Sales and Use Tax Record Keeping Q&A
Questions received during the July 30, 2013 BOE Record Keeping portion of the webinar are answered below. The names and email addresses of participants asking the questions have been removed.
Please note: The IRS Business Use of the Home presentation that also aired on July 30, 2013 cannot be posted nor can they post their Questions and Answers from the webinar. If you have questions for the IRS, you may contact the IRS Business and Specialty Tax Line Toll-free number at 800-829-4933. You may also review the two primary resources for the topics presented:
- Starting a Business and Keeping Records
- Publication 587, Business Use of Your Home
Keep your specific facts and circumstances in mind as you review these IRS publications. If you have an unusual or complex situation, you may want to consider consulting with a tax professional.
Below are the Questions (Q) and Answers (A) asked during the BOE Record Keeping Presentation.
Q. "If my business is in one location but I make a product in another county, do I then use that California County's tax rate?"
A. We understand your question to mean that you have a retail location where you sell property that you manufacture at another location.
If you are a retailer with more than one location, the place of sale is generally considered the location at which you carry on principal negotiations even if you must forward the order to another location for acceptance, approval of credit, shipment, or billing. Your employees' activities will be attributed to the location from which they work. For over-the-counter sales made at your retail location, the tax rate at the retail location will generally apply even though the property is manufactured elsewhere. However, the district tax at your retail location does not apply to property that is shipped to an out-of-state location or a location outside the district pursuant to the contract of sale. With certain exceptions, sales exempt from state sales tax are also exempt from district tax. District use tax in the district to which you ship your property may apply. You may be liable for collecting district use tax if you are "engaged in business" in the district where you ship the property.
Q. "Does a company need to pay use tax on imported packaging material that will be used for product sales?"
A. We understand your question to ask whether a company is required to pay use tax on imported packaging material that is used to package the products sold by the company and not returned to the company by the customer.
Because you said you imported the material, we assume you did not purchase these items in California and did not pay sales tax reimbursement. When sales tax does not apply, use tax generally applies when you buy merchandise that will be used, stored, consumed, or given away in this state, under certain circumstances. You will find Regulation 1589, Containers and Labels, helpful. It states:
Tax does not apply to the sale of, and the storage, use or other consumption of nonreturnable containers when sold or leased without the contents to persons who place the contents in the container and sell the contents together with the container.
Under the circumstances assumed above, tax would not apply.
Q. "I have a seller's permit in anticipation of starting a business but I won't have any sales this year. Should I cancel the seller permit or is it OK to just report zero sales this year?"
A. You will find Regulation 1699, Permits, helpful. It states:
"Every person engaged in the business of selling (or leasing under a lease defined as a sale in Revenue and Taxation Code section 6006(g) tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax, and only a person actively so engaged, is required to hold a permit."
The Regulation further explains that a seller's permit may only be held by a person actively engaged in business as a seller of tangible personal property. The Board may revoke a seller's permit where it finds that the person holding the permit is not actively engaged in business as a seller of tangible personal property and any person who holds a seller's permit but is not actively engaged in business as a seller of tangible personal property. Any person who holds a seller's permit but is not actively engaged in business as a seller of tangible personal property shall promptly surrender the permit by notifying the Board to cancel it.
You can find information regarding closing out your permit in Publication 74, Closing Out Your Seller's Permit.
You should contact the Board to cancel your permit if you are not actively engaged in business as a seller of tangible personal property. If you feel you should keep your permit open, please contact your account representative at your local field office.
Q. "My business location is in Yolo County, but I travel to other counties for tasting events. I make some sales at these events. How should I handle sales tax in those situations?"
A. Based on this question and the following question, we assume that your business is a bakery. First, I would like to refer you to Regulation 1602, Food Products. Generally, sales of bakery items are non-taxable. In some instances, sales of bakery items are subject to tax, such as if you are considered a caterer or if the food is consumed at the facilities provided by you, the retailer (See Regulation 1603, Taxable Sales of Food Products). If your sales are considered taxable, then the rate you would charge would be the rate where the sale occurs. For example, if you hold an event in Placer County and sell items that are subject to tax, then you would report sales tax for sales at that event using the rate that applies at that specific location in Placer County.
