Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales And Use Tax Regulations

Article 7. Specific Kinds of Property and Exemptions Generally

Sales And Use Tax Regulations

Article 7. Specific Kinds of Property and Exemptions Generally

Regulation 1584. Membership Fees.

Reference: Sections 6011.1, 6012, and 6012.1, Revenue and Taxation Code.

(a) APPLICATION OF TAX.

(1) IN GENERAL. Membership fees related to the anticipated retail sale of tangible personal property are includible in taxable gross receipts when either

(A) the retailer sells its products only to members and the membership fee exceeds a nominal amount,

or

(B) regardless of the amount of the membership fee, the retailer sells its products for a lower price to a person who has paid the membership fee than to a person who has not paid the fee.

(2) The membership fees described in subdivision (a)(1)(A) or (a)(1)(B) are part of the gross receipts of the person selling tangible personal property to a member. It is immaterial that the person who sold the membership is not the person who sells the tangible personal property to a member. Any sale of a membership described in subdivision (a)(1)(A) or (a)(1)(B) is regarded as related to the retail sale by the retailer selling tangible personal property to a member, not by the person selling the membership, measured by the amounts received by the person selling the membership.

(3) INCIDENTAL SALES. Charges for membership fees not related to anticipated retail transactions are not subject to tax. For example, when a country club or similar organization charges fees (dues) to members and provides substantial service benefits, e.g., the use of golfing, tennis and swimming facilities, the membership fees are not related to sales even though the organization may establish minimum meal and drink purchase requirements for its members.

(4) CONSUMER COOPERATIVES. Initial or periodic membership fees received by consumer cooperatives, as defined in sections 6011.1 and 6012.1 of the Revenue and Taxation Code, are not subject to tax.

(b) NOMINAL AMOUNT.

(1) For purposes of this regulation, beginning January 1, 2011, the term "nominal amount" means an amount totaling $55 or less per year subject to increase as provided in subdivision (b)(2). For periods from January 1, 2006 through December 31, 2010, the term "nominal amount" for purposes of this regulation means an amount totaling $50 or less per year. For periods from January 1, 2001 through December 31, 2005, the term "nominal amount" for purposes of this regulation means an amount totaling $45 or less per year. For periods prior to January 1, 2001, the term "nominal amount" for purposes of this regulation meant an amount totaling $40 or less per year. Amounts received for memberships which are in conjunction with a basic membership (add-ons) are not considered a part of the basic membership fee in determining the nominal amount of the basic membership. Additional cards issued under the same membership number are sales of separate memberships.

(2) During September in the year 2000, and every five years thereafter, the threshold for the nominal amount will be adjusted effective the following January 1, rounded to the nearest $5, to reflect changes in the California Consumer Price Index (CCPI) whenever that change is more than 5 percent higher than any previous adjustment. For purposes of computing the CCPI increase, the June 30 CCPI index of the computation year will be compared with the June 30 CCPI index of the computation year which resulted in an adjusted nominal amount. For example, for the January 1, 2016 adjustment computation, the CCPI index on June 30, 2015, will be compared with the CCPI index on June 30, 2010. If no adjustment is made at that time, the next comparison will be of the CCPI index on June 30, 2020 with the CCPI index on June 30, 2010.

History: Adopted February 22, 1996, effective August 2, 1996.

Amended October 31, 2000, effective January 1, 2001. Subdivision (b)(1)—phrase "beginning January 1, 2001" added; number $40 replaced with $45 in first sentence; Phrase "For periods . . . per year" added in second sentence. Subdivision (b)(2)—"2006" replaced "2001," "2000" replaced "1995," and "2010" replaced "2005."

Amended May 25, 2004, effective August 26, 2004. New subdivision (a)(2) added. Current subdivisions (a)(2) and (3) re-numbered (a)(3) and (4) accordingly.

Amended October 25, 2005, effective January 10, 2006. Adjusted the "nominal amount" in subdivision (b)(1) from $45 to $50 or less per year, operative January 1, 2006, to reflect an increase in the California Consumer Price Index as provided in the regulation. In subdivision (b)(2), updated the example years.

Amended March 25, 2010, effective May 13, 2010. Subdivision (c) deleted to remove unnecessary effective date.

Amended November 16, 2010, effective January 12, 2011. Adjusted the "nominal amount" in subdivision (b)(1) from $50 to $55 or less per year, operative January 1, 2011, to reflect an increase in the California Consumer Price Index as provided in the regulation. In subdivision (b)(2), updated the example years.


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Regulation 1585. Cellular Telephones, Pagers, and Other Wireless Telecommunication Devices.

Reference: Sections 6006, 6010, 6011, 6012, and 6055, Revenue and Taxation Code.

(a) DEFINITIONS.

(1) Wireless Telecommunication Device. A portable communication device such as a wireless telephone or pager requiring activation by a wireless telecommunications service provider or seller of utility services in order to send, receive, or send and receive transmissions via a network of wireless transmitters throughout multiple service areas, or otherwise. The term includes devices based on analog technology and devices based on digital technology.

(2) Wireless Telecommunications Service Provider. A utility regulated by the Public Utilities Commission or the Federal Communications Commission which offers or provides wireless communication or paging services.

(3) Bundled Transaction. The retail sale of a wireless telecommunication device which contractually requires the retailer's customer to activate or contract with a wireless telecommunications service provider for utility service for a period greater than one month as a condition of that sale. A transaction is a bundled transaction within the meaning of this regulation without regard to the method in which the price is stated to the customer. Also, it is immaterial whether the wireless telecommunication device and utility service are sold for a single price or are separately itemized in the context of a sale or on a sales invoice. A transaction is a bundled transaction if goods and services are sold as a single package, whether wireless telecommunication service is supplied to the customer by the retailer or by an independent service supplier. In such transactions, wireless devices may be sold at a "discounted" price, as an inducement for the customer to enter into an extended service contract. The fact that a wireless telecommunication device, such as a PCS (Personal Communication Service) telephone, may, because of its technological specifications, be subject to activation with only one service supplier, does not alone mean that the sale of the device will be treated as a bundled transaction.

(4) UNBUNDLED SALES PRICE. The price at which the retailer has sold specific wireless telecommunication devices to customers who are not required to activate or contract for utility service with the retailer or with an independent wireless telecommunications service provider for utility service as a condition of that sale. If the retailer cannot establish an unbundled sales price to the satisfaction of the Board based upon its own sales records, the unbundled sales price of the device shall equal the fair retail selling price of that device. If tax is reported and paid on an amount equal to the cost of the device plus a markup on cost of at least 18 percent, such amount shall be regarded as the fair retail selling price of the device. The unbundled sales price of an obsolete wireless telecommunication device shall equal the actual selling price of that device.

(b) APPLICATION OF TAX.

(1) IN GENERAL. Tax applies to the gross receipts from the retail sale of a wireless telecommunication device. The retailer of the wireless telecommunication device is required to report and pay the tax.

(2) UNBUNDLED TRANSACTIONS. Tax applies to the gross receipts from the retail sale of a wireless telecommunication device prior to October 1, 1995, or sold in a transaction not described in subdivisions (a)(3), (b)(5), or (b)(6), measured by the actual gross receipts received by the retailer from the end-use customer from the sale of that device.

(3) BUNDLED TRANSACTIONS. Tax applies to the gross receipts from the retail sale of a wireless telecommunication device sold in a bundled transaction, measured by the unbundled sales price of that device. Tax applies to the unbundled sales price whether the wireless telecommunication device and utility service are sold for a single price or are separately itemized in the context of a sale or on a sales invoice. The retailer of the wireless telecommunication device is required to report and pay tax measured by the unbundled sales price of the device and may collect tax or tax reimbursement from its customer measured by the unbundled sales price. Tax does not apply to the charges in excess of the unbundled sales price made for telecommunication services.

(4) ACTIVATION FEES. Tax does not apply to a one-time charge for activating a new wireless telecommunication device with, or on behalf of, a wireless telecommunications service provider where the charge is separately stated and is not for the electronic or physical modification of the device in order for it to function within a wireless telecommunications service provider's service network. A one-time charge for activating a wireless telecommunication device is subject to tax if the activation consists of the physical or electronic modification or fabrication of a wireless telecommunication device in order for the device to function within a wireless telecommunications service provider's service network. The person collecting this fee is required to report and pay tax on that amount. Any subsequent charge for the physical or electronic modification or fabrication of that device which changes the customer's telephone number or which allows that customer to utilize a different wireless telecommunications service provider is subject to tax as set forth in Regulation 1546 (18 CCR 1546).

For purposes of this subdivision, "physical or electronic modification or fabrication of a wireless telecommunication device" does not include the manual input of activation information into the device solely by means of the device's own numeric or function keys, nor does it include the remote electronic input of activation information into the device.

(5) CONSIGNMENT TRANSACTIONS AND SALE OR RETURN TRANSACTIONS. In transactions of this type, a service provider furnishes an inventory of wireless telecommunication devices to an independent retailer without charge or at a nominal price. The independent retailer sells the devices to end-use customers, retaining the proceeds of sale. The end-use customer must contract for wireless service for a period greater than one month with the wireless service provider or, if the end-use customer does not enter such an extended service contract, the end-use customer is required to pay additional service consideration for the device to the service provider. Typically, a credit card imprint is taken by the retailer, to the benefit of the service provider, at the time of the sale, to guarantee payment of the additional consideration. This is a bundled transaction in which the measure of tax is the unbundled sales price. The service provider may collect sales tax reimbursement from the end-use customer. The nominal amount collected from the end-use customer is in the nature of a commission and is not subject to tax. The person providing the device to the end-use customer may not collect sales tax reimbursement from the end-use customer.

(6) SALES AT LESS THAN 50 PERCENT OF COST. Operative January 1, 1999, except with respect to transfers described in (b)(5), any person making any sale, whether at retail or for resale, in a bundled transaction or otherwise, of a wireless telecommunication device at a price, measured by the actual sales price in an unbundled transaction or the unbundled sales price, as determined under this regulation, in a bundled transaction, less than 50 percent of cost, must report and pay use tax measured by the cost to it of the device. If the sale at less than 50 percent of cost is a retail sale, sales tax does not apply to that retail sale. The person making the sale of the device is the consumer of the device for sales and use tax purposes and may not collect tax reimbursement from its customer. Likewise, persons who sell devices for resale at less than 50 percent of cost are consumers. They must report and pay use tax measured by the cost to them of the device. In this case, any subsequent retail sale of the device is subject to sales tax unless that sale is at less than 50 percent of cost. Sales tax reimbursement may be collected from the end-use customer based upon the retail selling price of the device to the end-use customer. This subdivision shall not, however, be applicable in any instance involving the sale of a functionally or economically obsolete wireless telecommunication device.

(c) BAD DEBT DEDUCTIONS.

(1) In General. The provisions of Regulation 1642, "Bad Debts" (18 CCR 1642), apply to retailers making sales of wireless telecommunication devices pursuant to subdivision (b)(1).

(2) Charge-Backs To The Retailer. Retailers reporting tax measured by the unbundled sales price of a wireless telecommunication device may take a bad debt deduction pursuant to Regulation 1642 when a payment or rebate from a wireless telecommunications service provider is charged-back to the retailer based on a customer's termination of its contract with the wireless telecommunications service provider before the date specified in the utility service contract. The amount of bad debt deduction claimed by a retailer may not exceed the difference between the gross receipts on which tax was reported and paid by the retailer, and the total amount collected and retained by the retailer from the sale of the wireless telecommunication device excluding any amounts collected from the customer as tax or tax reimbursement. Any tax or tax reimbursement collected by the retailer on the amount of bad debt deduction claimed by the retailer constitutes excess tax reimbursement and must be returned to the customer or paid to the Board unless the customer and retailer agree that this amount may be applied toward the amounts owed by the customer on the debt. The customer and retailer will be regarded as having agreed to the application of any excess tax reimbursement to the customer's debt where the retailer's books reflect both the debt owed by the customer and the corresponding credit for excess tax reimbursement.

History: Adopted October 15, 1998, effective February 11, 1999.


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Regulation 1586. Works of Art and Museum Pieces for Public Display.

Reference: Sections 6365 and 6366.3, Revenue and Taxation Code.

(a) GENERAL.

(1) ORIGINAL WORK OF ART. Tangible personal property which is an original work of art and which is purchased by or for donation to certain public or nonprofit organizations for the purpose of display to the public in museums or public places is exempt from the sales and use taxes under certain conditions.

(2) MUSEUM PIECES. Tangible personal property purchased by certain organizations to replace museum pieces which were destroyed by a calamity are exempt from the sales and use taxes under certain conditions.

(b) DEFINITIONS.

(1) "Original Work of Art" for purposes of this regulation means tangible personal property which has been created as a unique object intended to provide aesthetic pleasure to the beholder and/or to express the emotions of the artist. The form in which an original work of art is presented includes but is not limited to:

(A) visual art, e.g., a drawing, painting, mural, fresco, sculpture, mosaic, film, or photograph, a work of calligraphy, a work of graphic art (an etching, lithograph, offset print, silk screen, or a work of graphic art of like nature),

(B) crafts, e.g., crafts in clay, textile, fiber, wood, metal, plastic, glass, costume, dress, clothing, personal adornment, and like materials, or

(C) mixed media, e.g., a collage, assemblage, or any combination of the foregoing art media.

(2) "Museum" for purposes of this regulation means a place specifically designated for display of artifacts or objects of art which either:

(A) has a significant portion of its display space open to the public without charge during its normal operating hours;

(B) has its entire display space open to the public without charge for at least six of its normal operating hours during each month of operation; or

(C) has its entire display space open without charge to a segment of the student or adult population for educational purposes.

(c) APPLICATION OF TAX.

(1) ORIGINAL WORKS OF ART.

(A) Tax does not apply to the sale or use of original works of art which are:

1. purchased by this state, or any city, county, city and county, or other local governmental entity in this state;

2. purchased by any nonprofit organization which operates a public museum under contract for such governmental entity;

3. purchased by any nonprofit organization qualifying for exemption from state income tax pursuant to section 23701d of the Revenue and Taxation Code. The works of art must be purchased for display in a museum either operated by the purchaser or by another nonprofit organization which qualified for exemption pursuant to section 23701d. The museum in which the art is displayed must be open to the public regularly for not less than 20 hours per week and for not less than 35 weeks of the calendar year;

4. purchased by any person for donation to the above governmental entities or nonprofit organizations. To qualify for exemption from the tax under this subparagraph, donated works of art must be delivered by the retailer of the art directly to the donee pursuant to the instructions of the buyer-donor. Written evidence of transfer of title to the works of art from the buyer-donor to the donee must be maintained by the retailer and the buyer-donor to support the exemption; or

5. operative January 1, 2007, leased from one nonprofit organization to another nonprofit organization for 35 years or more, if both lessor and lessee are nonprofit organizations as defined in subdivisions (c)(1)(A)(2) and (c)(1)(A)(3) of this regulation.

(B) The exemption provided by subdivision (c)(1)(A) applies only to original works of art which are purchased or leased to become part of the permanent collection of any of the following:

1. a museum;

2. a nonprofit corporation which (1) has qualified for exemption from the state income tax pursuant to Revenue and Taxation Code section 23701d, (2) regularly loans not less than 85 percent of the value of its collection of works of art to one or more museums, and (3) is required by its articles of incorporation to loan its works of art and is otherwise prohibited by its articles from making any private use of its works of art. The works of art for which the exemption is claimed pursuant to this subparagraph must be placed on display at a museum in California for not less than 24 months during the three-year period commencing from the date of purchase; or

3. operative January 1, 1988, this state and any city, county, city and county, or other local governmental entity in this state for display to the public in buildings, parks, plazas, or other places which are open to the public without charge for not less than 20 hours per week and for not less than 35 weeks of the calendar year.

Operative January 1, 2007, "permanent collection" as it applies to leases of original works of art, means a collection with a lease term of 35 years or more.

(2) MUSEUM PIECES.

(A) Tangible personal property is exempt from the sales and use tax if purchased to replace destroyed objects of a museum's permanent collection when such property is purchased by:

1. a nonprofit museum regularly open to the public and operated by or for a local or state government entity,

2. a nonprofit museum regularly open to the public and operated by a nonprofit organization which has qualified for exemption from the state income tax pursuant to section 27301d of the Revenue and Taxation Code, or

3. operative January 1, 1988, this state or any local governmental entity in this state as part of a public art collection for display in a space which is open to the public without charge.

