Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 295.1665


295.1665 Referral Fee Added to Repair Invoice. A taxpayer provides automotive glass repair and replacement services through a national network of affiliated subcontractors and company (taxpayer) owned stores. The taxpayer also has a reservations division to which a customer needing glass services calls. The reservations division refers the customer to one of the taxpayer's repair shops or affiliated repair shops in the customer's home area.

After the home office of the taxpayer receives an invoice from the repair shop, the taxpayer issues an invoice to the customer (which may be an insurance or leasing company). The amount of that invoice includes the amount billed to the taxpayer by the repairer plus a "referral fee" which is recovered by increasing the materials and labor components of the repair shop's invoice by a pre-determined percentage or amount. The sales tax invoiced by the repair shop is also added to the total and passed on to the customer. The invoice shows amounts for parts, labor, and tax, without a separately itemized charge for referral. The taxpayer does not add additional sales tax to its invoice based on its mark up for the referral service fee.

The taxpayer is making retail sales of tangible personal property inside this state when its subcontractors or its own repair facilities furnish parts and materials to its California customers. Tax applies to the taxable gross receipts from the retail sale of the parts installed. The "mark up" on the parts representing a portion of the taxpayer's referral fee is part of the amount subject to sales tax.

The taxable gross receipts from the sale of parts includes the entire charge for those parts, including any mark up for the referral fee.

Where the repairs are performed by a subcontractor, the taxpayer should provide the subcontractor with a resale certificate to cover the sale of the parts by the subcontractor to the taxpayer. 1/31/96.