Q. "When purchasing to bake and resell, are the baking supplies eligible for the resale certificate?"
A. We understand your question to ask whether you can use a resale certificate to purchase baking supplies without tax when the backing supplies are purchased for baking and sold with the baked products.
Sales of food products such as flour, sugar, butter, and icing are not subject to tax. If you are purchasing non- returnable containers, tax does not apply to sales of nonreturnable containers when sold without the contents to persons who place food products for human consumption in the containers for subsequent sale. See Regulation 1589, Containers and Labels, for more information. You can generally purchase non-food items you intend to resell with your product without tax using a resale certificate. Please refer to Regulation 1602, Food Products, for the application of tax to sales of non-edible decorations and combination packages, if those apply to your business
In general, you cannot purchase baking supplies that you intend to use and not sell to the customer under a resale certificate. These items include pots, pans, utensils, decorating tools, and other baking equipment.
Q. "What is the maximum time we need to keep records? During the talk, only the minimum was discussed."
A. You are required to keep your records for a minimum of 4 years. You generally are not required to keep your records longer than this, but there are a few exceptions. If you are under audit, if you appeal the findings of an audit, or if you file a claim for refund, you should keep your records until your case is resolved, even if that means keeping your records longer than 4 years. There is no maximum period of time. In addition, as I stated in the webinar, you should also keep resale certificates until they are revoked in writing or the business has closed. This will ensure you have all your resale certificates on file.
For more information, see our website at: http://www.boe.ca.gov/sutax/faqrec.htm
Q. "How do you deal with sales that are on a conditional basis. Such as, selling on an "as sold basis." A possible retailer will only carry my product if they sell. What is the process for dealing with the taxes in a situation like that?"
A. We understand your question to ask whether you should report tax on sales made on a consignment basis. Generally tax does not apply until the item is sold, and tax is due by the retailer of the item. Because I do not know the details of your transactions, I suggest you read our Publication 114, Consignment Sales, . You will find information regarding these types of sales there.
Q. "Can you use a resale certificate to purchase something you don't plan to sell, but use for your biz like for research? I purchase many objects I use for my design inspirations. How does that correspond with a resale certificate?"
A. We understand your question to ask whether you can use a resale certificate to make purchases of property that you do not plan to sell, but instead use for research or other purposes.
In general, you may only use a resale certificate to purchase items or components of items that you intend to resell. You cannot use a resale certificate to buy items without tax that you do not intend to sell.
You will find more information on this topic on our website:
Although not purchased for resale some purchases may otherwise be exempt or excluded from tax. For information on sales and use tax exemptions and exclusions, please review Publication 61, Exemptions and Exclusions.
Q. "Does a dance team that sells tangible items like shirts, and stickers, would they have to apply for a seller's permit?"
A. Yes. If you are engaged in business in California and intend to sell or lease tangible person property that would ordinarily be subject to sales tax, you are required to obtain a seller's permit. For more information, please see our Frequently Asked Questions – Obtaining a Seller's Permit.
Q. "I sell salon products. When I purchase products from a vendor do I give them a [resale] certificate or do they give me one?"
A. When you purchase products that you intend to resell, you should provide your vendor with a resale certificate. For more information, please see our Frequently Asked Questions – Using a Resale Certificate.
Q. "If you sell a tax exempt product e.g. food, is the packaging you use e.g. grocery bags etc. exempt from tax?"
A. Yes. Paper bags and other wrapping and packaging supplies used to wrap merchandise you sell may be purchased for resale, without payment of tax. Tax does not apply to the sale of nonreturnable containers when sold without the contents to persons who 1) place the contents in the container and sell the contents together with the container, or 2) place food products for human consumption for subsequent sale. For more
information, please see Regulation 1589, Containers and Labels.
Q. "I am a promotional item distributor, many of my clients will print items with me to sell at fundraisers or concerts. Would those sales be able to be tax free (on my end) if I have them fill out a current certificate of resale?"
A. I understand your question to ask whether the items that you print for your clients to sell at fundraisers or concerts may be sold under a resale certificate without payment of tax.
Yes. If you accept a timely and valid resale certificate in good faith, the sale will not be subject to tax. For more information, please see our Frequently Asked Questions – Using a Resale Certificate.