(B) To qualify for the exemption, the property must be purchased and used exclusively for display purposes. However, the property purchased does not need to be similar in character to the property it is replacing. The exemption does not extend to display cases, shelving, lamps, lighting fixtures, or other items of tangible personal property utilized in the operations of the museum. The purchased property must be:

1. purchased to replace property which has been physically destroyed by fire, flood, earthquake, or other calamity,

2. purchased within three years from the date of the calamity, and

3. the aggregate amount of property purchased must not exceed the value of the property destroyed on the date the calamity occurred.

(d) RECORDS. Records must be maintained to substantiate any claim of exemption pursuant to this regulation. Such records must include, but are not limited to, documents indicating the name of the purchaser, the date of purchase, the purchase price, the date the property was first brought into this state (if applicable), and the dates and locations the work of art was on display at a museum.

History: Adopted November 16, 1988, effective January 28, 1989. Adopted Regulation 1586 to exempt from tax certain purchases of public art by this state or any local governmental entity for display to the public in public places as specified.

Amended December 12, 2006, effective July 26, 2007. Amended subdivision
(b)(1)(B) to incorporate new statutory language clarifying the definition of "crafts." Amended subdivision (c)(1) to incorporate a statutory change regarding leases of original works of art for 35 years or more.


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Regulation 1587. Animal Life, Feed, Drugs and Medicines.

Reference: Sections 6018.1, 6358, and 6358.4, Revenue and Taxation Code.

(a) ANIMAL LIFE. Tax does not apply to sales of any form of animal life of a kind the products of which ordinarily constitute food for human consumption (food animals), as for example, cattle, sheep, swine, baby chicks, hatching eggs, fish, and bees. Operative January 1, 1993, food animals include ostriches. Operative January 1, 1996, food animals include emus. Operative January 1, 2000, the term "food animals" includes any form of animal life classified by the California Department of Food and Agriculture, by regulation, as livestock or poultry intended for human consumption under sections 18848 and 25408 of the California Food and Agricultural Code. Tax shall not apply to sales of such newly defined food animals on or after the date the related California Food and Agricultural regulation is effective.

The term "food animals" does not include any forms of animal life which are commonly kept as pets or companions, the sale of which for food is prohibited by Penal Code section 598b, nor does it include any horse, the sale of which for human consumption is prohibited by Penal Code section 598c. For example, cats, dogs, horses, mink, and canaries are not food animals.

(b) FEED.

(1) DEFINITION. The term "feed" as used herein includes codliver oil, salt, bone meal, calcium carbonate, double purpose limestone granulars and oyster shells, but does not include sand, charcoal, granite grit, sulphur and medicines. It also includes any item which is purchased for use as an ingredient of a product which would constitute a feed were the product itself sold.

(2) APPLICATION OF TAX.

(A) In General. Tax does not apply to sales of feed for food animals or for any non-food animals which are to be sold in the regular course of business.

(B) Cellulose Casings. Tax does not apply to the sale or use of cellulose casings used in the manufacture and production of processed meat products which are ultimately resold as, or incorporated into, feed for food animals or non-food animals which are to be sold in the regular course of business.

(C) Medicated Feed. Tax does not apply to the sale of medicated feed, the primary purpose of which is prevention and control of disease of food animals or of non-food animals which are to be sold in the regular course of business. Tax also does not apply to sales of the particular ingredients purchased from different sellers by a purchaser who mixes them himself for feeding to such animal life, in such proportions that the product is an exempt medicated feed rather than a drug.

(c) DRUGS OR MEDICINES.

(1) DEFINITIONS. The term "drugs or medicines, the primary purpose of which is the prevention and control of disease," as used herein, means and includes any livestock drug approved by the United States Food & Drug Administration, which are defined and registered pursuant to California Food & Agricultural Code Sections 14202, 14206, and 14281. The term also includes vitamins as well as insecticides which are labeled for livestock use and which are administered directly to the livestock. The term includes, but is not limited to, legend drugs, pills and capsules, liquid medications, injected drugs, ointments, vaccines, intravenous fluids, and medicated soaps. "Livestock" includes poultry. "Livestock drug" means any drug, combination of drugs, proprietary medicine, or combination of drugs and other ingredients which is prepared for administration to livestock. On or after January 1, 1997, the term "drugs and medicines" also includes oxygen administered to food animals, as provided in (c)(2)(A) below.

(2) APPLICATION OF TAX.

(A) Oxygen. On or after January 1, 1997, tax does not apply to the sale or use of oxygen administered to food animals for the primary purpose of preventing or controlling disease, including oxygen injected into ponds or tanks that house or contain aquatic species raised, kept, or used as food for human consumption. However, tax does apply to the sale or use of oxygen administered to nonfood animals whether or not the animals are being held for sale in the regular course of business.

(B) Administered Directly. Prior to January 1, 1997, except as provided in Regulation 1506 (18 CCR 1506), subdivision (h), dealing with licensed veterinarians, tax applies to the sales or use of drugs or medicines as defined in subdivision (c)(1) which are administered directly to animal life. Operative January 1, 1997, tax does not apply to the sale or use of drugs or medicines as defined in subdivision (c)(1) which are administered directly (e.g., orally, hypodermically, or topically or externally as injections, implants, drenches, repellents, or pour-ons) to food animals. The sale or use of drugs or medicines as defined in subdivision (c)(1) administered directly to non-food animals are subject to tax regardless that such animals are being held for sale in the regular course of business.

(C) Mixed with Feed or Drinking Water. Prior to April 1, 1996, tax applies to the sale or use of drugs or medicines as defined in subdivision (c)(1) administered to animal life as an additive to feed (except as provided in (b)(2)(B) above) or to drinking water. Operative April 1, 1996, tax does not apply to the sale or use of such drugs or medicines administered as an additive to, or component of, feed or drinking water for food animals or for nonfood animals being held for sale in the regular course of business.

(d) EXEMPTION CERTIFICATES.

(1) FEED. Sellers of feed should secure feed exemption certificates with respect to sales of feed of a kind customarily used both to feed food animals and to feed non-food animals which is purchased for food animals, and with respect to sales of all feed which is purchased for non-food animals being held for sale in the regular course of business. The following form of certificate is suggested:

"I hereby certify that all of the feed which I shall purchase from ___________________________________________________________

will be purchased for use as feed for food animals or for non-food animals which are being held for sale in the regular course of business. This certificate shall be considered a part of each order which I give unless such order shall otherwise specify. This certificate shall be good until revoked in writing.


Signature _____________________________________________________________

Address ______________________________________________________________

Occupation ____________________________________________________________

Seller's Permit No. (if any) ________________________________________________ "


Sellers of feed need not secure feed exemption certificates with respect to sales of feed of a kind ordinarily used only in the production of meat, dairy or poultry products for human consumption or with respect to sales in small units (two standard sacks of grain or less and/or four bales of hay or less) of feed of a kind customarily used either for food production or other purposes (feeding work stock), or with respect to sales of feed that is specifically labeled by the manufacturer for food animals. In the absence of evidence to the contrary, it will be presumed that all such feed are to be used in producing meat, dairy or poultry products for human consumption.

(2) DRUGS OR MEDICINES.

(A) Administered Directly. Operative January 1, 1997, persons who buy drugs or medicines as defined in subdivision (c)(1), which will be administered directly (e.g., orally, hypodermically, or topically or externally as injections, implants, drenches, repellents, or pour-ons) to food animals, should give the vendor an exemption certificate similar to the example in subdivision (d)(2)(C) below.

(B) To be Mixed With Feed or Drinking Water. Operative April 1, 1996, persons who buy drugs or medicines as defined in subdivision (c)(1) to be mixed with feed or drinking water, for food animals or of non-food animals being held for sale in the regular course of business, should give the vendor an exemption certificate similar to the example in subidivision (d)(2)(C) below.

(C) Sellers of drugs or medicines to be mixed with feed or drinking water for food animals or for non-food animals being held for sale in the regular course of business, to be administered directly to a food animal, or, if oxygen, administered to a food animal such as by pumping or injecting the oxygen into the animal's living environment should request a certificate similar to the following from the buyer:

"I hereby certify that the drugs or medicines which I shall purchase from ______________________________________________ will be purchased

[   ] as an additive to feed or drinking water for food animals or for non-food animals being held for sale in the regular course of business,

[   ] for administration directly to a food animal, or

[   ] for oxygen administered to a food animal.

This certificate shall be considered a part of each order which I give unless such order shall otherwise specify. This certificate shall be good until revoked in writing.


Signature _____________________________________________________________

Address ______________________________________________________________

Occupation ____________________________________________________________

Seller's Permit No. (if any) ________________________________________________ "


(3) INVOICES RELATED TO EXEMPTION CERTIFICATES. Exemption certificates should be complete with the information specified in the above forms, including the names and addresses of the purchasers, in order to constitute adequate support for exemptions claimed by sellers. In addition, the invoices on sales claimed as exempt should specify the names of the purchasers in order to relate them to exemption certificates.

History: Effective July 1, 1947.

Amended July 23, 1947.

Amended and renumbered August 5, 1969, effective September 6, 1969.

Amended March 9, 1976, effective April 18, 1976. Added (c)(3) clarifying requirement of sellers to maintain completed exemption notices and related invoices.

Amended July 30, 1986, effective December 13, 1986. Amended subdivision (b)(2)(C) to provide that tax applies to sales of drugs or medicines administered to animal life directly or as an additive to drinking water except as provided.

Amended November 18, 1987, effective February 26, 1988. In subdivision (c)(1), defined term "small units" of feed.

Amended January 11, 1996, effective October 12, 1996. Amended subdivision (a) to define ostriches as food animals; added a reference to the California Code of Regulations to subdivision (b)(2)(C); corrected a clerical error in subdivision (c)(2).

Amended August 1, 1997, effective January 8, 1998. Amended subdivision (a) by adding reference to emus as food animals effective January 1, 1996. Former subdivision (b)(2)(C) redesignated (c) and renamed "Drugs or Medicines." New subdivisions (c)(1) and (c)(3) added. New subdivision (c)(2) added incorporating language of former subdivision (b)(2)(C), adding reference to use of products, cross-reference to new subdivision (c)(1), and adding new second sentence. Former subdivision (c) redesignated (d) and subdivision (d)(1) amended by adding phrase "which . . . business" to first paragraph; deleting language "I am engaged . . . that" and "in the production . . . products" from, and adding phrase "as feed . . . business" to first paragraph of certificate. New subdivision (d)(2)(A) added. First paragraph of former subdivision (c) incorporated into new subdivision (d)(2)(B) adding operative date, cross-reference to new subdivision (c)(1), phrase "or drinking . . . business," and cross-reference to new subdivision (d)(2)(C); second sentence deleted. Content of second paragraph of former subdivision (c)(2) incorporated into new subdivision (d)(2)(C) with phrases "or medicines", "or drinking water", and "or for non-food animals . . . food animal" added. In sample certificate, phrases "I . . . of" deleted, "or medicines" added, and language beginning with "for" and running to end of first paragraph, along with blanks, deleted; and two new blocks added.

Amended July 29, 1999, effective October 1, 1999. New subdivision (b)(2)(B) "Cellulose Casings," added. Renumbered old subdivision (b)(2)(B) "Medicated Feed," as subdivision (b)(2)(C).

Amended February 23, 2000, effective May 18, 2000. Amended subdivision (a) to include in "food animals" any form of animal life or poultry classified by the California Department of Food and Agriculture as intended for human consumption, and to clarify "food animals" do not include animal life kept as pets and companions. Amended subdivisions (c)(1) and (d)(2)(C), and added subdivision (c)(2)(A) concerning oxygen administered to food animals. Redesignated former subdivisions (c)(2)–(3) to (c)(2)(B)–(C).


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Regulation 1588. Seeds, Plants and Fertilizer.

Reference: Section 6358, Revenue and Taxation Code.

(a) SEEDS AND PLANTS. Tax does not apply to sales of seeds, annual plants, and operative January 1, 1999, non-annual plants, the products of which ordinarily constitute food for human consumption or the products of which are to be sold in the regular course of the purchaser's business, including fruit trees, berry vines, and grape rootlings or rootstock, or cuttings of every variety. Tax does not apply to sales of seed, the products of which will be used as feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption or the products of which are to be sold in the regular course of the purchaser's business.

(b) FERTILIZER.

(1) DEFINITION. The term "fertilizer" includes commercial fertilizers, agricultural minerals, and manure. The terms "commercial fertilizers" and "agricultural minerals" as used herein are defined in Sections 14522 (commercial fertilizer) and 14512 (agricultural minerals) of the Food and Agricultural Code. "Manure" means the excreta of any domestic animal or domestic fowl which is not artificially mixed with any material except a material which has been used for bedding, sanitary, or feeding purposes for such an animal or fowl or for the preservation of the manure. The term "fertilizer" does not include "soil amendments" or "auxiliary soil and plant substances" as these terms are defined (with the exception noted below) in Sections 14552 (soil amendments) and 14513 (auxiliary soil and plant substances) of the Food and Agricultural Code. For purposes of this regulation, "manures sold without guarantees for plant nutrients" as described in Section 14552 of the Food and Agricultural Code are not soil amendments.

(2) APPLICATION OF TAX. Tax does not apply to sales of fertilizer to be applied to land (including foliar application) the products of which are to be: (a) used as food for human consumption, (b) used as feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, or (c) sold in the regular course of the purchaser's business.

When insecticides are mixed with fertilizer and the mixture sold, that portion of the total price allocable to the fertilizer may be excluded from the measure of the tax if the mixed product is applied to land (including foliar application) the products of which are to be: (a) used as food for human consumption, (b) used as feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, or (c) sold in the regular course of the purchaser's business.

History: Adopted as of January 1, 1945, as a restatement of previous rulings.

Amended and renumbered March 24, 1970, effective April 29, 1970.

Amended August 20, 1985, effective November 22, 1985. In Subdivision (b)(1), defined the term "fertilizer" to include the terms "commercial fertilizers," "agricultural minerals," and "manures" as those terms are defined in the Food and Agricultural Code and provided this term does not include soil amendments nor does it include auxiliary soil and plant substances. Corrected references to sections of the Food and Agricultural Code and defined the term "manure". Deleted the footnote which repeated the text of the applicable Food and Agricultural Code sections.

Amended August 24, 1988, effective November 18, 1988. In subdivision (a) amended to provide that effective October 1, 1987, nonannual plants, such as fruit trees and berry vines, which are eligible to be purchased with federal food stamp coupons and are so purchased are exempt from the sales and use taxes.

Amended July 30, 1992, effective January 10, 1993. Paragraph (a) was amended to make clear that tax does not apply to sales of seed which will be used to grow feed for any animals which ordinarily constitute food for human consumption and not just for livestock and poultry. Paragraph (b)(1) was amended to correct references to sections of the Food and Agricultural Code. Paragraph (b)(2) was amended to clarify that to be exempt, the products grown must be used as food for human consumption or sold in the regular course of business and that the exemption applies to fertilizer which has been mixed with insecticides when sold for the same purposes as unmixed fertilizer.

Amended January 22, 1999, effective April 1, 1999. In subdivision (a), new second sentence added; un-numbered paragraph deleted. Phrase "are to be" replaced with "(c)" in subdivision (b)(2).

Amended October 7, 1999, effective December 3, 1999. Deleted reference to section 6373 of the Revenue and Taxation Code concerning food stamps as obsolete. Prior to January 1, 1999 sales of non-annual plants were taxable unless purchased with food stamp coupons. After operative date of amendment to section 6358 (Statutes of 1998, Chapter 323, (AB-2798)) sales of non-annual plants the products of which are food for human consumption became not taxable regardless of method of payment. Subdivision (a) corrected operative date to January 1, 1999 to comply with statutory change to section 6358 by AB 2798. Also added the words "or rootstock" after the word "rootlings" to recognize that they are synonymous terms used by the grape and tree fruit industry.

Amended October 19, 2004, effective January 13, 2005. Subdivision (a)-first sentence- comma added after "seeds" and word "and" before "annual plants" deleted and phrase ", and operative January 1, 1999, non annual plants," added after word "plants" and phrase "the products of which" added after word "or" and period deleted; second sentence- phrase "Operative . . . consumption," deleted to combine remainder of second sentence with first; third sentence- phrase "the products of which" added after word "or."


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Regulation 1589. Containers and Labels.

Reference: Sections 6007, 6008, 6009, 6012, 6364, and 6364.5, Revenue and Taxation Code.

