail sales
Service station operators or other persons who purchase fuel to resell to users or consumers are considered retailers. If you make only retail sales, you are not required to obtain an "SG" sales tax permit. Instead, you can charge the full applicable sales tax rate on fuel sold to your customer and claim credit for the precollected sales tax you paid to your suppliers on Schedule G of your sales and use tax return.
The law requires that you maintain complete and adequate records of all business transactions in support of any tax returns you have filed. These records may be examined by a representative of the BOE to verify the accuracy of your returns. Failure to keep adequate and complete records may result in the assessment of penalties.
The records that you maintain should include all those generally expected of the typical supplier, wholesaler, or service station. In addition to summary records, you should retain all sales invoices, purchase invoices, and any documents used to record your operations which support the returns you have filed. At the time you registered for a permit, you should have been given a copy of Regulation 1698, Records, which details the type of records you should keep.
Reconciliation of reported amounts
To ensure that tax credits have been properly claimed, the BOE routinely compares the amounts claimed by retailers on Schedule G to the sales reported on the "SG" returns filed by their suppliers and wholesalers. Any discrepancies or differences between the records of suppliers and retailers will be examined in detail and may result in an audit.
Note: Retailers can prevent many discrepancies by properly claiming the tax credit in the period in which the purchase was made-generally, the period in which the purchase invoice date is included.
Taxpayer Information Section
For more information
Additional information on the prepayment of sales tax on fuel is included in the instructions for each tax return and in publication 25, Auto Repair Garages and Service Stations. You can also download copies of Sales and Use Tax Law sections 6480 through 6480.9, the law sections that govern the prepayment of sales tax on fuels. Please visit our website or call our Taxpayer Information Section at 800-400-7115 for additional assistance.