Tax Guide for Gas Station Operators
Industry Topics

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The Basics

Sales and Use Taxes in General

In California, all sales of tangible personal property are taxable unless the law provides a specific exemption. Tangible personal property is defined as an item that can be seen, weighed, measured, felt, or touched.

For gas stations, most taxable sales will be of fuel. However, tax will generally be due on non-fuel items such as hot food to-go, carbonated beverages, cigarettes, and other items sold at your location. If you have questions about whether an item is taxable you may contact our Customer Service Center at 1-800-400-7115.

If you consume or give away taxable items that you purchased without paying sales tax, you owe an equivalent use tax – which is the same rate as the sales tax – based on the cost of those items to you.

Seller's Permit

Most people who sell tangible items in California must register with the CDTFA for a seller's permit. Registering for a seller's permit is free, although in some cases a security deposit may be required. If you have multiple locations, you may register each location under your main permit. You can register online for a seller's permit or consolidated seller's permit using our online registration service.

Be sure to let us know about any changes to your business, or to your mailing or email address so that we can keep your records up-to-date and inform you of important changes in law, tax rates or procedure. Business change request forms can be found on the Getting Started tab or you can contact our Customer Service Center at 1-800-400-7115 or any one of our field offices throughout the state. Contact information is available in the Resources section of this guide.

Mobile Refueling Services

Operators of mobile refueling services must register with the CDTFA for a seller's permit.

If you are a mobile refueling operator that delivers motor vehicle fuel (MVF) and/or diesel fuel directly to your customer's vehicle from your truck, you are considered to be a retailer of fuel products just like a gas station operator. As a retailer, you must:

Register for a seller's permit;
File sales and use tax returns;
Report the proper sales tax based on your delivery location; and
Remit the sales tax to the CDTFA.

Sales tax applies to the sales price of the fuel plus all other fees directly related to the sale. For example, in addition to the amount you charge for the fuel, additional charges for delivery, pumping, convenience, etc. are also subject to tax. MVF and diesel fuel have different sales and use tax rates. Please visit Sales Tax Rates for Fuels for the current rates.

In addition to the Sales Tax Rates for Fuels, additional district taxes may apply based on the location of the sale. Therefore, you must report and calculate the proper amount of tax based on the location where your sales are made to report the proper total sales tax. For example, since you operate a mobile business, you may make sales in Anaheim (Orange County) and then travel to Norwalk (Los Angeles County) to make additional sales. The total tax rate in Anaheim is different than the total tax rate in Norwalk. Since you are doing business in both locations, you are responsible for reporting the proper sales tax based on your sales made at each location.

You may find the current district tax rates on form CDTFA 105, District Sales and Use Tax Rates.

To register for a seller's permit, visit Registration — Main Menu.

Sales Tax Application to Fuel Sales

Gasoline (Motor Vehicle Fuel)

Sales of gasoline are taxable unless the law provides a specific exemption.

Generally, the price per gallon you display includes all taxes including federal and state excise taxes, and the sales tax, including any local and district taxes in effect at the location where the fuel is sold.

The sales tax rate is applied to the price of gasoline after the federal and state excise taxes have been added.

You are required to post a sign listing the state and federal fuel taxes that apply to your gasoline sales.

Effective July 1, 2010, sales of gasoline are exempted from the state portion of the sales and use tax. The excise tax on gasoline may be adjusted up or down on July 1 each year. (See tax rates link for current rates.)

Tax Rates

Diesel Fuel

Sales of diesel fuel are taxable unless the law provides a specific exemption.

The sales tax rate is applied to the price of diesel fuel after the federal excise tax has been added but before the state excise tax is added.

You are required to post a sign listing the state and federal fuel taxes that apply to your diesel fuel sales.

Effective July 1, 2010, the sales and use tax rate on diesel fuel was increased. The excise tax on diesel fuel may be adjusted up or down on July 1 each year.