(a) DEFINITIONS. The term "containers" as used herein means the articles in or on which tangible personal property is placed for shipment and delivery such as wrapping materials, bags, cans, twines, gummed tapes, barrels, boxes, bottles, drums, carboys, cartons, sacks, pallets and materials from which such containers are manufactured.

The term "returnable containers" as used herein means containers of a kind customarily returned or resold by the buyers of the contents for re-use by the packers, bottlers or sellers of the commodities contained therein. A container, title to which is retained by the seller or for which a deposit is taken by such seller, is a returnable container.

A container used for shipment or delivery of food for human consumption is not customarily returned by the buyer when:

1. The container is sold together with the contents;

2. No deposit is charged on the container;

3. Title to the container is not retained;

4. There is no obligation to repurchase the container;

5. The container is of the type that is fungible; and

6. The container is repurchased without regard to whether it is the same container originally sold.

Example: A tomato paste processor purchased a new or used container. The processor fills the container with tomato paste or other processed food. The tomato paste, together with the container, is sold to a spaghetti sauce manufacturer. No deposit is charged on the container, title to the container is not retained, and there is no obligation to repurchase the container. The container is of a type that is fungible. The spaghetti sauce manufacturer sells the container to a warehouse or a food processor who in turn sells containers that may or may not include the original container to a tomato paste processor that may or may not be the original purchaser. This container is not customarily returned by the buyer.

Examples of returnable containers are: registered dairy products containers, steel drums, certain types of beer and soft drink bottles, wine barrels, chemical carboys, and gas cylinders.

All other containers are "nonreturnable containers." Examples of nonreturnable containers are: wrapping and packing materials, paper bags, twine, cartons, cans, medicine and distilled spirits bottles.

The term "deposit" as used herein means an amount charged to the purchaser of the contents of the container with the understanding that such amount will be repaid when the container or a similar container is delivered to the seller. The term "deposit" as used herein does not include amounts representing redemption or recycling values of beverage containers pursuant to division 12.1 (commencing with Section 14500) of the Public Resources Code whether or not such amounts are separately stated to the purchaser of the contents of the container.

(b) APPLICATION OF TAX.

(1) CONTAINERS. Tax does not apply to the sale of, and the storage, use or other consumption of:

(A) 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.

(B) Nonreturnable containers when sold without the contents to persons who place food products for human consumption in the containers for subsequent sale.

(C) Returnable containers when sold with the contents in connection with a retail sale of the contents, or when resold for refilling. In the case of a lease of a returnable container that is a continuing sale, the lessor's first lease of the container for filling is taxable for the full term of the lease or thirty (30) days whichever is greater. The lessor's subsequent lease of the container for refilling for sale with the contents is not taxable.

(D) All containers when sold or leased with the contents, if the sales price of the contents is not required to be included in the measure of the sales tax or the use tax.

(E) Operative April 1, 2000, all containers when sold or leased without the contents to persons who place food products for human consumption in the containers for shipment, provided the food products will be sold. The exemption applies without regard to whether the food products are sold in the same container or not, or whether the food products are remanufactured or repackaged prior to their sale.

Tax applies to all other sales of containers except sales for the purpose of resale to other sellers of containers who purchase them for resale without the contents.

Operative April 1, 1998, tax does not apply to the sale or to the storage, use, or other consumption of any container used to collect or store human whole blood, plasma, blood products, or blood derivatives held for medical purposes, including, but not limited to, blood collection units and blood pack units.

Deposits as defined herein are not taxable.

(2) LABELS. Tax does not apply to sales of labels or name-plates if:

(A) The purchaser affixes them to property to be sold and sells them along with and as a part of such property, as, for example, sales of name-plates of manufacturers or producers which are permanently affixed to each unit of products sold, such as automobiles and machinery.

(B) The purchaser affixes them to nonreturnable containers of property to be sold, or to returnable containers of such property if a new label is affixed to the container each time it is refilled. Examples are sales of labels to be affixed to fruit boxes, cans, bottles and packing cases, to growers, packers, bottlers and others who place the contents in the containers.

(c) PARTICULAR APPLICATIONS.

(1) PRICE TAGS. Tax applies to sales of such items as price tags, shipping tags and advertising matter used in connection with the sale of property or enclosed with the property sold.

(2) FEED ANALYSIS TAGS. Tax does not apply to sales of feed analysis tags to be attached to containers of feeds and sold along with the container and contents.

(3) FEED BAGS. Feed bags sold to feed dealers who place feed in the bags and sell the feed together with the bags are nonreturnable containers,* and the sale of such bags to feed dealers is not taxable. It is immaterial whether the bags are made of burlap, cotton, paper, or other material, or whether there is a brand name or dealer's name imprinted on the bags.

If, however, any feed dealer charges a deposit to customers to secure the return of the bags, or otherwise requires his customers to return the bags to him, the bags become returnable containers and tax applies to the sale of the bags to the feed dealer.

* The conclusion that feed bags are nonreturnable containers resulted from a statewide survey made by the board with the cooperation of the California Grain and Feed Association, which showed that substantially less than 50 percent of the feed bags are returned to the feed dealers by their customers for re-use.

(4) GIFT WRAPPING. Tax applies to the entire charge for "gift wrapping" (i.e., furnishing the materials and labor required to wrap an item for a customer so as to be suitable for use by him as a gift), whether or not the person who does the gift wrapping is the seller of the contents. If the person who does the gift wrapping is the seller of the contents, the gift wrapping is considered sold together with the contents, whether or not a separate charge is made for the gift wrapping. The person who does the gift wrapping may purchase the materials free of tax for resale.

However, tax does not apply to charges for gift wrapping exempt food products sold by the person who does the gift wrapping, unless the value of the gift wrapping exceeds the value of the food products.

History: Effective August 1, 1933.

Adopted January 1, 1945, as a restatement of previous rulings.

Amended and renumbered August 5, 1969, effective September 6, 1969.

Amended May 21, 1975, effective June 29, 1975. Deleted cement bags as returnable containers and added (c)(4) classifying gift wrappers as resellers and their labor as fabrication.

Amended October 7, 1987, effective December 30, 1987. In subdivision (a), expanded the definition of the term "deposit" to exclude redemption or recycling values of beverage containers in order to prevent any confusion which may arise when the California Beverage Container Recycling and Litter Reduction Act becomes effective. Because redemption or recycling values of beverage containers are not considered deposits, they therefore are includable in the gross receipts of the seller of the containers.

Amended April 23, 1996, effective August 8, 1996. New subdivision (b)(1)(B) added; existing subdivisions (b)(1)(B) & (C) re-designated (b)(1)(C) & (D), respectively. Obsolete effective date deleted from subdivision (c)(4).

Amended June 11, 1998, effective July 11, 1998. Amended subdivision (b) to incorporate provisions of Chapter 773, Statutes of 1997.

Amended July 29, 1999, effective October 15, 1999. Subdivision (a): phrase "of the contents" deleted from second sentence in the first unnumbered paragraph; also new unnumbered second and third paragraphs added. Subdivision (b)(1)(C): new second and third sentence added. Subdivision (b)(1)(D) the words "or leased" added to the first paragraph after the word "sold".

Amended October 19, 2004, effective January 13, 2005. Subdivision (b)(1)—word "the" added before word "sales" and phrase ", and the storage, use, or other consumption of:" added to end of subdivision to clarify that the exemptions listed therein apply to both sales and use tax. Subdivision (b)(1)(E) added.


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Regulation 1590. Newspapers and Periodicals.

Reference: Sections 6005, 6006, 6007, 6010, 6015, 6361.5, 6362.3, 6362.7, and 6362.8, Revenue and Taxation Code.

(a) DEFINITIONS.

(1) "NEWSPAPER." The term "newspaper" as used herein conforms to the definition of a newspaper as set forth in a ruling of the United States Treasury Department published in the Federal Register, December 29, 1960. Under this definition, the term is limited to those publications which are commonly understood to be newspapers and which are printed and distributed periodically at daily, weekly, or other short intervals for the dissemination of news of a general character and of a general interest. The term does not include handbills, circulars, flyers, or the like, unless distributed as a part of a publication which constitutes a newspaper within the meaning of this subparagraph. Neither does the term include any publication which is issued to supply information on certain subjects of interest to particular groups, unless such publication otherwise qualifies as a newspaper within the meaning of this subparagraph. For purposes of this subparagraph, advertising is not considered to be news of a general character and of a general interest.

(2) "PERIODICAL." The term "periodical" as used herein is limited to those publications which appear at stated intervals, each issue of which contains news or information of general interest to the public, or to some particular organization or group of persons. Each issue must bear a relationship to prior or subsequent issues in respect to continuity of literary character or similarity of subject matter, and there must be some connection between the different issues of the series in the nature of the articles appearing in them.* Each issue must be sufficiently similar in style and format to make it evident that it is one of a series. An annual report of a corporation which is substantially different in style and format from the corporation's quarterly reports is not part of a series with the quarterly reports. The term "periodical" does not include books complete in themselves, even those that are issued at stated intervals, for example, books sold by the Book-of-the-Month Club or similar organizations; so-called "pocket books," a new one of which may be issued once a month or some other interval; or so-called "one-shot" magazines that have no literary or subject matter connection or continuity between prior or subsequent issues. The term does not include catalogs, programs, score-cards, handbills, price lists, order forms or maps. Neither does it include shopping guides or other publications of which the advertising portion, including product publicity, exceeds 90 percent of the printed area of the entire issue in more than one-half of the issues during any 12-month period.

* This definition is based upon Business Statistics Organization, Inc. v. Joseph, 299 N.Y. 443, 87 N.E. 2d 505, and Houghton v. Payne, 194 U.S. 88, 48 L.Ed 888.

(3) "INGREDIENT OR COMPONENT PART OF A NEWSPAPER OR PERIODICAL." The term "ingredient or component part of a newspaper or periodical" includes only those items that become physically incorporated into the publication and not those which are merely consumed or used in the production of the publication. For example, newsprint and ink are ingredients of a newspaper; however, a photograph does not become an ingredient or component part of a newspaper or periodical merely because the image of the photograph is reproduced in the publication.

Handbills, circulars, flyers, order forms, reply envelopes, maps or the like are considered as component parts of a newspaper or periodical when attached to or inserted in and distributed with the newspaper or periodical.

(4) "PUBLISHER." "Publisher" means and includes any person who owns the rights to produce, market, and distribute printed literature and information.

(5) "DISTRIBUTOR." "Distributor" means any person who acquires newspapers or periodicals for subsequent distribution to retailers or newspaper carriers.

(6) "NEWSPAPER CARRIER." "Newspaper carrier" means any person who acquires newspapers from a publisher or distributor to deliver to consumers. The term includes a hawker. A "hawker" is an individual who sells single copies of newspapers to passersby on a street corner or other trafficked area. "Newspaper carrier" does not include persons selling newspapers or periodicals from a fixed place of business.

(7) "THIRD PARTY RETAILER." "Third party retailer" means and includes any person who sells at retail subscriptions to newspapers and periodicals who is not the publisher of the newspapers or periodicals. Typically, third party retailers solicit subscriptions in a single offering for a large number of different publications, require that payment be made to the account of the third party retailer, and undertake to resolve subscription problems. The term includes persons commonly known as direct mail, school, paid during service, cash, catalog, and telephone agents. "Third party retailer" does not include persons who solicit renewals of subscriptions on behalf of individual publishers.

(b) APPLICATION OF TAX.

(1) IN GENERAL. Effective July 15, 1991, the sale of newspapers and periodicals, including sales by third party retailers, is subject to tax unless otherwise exempt.

Tax does not apply to sales of tangible personal property to persons who purchase the property for incorporation as a component part of a newspaper or periodical which will be sold notwithstanding that the purchaser is not the seller of the newspaper or periodical.

See Regulation 1574 (18 CCR 1574) for the application of tax to sales through vending machines and Regulation 1628 (18 CCR 1628) for the application of tax to transportation charges.

(2) DISTRIBUTIONS OF NEWSPAPERS AND PERIODICALS WITHOUT CHARGE. Effective October 2, 1991, tax does not apply to the sale or use of tangible personal property which becomes an ingredient or component part of a copy of a newspaper or periodical regularly issued at average intervals not exceeding three months when that copy of such newspaper or periodical is distributed without charge, nor does tax apply to such distribution.

Newspapers and periodicals distributed on a voluntary pay basis shall be considered as distributed without charge. Newspapers and periodicals are distributed on a voluntary pay basis when payment is requested from the consumer but is not required.

(3) SUBSCRIPTIONS. The sale or use of newspapers and periodicals is exempt from tax during the term of a prepaid subscription if the purchaser ordered and paid for the subscription prior to July 15, 1991.

Effective November 1, 1992, tax does not apply to the sale or use of a periodical, including a newspaper, which appears at least four, but not more than 60 times each year, which is sold by subscription, and which is delivered by mail or common carrier. For example, a daily newspaper is not a periodical for the purposes of this subdivision (b)(3). Tax does not apply to the sale or use of tangible personal property which becomes an ingredient or component part of such a periodical.

Sales tax reimbursement collected on the sale of a periodical subscription prior to the November 1, 1992 effective date of the exemption for the sale of issues delivered on or after November 1, 1992 constitutes excess tax reimbursement. The retailer must refund the tax reimbursement to the customer or pay it to the state in accordance with subdivision (b) of Regulation 1700 (18 CCR 1700).

Each delivery of a newspaper or periodical pursuant to a subscription sale is a separate sale transaction. When the sale is subject to tax, the retailer must report and pay the tax based upon the reporting period within which the delivery is made. The subscription price shall be prorated over the term of the subscription period.

(4) MEMBERSHIP ORGANIZATIONS. Generally, tax applies to sales of newspapers and periodicals by membership organizations. If the price is separately stated, tax applies to that amount. If the price is not separately stated, the measure of tax is the fair retail selling price of the publication.

The application of tax to distributions of newspapers and periodicals by nonprofit organizations is provided at subdivision (b)(5). The application of tax to sales of periodicals by subscription is provided at subdivision (b)(3).

(5) NONPROFIT ORGANIZATIONS.

(A) Internal Revenue Code Section 501(c)(3) Organizations. Effective November 1, 1991, until October 31, 1992, tax does not apply to the sale or use of any newspaper or periodical distributed by an organization that qualifies for tax exempt status under section 501(c)(3) of the Internal Revenue Code, nor tangible personal property which becomes an ingredient or component part of any such newspaper or periodical, only as to issues distributed under either of the following circumstances:

1. The issues are distributed to the organization's members in consideration of the organization's membership fee; or

2. The issues are of a newspaper or periodical which neither receives revenue from, nor accepts, any commercial advertising.

Effective November 1, 1992, the exemption is applicable only as to a newspaper or periodical regularly issued at average intervals not exceeding three months.

For purposes of this subdivision, any governmental entity established and administered for the purposes provided in Internal Revenue Code Section 501(c)(3) shall be considered to be an organization that qualifies for tax exempt status under that section.

(B) Other Nonprofit Organizations. Effective November 1, 1991, tax does not apply to the sale or use of any newspaper or periodical distributed by a nonprofit organization, nor tangible personal property that becomes an ingredient or component part of or any such newspaper or periodical, only as to issues distributed pursuant to both of the following requirements:

1. The issues are distributed to the organization's members in consideration, in whole, or in part, of the organization's membership fee;

2. The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than ten percent of the membership fee attributable to the period for which the newspaper or periodical is distributed, whether the publication is printed within or without this state. The cost of printing shall be determined as follows.

The cost of printing includes costs of tangible personal property purchased to become an ingredient or component part of the newspaper or periodical (e.g., ink and paper) and costs of labor to print the newspaper or periodical. The cost of printing does not include costs not attributable to actual printing, such as costs of special printing aids, typography, and preparation of layouts.

If the organization contracts with an outside printer to print the newspaper or periodical, the organization shall obtain and retain documentation segregating the costs of printing from the printer's other charges.

If the organization is the printer of the newspaper or periodical, the cost of printing includes the aggregate of the cost of tangible personal property purchased to become an ingredient or component part of the newspaper or periodical; labor of printing, including fringe benefits and payroll taxes; and other costs attributable to the actual printing of the newspaper or periodical.

If an organization has published the newspaper or periodical for a period exceeding twelve months and the method of printing has not changed, the organization may elect to consider the cost of printing for a reporting period to be equal to the amount paid or incurred for the same reporting period for the previous fiscal or calendar year.

(6) NEWSPAPER CARRIERS. A newspaper carrier is not a retailer. The publisher or distributor for whom the carrier delivers is the retailer of the newspapers delivered. The publisher or distributor shall report and pay tax measured by the price charged to the customer by the carrier.

