Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2011
 

Sales And Use Tax Law

ANALYSIS OF THE CALIFORNIA SALES AND USE TAX LAW

Nontaxable transactions.

Either the sales tax or the use tax applies with respect to all sales or purchases of tangible personal property except:

1. Sales or purchases of tangible personal property for the purpose of resale, either in the form in which sold or as an ingredient or component part of other tangible personal property. In order to document sales for resale, the seller must secure from the purchaser a resale certificate bearing the purchaser's seller's permit number or have other evidence to show that the sale or purchase was in fact for resale. Sales by manufacturers, jobbers and wholesalers to purchasers for use or consumption are retail sales and not sales for resale.

Every person purchasing tangible personal property for resale who uses it for purposes other than demonstration and display is subject to tax as of the time of first use measured by the sales price of the property to him. If the use is limited to the loan of the property to customers while awaiting delivery of property purchased or leased from the lender or while property is being repaired by the lender or if the property is used frequently for purposes of demonstration or display and partly for other purposes, the measure of tax is the fair rental value.

2. Sales or purchases of the following tangible personal property, covered by specific exemptions.

(a) Property the sale or use of which the state is prohibited from taxing under the Constitution or laws of the United States or the Constitution of this state (Sec. 6352).

(b) Gas, electricity, and water delivered through mains, lines or pipes, liquid petroleum gas for qualified residential and agricultural purposes, bulk household water delivered in areas without water mains, lines or pipes, and exhaust steam, waste steam, heat, or resultant energy produced in connection with cogeneration technology (Sec. 6353).

(c) "California Gold" medallions produced and sold in accordance with the Government Code (Sec. 6354).

(d) Bulk, monetized and nonmonetized bullion and numismatic coins substantially equivalent to transactions in securities or commodities through national securities or commodities exchanges (Sec. 6355).

(e) Motor vehicle fuel (Sec. 6357.7) and motor vehicle fuel used in propelling aircraft, except aircraft jet fuel, the distributions of which in this state are subject to the tax imposed by Part 2 of this division and not subject to refund (Sec. 6357).

(f) Drugs and medicines, including oxygen, which are primarily used for the prevention or control of disease that are administered to animal life of a kind the products of which ordinarily constitute food for human consumption (6358).

(g) Animal life and feed therefor, including medicated feed and drinking water, seeds, plants, and fertilizer, the products of which are to be used as food for human consumption or sold (Sec. 6358 and 6358.4).

(h) Certain organic products and waste products used for fuel (Sec. 6358.1).

(i) Wood shavings, sawdust, rice hulls, or other products that are used in poultry and egg production and used as fertilizer products (6358.2).

(j) Food products for human consumption (6359).

This exemption does not include certain beverages, medicines, or dietary supplements or adjuncts.

This exemption does not include food sold or consumed under the following circumstances: when sold as a meal provided by a retailer; when consumed at tables, chairs, counters or from utensils provided by the retailer; when usually consumed at parking facilities provided for this purpose even though sold on a "to go" basis; when consumed within a place which charges admission (except national and state parks, monuments and marinas); when sold as hot prepared products; when sold in a form suitable for on-site consumption and the "80-80 rule" applies (Sec. 6359).

Otherwise exempt sales of food products are taxable when made through a vending machine. A vending machine operator is the consumer of food sold through a vending machine for 15¢ or less. A vending machine operator is also the consumer of food (other than beverages and hot prepared foods), dispensed in bulk from a coin operated machine for 25¢ or less (Sec. 6359.4).

Hot prepared food sold to air carriers engaged in interstate or foreign commerce for consumption by their passengers. This exemption also applies when the hot prepared food is sold to the passengers by the air carrier (Sec. 6359.1).

(k) Hot prepared food products sold to air carriers engaged in interstate or foreign commerce for consumption by carried passengers. This exemption also applies when the hot prepared food is sold to the passengers by the air carrier (Sec. 6359.1).

(l) Ice or dry ice used for packing and shipping or transporting food products for human consumption (Sec. 6359.7).

(m) Carbon dioxide and any nonreturnable containers containing carbon dioxide used in packing or shipping fruits or vegetables under specified conditions (6359.8).

(n) Newspapers and periodicals published or purchased by an Internal Revenue Code 501(c)(3) organization if the publication is distributed to the organization's members or contributors in consideration of the fee or contribution. The exemption also applies if the 501(c)(3) organization's publication contains no commercial advertising irrespective of the method of distribution (Sec. 6362.8).

Newspapers or periodicals distributed by a non-profit organization if distribution is to the organization's members in consideration of the fees and if the cost of printing is less than 10 percent of the membership fee attributable to the period for which the publication is distributed (Sec. 6362.8).

Sales of periodicals sold by subscription and delivered by mail or common carrier (Sec. 6362.7).

Newspapers and periodicals distributed without charge (Sec. 6362.7).