Effective July 1, 2011, there is an additional tax above the statewide sales tax rate and applicable district taxes on sales of diesel fuel. For the period July 1, 2013 through June 30, 2014, the additional rate is 1.94 percent. The additional tax rate will be 1.75 percent effective July 1, 2014. (See Tax Rates link below for current rates)

Tax Rates

Dyed Diesel Fuel

If you sell dyed diesel fuel you are required to provide notice to your buyers stating: “Dyed diesel fuel, nontaxable use only, penalty for taxable use.”

The notice must be posted on the face of any pump that dispenses dyed diesel fuel within easy eyesight of persons using the pump.

The notice must be included on all shipping papers, bills of lading, and invoices that include the sale of dyed diesel.

Dyed Diesel is not subject to excise taxes, unless used on the highway. However, like other retail sales of tangible personal property, dyed diesel is subject to sales tax.

When used off-road, dyed diesel is taxed at the combined statewide sales tax rate (which is lower than the sales tax rate on diesel fuel intended for on-road use), plus applicable district taxes. If you sell dyed diesel fuel, you should obtain form CDTFA-230-R-1, Exemption Certificate Train Operators, Off-Highway Use, or Bus Operators, as specified in Regulation 1598, Motor Vehicle and Aircraft Fuels, from your customer for this rate to apply.

Use Fuels

Liquefied Petroleum Gas (LPG) is generally taxable, however certain sales are not taxable if you sell to a qualified person and obtain an LPG exemption certificate. Current LPG rates are found on our website.

Sales of LPG are not taxable when the LPG is delivered directly into a tank located at a primary residence that holds 30 gallons or more and the LPG is sold for use in either of these activities:

Household use in a primary residence not connected to gas pipes or mains.
Certain uses in the commercial production or harvesting of agricultural or horticultural products.

Prepayment of Sales Tax

You are required to pay a prepayment of sales tax on gasoline, diesel fuel, and aircraft jet fuel you purchase to sell to your customers.

You must retain all supporting documentation, such as invoices, receipts, or other purchase documents. You will claim a credit on Schedule G when you file your sales and use tax returns online and may be required to support your credits upon request. Credits that are not supported will be disallowed.

Prepaid sales tax rates may be revised as necessary. All taxpayers will be properly notified of any changes, therefore, it is important that you keep your contact information current with the CDTFA.

Current sales tax rates (not including local taxes) and prepayment rates for fuel can be found on our web site.

Sales Tax Exemptions

Certain industries, such as agriculture, bus operators, and the U.S Government are allowed exemptions from sales tax on fuel.

The most common nontaxable fuel sale is a sale to the U.S. Government. You must obtain all government purchase order documents to support the exemption. U.S. Government personnel must pay via a government issued credit card or check issued by the U.S. Government to qualify for the exemption. You should retain the payment documents with your records.

Another exemption is from the state general fund portion of the tax rate when diesel fuel is purchased for farming activities and food processing. You must keep the exemption certificates on file in support of these sales. For current partial exemption rates and to view a sample exemption certificate please see:

Car Washes

When a car wash is offered “free” with a set number of fuel gallons purchased, the fuel sale is taxable in full and the car wash is considered a nontaxable service offered with the sale.

When the car wash is offered at a reduced price with a set number of fuel gallons purchased, the fee for the car wash is a nontaxable sale.

When a car wash is offered at a fixed price but the cost of fuel is reduced, the reduced price is accepted as the selling price of the fuel.

Fueling Service for People with Disabilities

Motor vehicle fuel retailers must provide fueling services for customer with disabilities.

However, the service in not required at any time when either of the following apply:

Only one employee is on duty
Only two employees are on duty and one of them is assigned exclusively to prepare food.

You must post a notice in a highly visible place stating disabled persons may request refueling services without being charged more than the self-service price of fuel and, if applicable, any limitations on the hours it may be available. For more information on providing fueling services to people with disabilities, you may call the Assistive Technology Network at 1-800-390-2699.