(7) CONSUMPTION OF PROPERTY. Tax applies to the sale to or use by a newspaper or periodical publisher of tangible personal property consumed in the manufacturing process. Tax does not apply to the cost of tangible personal property lost or wasted in the manufacturing process when that property was purchased for the purpose of incorporation into a newspaper or periodical to be sold or to be distributed in accordance with subdivision (b)(2).

(8) FIXED PRICE CONTRACTS. The sale or use of newspapers and periodicals is exempt from tax during the term of a prepaid subscription if the purchaser ordered and paid for the subscription prior to July 15, 1991.

(9) SCHOOL CATALOGS AND YEARBOOKS. Public or private schools, county offices of education, school districts, or student organizations are the consumers of catalogs and yearbooks prepared for or by them, and tax does not apply to their receipts from the distribution of the publications to students.

Tax applies to charges for the preparation of such publications made to public or private schools, county offices of education, school districts, or student organizations by printers, engravers, photographers and the like.

(c) EXEMPTION CERTIFICATES. Any seller claiming a transaction as exempt from sales tax pursuant to Revenue and Taxation Code sections 6362.7 or 6362.8 should timely obtain an exemption certificate in writing from the purchaser. The exemption certificate will be considered timely if obtained by the seller at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property.

(1) CERTIFICATE A. Certificate to be used for purchases of tangible personal property for incorporation into newspapers or periodicals for sale in accordance with subdivisions (b)(1) or (b)(3), above.

(2) CERTIFICATE B. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed without charge in accordance with subdivision (b)(2), above.

(3) CERTIFICATE C. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed by organizations which qualify for tax-exempt status under Internal Revenue Code section 501(c)(3) in accordance with subdivision (b)(5)(A), above.

(4) CERTIFICATE D. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed by nonprofit organizations in accordance with subdivision (b)(5)(B), above.


CERTIFICATE A

CALIFORNIA SALES TAX EXEMPTION CERTIFICATE

Sales of tangible personal property for
incorporation into a newspaper or periodical for sale


(Name of Purchaser)


(Address of Purchaser)

I HEREBY CERTIFY:

Initial one of the following:

___________ That I hold valid seller's permit No. _____________________________ issued pursuant to the Sales and Use Tax Law.

___________ That I do not hold a seller's permit issued pursuant to the Sales and Use Tax Law. I do not sell any tangible personal property for which a permit is required.

I further certify that the tangible personal property described herein which I shall purchase from


(Name of Vendor)


will become a component part of the newspaper or periodical *


and sold as a component part of the publication.


I understand that in the event any such property is sold or used other than as specified above or used other than for retention, demonstration, or display while holding it for sale in the regular course of business, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. Description of the property to be purchased:





Date:_______________ , 19 ________



(Signature of Purchaser or Authorized Agent)



(Title)



* Insert name and type of newspaper or periodical




CERTIFICATE B

CALIFORNIA SALES TAX EXEMPTION CERTIFICATE

Sales of tangible personal property which becomes an ingredient or component part of newspapers or periodicals that are distributed without charge


(Name of Purchaser)


(Address of Purchaser)

I HEREBY CERTIFY:

Initial one of the following:

___________ That I hold valid seller's permit No. _____________________________ issued pursuant to the Sales and Use Tax Law.

___________ That I do not hold a seller's permit issued pursuant to the Sales and Use Tax Law. I do not sell any tangible personal property for which a permit is required.

I further certify that I am engaged in the business of publishing *



which is regularly issued at average intervals not exceeding three months and distributed without charge by me. The tangible personal property described herein which I shall purchase from


(Name of Vendor)


will become a component part of the publication listed above. I understand that if I use any of the property purchased for any other purpose I am required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of the such property.

Description of property to be purchased:

Date:_______________ , 19 ________



(Signature of Purchaser or Authorized Agent)



(Title)



* Insert name and type of newspaper or periodical




CERTIFICATE C

CALIFORNIA SALES TAX EXEMPTION CERTIFICATE

Sales of tangible personal property that becomes an ingredient or component of newspapers or periodicals that are distributed by organizations which qualify for tax-exempt status under Internal Revenue Code section 501(c)(3)


(Name of Purchaser)


(Address of Purchaser)

I HEREBY CERTIFY:

Initial one of the following:

___________ That I hold valid seller's permit No. ___________________________ issued pursuant to the Sales and Use Tax Law.

___________ That the purchaser does not hold a permit issued pursuant to the Sales and Use Tax Law. The purchaser does not sell any tangible personal property for which a permit is required.

I further certify that the purchaser is an organization that qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and is engaged in the business of selling or publishing *



The tangible personal property described herein which I shall purchase from


(Name of Vendor)

will be sold in the form of tangible personal property or will become a component part of a newspaper or periodical distributed by the organization and (check one or both):

____________ The organization will distribute the newspaper or periodical to the members of the organization in consideration of payment of the organization's membership fee or to the organization's contributors,

____________ The publication does not receive revenue from or accept any commercial advertising.

I understand that in the event any such property is sold or used other than as specified above or used other than for retention, demonstration, or display while holding it for sale in the regular course of business, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. Description of the property to be purchased:



Date:_______________ , 19 ________



(Signature of Purchaser or Authorized Agent)



(Title)



* Insert name and type of newspaper or periodical




CERTIFICATE D

CALIFORNIA SALES TAX EXEMPTION CERTIFICATE

Sales of tangible personal property which becomes an ingredient or
component part of newspapers or periodicals that are distributed
by nonprofit organizations


(Name of Purchaser)


(Address of Purchaser)

I HEREBY CERTIFY:

Initial one of the following:

__________ That the purchaser holds valid seller's permit No._____________________________ issued pursuant to the Sales and Use Tax Law.

__________ That the purchaser does not hold a seller's permit issued pursuant to the Sales and Use Tax Law. The purchaser does not sell any tangible personal property for which a permit is required.

I further certify that the purchaser is a nonprofit organization which is engaged in business of selling or publishing *



The tangible personal property described herein which I shall purchase from


(Name of Vendor)


will be resold by the organization in the form of tangible personal property or will become a component part of a newspaper or periodical distributed by the organization and both of the following apply:

(A) Distribution will be to any member of the nonprofit organization in consideration, in whole or in part, of payment of the organization's membership fee.

(B) The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than 10 percent of the membership fee attributable to the period for which the newspaper or periodical is distributed.

I understand that in the event any of such property is sold or used other than as specified above or used other than for retention, demonstration, or display while holding it for sale in the regular course of business, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. Description of property to be purchased:





Date:_______________ , 19 ________



(Signature of Purchaser or Authorized Agent)



(Title)



* Insert name and type of newspaper or periodical




History: Originally published April 2, 1945 (Title 18).

Amended August 8, 1945, effective September 15, 1945.

Amended July 25, 1949, as an emergency.

Amended June 8, 1960, effective July 9, 1960.

Amended March 9, 1966, effective April 9, 1966.

Amended and renumbered April 8, 1970, effective May 10, 1970.

Amended February 6, 1975, effective March 15, 1975. Further defined "periodical" and added that a corporate annual report is not a periodical when done in different style from quarterly reports.

Amended December 7, 1977, effective January 19, 1978. Clarified in (b)(2) the tax status of school publications.

Amended March 1, 1989, effective June 9, 1989. Amended to add county offices of education to the list of organizations considered consumers and not retailers of catalogs and yearbooks prepared by and for them and distributed to students. Also amended to provide a signature and title line in the example of a publisher's exemption certificate.

Amended May 26, 1994, effective September 4, 1994. Deleted an obsolete effective date in subdivision (a)(2) and deleted an old footnote relating to subdivision (a)(2). Amended subdivision (a)(3) to clarify that newsprint and ink are ingredients of a newspaper. Added subdivisions (a)(4)–(6) and (7) to provide respective definitions for "publisher," "distributor," "newspaper carrier," and "third party retailer" as those terms are used in the regulation. Added references to the California Code of Regulations to subdivision (b)(1). Amended subdivision (b)(1) to clarify that there is no longer a general exemption for the sale and use of newspapers and periodicals. Added subdivisions (b)(2)–(9) to incorporate new statutory requirements enacted in 1991. Amended subdivision (c) to delete an obsolete exemption certificate and to provide for four new exemption certificates to be used depending on the applicable exemption. Deleted subdivision (d) as obsolete.


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Regulation 1591. Medicines and Medical Devices.

Reference: Sections 6006 and 6369, Revenue and Taxation Code, and Sections 1200, 1200.1, 1204.1, and 1250, Health and Safety Code.

(a) DEFINITIONS.

(1) ADMINISTER. "Administer" means the direct application of a drug or device to the body of a patient or research subject by injection, inhalation, ingestion, or other means.

(2) DISPENSE. "Dispense" means the furnishing of drugs or devices upon a prescription from a physician, dentist, optometrist, or podiatrist. Dispense also means and refers to the furnishing of drugs or devices directly to a patient by a physician, dentist, optometrist, or podiatrist acting within the scope of his or her practice.

(3) FURNISH. "Furnish" means to supply by any means, by sale or otherwise.

(4) HEALTH FACILITY. "Health Facility" as used herein has the meaning ascribed to the term in section 1250 of the Health and Safety Code, and also includes "clinic" as defined in sections 1200 and 1200.1 of the Health and Safety Code.

(A) Section 1250 of the Health and Safety Code provides that "health facility" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer.

(B) Section 1200 of the Health and Safety Code provides that "clinic" means an organized outpatient health facility which provides direct medical, surgical, dental, optometric, or podiatric advice, services, or treatment to patients who remain less than 24 hours, and which may also provide diagnostic or therapeutic services to patients in the home as an incident to care provided at the clinic facility. A place, establishment, or institution which solely provides advice, counseling, information, or referrals on the maintenance of health or on the means and measures to prevent or avoid sickness, disease, or injury, where such advice, counseling, information, or referrals does not constitute the practice of medicine, surgery, dentistry, optometry, or podiatry, shall not be deemed a clinic for purposes of this subdivision.

(C) Section 1200.1 of the Health and Safety Code provides that "clinic" also means an organized outpatient health facility which provides direct psychological advice, services, or treatment to patients who remain less than 24 hours. As provided in section 1204.1 of the Health and Safety Code, such clinics serve patients under the direction of a clinical psychologist as defined in section 1316.5 of the Health and Safety Code, and are operated by a nonprofit corporation, which is exempt from federal taxation under paragraph (3), subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, or a statutory successor thereof, and which is supported and maintained in whole or in part by donations, bequests, gifts, grants, government funds, or contributions which may be in the form of money, goods, or services. In such clinics, any charges to the patient shall be based on the patient's ability to pay, utilizing a sliding fee scale. Such clinics may also provide diagnostic or therapeutic services authorized under Chapter 6.6 (commencing with section 2900) of Division 2 of the Business and Professions Code to patients in the home as an incident to care provided at the clinic facility.

(5) PHARMACIST. "Pharmacist" means a person to whom a license has been issued by the California State Board of Pharmacy, under the provisions of section 4200 of the Business and Professions Code, except as specifically provided otherwise in Chapter 9 of the Pharmacy Law.

(6) PHARMACY. "Pharmacy" means an area, place, or premises licensed by the California State Board of Pharmacy in which the profession of pharmacy is practiced and where prescriptions are compounded. Pharmacy includes, but is not limited to, any area, place, or premises described in a license issued by the California State Board of Pharmacy wherein controlled substances, dangerous drugs, or dangerous devices are stored, possessed, prepared, manufactured, derived, compounded, or repackaged, and from which the controlled substances, dangerous drugs, or dangerous devices are furnished, sold, or dispensed at retail. Pharmacy shall not include any area specifically excluded by paragraph (b) of section 4037 of the Business and Professions Code.

(7) PRESCRIPTION. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(8) PHYSICIANS, DENTISTS, OPTOMETRISTS, AND PODIATRISTS. "Physicians," "dentists," "optometrists," and "podiatrists" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to section 2065 of the Business & Professions Code, when acting within the scope of that section.

(9) MEDICINES. "Medicines" means:

(A) Except where taxable for all uses as provided in subdivision (c), any product fully implanted or injected in the human body, or any drug or any biologic, when such are approved by the U.S. Food and Drug Administration to diagnose, cure, mitigate, treat or prevent any disease, illness or medical condition regardless of ultimate use, or

(B) Any substance or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease and which is commonly recognized as a substance or preparation intended for that use. The term medicines also includes certain articles, devices, and appliances as described in subdivision (b) of this regulation.

(b) "MEDICINES." In addition to the definition set forth in subdivision (a)(9) of this section, the term "medicines" means and includes the following items:

(1) PREPARATIONS AND SIMILAR SUBSTANCES. Preparations and similar substances intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease and which are commonly recognized as a substance or preparation intended for such use qualify as medicines. Tax does not apply to the sale or use of such medicines sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

"Preparations and similar substances" include, but are not limited to, drugs such as penicillin, and other antibiotics, "dangerous drugs" (drugs that require dispensing only on prescription); alcohol (70% solution) and isopropyl; aspirin; baby lotion, oil, and powder; enema preparations; hydrogen peroxide; lubricating jelly; medicated skin creams; oral contraceptives; measles and other types of vaccines; topical creams and ointments; and sterile nonpyrogenic distilled water. Preparations and similar substances applied to the human body in the diagnosis, cure, mitigation, treatment, or prevention of disease qualify as medicines. "Preparations and similar substances" also include Total Parenteral Nutrition (also called TPN), Intradialytic Parenteral Nutrition (also called IDPN), and food provided by way of enteral feeding, except when the TPN, IDPN, or food provided by enteral feeding qualifies as a meal under Regulation 1503. For purposes of this regulation, TPN, IDPN, and enteral feeding are means of providing complete nutrition to the patient; TPN and IDPN are provided in the form of a collection of glucose, amino acids, vitamins, minerals, and lipids, TPN being administered intravenously to a patient who is unable to digest food through the gastrointestinal tract and IDPN being administered to hemodialysis patients as an integral part of the hemodialysis treatment; enteral feeding is the feeding of the patient directly into the gastrointestinal tract.

(2) PERMANENTLY IMPLANTED ARTICLES. Articles permanently implanted in the human body to assist the functioning of, as distinguished from replacing all or any part of, any natural organ, artery, vein or limb and which remain or dissolve in the body qualify as medicines. An article is considered to be permanently implanted if its removal is not otherwise anticipated. Except for devices excluded from the definition of "medicines," permanently implanted articles include the interdependent internal and external components that operate together as one device in and on the person in whom the device is implanted. Tax does not apply to the sale or use of articles permanently implanted in the human body to assist the functioning of any natural organ, artery, vein or limb and which remain or dissolve in the body when such articles are sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

Permanently implanted articles include, but are not limited to, permanently implanted artificial sphincters; bone screws and bone pins, dental implant systems including dental bone screws and abutments; permanently implanted catheters; permanently implanted hydrocephalus devices and their implanted pressure regulating components; implanted defibrillators and implanted leads; pacemakers; tendon implants; testicular gel implants; and ear implants, including the ear implant's interdependent internal and external components. Sutures are also included whether or not they are permanently implanted. A non-returnable, nonreusable needle fused or prethreaded to a suture is regarded as part of the suture.

Implantable articles that do not qualify as "permanently" implanted medicines include, but are not limited to, Chemoport implantable fluid systems; Port-a-Cath systems used for drug infusion purposes; disposable urethral catheters; temporary myocardial pacing leads used during surgery and recovery; and defibrillator programmer and high voltage stimulator used with an implanted defibrillator.

(3) ARTIFICIAL LIMBS AND EYES. Artificial limbs and eyes, or their replacement parts, including stump socks and stockings worn with artificial legs and intraocular lenses for human beings, qualify as medicines as provided by Revenue and Taxation Code section 6369 (c)(5). Tax does not apply to the sale or use of these items when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

(4) ORTHOTIC DEVICES. Orthotic devices and their replacement parts, other than orthodontic devices, designed to be worn on the person of the user as a brace, support or correction for the body structure are medicines as provided under Revenue and Taxation Code section 6369(c)(3). The sale or use of orthotic devices and their replacement parts is not subject to tax when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Orthotic devices and their replacement parts do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription provided the devices are furnished pursuant to a written order of a physician or podiatrist. For the purposes of this regulation, orthotic devices furnished pursuant to a written order of a physician or podiatrist by, but not limited to, medical device retailers, clinics, physical therapists, device suppliers, intermediate care facilities, or other such persons, are deemed to be dispensed on prescription within the meaning of subdivision (d)(1).

