Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Parfums-Corday, Inc. v. State Board of Equalization . . . (1986)

Promotional Displays Subject to Use Tax when Not Resold with Merchandise

Taxpayers, Max Factor & Co. and Parfums-Corday, Inc., purchased promotional displays under resale certificates, stored them in California, and assembled them into promotional prepacks together with merchandise. Taxpayers shipped the prepacks to retailers within and outside of California, who resold the merchandise but not the displays. Taxpayers did not make a separate charge for the displays or increase the price of the merchandise to cover the cost of the displays.

Taxpayers paid use tax on the displays shipped to California retailers, but the Board also assessed use tax on the displays shipped out of state. Taxpayers contended: (1) they had resold the displays because their customers purchased the displays as an integral part of the prepacks, and (2) if they did not resell the displays, they did not use them in California because they shipped the displays as gifts out of state for use thereafter solely outside the state.

The court of appeal held in favor of the Board. The court held that the Board's Regulation 1670(c) was objective and reasonable in establishing that a sale of a marketing aid occurs only when a taxpayer recoups at least 50 percent of its cost either by separate billing for the marketing aid or by increasing the price of the merchandise. Since the taxpayers did neither, they were properly deemed the consumers of the displays. Also, taxpayers had a functional purpose for the displays in California by warehousing them and assembling them into the prepacks, and thus were liable for use tax regardless of the ultimate destination of the displays. Parfums-Corday, Inc. v. State Board of Equalization (1986) 187 Cal.App.3d 630.