(o) Meals and food furnished to students by their school or by certain organizations and individuals. This exemption does not apply to food sold within a place which charges admission (except national and state parks and monuments) (Sec. 6363).

(p) Meals and food furnished or served to a gathering by certain religious organizations if the revenue is used to carry out the organization's functions and activities (Sec. 6363.5).

(q) Used clothing, household items, or other retail items sold by thrift stores operated by a nonprofit organization if the purpose of that thrift store is to obtain revenue for the funding of medical and social services to individuals with HIV or AIDS (Sec. 6363.3).

(r) Meals delivered to homebound elderly or disabled persons by a nonprofit volunteer home delivery meal provider (Sec. 6363.7).

(s) Containers under certain conditions (Sec. 6364 and 6364.5).

(t) Aircraft sold, leased or sold for, leasing for use as a common carrier or for use outside this state. This exemption includes property sold to an aircraft manufacturer and incorporated into aircraft to be leased by it under these conditions and property becoming a component part of the aircraft in the course of maintenance, repair, overhaul or improvement of that aircraft (Sec. 6366, 6366.1).

(u) Certain property purchased by the San Diego Aero-Space Museum and the California Science Center (Sec. 6366.4).

(v) Property the sale of which is an occasional sale. This exemption includes sales by a person who is not required to hold a sellers permit. It also includes the transfer of all property held by a business entity when there is no change in ownership as a result of the transfer. It also includes certain sales by producers of hay (Secs. 6367 and 6006.5). This exemption is not applicable to sales of vehicles, vessels, and aircraft.

(w) Certain watercraft and component parts of such watercraft for use in transportation for hire in interstate or foreign commerce or for use in certain deep sea fishing operations (Secs. 6368 and 6368.1).

(x) Rail freight cars for use in interstate or foreign commerce (Sec. 6368.5).

(y) Passenger transportation vehicles sold or leased to the Department of Transportation (Sec. 6368.7).

(z) deletionPurchases of passenger transportation equipment by deletioncertain agencies, such as transit authorities at the end of the term of a specified lease or sublease (Sec. 6368.deletion9).

(aa) Certain medicines for human use (Sec. 6369).

(bb) Property the gross receipts of which are received in the form of food stamp coupons (Sec. 6373).

(cc) Property purchased or leased under certain fixed price contracts are exempt from certain tax increases (Sec. 6376.1).

(dd) The sale and purchase of racehorse breeding stock (Sec. 6358.5).

(ee) Certain property purchased by businesses primarily engaged in teleproduction and post production activities (6378).

(ff) Printed sales messages if they are printed to the special order of the purchaser and delivered by a common carrier to a third party at no cost to the recipient (Sec. 6379.5).

(gg) Mailing lists when the contract restricts the purchaser to a single use of the mailing list (6379.8).

(hh) Space flight property purchased for use in any space flight (6380).

(ii) Property sold to the United States and to any incorporated or unincorporated agency or instrumentality of the United States, and property sold to the American National Red Cross (Sec. 6381—sales tax only).

(jj) Certain leases of property to the United States and instrumentalities of the United States (Sec. 6381.5).

(kk) Certain property sold to a common carrier if it is shipped by the purchaser's facilities to an out-of-state destination for use by the purchaser in the conduct of its business (Sec. 6385).

(ll) Property sold to the holder of a seller's permit for use in performing a contract to improve real property located outside this state and which is incorporated into and becomes a part of such real property (Sec. 6386).

(mm) Property purchased solely for use outside this state and delivered to a forwarding agent or export packer and actually delivered to a port outside the United States prior to making any use thereof (Sec. 6387).

(nn) Certain new or remanufactured vehicles purchased from an out-ofstate dealer for use outside this state or for use in interstate commerce but delivered to the purchasers in this state under certain conditions (Secs. 6388 and 6388.5).

(oo) Motor vehicles sold by persons other than dealers, manufacturers, remanufacturers, dismantlers, and lessor-retailers, and vessels and aircraft sold by persons who are not required to hold a seller's permit are exempt from sales tax but use tax may be payable by the consumer (Secs. 6282 and 6283).

(pp) Property on which the sales tax has already been paid (Sec. 6401— exemption from use tax only—does not apply to leases).

(qq) Property purchased from any unincorporated agency or instrumentality of the United States except "surplus" property (Sec. 6402— use tax only).

(rr) Property loaned by a retailer to a school district for an education program and the loan of motor vehicles to certain named institutions for driver training programs (Sec. 6404).

(ss) Rentals required to be included in the measure of use tax or when the property is outside this state (Sec. 6390).

(tt) Leases under which the lessor or lessee is obligated to lease the property for an amount fixed by the lease prior to August 1, 1965 (Secs. 6391 and 6407).

(uu) Property becoming a component part of any railroad equipment in the course of repairing, cleaning, altering, or improving that equipment outside this state (Sec. 6411—use tax only).