Orthotic devices worn on the body of the person include, but are not limited to, abdominal binders and supports, ace bandages, ankle braces, anti-embolism stockings, athletic supporters (only for patients recovering from rectal or genital surgery), casts, and cast components, cervical supports, neck collars, cervical traction devices, clavicular splints, post-surgical corsets, elbow supports, head halters, pelvic traction devices, post-operative knee immobilizers and braces, legging orthoses, rib belts and immobilizers, rupture holders, sacral belts, sacro-lumbar back braces, shoulder immobilizers, slings, stump shrinkers, sternum supports, support hose (and garter belts used to hold them in place), thumb and finger splints, trusses, and wrist and arm braces. All of the above must be worn on the body of the person and act as a brace, support or correction for body structure to qualify as a medicine. If any part of the orthotic device is not worn on the person, the device is not a medicine for the purposes of this regulation.

Orthopedic shoes and supportive devices for the foot do not qualify as medicines unless they are an integral part of a leg brace or artificial leg or are custom-made biomechanical foot orthoses. "Custom-made biomechanical foot orthosis" means a device that is made on a positive model of the individual patient's foot. The model may be individually constructed from suitable model material such as plaster of paris, stone, or wax, and may be manually constructed or fabricated using electronic technology.

"Custom-made biomechanical foot orthosis" do not include:

(A) any pre-made or pre-molded foot orthosis or shoe insert even if it has been modified or customized for an individual patient by the practitioner regardless of the method of modification;

(B) any foot orthosis fabricated directly on the patient's foot regardless of the method and materials used and regardless of its individual character; or

(C) any foot orthosis fabricated inside of the patient's shoe regardless of the method of manufacture and materials used and regardless of its individual character.

(5) PROSTHETIC DEVICES. Prosthetic devices and their replacement parts designed to be worn on or in the patient to replace or assist the functioning of a natural part of the human body, are medicines as provided under Revenue and Taxation Code section 6369(c)(4). The sale or use of prosthetic devices and their replacement parts is not subject to tax when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Prosthetic devices and their replacement parts do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription provided the devices are furnished pursuant to a written order of a physician or podiatrist. For the purposes of this regulation, prosthetic devices furnished pursuant to a written order of a physician or podiatrist by, but not limited to, medical device retailers, clinics, physical therapists, device suppliers, intermediate care facilities, or other such persons are deemed to be dispensed on prescription within the meaning of subdivision (d)(1). For purposes of this regulation only, prosthetic devices include bags and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense enteral feeding to the patient, including: gastrostomy tubes (also called G tubes) which are used to deliver the nutrition directly into the stomach; jejunostomy tubes (also called J tubes) which are used to deliver the nutrition directly into the intestinal tract; and nasogastric tubes (also called NG tubes) which are used to deliver the nutrition directly through the nasal passage to the stomach. For purposes of this regulation only, prosthetic devices also include needles, syringes, cannulas, bags, and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense TPN or IDPN to the patient, provided each of these items is used primarily to dispense the TPN or IDPN.

Prosthetic devices that are considered medicines when worn on or in the patient include, but are not limited to, acetabular cups, atrial valves, cervical cuff, dacron grafts, heart valves, breast tissue expanders and tissue expanders, orbital implant, nerve cups, rhinoplasty prosthesis, neuromuscular electrical stimulators, transcutaneous nerve stimulators, urinary incontinent devices, and wigs and hairpieces prescribed by a physician or podiatrist.

Prosthetic devices that do not qualify as "medicines," include, but are not limited to, air compression pumps and pneumatic garments; noninvasive, temporary pace makers; vacuum/constriction devices used to treat male impotency; auditory, ophthalmic and ocular devices or appliances; and dental prosthetic devices and materials such as dentures, removable or fixed bridges, crowns, caps, inlays, artificial teeth, and other dental prosthetic materials and devices. Sales of such items are subject to tax in the same manner as any other sale of tangible personal property.

(6) DRUG INFUSION DEVICES. Programmable drug infusion devices worn on or implanted in the human body which automatically cause the infusion of measured quantities of a drug on an intermittent or continuous basis at variable dose rates and at high or low fluid volume into the body of the wearer of the device qualify as medicines under Revenue and Taxation Code section 6369(c)(6). The sale or use of the qualifying infusion device is not subject to tax when the device is sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

(c) EXCLUSIONS FROM THE DEFINITION OF "MEDICINES". Except as otherwise provided in subdivision (b), the following items are specifically excluded from the definition of medicines. Sales of these items are subject to tax in the same manner as any other sale of tangible personal property.

(1) Orthodontic, prosthetic (except as described in subdivision (b)(5)), auditory, ophthalmic or ocular devices or appliances.

(2) Articles which are in the nature of splints, bandages, pads, compresses, supports, dressings, instruments, apparatus, contrivances, appliances, devices or other mechanical, electronic, optical or physical equipment or article or the component parts and accessories thereof. "Medicines" does not include arch supports, cervical pillows, exercise weights (boots or belts), hospital beds, orthopedic shoes and supportive devices (unless an integral part of a leg brace or artificial leg), plastazote inserts, plastazote shoes, plastic shoes (custom or ready-made), sacro-ease seats, shoe modifications, spenco inserts, traction units (other than those fully worn on the patient), thermophore pads, or foot orthoses.

(3) Any alcoholic beverage the manufacture, sale, purchase, possession or transportation of which is licensed and regulated by the Alcoholic Beverage Control Act (Division 9, commencing with section 23000, of the Business and Professions Code).

(d) APPLICATION OF TAX—IN GENERAL. Tax applies to retail sales, including over-the-counter sales of drugs and medicines, and other tangible personal property by pharmacists and others. However, tax does not apply to the sale or use of medicines when sold or furnished under one of the following conditions:

(1) prescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a pharmacist in accordance with law, or

(2) furnished by a licensed physician, dentist or podiatrist to his or her own patient for treatment of the patient, or

(3) furnished by a health facility for treatment of any person pursuant to the order of a licensed physician, dentist or podiatrist, or

(4) sold to a licensed physician, dentist, podiatrist or health facility for the treatment of a human being, or

(5) sold to this state or any political subdivision or municipal corporation thereof, for use in the treatment of a human being; or furnished for the treatment of a human being by a medical facility or clinic maintained by this state or any political subdivision or municipal corporation thereof, or

(6) effective January 1, 1995, furnished by a pharmaceutical manufacturer or distributor without charge to a licensed physician, surgeon, dentist, podiatrist, or health facility for the treatment of a human being, or to an institution of higher education for instruction or research. Such medicine must be of a type that can be dispensed only: (a) for the treatment of a human being, and (b) pursuant to prescriptions issued by persons authorized to prescribe medicines. The exemption provided by this subdivision applies to the constituent elements and ingredients used to produce the medicines and to the tangible personal property used to package such medicines.

(e) SPECIFIC TAX APPLICATIONS.

(1) PRESCRIPTIONS. No person other than a licensed physician, dentist, optometrist or podiatrist is authorized to prescribe or write a prescription for the treatment of a human being. Tax does not apply to the sale or use of medicines prescribed by a licensed physician, dentist, optometrist, or podiatrist for the treatment of a human being and dispensed on prescription filled by a pharmacist.

(2) LICENSED PHYSICIAN, DENTIST OR PODIATRIST. Tax does not apply to a specific charge made by a licensed physician, dentist or podiatrist to his or her own patient for medicines furnished for the treatment of the patient. Tax also does not apply to sales of medicines to licensed physicians, dentists or podiatrists for the treatment of a human being regardless of whether the licensed physician, dentist or podiatrist makes a specific charge to his or her patient for the medicines furnished.

(3) HEALTH FACILITY. Tax does not apply to sales of medicines by a health facility (as defined in subdivision (a)(4)) for the treatment of any person pursuant to the order of a licensed physician, dentist or podiatrist. Tax does not apply to sales of medicines to a health facility for the treatment of a human being regardless of whether or not a specific charge is made for the medicines.

(4) PHARMACEUTICAL MANUFACTURER OR DISTRIBUTOR. Tax does not apply to the storage, use or consumption of medicines furnished by a pharmaceutical manufacturer or distributor without charge to a licensed physician, surgeon, dentist, podiatrist, or health facility for the treatment of a human being or furnished without charge to an institution of higher education for instruction or research provided the medicines furnished are of a type that can be dispensed only (1) on prescription by persons authorized to prescribe and (2) for the treatment of a human being. The exemption from tax includes the costs of the materials used to package the "sample" medicines, such as bottles, boxes, blister packs, patches impregnated with medicines, or pre-filled syringes, and the elements and ingredients used to produce the "samples" whether or not such items are purchased under a resale certificate in this state or outside this state. When a pre-filled syringe or other such delivery device is used to package and contain a sample medicine (i.e., pre-filled with the medicine) as well as to inject or otherwise administer the medicine to the patient, the exemption from tax will not be lost due to the fact that the device is used for a dual purpose. However, the use of empty syringes or other such delivery devices, furnished to the licensed physician separately or included in the packages with the medicines, is subject to tax.

This exemption applies in the same manner to the use of clinical trial medicines during the United States Food and Drug Administration's drug development and approval process. "Clinical trial medicines" are substances or preparations approved as "Investigational New Drugs" by the United States Food and Drug Administration intended for treatment of, and application to, the human body, which are furnished by a pharmaceutical developer, manufacturer, or distributor to a licensed physician and subsequently dispensed, furnished, or administered pursuant to the order of the licensed physician. "Clinical trial medicines" do not include placebos. Placebos are not used for the treatment of a human being and, as such, do not qualify for the exemption provided under this subdivision. Thus, the use of placebos is subject to tax.

(5) ANTIMICROBIAL AGENTS USED BY HOSPITAL PERSONNEL. Tax does not apply to the sale or use of substances or preparations, such as antiseptic cleansers or scrubs, when such substances or preparations qualify as medicines and are used by hospital personnel on the patient or by hospital personnel on their own bodies to benefit the patient, and which constitute a critical component of the patient's treatment. Qualifying medicines used on the bodies of hospital personnel include antimicrobial agents used for preoperative scrubbing or hand cleansing prior to any patient contact such as Accent Plus Skin Cleanser; Accent Plus Perinal Cleanser; Bacti-Stat; Betadine; and Medi-Scrub. However, antimicrobial agents such as Accent Plus 1 Skin Lotion; Accent Plus 2 Body Massage; Accent Plus 2 Skin Crème; and Accent Plus Total Body Shampoo applied to the body of hospital personnel are not considered used in the treatment of the patient and the sale or use of these products is subject to tax.

(6) VITAMINS, MINERALS, HERBS, AND OTHER SUCH SUPPLEMENTS. In general, sales of vitamins, minerals, herbs and other such supplements are subject to tax. However, when vitamins, minerals, herbs and other such supplements are used in the cure, mitigation, treatment or prevention of disease, and are commonly recognized as a substance or preparation intended for such use, they will qualify as medicines for the purposes of Revenue and Taxation Code section 6369. As such, their sale or use is not subject to tax when sold or furnished under one of the conditions in subdivision (d)(1) through (d)(6).

(7) DIETARY SUPPLEMENTS AND ADJUNCTS. Dietary supplements and adjuncts furnished to a patient as part of a medically supervised weight loss program to treat obesity qualify as medicines for the purposes of Revenue and Taxation Code section 6369 when the product does not otherwise qualify as a food product under Regulation 1602. The sale or use of such products is not subject to tax when sold or furnished under one of the conditions in subdivision (d)(1) through (d)(6) of Regulation 1591.

(8) DIAGNOSTIC SUBSTANCES, TEST KITS, AND EQUIPMENT. Tax applies to the sale or use of diagnostic substances applied to samples of cells, tissues, organs, or bodily fluids and waste after such samples have been removed, withdrawn, or eliminated from the human body. Diagnostic substances are applied to the samples outside the living body ("in vitro") in an artificial environment. They are not administered in the living body ("in vivo"). As the substances are not applied internally or externally to the body of the patient, they do not qualify as medicines under Revenue and Taxation Code section 6369.

Except as provided in Regulation 1591.1(b)(4), tax applies to the sale or use of test kits and equipment used to analyze, monitor, or test samples of cells, tissues, organs and blood, saliva, or other bodily fluids. Such items do not qualify as medicines regardless of whether they are prescribed for an individual by a person authorized to prescribe and dispensed pursuant to a prescription.

(f) INSURANCE PAYMENTS.

(1) MEDICAL INSURANCE AND MEDI-CAL. The exemption of retail sales of medicines is not affected by the fact that charges to the person for whom the medicine is furnished may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer.

(2) MEDICARE.

(A) Medicare Part A. Tax does not apply to the sale of items to a person insured pursuant to Part A of the Medicare Act as such sales are considered exempt sales to the United States Government. Under Part A, the healthcare provider has a contract with the United States Government to provide certain services. Therefore, sales of medicines, devices, appliances, and supplies in which payment is made under Part A qualify as exempt sales to the United States Government.

(B) Medicare Part B. Tax applies to sales of items to a person in which payment is made pursuant to Part B of the Medicare Act. Sales made under Part B do not qualify as exempt sales to the United States Government even though the patient may assign the claim for reimbursement to the seller and payment is made by a carrier administering Medicare claims under contract with the United States Government. Under Part B, the seller does not have a contract with the United States Government. The contract is between the patient and the United States Government. Unless the sale is otherwise exempt (such as a sale of a medicine under suddivision (d)), the sale is subject to tax.

(3) EMPLOYER MEDICAL CONTRACTS. Certain employers have contracted with their employees to provide the latter with medical, surgical, and hospital benefits in a hospital operated by or under contract with the employer for a fixed charge. Usually the charge is by payroll deduction. These contracts are not insurance plans; rather, they are agreements to furnish specified benefits under stated conditions, one of which may be that no charge is to be made to the employee for prescribed medicines. The agreements may provide for making a charge for medicines furnished to out-patients but not to in-patients. This in no way affects the exemption of sales of medicines.

(g) RECORDS. Any pharmacy whether in a health facility or not must keep records in support of all deductions claimed on account of medicines. Section 4081 of the Business and Professions Code requires that all prescriptions filled shall be kept on file and open for inspection by duly constituted authorities.

Pursuant to section 4081 of the Business and Professions Code, physicians and surgeons and podiatrists must keep accurate records of drugs furnished by them. Any deduction on account of sales of medicines shall be supported by appropriate records.

(1) The following written information constitutes acceptable documentation for retailers in those cases where sales are made of supplies which are "deemed to be dispensed on prescription" within the meaning of Revenue and Taxation section 6369:

Name of purchaser
Name of doctor
Date of sale
Item sold
The sale price

(2) "DOUBLE DEDUCTION" UNAUTHORIZED. The law does not, of course, permit a double deduction for sales of exempt medicines. For example, if an exemption is claimed on account of a sale of a prescription medicine, no additional deduction for the same sale may be taken as a sale to the United States Government under the Medicare Program.

(3) Persons making purchases of items in which their sale or use is exempt under this regulation should give their suppliers an exemption certificate pursuant to Regulation 1667.

History: Effective January 1, 1962.

Amended May 16, 1962.

Amended September 18, 1963, effective as amended September 20, 1963.

Amended and renumbered December 10, 1969, effective January 11, 1970.

Amended May 4, 1971, effective July 1, 1971.

Amended September 14, 1972, effective September 15, 1972.

Amended January 18, 1973, effective January 26, 1973.

Amended October 20, 1977, effective October 28, 1977. Changed to conform to Revenue and Taxation Code section 6369 and 6369.2. Added orthotic and prosthetic devices to definition of "medicines;" excluded "dentures" from the definition of "medicines;" added mammary prostheses and ostomy appliances to items to be dispensed on prescription; added wheelchairs, crutches, canes, quad canes and walkers as exempt items. Changed all references to the term "hospital" to "health facility" as defined in section 1250 of the Health and Safety Code.

Amended March 1, 1978, effective April 29, 1978. In (b)(4) added list of specific orthotic devices; in (b)(5) added list of prosthetic devices; in (c)(1), (2) and (3) included specific items excluded from the term "medicines"; in (g) made grammatical change; in (i) added list of specific items to be included under this section; in (j) added leases to transactions to which tax does not apply and provided that tax applies to all replacement parts; in (m) deleted references to former section 280 of Title 17, California Administrative Code, and added (1) specifying acceptable documentation for exempt sales and (3) suggesting use of Regulation 1667 "Exemption Certificates."

