Is snow taxable in California? Wacky Tax Wednesday

Though the calendar tells me it’s August, the dark, drizzly weather outside my window has me thinking of winter and dreaming of snow. I love everything about snow and I feel the same about sales tax law. Yet until today, I had never considered whether snow is or should be taxable. Shame on me. The California Department of Tax and Fee Administration sure has.

Here’s what happened.

In December 2018, the California Department of Tax and Fee Administration (CDTFA) determined that Snowmagic, an out-of-state snow-making company, had failed to report close to $1.5 million in taxable sales from January 1, 2012, through December 31, 2015. As a result, it owed the California sales tax on that amount — or rather use tax because the company isn’t located in California.

The company promptly filed a petition for redetermination. During a reaudit, CDTFA discovered that Snowmagic had actually failed to report $1,970,750 in unreported taxable sales. It increased the assessment to $158,295 in tax, a $15,829.52 failure-to-file penalty, and interest. Ouch.

A back-and-forth of requests for appeal and responses followed. During a second reaudit, CDTFA found the company to have slightly less in unreported taxable sales ($1,925,700) and so reduced the assessment a bit. But Snowmagic continued to argue its case and appealed to the California Office of Tax Appeals (OTA), which recently made public its October 2023 opinion on the matter. 

OTA agreed with CDTFA that snow is tangible personal property; it can be felt, measured, seen, touched, and weighed. 

You won’t hear any argument from Scott Peterson, Vice President of Government Relations at Avalara. “If snow isn't tangible, why does my back hurt when I shovel it?”

OTA also decided that snow — not the provision of snowmaking services — was the true object of Snowmagic’s sales to California customers. The customers would not have purchased the snowmaking services unless they wanted the snow itself. 

California generally doesn’t tax services unless they’re part of a sale of taxable tangible personal property. Here, according to OTA, the company was selling taxable snow and not exempt services. The fact that Snowmagic didn’t separately state the charges for snowmaking services underscores that point, according to the OTA opinion.

Furthermore, per Revenue and Taxation Code § 6006(b), a taxable “sale” includes “the producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing, or imprinting.” 

In this case, the customers provided the water and electricity needed to make the snow. “Therefore,” reads the opinion, “tax applies to the gross receipts from both the sale of tangible personal property (processing water to make snow), as well as any other related services that were part of the sale.” 

Although OTA found Snowmagic to be liable for tax, it waived the 10% failure-to-file penalty. The company made a compelling contention that it “used ordinary business care by employing experienced, knowledgeable tax professionals.” Snowmagic was advised that it didn’t need to file sales and use tax returns “due to the services nature of its business.” 

Testifying before OTA, the president of the company explained that Snowmagic “had never previously paid sales tax on the services it provides to its customers, and therefore had no reason to believe that it owed sales tax.” OTA was persuaded that the company’s failure to file was “based on its reasonable reliance on the legal advice of knowledgeable, experienced tax professionals,” not “willful neglect.” For more details, see the OTA ruling.

Snowmagic had no such luck with the interest. Although OTA has the discretion to relieve all or part of the interest when the failure to pay tax is due to unreasonable errors or delays by CDTFA employees, no such delays or errors were uncovered. The company is required to pay the California use tax due on $1,9725,700 plus interest. That’s not going to melt away next spring.

Whether you sell snow-making services, snowplows, or other goods or services, you can reduce the likelihood of a sales and use tax assessment by taking steps to ensure you charge customers the correct amount of tax from the outset. Discover how automating sales tax calculation and remittance can help businesses avoid costly sales tax mistakes in all states.