(vv) Nonprofit, charitable, or education organizations which are vending machine operators are considered consumers of the property sold through vending machines for fifteen cents or less (Sec. 6359.45(a)). Public libraries are consumers of photocopies sold through a coin-operated on-site copy machine (Sec. 6359.45(b)).

(ww) Meals furnished to residents or patients of certain health and community care facilities or of certain residential facilities serving persons 62 years of age or older, or of certain alcohol and drug abuse treatment facilities (Sec. 6363.6).

(xx) Meals and food furnished at or below cost to low-income elderly persons by nonprofit organizations and governmental agencies (Sec. 6374).

(yy) Meals and food products served on a regular basis to certain elderly residents of condominiums (Sec. 6376.5).

(zz) Certain charitable organizations are considered consumers of bracelets designed to commemorate American prisoners of war which are distributed under certain circumstances (Sec. 6360).

(aaa) Hemodialysis products which constitute medicines and which are supplied to a patient on order of a licensed physician and surgeon pursuant to Section 4050.7 or 4227 of the Business and Professions Code (Sec. 6369.1).

(bbb) Certain nonprofit youth organizations are consumers of food products, nonalcoholic beverages or other tangible personal property made or produced by their members which they sell on an irregular basis for the benefit of the organization (Sec. 6361).

(ccc) Certain nonprofit organizations are consumers of certain handcrafted items designed or made by individuals with certain disabilities (Sec. 6361.1).

(ddd) Sales of items at an auction conducted by, or affiliated with, a nonprofit organization when the proceeds are used for purposes of funding homeless shelters, under certain conditions (6363.2).

(eee) Yearbooks and catalogs prepared for or by public or private schools, school districts, or student organizations, and distributed to students (Sec. 6361.5).

(fff) The sale or use of master tapes or master records embodying sound (Sec. 6362.5).

(ggg) Prescription wheelchairs, crutches, canes, quad canes, and walkers (Sec. 6369.2).

(hhh) Original visual works of art purchased by qualifying governmental entities and nonprofit organizations to become part of a permanent collection of certain museums and public places, or leased from one nonprofit organization to another nonprofit organization for 35 years or more, or leased by the state or any local government from another governmental entity for display in public places (Sec. 6365).

(iii) New motor vehicles sold to residents of foreign countries who arrange for the purchase through an authorized foreign vehicle dealer under certain circumstances (Sec. 6366.2).

(jjj) Museum pieces purchased by qualifying organizations to replace property destroyed by fire, flood, earthquake or other calamity within three years from date calamity occurred (Sec. 6366.3).

(kkk) Endangered and threatened animal and plant species if both the seller and purchaser are nonprofit zoological societies (Sec. 6366.5).

(lll) Items and materials used to modify a vehicle for physically handicapped persons (Sec. 6369.4).

(mmm) Certain parent-teacher and nonprofit library associations and organizations are considered consumers of tangible personal property sold by them if the profits are used in furtherance of the purposes of the organization (Sec. 6370).

(nnn) Medical identification tags sold by qualifying organizations (Sec. 6371).

(ooo) Medical health information purchased by qualifying organizations (Sec. 6408).

(ppp) Health and safety educational materials and insignia sold in connection with health and safety and first aid classes by qualifying organizations (Sec. 6409).

(qqq) The use of trailers moved under a one-trip permit (Sec. 6410— exemption from use tax).

(rrr) The sale and use of certain used mobilehomes which are subject to property tax or floating homes (Sec. 6379).

(sss) Certain medical oxygen systems (Sec. 6369.5).

(ttt) Certain nonprofit associations performing auxiliary services to city and county museums are consumers of tangible personal property they sell at annual rummage sales (Sec. 6370.5).

(uuu) New children's clothing sold to specified nonprofit organizations that furnish the clothing under specified conditions (Sec. 6375.5).

(vvv) The sale of "Buddy Poppies" and similar impermanent lapel pins that memorialize U.S. military veterans killed in foreign wars of the U.S. (Sec. 6360.1).

(www) The sale and purchase of meals and food products for human consumption furnished or served by any nonprofit veterans' organization at a social or other gathering conducted by it or under its auspices for fundraising purposes (Sec. 6363.8).

(xxx) The sale and purchase of farm equipment and machinery, and parts thereof, when purchased by qualified persons engaged in the business of farming or by other qualified persons who assist such persons (Sec. 6356.5).

(yyy) The sale and purchase of equipment and machinery designed primarily for off-road use in commercial timber harvesting operations, and the parts thereof, that is purchased for use by a qualified person engaged in commercial timber harvesting (Sec. 6356.6).

(zzz) The sale and purchase of diesel fuel used in transporting farm products to the marketplace and used in food processing operations (Sec. 6357.1).

A purchaser who certifies in writing to a seller that property purchased will be used for a purpose entitling the seller to regard the sale as exempt and who uses the property for some other purpose must pay a tax to the state measured by the purchase price of the property. The certificate shall relieve the seller from liability for the sales tax only if it is taken in good faith.