Amended July 27, 1978, effective July 31, 1978. In (b)(5) deleted dental crowns, caps and inlays from definition of "medicines"; in (c)(1) added crowns, caps, inlays and other dental prosthetic materials and devices to exclusions from term "medicines"; in (c)(2) added orthodontic appliances to exclusions from term "medicines"; in (i) provided that orthotic and prosthetic devices shall be deemed to be dispensed on prescription; in (k) exempted replacement parts for wheelchairs, crutches, canes, quad canes and walkers from tax.

Amended September 27, 1978, effective November 18, 1978. In (b)(5) added intraocular lenses and ear implants; moved general exclusionary language from (c)(3) to (c); to (c)(2) added reference to footnote 3; and added reference to orthodontic appliances and devices to footnote 3.

Amended September 26, 1979, effective November 16, 1979. Adds (1); reletters former (1) and following subdivision.

Amended July 27, 1983, effective November 17, 1983. Added subdivision (b)(7); changed reference in first sentence of (c) from (b)(6) to (b)(7). Added "and, on or after January 1, 1983, "insulin syringes" to subdivision (h) and added subdivision (m); relettered former subdivisions (m), (n), (o) to (n), (o), (p).

Amended August 24, 1988, effective October 7, 1989. In subdivision (b)(4) added provisions to include "custom made biomechanical foot orthoses" within the definition of the term medicines.

Amended October 26, 1993, effective February 17, 1994. Amended subdivision (k) to provide the exemption from tax for white canes used by the legally blind; removed obsolete dates in subdivisions (b)(4), (b)(7), (h), and (m).

Amended June 27, 1996, effective August 23, 1996. Amended subdivisions (b)(4) and (5) to correct spelling errors; added new subdivision (n), and renumbered former subdivisions (n), (o), and (p) as (o), (p), and (q), respectively.

Amended November 19, 1996, effective December 19, 1996. Added new (a)(7) to incorporate provisions of Assembly Bill 3836 (Chapter 857, Statutes of 1994).

Amended August 10, 1998, effective October 17, 1998. Amended subdivisions (a)(6), (d), (e) to reflect changes in sections of the Business and Professions Code; corrected spelling errors in subdivisions (b)(4)(A) and (b)(5); changed "which" to "that" in subdivision (g); removed obsolete date in subdivision (k); amended subdivisions (l)(1) and (l)(3)(B) to reflect changes in sections of the California Vehicle Code.

Amended November 18, 1999, effective March 10, 2000. Deleted the references to sections 6369.1, 6369.2, 6369.4 and 6369.5 for those parts of former Regulation 1591 that were repromulgated as Regulations 1591.1, 1591.2, 1591.3 and 1591.4. Subdivision (a) formerly titled "Generally" was deleted and replaced with new subdivision (a) titled "Definitions." Subdivision (b) retitled "Medicines;" also added the phrase "the following items" to the end of the first sentence. Subdivision (b)(1) added new title "Preparations and Similar Substances" and amended language for clarity; new sentence added to the end of the first paragraph; also added new unnumbered paragraph. Subdivision (b)(2) added new title "Permanently Implanted Articles;" amended the first sentence for clarity; former second sentence deleted; new second and third sentences added; also two new unnumbered paragraphs added. Subdivision (b)(3) added new title "Artificial Limbs and Eyes;" amended the first sentence for clarity; new last sentence added. Subdivision (b)(4) added new title "Orthotic Devices;" amended first sentence for clarity; deleted the part of the former first sentence after the semi-colon; deleted former second, third and fourth sentences and replaced them with new sentences which define when orthotic devices qualify as exempt medicines; examples (A), (B) and (C) consisting of items which do not qualify as custom-made biomechanical foot orthosis, were moved to become the new third unnumbered paragraph; the former second unnumbered paragraph, becomes the first unnumbered paragraph and is amended for clarity; new last sentence added; also new second unnumbered paragraph added. Subdivision (b)(5), added the title "Prosthetic Devices;" deleted the phrase "other . . . devices" from the first sentence and included its content in a new third unnumbered paragraph; added the phrase "are . . . 6369(c)(4)" to the end of the first sentence; also added new second, third and fourth sentences to the first paragraph; and new second and third unnumbered paragraphs added. Subdivision (b)(6) deleted and prior content moved to subdivision (b)(3). Former subdivision (b)(7) renumbered (b)(6) and retitled "Drug Infusion Devices;" added the phrases "a drug on . . . volume" and "qualify . . . section 6369(c)(6)." to the first sentence; also added a new second sentence. Subdivision (c), deleted the word "Term" in the title and replaced it with the phrase "the Definition of;" in the first paragraph deleted the cross-reference "(b)(2) through (b)(7) above" and replaced it with "subdivision (b)" in the first sentence; remainder of first sentence amended for clarity; also new second sentence added. In subdivision (c)(1) added cross-reference to new subdivision (b)(6). Subdivision (d) formerly titled "Who is a Registered Pharmacist" was deleted and its content transferred to new subdivision (a)(5) titled "Pharmacist." The language of former subdivision (a) "General" was moved to new subdivision (d) titled "Application of Tax —In General." New subdivisions (d)(1) through (d)(6) added. Subdivision (e) formerly titled "What Constitutes a Prescription" deleted and most of its content repromulgated as subdivision (a)(7). New subdivision (e) retitled "Specific Tax Applications." New subdivision (e)(1) added, detailing who can write a prescription. Subdivision (f) "Licensed Physician, Dentist or Podiatrist" renumbered as subdivision (e)(2). Subdivision (g) "Health Facility" renumbered as new subdivision (e)(3); the first sentence up to the colon deleted; also deleted the first unnumbered paragraph in former subdivision (g) and repromulgated it as (a)(4); and added the phrase "by a health facility" and a reference to (a)(4) in the first sentence. New subdivision (e)(4) added. New subdivision (e)(5) added to conform the regulation to the decision in Purdue Frederick Co. v. SBE (1990) 218 Cal.App.3d 1021 and to codify in regulatory form interpretations of the case now contained in annotations. New subdivisions (e)(6) and (e)(7) added. Former subdivisions (h) through (n) deleted. Former subdivision (o) redesignated as subdivision (f) "Insurance Payments." New subdivision (f)(1) titled "Medical Insurance and Medi-Cal" added, using the language of former subdivision (o). New subdivision (f)(2) titled "Medicare" added. Former subdivision (p) relettered (f)(3). Former subdivision (q) "Records," relettered (g); changed reference from section 4331 to section 4081 of the Business and Professions Code and added the words "and surgeons" in the second sentence; also changed the reference from section 4051 to section 4081 of the Business and Professions Code in first unnumbered paragraph. Subdivision (g)(1) added the phrase "Revenue and Taxation Code" to the first sentence. Subdivision (g)(3) added the phrase "in which their sale or use is" to first sentence; also changed the term "exempt" to "not taxable."

Amended December 13, 2000, effective April 12, 2001. Subdivision (b)(1), unnumbered paragraph—third and fourth sentences added to include liquid nutrition products in the definition of "substances and preparations." Subdivision (b)(2), first unnumbered paragraph, phrase added to clarify that dental implant systems, including dental bone screws and abutments are considered "permanently implanted articles." Subdivision (b)(5), fifth and sixth sentences added to clarify that specified devices used to administer liquid nutrition are included in the term "prosthetic devices."

Amended December 4, 2003, effective February 25, 2004. Subdivision (b)(2), second un-numbered paragraph—word "and" added before words "defillibrator programmer" and phrase "and tissue and breast expanders" deleted. Subdivision (b)(4)—word "ORTHODIC" corrected to "ORTHOTIC" in title. Subdivision (b)(5)—phrase "breast tissue expanders and tissue expanders" added to first un-numbered paragraph.

Amended May 17, 2006, effective August 26, 2006. Subdivisions (a)(9) and (b), added language to explain that subject to certain qualifications, the term "medicines" includes certain items approved by the U.S. Food and Drug Administration (FDA) to diagnose, cure, mitigate, treat or prevent any disease, illness or medical condition. Corrected reference in subdivision (c)(1).

Amended December 12, 2006, effective July 30, 2007. Amended subdivision (a)(4) to incorporate statutory language, which defines "clinic" for purposes of including "clinic" in the definition of "health facility." In subdivisions (f)(2)(B) and (g)(3), corrected words "non-taxable" and "not taxable" to "exempt."

Amended September 17, 2008, effective December 14, 2008. In subdivision (e)(7), added language to clarify that dietary supplements and adjuncts furnished to a patient as part of a medically supervised weight loss program to treat obesity qualify as medicines. Previous language in subdivision (e)(7) is new subdivision (e)(8).

Amended February 3, 2009, effective May 29, 2009. Amended subdivision (b)(2) to clarify that "permanently implanted articles" include interdependent internal and external components that operate together as one device in and on the person in whom the device is implanted. Amendments also clarify that an ear implant includes the ear implant's interdependent internal and external components.


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Regulation 1591.1. Specific Medical Devices, Appliances, and Related Supplies

Reference: Sections 6006, 6369, and 6369.1, Revenue and Taxation Code.

(a) DEFINITIONS.

(1) PHYSICIANS, DENTISTS, OPTOMETRISTS, AND PODIATRISTS. "Physicians," "dentists," "optometrists," and "podiatrists" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to section 2065 of the Business & Professions Code, when acting within the scope of that section.

(2) PRESCRIPTION. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(b) SPECIFIC APPLICATIONS.

(1) HEMODIALYSIS PRODUCTS. Tax does not apply to the sale or use of hemodialysis products supplied on order of a licensed physician and surgeon to a patient by a pharmacist or by a manufacturer, wholesaler, or other supplier authorized by section 4054 or 4059 of the Business and Professions Code to distribute such products directly to the patient.

(2) MAMMARY PROSTHESES AND OSTOMY APPLIANCES AND RELATED SUPPLIES. Tax does not apply to the sale or use of mammary prostheses and ostomy appliances and related supplies required as a result of any surgical procedure by which an artificial opening is created in the human body for the elimination of natural waste when sold or furnished under one of the conditions provided in Regulation 1591 subdivision (d)(1) through (d)(6). The mammary prostheses devices and ostomy appliances and related supplies do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription as long as they are furnished pursuant to a written order of a person authorized to prescribe.

Ostomy appliances and related supplies must be used in postoperative situations or sold as an accommodation to patients following surgery in order to qualify as medicines. When used as an adjunct to surgical procedures, the sale or use of these items is subject to tax unless the appliances remain in the patient for postoperative purposes.

Qualifying mammary prostheses and qualifying ostomy appliances and related supplies include, but are not limited to, bras to hold a mammary prosthesis in place, filler pads, lymphedema arm sleeves, adhesive spray and remover: catheters used as a result of an artificial opening created in the human body; colostomy bags; deodorant used on the person of the user; karaya rings; antacid used externally as a skin ointment; skin gel; nonallergic paper tape and gauze; skin bond cement; tincture of benzoin applied topically as a protective; urinary drainage appliances; closed stoma bags; drainable stoma bags; loop ostomy supplies and tubing; and endotracheal and tracheotomy tubes and tracheostomy tubes used for the evacuation of metabolic waste when used post-operatively or for home care.

(3) KIDNEY DIALYSIS MACHINES. The term "ostomy appliances" and "related supplies" includes kidney dialysis machines, replacement parts for the kidney dialysis machines, and the catheters, dialysis fluid additives, volumetric infusion pumps, tubing, blood sets, fistula sets, and shunts used in conjunction with such machines. In order to qualify as a "related supply," an item must be a necessary and integral part of the machine itself, or a substance or preparation intended for external or internal application to the human body of the patient undergoing dialysis.

(4) CATHETERS. Generally, sales of catheters are subject to tax in the same manner as other sales of tangible personal property. However, sales of the following types of catheters are not subject to tax.

(A) Intra-aortic balloon pump catheters and coronary angioplasty balloon catheters.

However, sales of related supplies are subject to tax. The term "related supplies" includes, but is not limited to, coronary guiding catheters, coronary guide wires, guide wire introducers, sheath introducer systems, torquing devices, hemostatic valves, inflation devices, and syringes.

(B) Catheters which are permanently implanted in the human body and assist the functioning of a natural organ, artery, vein, or limb and remain or dissolve in the body.

(C) Catheters used for drainage purposes through which an artificial opening is created in the human body. Such catheters qualify as ostomy materials and related supplies.

(D) Catheters or similar types of devices used for drainage purposes through natural openings in the human body to assist or replace the functioning of a natural part of the human body. Such catheters are designed to be worn on or in the body of the user and qualify as prosthetic devices.

(5) INSULIN AND INSULIN SYRINGES. "Insulin" and "insulin syringes" furnished by a pharmacist to a person for treatment of diabetes as directed by a physician shall be deemed to be dispensed on prescription within the meaning of Revenue and Taxation Code section 6369(e). As such, the sale or use of insulin and insulin syringes furnished by a pharmacist to a person for treatment of diabetes, as directed by a physician, is exempt from tax.

Glucose test strips and skin puncture lancets furnished by a registered pharmacist that are used by a diabetic patient to determine his or her own blood sugar level and the necessity for and amount of insulin and/or other diabetic control medication needed to treat the disease in accordance with a physician's instructions are an integral and necessary active part of the use of insulin and insulin syringes or other anti-diabetic medications and, accordingly, are not subject to sale or use tax pursuant to subsection (e) of Revenue and Taxation Code section 6369. These medical supplies are not medicines and their sale or use does not qualify for tax exemption under subsections (a) or (b) of Revenue and Taxation Code section 6369.

History: Promulgated December 9, 1999, effective March 10, 2000.


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Regulation 1591.2. Wheelchairs, Crutches, Canes, and Walkers.

Reference: Sections 6006, 6369, and 6369.2, Revenue and Taxation Code, and Sections 1200, 1200.1, 1204.1, and 1250, Health and Safety Code.

(a) DEFINITIONS.

(1) PHYSICIAN. For purposes of this regulation, "physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical

Board of California, the Osteopathic Medical Board of California, or the California Board of Podiatric Medicine. Physician, as defined, includes doctors of medicines (MD), doctors of osteopathy (DO), and doctors of podiatric medicine (DPM).

(2) PRESCRIPTION. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(3) HEALTH FACILITY. "Health Facility" as used herein has the meaning ascribed to the term in section 1250 of the Health and Safety Code, and also includes "clinic" as defined in sections 1200 and 1200.1 of the Health and Safety Code.

(A) Section 1250 of the Health and Safety Code provides that "health facility" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer.

(B) Section 1200 of the Health and Safety Code provides that "clinic" means an organized outpatient health facility which provides direct medical, surgical, dental, optometric, or podiatric advice, services, or treatment to patients who remain less than 24 hours, and which may also provide diagnostic or therapeutic services to patients in the home as an incident to care provided at the clinic facility. A place, establishment, or institution which solely provides advice, counseling, information, or referrals on the maintenance of health or on the means and measures to prevent or avoid sickness, disease, or injury, where such advice, counseling, information, or referrals does not constitute the practice of medicine, surgery, dentistry, optometry, or podiatry, shall not be deemed a clinic for purposes of this subdivision.

(C) Section 1200.1 of the Health and Safety Code provides that "clinic" also means an organized outpatient health facility which provides direct psychological advice, services, or treatment to patients who remain less than 24 hours. As provided in section 1204.1 of the Health and Safety Code, such clinics serve patients under the direction of a clinical psychologist as defined in section 1316.5 of the Health and Safety Code, and are operated by a nonprofit corporation, which is exempt from federal taxation under paragraph (3), subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, or a statutory successor thereof, and which is supported and maintained in whole or in part by donations, bequests, gifts, grants, government funds, or contributions which may be in the form of money, goods, or services. In such clinics, any charges to the patient shall be based on the patient's ability to pay, utilizing a sliding fee scale. Such clinics may also provide diagnostic or therapeutic services authorized under Chapter 6.6 (commencing with section 2900) of Division 2 of the Business and Professions Code to patients in the home as an incident to care provided at the clinic facility.

(b) TAX APPLICATION. Tax does not apply to the sale or use, including leases that are continuing sales and purchases, of wheelchairs; crutches; canes; quad canes; white canes used by the legally blind; walkers; and replacement parts for these devices when sold to an individual for the personal use of that individual as directed by a licensed physician. Electric three-wheel scooters that are similar in both design and function to a conventional electric wheelchair, qualify as a wheelchair for the purposes of Revenue and Taxation Code section 6369.2. When the scooters are sold or leased to an individual for the personal use of that individual as directed by a licensed physician their sale or use qualifies for an exemption from tax.