Cap and Trade Compliance Costs

Beginning January 1, 2015, transportation fuels are subject to California's Cap-and-Trade Program (Program). Fuel suppliers covered under the Program may incur compliance costs, which will vary based on the type of fuel and the fuel supplier's costs of compliance instruments. Fuel suppliers may include the compliance costs into the prices for the fuels they sell. When these regulatory compliance costs are passed on to the consumer as part of the sales price of fuel, they are subject to sales and use tax.

If you are a fuel wholesaler or retailer, your supplier may include compliance costs as either a separate line item or within the total fuel price you pay. Generally, sales to retailers are considered nontaxable sales for resale. However, if you sell fuel directly to consumers, compliance costs (either included in your fuel selling price or separately stated as a line item) are subject to sales and use tax.

Visit the Air Resources Board, Cap-and-Trade Program webpage. If you need additional information, you may contact the Cap-and-Trade Hotline at 1-916-322-2037.

Non-Fuel Sales

Prepaid Mobile Telephony Services Surcharge

Beginning January 1, 2016, sellers of prepaid wireless phone cards and services are required to collect a prepaid mobile telephony services (MTS) surcharge from customers and pay it to the CDTFA.

The surcharge is imposed as percentage of the sales price of prepaid wireless cards/services sold in a retail transaction occurring in this state. If you sell prepaid wireless products and services to consumers, you must register with the CDTFA as a prepaid MTS seller. The prepaid MTS account is a separate account from your seller's permit.

Beginning January 1, 2017, sellers (other than telecommunication service suppliers) with less than $15,000 of sales of prepaid MTS in the previous calendar year are no longer required to register and collect the surcharge.

For more information about this program, please read our guide Prepaid Mobile Telephony Services (MTS) Surcharge.

Cigarettes and Tobacco Products

Retail sellers of cigarettes and tobacco products must have a California Cigarette and Tobacco Products Retailer's License before purchasing or selling cigarettes or tobacco products (for retail licensing purposes only, tobacco products include nicotine products that are intended for human consumption, electronic smoking or vaping devices, or any component, part, or accessory of a tobacco product) at retail. You must obtain this license in addition to your seller's permit. A retailer's license is valid for a 12-month period, is not assignable or transferrable, and must be renewed annually. A license fee payment is required for each retail location at initial registration and every year at the time of renewal and may not be prorated. See our Tax Rates – Special Taxes and Fees page for cigarette and tobacco products retailer's license fee amounts.

As a retailer of cigarettes and tobacco products, you must:

Have a valid California Cigarette and Tobacco Products Retailer's License for each location from which cigarettes or tobacco products are sold at retail.
Display your license at each retail location so that it is visible to the public.
Retain complete and legible purchase invoices at each licensed location for at least one year after the date of purchase.*
Purchase cigarettes affixed with valid California cigarette tax stamps and tobacco products that are California tax-paid.*
Purchase and sell only those cigarettes and roll-your-own (RYO) tobacco authorized for sale in California as listed on the Office of the Attorney General's California Tobacco Directory.
Not purchase cigarettes or tobacco products from other retailers.*
Purchase your cigarettes and tobacco products only from a California licensed distributor or wholesaler (or obtain a distributor or wholesaler license as noted below).*
- If you purchase cigarettes or tobacco products from an out-of-state supplier who does not have a California Cigarette and Tobacco Products License, you must obtain a distributor's license in addition to the retailer's license, and remit California cigarette and tobacco products taxes directly to the state.
- If you purchase tax-paid cigarettes or tobacco products for resale (to other retailers), you must obtain a wholesaler's license in addition to the retailer's license.
- For more information see publication 93, Cigarette and Tobacco Products Taxes.

* Does not apply to a tobacco product that is not subject to the tobacco products tax. For example, vape liquids that do not contain any nicotine are not subject to the tobacco products tax, however they are subject to the retail licensing requirement.

