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I'm doing my taxes + going over sales tax receipts I can deduct.

I rented a car here in Arizona last year and my receipt from Avis lists a number of items:

  • concession fee 9.42 USD
  • energy recovery fee 1.20 USD
  • county surcharge 2.60 USD
  • customer fac fee 12.00 USD
  • facility mtnc fee 3.62 USD
  • taxes 17.32 USD

That bill's in email, here's a scan of another one I had last year (see the "TAX 16.300%"):

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How do I determine whether "taxes" are sales tax (technically the "Transaction Privilege Tax" in Arizona), in which case they are deductible on my Federal taxes, or something else?

I've tried looking it up on the Arizona Department of Revenue, can't seem to find out more.

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  • If it is not called a sales tax, it is not a sales tax. That's how states get by with charging a Use Tax on mail-order purchases from other states at the same rate as the general sales tax rate: interstate commerce cannot be charged sales tax, but can be charged a Use Tax. And yes, this is settled law (cf. a US Supreme Court decision from many years ago. I think Quill Co. was one of participants).
    – Dilip Sarwate
    Commented Mar 17, 2013 at 20:18
  • @Dilip I'm not sure you're correct. Use tax is not charged on the transaction, but in this case the taxes are.
    – littleadv
    Commented Mar 17, 2013 at 20:21

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I didn't know how messy the AZ sales tax code is even though I actually deal with it occasionally... According to this table on the AZ gov site, the county sales tax is the 3.25% (the $10.50 in the last row).

Note that the cities of Phoenix and Tuscon for example are not included (even though the counties of Pima and Maricopa are covered by this table). So the 16.3% might be coming from the city (I'm guessing here you're renting in Tuscon or Phoenix, because the 3.25% surcharge is only in Maricopa/Pima county).

You can contact the rental agency, or the city, or both - and ask about the 16.3%, but to me it looks like it can be treated as a sales tax (a percentage of transaction). The other items are flat rate fees and cannot be treated as taxes.

After Dilip has "forced" me to research the authority, it looks like the 3.25% is likely to be deductible, however the 16.3% is likely not. The reason is that the tax rate must be the same across many classes of taxable transactions, and I don't believe the sales taxes in Tuscon/Phoenix are 16.3% on anything other than car rental. The 3.25% however is lower than many other classes, thus it fits the definition of "less or equal to the general sales tax" that the 26 USC § 164 requires.

Per the IRS the AZ general sales tax is 5.6% (see pub 600 - slightly outdated, so the rates may have changed).

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  • I don't think that just because the tax is a percentage of the transaction amount, it is automatically a sales tax.
    – Dilip Sarwate
    Commented Mar 17, 2013 at 20:22
  • @Dilip on what authority? I know that you can deduct as "income tax" taxes that are not called income tax.
    – littleadv
    Commented Mar 17, 2013 at 20:22
  • Publication 17, for example, specifically says sales tax (which does include use tax, by the way). It says "Actual expenses. Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate." So, my position is that if it is not called a sales tax (or (compensating) use tax), it is not deductible.
    – Dilip Sarwate
    Commented Mar 17, 2013 at 20:34
  • @Dilip the statute defines "general sales tax" as "The term “general sales tax” means a tax imposed at one rate with respect to the sale at retail of a broad range of classes of items. ". That is from 26 USC § 164 (b)5
    – littleadv
    Commented Mar 17, 2013 at 20:40
  • Well, I guess in this instance we must agree to disagree. "Compensating use tax" is specifically mentioned because that does count as general sales tax (since it is not General Sales Tax as per the US Supreme Court decision) for deductibility purposes; but with regard to other taxes, I do not think that your position is correct
    – Dilip Sarwate
    Commented Mar 17, 2013 at 20:41

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