"Replacement parts" include, but are not limited to, batteries for electric wheelchairs; belts and cushions sold to replace or supplement the basic items originally sold with wheelchairs, lap boards and trays attached to wheelchairs and considered a part of the wheelchair; and rubber tips, wheels, and other such items prescribed for an individual to replace an original component of the device sold. "Replacement parts" do not include items such as mechanical devices that aid the patient in eating or writing unless the items are part of the device itself, or restraints or other such items sold to an individual, but which do not become a part of the wheelchair or other such prescribed device.

(c) SALES TO HEALTH FACILITIES. Sales, or leases that are continuing sales and purchases, of wheelchairs, crutches, canes, and walkers to hospitals or other health facilities for use by patients while at the facilities are subject to tax. Such sales or leases are not considered sold to an individual for the individual's personal use as directed by a physician. However, when wheelchairs, crutches, canes, and walkers are ordered by a hospital or health facility on behalf of a specific patient, as directed by a physician, the items may be considered to be purchased by an individual for his or her own personal use as required under Revenue and Taxation Code section 6369.2 and, therefore, the sale will qualify for exemption from tax.

(d) SALES TO INSURED PERSONS. The exemption for qualifying retail sales of wheelchairs, crutches, canes, quad canes, white canes used by the legally blind, walkers, and replacement parts for these devices is not affected by the fact that charges to the individual to whom such items are sold, may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer.

History: Promulgated November 18, 1999, effective March 10, 2000.

Amended December 12, 2006, effective July 30, 2007. Amended subdivision (a)(3) to incorporate statutory language, which defines "clinic" for purposes of including "clinic" in the definition of "health facility."


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Regulation 1591.3. Vehicles for Physically Handicapped Persons.

Reference: Sections 6006, 6369, and 6369.4, Revenue and Taxation Code.

(a) DEFINITIONS.

(1) PHYSICALLY HANDICAPPED PERSONS. For purposes of this regulation, "physically handicapped" persons include disabled persons described in Vehicle Code section 5007 as qualified for special parking privileges.

(2) VEHICLE. For purposes of this regulation, "vehicle" includes all devices that qualify under Vehicle Code section 670 as "vehicles" including, but not limited to, automobiles, vans, trucks, mobilehomes and trailercoaches. "Vehicles" qualifying under this regulation mean and include:

(A) Vehicles which are owned and operated by physically handicapped persons and,

(B) Vehicles which are used in the public or private transport of physically handicapped persons and which would otherwise qualify for a distinguishing license plate pursuant to Vehicle Code section 5007 if the vehicle were registered to the physically handicapped person or persons.

(b) APPLICATION OF TAX. Tax does not apply to the sale or use of items and materials used to modify a vehicle for physically handicapped persons when such items are necessary to enable the vehicle to be used to transport a physically handicapped person or persons. Tax does not apply whether the property is installed by the retailer or is sold for installation by other persons. However, sales or purchases of tools and supplies used in modifying the vehicle and which are not incorporated into, attached to, or installed on the vehicle are subject to tax.

Items and materials considered necessary to enable a vehicle to be used to transport a physically handicapped person include, but are not limited to, an interlock system; upper torso restraint; an airbag of a unique type to raise or lower the vehicle for loading or unloading; running boards on lower side of vehicle; a bolt cam used to restrain a wheelchair inside a van; seat belts; a tire carrier to hold a spare and which is installed within reach of a handicapped person; AC lights to illuminate the ramp or elevator area; hardware for privacy curtains; air compressor for use with medical equipment; a 12-volt receptacle to supply power to medical equipment; a 4-point tie down system to restrain a wheelchair; and an allocable portion(s) of the various interior packages, interior materials, and conversions necessary to modify the vehicle for transport of physically handicapped persons.

Items and materials that are generally not considered necessary to enable a vehicle to be used to transport a physically handicapped person include, but are not limited to, an upper torso durable pad (unless part of the restraint); portable ramps (telescopic); air conditioners (unless necessary for the transport of certain types of disabled persons); a fire extinguisher; a CB radio (unless shown to be necessary to the transport of certain types of disabled persons); leather seat covers; extra windows and their accessories; upgrades to the interior (upgrade to leather seats); and an engine cover. The sale or use of such items, whether installed on a vehicle to be used for transport of physically handicapped persons or not, are generally subject to tax.

(c) SALES OF MODIFIED VEHICLES. Tax does not apply to the gross receipts attributable to the portion of a vehicle that has been modified to enable the vehicle to be used to transport a physically handicapped person or persons when the modified vehicle is sold to a physically handicapped person, as defined.

(d) REPAIRS TO MODIFIED VEHICLES. Tax does not apply to the sale or use of items and materials used to repair the modified portion (the portion that contains equipment previously used to modify the vehicle) of a vehicle used to transport a physically handicapped person or persons. Once installed, such "repair parts" qualify as items and materials used to modify a vehicle in order for the vehicle to be used to transport a physically handicapped person or persons.

History: Promulgated November 18, 1999, effective March 10, 2000.


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Regulation 1591.4. Medical Oxygen Delivery Systems.

Reference: Sections 6006, 6369, and 6369.5, Revenue and Taxation Code, and Sections 1200, 1200.1, 1204.1, and 1250, Health and Safety Code.

(a) DEFINITIONS.

(1) PHYSICIAN. "Physicians" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to section 2065 of the Business & Professions Code, when acting within the scope of that section.

(2) PRESCRIPTION. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(3) HEALTH FACILITY. "Health Facility" as used herein has the meaning ascribed to the term in Section 1250 of the Health and Safety Code, and also includes "clinic" as defined in sections 1200 and 1200.1 of the Health and Safety Code.

(A) Section 1250 of the Health and Safety Code provides that "health facililty" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer.

(B) Section 1200 of the Health and Safety Code provides that "clinic" means an organized outpatient health facility which provides direct medical, surgical, dental, optometric, or podiatric advice, services, or treatment to patients who remain less than 24 hours, and which may also provide diagnostic or therapeutic services to patients in the home as an incident to care provided at the clinic facility. A place, establishment, or institution which solely provides advice, counseling, information, or referrals on the maintenance of health or on the means and measures to prevent or avoid sickness, disease, or injury, where such advice, counseling, information, or referrals does not constitute the practice of medicine, surgery, dentistry, optometry, or podiatry, shall not be deemed a clinic for purposes of this subdivision.

(C) Section 1200.1 of the Health and Safety Code provides that "clinic" also means an organized outpatient health facility which provides direct psychological advice, services, or treatment to patients who remain less than 24 hours. As provided in section 1204.1 of the Health and Safety Code, such clinics serve patients under the direction of a clinical psychologist as defined in section 1316.5 of the Health and Safety Code, and are operated by a nonprofit corporation, which is exempt from federal taxation under paragraph (3), subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, or a statutory successor thereof, and which is supported and maintained in whole or in part by donations, bequests, gifts, grants, government funds, or contributions which may be in the form of money, goods, or services. In such clinics, any charges to the patient shall be based on the patient's ability to pay, utilizing a sliding fee scale. Such clinics may also provide diagnostic or therapeutic services authorized under Chapter 6.6 (commencing with section 2900) of Division 2 of the Business and Professions Code to patients in the home as an incident to care provided at the clinic facility.

(4) MEDICAL OXYGEN DELIVERY SYSTEM. A system used to administer oxygen directly into the lungs of the patient for the relief of conditions in which the human body experiences an abnormal deficiency or inadequate supply of oxygen. Devices that only assist the patient in breathing, but do not deliver air or oxygen directly into the lungs of the patient, do not qualify as medical oxygen delivery systems.

(b) TAX APPLICATION.

(1) MEDICAL OXYGEN DELIVERY SYSTEMS. Tax does not apply to the sale or use of medical oxygen delivery systems when sold, leased or rented to an individual for the personal use of that individual as directed by a licensed physician.

Medical oxygen delivery systems include, but are not limited to, liquid oxygen containers, high-pressure cylinders, regulators, oxygen concentrators, tubes, masks and related items necessary for the delivery of oxygen to the patient. The term also includes repair and replacement parts for use in such a system.

(2) VENTILATORS AND OTHER RESPIRATORY EQUIPMENT. For the purposes of this regulation, ventilators that produce a form of controlled respiration in which compressed air is delivered under positive pressure into the patient's airways qualify for the exemption provided under section 6369.5 for medical oxygen delivery systems. Pressure ventilators and volume ventilators provide assisted respiration and intensive positive pressure in which compressed air, a component of which is oxygen, is administered into the breathing systems of patients to help them breathe. The sale or use of ventilators, as described, is exempt from tax when sold or leased to an individual for the personal use of that individual as directed by a physician.

Respiratory equipment that induces air into the lungs of a patient, through the application of pressure to the chest area, also qualifies for the exemption provided for medical oxygen delivery systems, regardless of whether the pressure applied is negative pressure or positive pressure. The sale or use of respiratory equipment, as described, is exempt from tax when sold or leased to an individual for the personal use of that individual as directed by a physician. Included within the scope of the exemption are exsufflation belts, iron lungs, chest shells, pulmo wraps, and the pumps and regulators necessary for the operation of the listed equipment.

(c) SALES TO HEALTH FACILITIES AND HEALTH CARE PROVIDERS. Sales of medical oxygen delivery systems are exempt when sold to an individual for his or her own use under the direction of a licensed physician. Sales of medical oxygen delivery systems to hospitals, immediate care facilities, physicians, or other health care providers for use on their premises are subject to tax in the same manner as other sales of tangible personal property.

A rental or lease of a medical oxygen delivery system to a health facility qualifies for an exemption from tax when the facility intends to lease or rent the system to an individual for the personal use of that individual as directed by a licensed physician and the system is then leased or rented as intended. However, the transaction between the health facility and the individual must constitute an actual lease or rental. When the patient's use of the medical delivery system is limited to the health facility's premises, the direction and control of the equipment does not transfer to the patient. Therefore, an actual lease or rental of the system to the patient does not occur even when a separate billing is made to the patient for the use of the system. As such, the lease or rental of the system to the health facility does not qualify for the exemption provided under section 6369.5.

(d) SALES OF MEDICAL OXYGEN. Medical oxygen and other gases sold to a licensed physician and surgeon, podiatrist, dentist, or health facility for treatment of human beings are considered medicines. Therefore, their sale or use is not subject to tax when (1) furnished by a licensed physician and surgeon, podiatrist, or dentist to his or her own patient or (2) furnished by the health facility pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist.

Medical oxygen sold by distributors of compressed gases to an individual for use as part of the individual's treatment, pursuant to a physician's prescription, is regarded as a medicine furnished by a licensed physician to his or her own patient for treatment of the patient as provided by Regulation 1591(b)(2). Sales of medical oxygen to individuals under the "Casey Bill" (i.e., the retailer bills the service acting as a fiscal agent for the State of California) are regarded as sales of medicines to this State for use in the treatment of human beings as provided by Regulation 1591(b)(5). Therefore, sales of medical oxygen by distributors, under these conditions, are not subject to tax whether or not the distributor is a medical supply house.

(e) SALES TO INSURED PERSONS. The exemption for qualifying retail sales of oxygen delivery systems and replacement parts is not affected by the fact that charges to the individual for whom such items are sold, leased, or rented may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer.

History: Promulgated November 18, 1999, effective March 10, 2000.

Amended December 12, 2006, effective July 30, 2007. Amended subdivision (a)(3) to incorporate statutory language, which defines "clinic" for purposes of including "clinic" in the definition of "health facility."


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Regulation 1592. Eyeglasses and Other Ophthalmic Materials.

Reference: Sections 6006 and 6018, Revenue and Taxation Code.

(a) PHYSICIANS AND SURGEONS AND OPTOMETRISTS.

(1) IN GENERAL. A physician and surgeon or optometrist is the consumer of ophthalmic materials including eyeglasses, frames, and lenses used or furnished in the performance of his/her professional services in the diagnosis, treatment or correction of conditions of the human eye. Tax applies with respect to the sale of such materials to physicians and surgeons and optometrists.

(2) FILLING PRESCRIPTION OF ANOTHER PHYSICIAN AND SURGEON OR OPTOMETRIST. When an optometrist fills a prescription prepared by another optometrist or by a physician and surgeon, the optometrist who fills the prescription is the consumer of the glasses, frames, and other materials and tax applies with respect to the sale of such materials to him/her.

(3) REPLACEMENT LENSES AND FRAMES. A physician and surgeon or optometrist is also the consumer of lenses and frames furnished to patients as duplications or replacements of parts of eyeglasses or contact lenses which were previously prescribed for the patient pursuant to an eye examination, and tax applies to the sale thereof to him/her.

(4) PLANO LENSES OR SUNGLASSES (WITHOUT CORRECTION).
When plano lenses and frames or plano sunglasses, including clip-on sunglasses, are furnished by a physician and surgeon or optometrist pursuant to a prescription for a particular class of plano or for the treatment or correction of conditions of the human eye following, and as a result of, a diagnosis made by him/her in an examination and refraction he/she is the consumer of the plano lenses and frames or sunglasses and tax applies with respect to the sale thereof to him/her. In all other instances the physician and surgeon or optometrist is the retailer of such lenses and frames or sunglasses, and tax applies to the gross receipts from such a retail sale.

(b) DISPENSING OPTICIANS.

(1) IN GENERAL. A registered dispensing optician is the consumer of ophthalmic materials including eyeglasses, frames, and lenses dispensed pursuant to a prescription prepared by a physician and surgeon or optometrist. Tax applies with respect to the sale of such materials to the dispensing optician.

(2) REPLACEMENT LENSES AND FRAMES. A dispensing optician is also the consumer of lenses and frames furnished as duplications or replacements of parts of eyeglasses or contact lenses which were previously prescribed by a physician and surgeon or optometrist.

(3) PLANO LENSES OR SUNGLASSES (WITHOUT CORRECTION).
When plano lenses and frames or plano sunglasses, including clip-on sunglasses, are dispensed pursuant to a prescription prepared by a physician and surgeon or optometrist for a particular class of plano, the dispensing optician is the consumer of the lenses and frames or sunglasses, and tax applies to the sale thereof to him/her. In all other instances the dispensing optician is the retailer of such lenses and frames or sunglasses, and tax applies to the gross receipts from such a retail sale.

(c) PHARMACISTS.

(1) IN GENERAL. Operative January 1, 1998, a licensed pharmacist is the consumer of replacement contact lenses dispensed pursuant to a prescription prepared by a physician or optometrist. Tax applies with respect to the sale of such contact lenses to the pharmacist.

(2) REPLACEMENT CONTACT LENSES. For purposes of this subdivision, "replacement contact lenses" means soft contact lenses that require no fitting or adjustment, and that are dispensed as packaged and sealed by the manufacturer.

(d) DEFINITION OF PRESCRIPTION. For the purposes of this regulation a "prescription" means a written formula for ophthalmic lenses or contact lenses prepared by a physician and surgeon or optometrist.

With respect to plano lenses and frames or sunglasses without correction, prescription means a written order for a distinctive type or class of plano identified by numbers or symbols descriptive of a specific tint, color or characteristic.

The prescription shall bear the name and address of the prescriber, the name and address of the patient, and the date of issue.

Pursuant to section 4124 of the Business and Professions Code, with respect to replacement contact lenses dispensed under subdivision (c) above, in addition to the above requirements, operative January 1, 1998, a prescription must:

(1) Include the state license number of the prescribing practitioner,

(2) Explicitly state an expiration date of not more than one year from the date of the last prescribing examination, and

(3) Explicitly state that the prescription is for contact lenses and include the lens brand name, type, and tint, including all specifications necessary for the ordering of lenses.

History: Section (a)(1) effective September 19, 1947.

Section (b) effective August 1, 1933.

Adopted as of January 1, 1945 as a restatement of previous rulings.

Amended and renumbered March 24, 1970, effective April 29, 1970.

Amended May 4, 1971, effective July 1, 1971.

Amended March 25, 1998, effective April 24, 1998. Added new subdivision (c) and amended renumbered subdivision (d) to incorporate the provisions of Chapter 184, Statutes of 1997.

Amended April 23, 2003, effective August 17, 2003. Subdivisions (a)(4) and (b)(3)—word "his" changed to "the" to remove gender reference. Subdivisions (a)(4) and (b)(3)—phrase "including clip-on sunglasses," added to clarify that clip-on sunglasses are treated in the same manner as eyeglasses, frames, and lenses. Subdivision (d)—first words of items (1)–(3) capitalized to conform to current formatting principles.