You can apply online for a cigarette and tobacco products license using our online registration service or at any of the CDTFA's field offices. Prospective licensees should consult with their local health department before applying for a California Cigarette and Tobacco Products Retailer's License to determine if there is a local licensing requirement in their community and to learn how to comply with its requirements. In some cases, local licensing requirements may be more restrictive than state licensing requirements.

Please visit the Cigarette and Tobacco Products tax guide for more information on the cigarette and tobacco products tax and licensing program.

Transferring Products Between Stores

If you own more than one store and hold the necessary licenses for each location, you may be allowed to transfer cigarettes and tobacco products between stores, in specific instances. When transferring cigarettes and tobacco products, legible transfer records and copies of the original purchase invoice must be kept at each location involved in the transfer.

The transfer records must be prepared at the time of transfer and must include the address and tobacco license number of each retail location, the purchase invoice date, the purchase invoice number, the supplier's name on the invoice, the brand, type of packaging, flavor, and/or style, and the quantity of items transferred.

You must provide such documentation upon request by CDTFA staff or law enforcement.

These requirements do not apply to tobacco products that are not subject to the tobacco products tax. For example, vape liquids that do not contain any nicotine are not subject to these requirements, however they are subject to the retail licensing requirement.

For more information about licensing requirements for sellers of cigarettes and tobacco products, see publication 78, Sales of Cigarettes and Tobacco Products in California. You may also attend a tobacco class for retailers or view our online tobacco seminar.

Cigarette Buy-Downs

If a cigarette manufacturer or distributor offers a “buy-down” promotion, where you agree to sell certain cigarettes at a reduced price and receive compensation from the manufacturer or distributor, sales tax applies to the total amount received from the customer plus any amount received from the manufacturer or distributor.

For more information, please see publication 113, Coupons, Discounts, and Rebates, or Regulation 1671.1, Discounts, Coupons, Rebates, and other Incentives.

Taxable Sales

Listed below is a summary of taxable non-fuel items typically sold at a gas station. It is not all inclusive. If you have questions about a product not listed here, you may contact our Customer Service Center at 1-800-400-7115.

Alcoholic beverages
Carbonated water and soda
Ice
Kombucha tea (if alcohol content is 0.5% or greater by volume)
Tobacco Products
Most hot prepared food (see Hot Prepared Foods in this guide)
Non-prescription medicines
Books, newspapers, and magazines
Other non-food or beverage items such as automotive supplies, greeting cards, etc.

Nontaxable Sales

Listed below is a summary of nontaxable items typically sold at a gas station. It is not all inclusive. If you have questions about a product not listed here, you may contact our Customer Service Center at 1-800-400-7115.

Milk
Ice cream
Fruits and vegetables
Chips and crackers
Cold meats
Candy
Cold sandwiches sold to-go
Noncarbonated, nonalcoholic beverages such as water and juice.
Kombucha tea (if less than 0.5% alcohol by volume and naturally effervescent)

California Redemption Value

Generally, if the beverage you sell is taxable, tax also applies to the separate charge for CRV. The amount subject to tax is the combined selling price of the beverage, the container, and the CRV.

If you are bottling, producing, importing or selling beverages in California, you may need to register with CalRecycle under the California Beverage Container Recycling and Litter Reduction Act. Contact the CalRecycle registration unit to register.

Note: The CRV program is administered by CalRecycle. Questions regarding the fee should be directed to them. This guide covers only how sales tax applies to CRV charges.

For more information about the CRV fee, visit the CalRecycle's Beverage Container Recycling page

Hot Prepared Foods

Heated food is usually taxable whether or not it is sold to-go or for consumption on your store premises.

A food product is hot when it is heated to above room temperature, and is still considered hot even after it has cooled, because it is intended to be sold in a heated condition.

Notable Exception: Hot Baked Goods

Hot baked goods, such as hot baked pretzels or croissants, sold to-go are exempt from sales tax. If sold in a combination package with hot prepared foods or with a hot beverage, however, the entire combination package is taxable.

