Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Associated Beverage Co., Inc. v. Board of Equalization . . . (1990)

Manufacturer Held to Be Retailer of Soft Drinks Sold Through Vending Machines; Purchase of Reusable Bottles Subject to Use Tax

Taxpayer, which manufactured and sold soft drinks to vending machine owners and lessees who had a fixed place of business, challenged the Board's application of Regulation 1574 to the sale of soft drinks from the vending machines. Regulation 1574 provides that a person who sells tangible personal property to vending machine operators and does not notify the Board of the name and address of each operator and who fails to furnish a valid resale certificate will be regarded as the retailer of the property sold through the vending machines, and thus will be required to pay tax on such retail sales. Revenue and Taxation Code Section 6015 permits the Board, when necessary for the efficient administration of sales and use tax law, to regard dealers, distributors, supervisors, or employers as retailers.

The court of appeal held in favor of the Board, finding that Regulation 1574 was valid, and was validly applied to the sales of soft drinks from the vending machines. The court found that the treatment of vending machine sales on a classwide basis was justified, and that there was sufficient evidence that administrative efficiency necessitated Regulation 1574. In addition, the court found that the regulation was not unduly burdensome, and that the application of the regulation to taxpayer was not inconsistent with the definition of "retailer" in Section 6015.

Taxpayer also argued that its purchase of reusable bottles was not subject to the use tax, since it resold the bottles to its customers, and neither the initial filling of new bottles nor the refilling of returned, reusable bottles constituted an intervening non-sales use. The court disagreed. The reusable bottles were returned to taxpayer more than 50 percent of the time; were, on average, reused four times; and bore taxpayer's franchised trademark, as well as the words "return for deposit." Assuming that taxpayer correctly characterized the transaction as a sale of returnable bottles, the court found that the use tax was still due, since taxpayer's primary purpose in purchasing the returnable bottles was not to resell them, but to fill them with the product in preparation for selling it. Finally, the court found that returnable bottles did not fall within the exemption provided for specified containers in Revenue and Taxation Code Section 6364(c). Associated Beverage Company, Inc. v. Board of Equalization (1990) 224 Cal.App.3d 192.