Tax Guide for Gas Station Operators

We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so that you can focus on starting and growing your business.

To help you better understand the tax obligations specific to gas station owners and operators, we have created this guide.

If your business also repairs or services automobiles, please see our Auto Repair Garages guide.



Service Station

How to Use This Guide

Each section of this guide contains information important to your business. The Getting Started section provides key resources related to registration, filing returns, account maintenance and other important information you may need.

The Industry Topics section covers many topics in an at-a-glance format that can be expanded to provide more extensive information.

Lastly, the Resources section provides links to a wealth of information, including web-based seminars, forms and publications, statutory and regulatory information, related agencies’ websites, and access to live help from our customer service representatives.

Please note that the information included is general in nature and is not intended to replace any law or regulation.



Service Station

If You Need Help

If at any time you need assistance with topics included in this guide - or with topics we may have not covered - feel free to contact us by telephone or email. Contact information and hours of operation are available in the Resources section.

If you have suggestions for improving this guide, please contact us by email.

Getting Started

If you are starting a business in California, and you expect to be making taxable sales, you must register with us for a seller's permit to report sales and use tax and regularly file tax returns. You may be required to register for other licenses or accounts, and file other returns. Listed below are some tax/fee programs that are often applicable to a gas station operator.


Underground Storage Tanks Maintenance Fee Program

If you own an underground storage tank (UST) to store gasoline, diesel fuel, waste oil, heating oil, or other petroleum products, even if the UST is only partially underground, you are required to register with us for a UST maintenance fee account and to pay a fee on each gallon of petroleum product placed into a UST.

You may consolidate multiple locations on one return if you are the owner of underground storage tanks at multiple locations. You will need to identify each location. You must also have a permit issued by your local city or county agency. For further information regarding local permits, visit the State Water Resources Control Board's website.

In most cases, if you lease a UST, you are not considered the owner and are not required to pay the fee. However, owners can arrange for the operator to report the fees on their behalf by completing the Payment of Fee by Operator form. Please contact the BOE at 1-800-400-7115 to verify that there is an underground storage tank account for your location and if you are required to pay the fee. See Publication 88 or visit our website for further information regarding the UST program.


Cigarette and Tobacco Products Licensing Act

You must register with us for a Cigarette and Tobacco Products Retailer License if you intend to sell cigarettes or tobacco products at retail. All new applications must be submitted with a one-time license fee of $100 for each retail location selling cigarettes or tobacco products. A license is valid for a 12-month period, is not assignable or transferable, and must be renewed annually at no additional cost, as long as it is renewed timely.

Cigarettes must have the California cigarette and tobacco products tax stamp affixed to each package.

For more information, download Publication 78, Sales of Cigarettes and Tobacco Products in California.


Use Fuel Tax Program

Use Fuel tax is imposed on the use of certain fuels on the highway of the state, rather than the sale or distribution. Generally, all fuels that are used to propel a motor vehicle and are not defined as either motor vehicle fuel (primarily gasoline) or diesel fuel will be taxed under the Use Fuel Tax Law.

Generally, you are required to register for a Vendor Use Fuel Permit and collect the use fuel tax at the time of sale, if you sell and deliver a use fuel into the fuel tank of a motor vehicle. Use Fuel includes:

  • Liquefied petroleum gas (LPG), propane and butane
  • Liquid and compressed natural gas (LNG and CNG)
  • Kerosene
  • Alcohol fuels such as ethanol and methanol
  • Blended alcohol fuels with less than 15% gasoline, (i.e. E85)
  • Distillate
  • Stove Oil

A vendor is typically a retail service station operator, but also includes a user who sells fuel to other users. Persons who sell fuel through a key or card lock facility or self-service pump are also considered vendors.

Not all fuel retailers qualify as vendors. Persons who deliver fuel exclusively into vehicles registered for the flat rate annual tax are not vendors. Likewise, persons selling fuel only for non-vehicular use, such as retailers who exclusively sell fuel for home heating, cooking, or lighting are not vendors.


Diesel Fuel Tax Program

If you make sales to an ultimate purchaser, farmers who use diesel fuel for tax-exempt farming purposes and exempt bus operators who use diesel fuel in tax-exempt bus operations, you may register with us for an Ultimate Vendor license. As an ultimate vendor, you may file a claim for refund of the diesel fuel tax you paid on your purchase of diesel fuel that you sold to an ultimate purchaser without collecting the diesel fuel tax reimbursement. All claims for refund for sales of diesel fuel to exempt end users must be supported by exemption certificates accepted in good faith. These certificates include BOE-231-DB, Certificate of Exempt Bus Operation and BOE-608, Certificate of Farming Use.


Registration

Online Registration — Register with us for your seller's permit and apply for any of the licenses, permits, or accounts listed above, or add a business location to an existing account.

Filing and Payments

Notice of Business Change – Keep your information current by using the links below and notifying us of any business changes.

Industry Topics

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 BOE 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.

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.)

Diesel Fuel

Sales of diesel fuel 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 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)

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.

If you sell dyed diesel fuel, it is not subject to the additional sales and use tax rate that is applicable to diesel fuel sales.

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 BOE.

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.

Non-Fuel Sales

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. You must obtain this license in addition to your seller's permit, and renew it annually. All new applications must be submitted with a one-time license fee of one hundred dollars ($100) for each retail location selling cigarettes or tobacco products.

  • You are required to have a license for each location from which cigarettes or tobacco products are sold.  The license must be displayed where it is visible to the public.
  • You must retain purchase invoices at each licensed location for at least one year after the date of purchase.
  • As a retailer you must purchase your cigarettes and tobacco products 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 taxes directly to the state.
  • If you sell tax-paid cigarettes or tobacco products for resale, 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.

You can apply online for a cigarette and tobacco products license using our online registration service or at any of the BOE’s field offices. See the Resources tab for a link to our filed offices.

Transferring Product 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 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 amount of items transferred.

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

For more information about licensing requirements for sellers of cigarettes and tobacco products, see BOE 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 BOE 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
  • 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.

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 BOE.

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

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.

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Top Three Resources

Related Publications and Regulations

Related Websites

Other Helpful Resources

  • Sign Up for BOE Updates — Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides — These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates — A listing of current and historical tax rates.
  • Special Notices — BOE special notices are issued whenever there is a change in law, tax rates, or BOE procedures.
  • BOE Online Services — Learn about the online services BOE offers.
  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • BOE Field Offices — A comprehensive listing of all BOE field offices and contact information.
  • Find Your Board Member — You can use this application to quickly identify your elected BOE representative.
  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Contact Us — A listing of BOE contacts for your questions and concerns.