Food Heated in a Microwave Oven

If you sell a food product that is normally exempt from tax – such as a frozen burrito, the product may become taxable if it is heated in a microwave oven prior to the sale. The location of the microwave oven is the determining factor in whether the sale is subject to tax:

If the microwave is accessible to your customers, it is presumed that the food is not sold in a heated condition and that the microwave is being provided as a convenience to your customers, who may choose to heat the product.
If the microwave is behind the counter, it is presumed that the food is being sold in a heated condition, and is therefore taxable.

Newspapers and Magazines

Newspapers, magazines, and other periodicals you sell to your customers are taxable.

Newspapers, magazines, and other periodicals you provide without charge are not taxable. If you request payment or suggest a donation for such items, but do not require a payment or donation, you are considered to be providing the items without charge.

Lottery Sales

Sales of tickets for California Lottery games are not taxable, and you should not include them on your sales and use tax return as part of your gross receipts.

Remember, it is important to keep your receipts for nontaxable sales – such as lottery tickets – separate from receipts for taxable sales.

Recording Your Sales Accurately

There are different ways of recording your sales. The two most common methods are key-ring and scanner. Retailers that use a scanner tend to have a lower rate of errors than retailers that use a key-ring method to ring up sales.

If you are using a scanner, be sure to program it so that items you sell are correctly scanning as taxable or nontaxable.

Sales Suppression Software Programs and Devices

Beginning January 1, 2014, it will be a crime for anyone to knowingly, sell, purchase, install, transfer or possess software programs or devices that are used to hide or remove sales and to falsify records.

Using these devices gives an unfair competitive advantage over business owners who comply with the law and pay their fair share of taxes and fees. Violators could face up to three years in county jail, fines of up to $10,000, and will be required to pay all illegally withheld taxes, including penalties and interest.

Purchases

Items purchased for resale

When you issue a resale certificate to purchase taxable items for resale, you don't pay sales tax at the time of purchase. Instead, sales tax applies when you sell the items at retail.

If you purchase an item with a resale certificate and use it, you owe a use tax – at the same rate as the sales tax at the location of use – to the CDTFA.

Supplies, Equipment, and other Business Expenses

Items you purchase for use in your business (displays, advertising materials, bookkeeping and maintenance supplies, storage equipment, and refrigeration units, among others) are subject to tax at the time of purchase.

Normally such items are purchased from local suppliers who add and report sales tax. However, if you purchase equipment or supplies from an out-of-state seller, the sale is subject to use tax (see use tax below).

If the out-of-state seller does not charge California use tax, you should report the purchase price on your tax return (under “Purchases Subject to Use Tax”).

Note: Wrapping and packaging supplies used to wrap merchandise or bags in which you place items sold to your customers may be purchased for resale. All other purchases of supplies, however, are generally subject to tax.

Use Tax

If you purchase taxable property without paying California tax and use the property for a purpose other than for resale, you owe a use tax. For example, if you issue a resale certificate to purchase soda but give it away or consume it, you owe use tax based on its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay use tax, report the purchase price of the taxable items under “Purchases Subject to Use Tax” on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

Inventory Controls

Keeping good books and records will help you detect any losses early. We strongly recommend that you:

Keep records of all merchandise removed from inventory.
Keep accurate and complete records of sales and purchases.
Take a physical inventory at least once a year.
In the period between inventories, compute the cost of merchandise sold, add the expected percentage of mark-up, and deduct discounts for the period of time involved. Your computed figure should be very close to the sales made for the same period the prior year.
Ensure that your records of purchases for resale are accurate and complete and do not include supplies or other items not for resale.
Track your fuel purchases separate from other purchases.

Common Inventory Losses

Keep your eye out for the following types of losses:

Money pocketed by employees and covered up by not ringing up the sale or ringing it up at a lesser amount.
Merchandise stolen by employees, clean-up crews, or other persons with access to the store.
Short deliveries or theft by delivery persons.
Shoplifting by customers.

Note: thefts of cash are not deductible for sales tax purposes because tax is measured by sales.

Tax Guide for Gas Station Operators Industry Topics