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Regulation 1593. Aircraft and Aircraft Parts.

Reference: Sections 6091, 6366, 6366.1, and 6421, Revenue and Taxation Code.

(a) DEFINITIONS.

(1) "AIRCRAFT." As used herein, the term "aircraft" means any contrivance designed for powered navigation in the air except a rocket or missile.

(2) "COMMON CARRIER." As used herein, the term "common carrier" means any person who engages in the business of transporting persons or property for hire or compensation and who offers his or her services indiscriminately to the public or to some portion of the public.

(3) "COMPONENT PART." As used in subdivision (b)(2), the term "component part" means an item incorporated by securing to the aircraft in compliance with Federal Aviation Administration (FAA) requirements, or United States military equivalent, related to the maintenance, repair, overhaul, or improvement of the aircraft which part is essentially associated with the functional aspects of the aircraft, including those related to safety and air worthiness.

(A) Examples of property which are component parts are engines, passenger seats, and landing gear; items replaced, repaired, or overhauled according to manufacturer service bulletins; items required by air worthiness directives issued by the FAA; life limited parts; and cargo and baggage containers which are designed to be secured, and which are secured, to the aircraft during flight.

(B) Examples of property which are not component parts are general expense items or comfort-related items such as attendant carts, blankets, pillows, or serving utensils.

(b) APPLICATION OF TAX.

(1) AIRCRAFT. Tax does not apply to the sale of and the storage, use, or other consumption of aircraft sold, leased, or sold to persons for the purpose of leasing, to:

(A) a person who operates the aircraft as a common carrier of persons or property, provided:

1. the person operates the aircraft under authority of the laws of this state, of the United States, or of any foreign government, and

2. the person's use of the aircraft as a common carrier is authorized or permitted by the person's governmental authority to operate the aircraft;

(B) foreign government for use of the aircraft by that government outside of California; or,

(C) a nonresident of California who will not use the aircraft in this state other than to remove the aircraft from California.

(2) AIRCRAFT PARTS.

(A) When tangible personal property becomes a component part of an aircraft described in subdivision (b)(1) as a result of the maintenance, repair, overhaul, or improvement of that aircraft in compliance with FAA requirements, or United States military equivalent, the charges for such tangible personal property, as well as for labor and services rendered with respect to that maintenance, repair, overhaul, or improvement are exempt from tax provided the aircraft will continue to be used in a manner described in subdivision (b)(1).

(B) The exemption described in subdivision (b)(2)(A) applies with respect to tangible personal property purchased and placed in inventory with the intent to thereafter remove the property from inventory and incorporate it as a component part of an aircraft under the conditions specified in subdivision (b)(2)(A), provided the property is so incorporated into a qualifying aircraft. If instead the property is removed from inventory for use in some other manner, the purchaser owes the applicable sales or use tax at that time.

(C) The exemption described in subdivision (b)(2)(A) shall apply only under the following circumstances:

1. the tangible personal property which becomes a component part of the aircraft is purchased on or after October 1, 1996; or,

2. the tangible personal property which becomes a component part of the aircraft was purchased prior to October 1, 1996, but the property first enters California on or after October 1, 1996.

(c) USE OF AIRCRAFT.

(1) COMMON CARRIERS. In determining whether a purchaser or lessee of an aircraft is using that aircraft as a common carrier of persons or property, only that use of the aircraft by the carrier during the first 12 consecutive months commencing with the first operational use of the aircraft will be considered. This test period does not include, and is extended by, the amount of time, prior to the first use of the aircraft as a common carrier, during which the aircraft is in the physical possession of a repair station certified by the FAA or a manufacturer's maintenance facility undergoing modification, repair, or replacement. The period of this extension/exclusion shall not exceed 12 months. If the purchaser does not own the aircraft for 12 consecutive months commencing with the first operational use, as may be extended as provided herein, then only the period of time commencing with the first operational use that the purchaser owns the aircraft will be considered.

(A) "Operational use" means the actual time during which the aircraft is operated in powered navigation in the air. Operational use includes positioning or repositioning aircraft by flying the aircraft from one point to another ("ferry flights") except when such flights are solely for purposes of having the aircraft repaired. Ferry flights solely for the purpose of transporting the aircraft to a repair location, or solely to return from a repair location, are not operational use, nor are test flights as described in subdivision (d)(2) or personnel training as described in subdivision (d)(4).

(B) If the aircraft is used as a common carrier for more than one-half of the operational use during the test period the carrier's principal use of the aircraft will be deemed to be that of a common carrier except as provided in subdivisions (c)(1)(D) and (c)(1)(E). Each flight of the aircraft is examined separately for purposes of determining common carrier use. For these purposes, a flight is the powered navigation of the aircraft from one location on the ground or water to the first point on the ground or water at which the aircraft lands.

(C) A flight qualifies as a common carrier use of the aircraft for purposes of the exemption only if the flight is authorized or permitted by the governmental authority under which the aircraft is operated and involves the transportation of persons or property. Where the aircraft does not itself transport the person or property to a location on the ground (or water), the flight does not qualify as a common carrier flight for purposes of the exemption.

1. Following are examples of flights that do not qualify as common carrier use:

a. Student instruction or training flights.

b. Flights to position or reposition aircraft by flying the aircraft from one point to another ("ferry flights").

c. Aerial work such as crop dusting, seeding, spraying, bird chasing, towing of banners and gliders, and fire fighting by dropping water or flame retardant.

d. Aerial photography or surveying, and powerline and pipeline patrol, without regard to whether the flight carries persons or property while the pilot or other crew member engages in the photography, surveying, or patrol.

e. Helicopter operations to perform construction or repair work, or in the lumber industry to reposition fallen lumber within the same general location.

f. Flights carrying persons or property for the purpose of parachute jumps or air drops.

g. Flights for the purpose of search and rescue, without regard to whether the flight carries persons or property while the search and rescue operation is conducted.

2. Following are examples of flights that do qualify as common carrier use when such services are offered indiscriminately to the public or to some portion of the public, provided the flights are authorized or permitted by the governmental authority under which the aircraft is operated:

a. Flights whose purpose is to transport persons or property from the location on the ground or water at which the aircraft takes off to another point on the ground or water at which the aircraft lands, including flights to transport fire fighting personnel, search and rescue personnel, construction workers, and equipment during fire fighting, search and rescue, and construction operations.

b. Sightseeing flights, even if they begin and end at the same airport, area of land, or water that was used for takeoff.

c. Helicopter flights to move large equipment from one location to another where the transportation is the purpose for the flight. For example, a flight with the purpose of moving a large air conditioning unit from a storage facility to the work site could qualify as common carrier use, but a flight with the purpose of positioning the air conditioning unit while it is being attached to the real property would not qualify as a common carrier use even if the positioning occurred as part of the flight moving the unit from the storage facility to the work site.

d. Flights to transport injured persons to medical facilities.

(D) With respect to aircraft sold during the period from January 1, 1987 through December 31, 1996, it shall be presumed that a person is not using the aircraft as a common carrier of persons or property if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed ten percent (10%) of the purchase cost of the aircraft to him or her, or twenty-five thousand dollars ($25,000), whichever is less. With respect to aircraft sold on or after January 1, 1997, it shall be presumed that a person is not using the aircraft as a common carrier of persons or property if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed 20 percent of the purchase cost of the aircraft to him or her, or fifty thousand dollars ($50,000), whichever is less. These presumptions may be rebutted by contrary evidence satisfactory to the board showing that the person is using the aircraft as a common carrier of persons or property for hire.

(E) With respect to aircraft leased, or sold for the purpose of leasing, during the period from January 1, 1987 through December 31, 1996, it shall be presumed that the aircraft is not used as a common carrier of persons or property if the lessor's yearly gross receipts from the lease of that aircraft to persons for use as common carriers of persons or property do not exceed ten percent (10%) of the cost of the aircraft to the lessor, or twenty-five thousand dollars ($25,000), whichever is less. With respect to aircraft leased, or sold for the purpose of leasing, on or after

January 1, 1997, it shall be presumed that the aircraft is not regularly used as a common carrier of persons or property if the lessor's yearly gross receipts from the lease of that aircraft to persons for use as common carriers of persons or property do not exceed 20 percent of the cost of the aircraft to the lessor, or fifty thousand dollars ($50,000), whichever is less. These presumptions may be rebutted by contrary evidence satisfactory to the board showing that the aircraft is used principally as a common carrier of persons or property for hire.

(F) For purposes of subdivisions (c)(1)(D) and (c)(1(E), "gross receipts" do not include compensation paid by the owner or lessor of the aircraft or by related parties for use of the aircraft as a common carrier. "Related parties" include the owner's or lessor's immediate family, entities in which the owner or lessor, or the immediate family of the owner or lessor, hold one-half or more interest, and employees of the owner or lessor while on company business.

(G) For purposes of subdivisions (c)(1)(D) and (c)(1)(E), "contrary evidence" includes sworn oral or written testimony that is offered to prove that a person is engaged in the business as a common carrier. Such testimony would include evidence that a person was engaged in the business as a common carrier but was unable to meet the minimum yearly gross receipts requirements because the aircraft was unfit to fly.

(2) FOREIGN GOVERNMENTS. A foreign government will be deemed to have acquired an aircraft for use outside of California if the aircraft is promptly removed from the state and the foreign government as owner or lessee does not return the aircraft to this state within 12 months after its removal from this state.

(3) NONRESIDENTS. A nonresident will be considered as not using the aircraft other than to remove the aircraft from California if the aircraft is promptly removed from the state and is not returned to California within 12 months after its removal from this state.

(d) ACTIVITIES NOT AFFECTING EXEMPTION.

(1) REPAIR OR WARRANTY SERVICE. The exemption described by subdivision (b) will not be affected if the aircraft is returned to California within the 12-month period solely for repair or service covered by warranty.

(2) TEST FLIGHTS. Test flights made for the purpose of determining whether an aircraft will fly in accordance with specifications, or whether the aircraft is in proper operating condition in all its parts, do not constitute use or consumption of the aircraft or its component parts which would disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b) of this regulation whether such flights occur before or after the sale and delivery of the aircraft. This conclusion is unaffected by the circumstance that personnel of the vendor or vendee, government officials, or other observers may be on board the aircraft during test flights.

(3) MODIFICATION, REPAIR, OR REPLACEMENT. The work modification, repair, or replacement performed on an aircraft following its delivery and preparatory to its intended use, which is performed prior to the aircraft's being placed in regular operation by a common carrier, or in the case of a foreign government or nonresident prior to the aircraft's removal from the State of California, will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b). For purposes of this subdivision, flights for the sole purpose of positioning the aircraft at the modification, repair, or replacement facility will be considered a nonoperational use of the aircraft.

(4) PERSONNEL TRAINING. The operation of an aircraft in this state for the purpose of training pilots or other personnel of the aircraft's operator in the proper operation and maintenance of that particular aircraft will not disqualify the sale and use of that aircraft or its component parts from the exemptions described in subdivision (b) whether such operation occurs before or after the sale and delivery of the aircraft, provided the training period is no longer than is reasonably required for that purpose. For purposes of this subdivision, personnel training includes only such training as is necessary to familiarize the personnel with the operation of the subject aircraft. Examples of the type of activities that are not personnel training for purposes of this subdivision, and instead which are operational use, include training for a higher crew member certificate, proficiency or recurrency flights, and flight testing to observe the crew member's ability to satisfactorily perform procedures and maneuvers during the test flight.

(5) NONREVENUE OPERATIONS.

(A) The operation of an aircraft for a short period for the transportation of nonrevenue passengers or property by a common carrier for the purpose of advancing the purchaser's interests incidental to its business as a common carrier prior to placing the aircraft in regular operation will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b).

(B) The use of an aircraft following its delivery to a foreign government or nonresident to transport the personnel or property of such foreign government or nonresident during the aircraft's prompt removal from this state will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b).

(e) AIRCRAFT AND AIRCRAFT PARTS EXEMPTION CERTIFICATE. The law provides that for the purposes of the proper administration of the sales and use tax and to prevent the evasion of tax, it shall be presumed that all sales are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale of aircraft or aircraft parts as defined in subdivision (a) by establishing to the satisfaction of the Board that the gross receipts or sales price from the sale are not subject to the tax or by taking an aircraft or aircraft parts exemption certificate substantially in the form set forth below. The certificate shall relieve the seller from liability for the sales tax or for use tax collection only if it is taken timely and in good faith.

For special provisions affecting aircraft, see Regulation 1610 (18 CCR 1610), "Vehicles, Vessels and Aircraft".


AIRCRAFT OR AIRCRAFT PARTS EXEMPTION CERTIFICATE

I HEREBY CERTIFY: That the aircraft identified below will be used

[   ] Principally as a common carrier* of persons or property under authority of the laws of California, of the United States, or of any foreign government; or

[   ] Outside California by a foreign government; or

[   ] Outside California by a nonresident of California which aircraft was not used in this state other than the removal from California.

That the purchase of all tangible personal property which I shall purchase from



is exempt from tax under section 6366 or 6366.1 of the Revenue and Taxation Code and Regulation 1593. The identification numbers of all aircraft purchased under this certificate are listed below. Until this certificate is revoked in writing, all other property purchased from the seller consists of tangible personal property to become a component part of aircraft in the course of repair, maintenance, overhaul, or improvement of same in compliance with Federal Aviation Administration requirements, or United States military equivalent, which aircraft will be used by the purchaser or the purchaser's lessee in a manner qualifying for exemption under section 6366 or 6366.1 and under Regulation 1593. (The purchaser issuing this certificate can revoke it as to a particular purchase by clearly indicating on a purchase order that the purchase is not exempt under either section 6366 or 6366.1 or under Regulation 1593.)

I UNDERSTAND that in the event any such property is used in any manner other than as specified above, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax.

* NOTE: Revenue and Taxation Code section 6366 creates a rebuttable presumption that an aircraft is not principally used as a common carrier if the owner's or lessor's annual gross receipts from such operations do not exceed 20 percent of the purchase price of the aircraft or fifty thousand dollars ($50,000), whichever is less. Amounts received for use of the aircraft as a common carrier from the owner or lessor of the aircraft or related parties or employees of the owner or lessor, are excluded from gross receipts for purposes of this presumption.

Identification Numbers of Aircraft Purchased under this Certificate:

 

 

 

Date Certificate Given

Purchaser

(Company Name)

Address

Signature

(Signature of Authorized Persons)

 

(Print or Type Name)

Title

(Owner, Partner, Purchasing Agent, etc.)

Seller's Permit No. (if any) ________________________________



History: Adopted September 14, 1955.

Amended and renumbered November 3, 1969, effective December 5, 1969.

Amended September 28, 1978, effective November 18, 1978. Adds (b)(1) through (5), renumbers (b) through (g) to (c) through (h).

Amended May 3, 1988, effective July 1, 1988. In subdivision (b)(1)(C) and (b)(1)(D), added provisions that aircraft is not regularly used in common carriage if yearly gross receipts, as described, do not exceed $25,000 or 10% of the cost of the aircraft to the owner or lessor. In subdivision (b)(1)(E), added a provision that defines the term "contrary evidence". The subdivision defines "contrary evidence" to include "sworn oral or written testimony that is offered to provide that a person is engaged in the business as a common carrier. Such testimony would include evidence that a person was engaged in the business as a common carrier but was unable to meet the minimum yearly gross receipts requirements because the aircraft was unfit to fly." In subdivision (a), defined the term "common carrier" to mean "any person who engages in the business of transporting persons or property for hire or compensation and who offers his services indiscriminately to the public or to some portion of the public."

Amended May 1, 1998, effective October 17, 1998. Subdivision (a) is divided into two new subdivisions, (a)(1) and (a)(2), which are amended for clarity and to delete gender-specific language. Subdivision (a)(3) is added. The last unnumbered paragraph of former subdivision (a) is transferred to a new subdivision (b) and incorporated into a new subdivision (b)(1) to which is added language defining who may make an exempt purchase of an aircraft under the regulation. New subdivision (b)(2) added. Former subdivision (b) is re-designated as (c). Redesignated subdivisions (c)(1), (c)(1)(A), and (c)(1)(B) are amended for clarity, and new subdivision (c)(1)(C) added. Former subdivision (b)(1)(C) redesignated (c)(1)(D) and revised to conform the regulation to the provisions of Chapter 954, Statutes of 1996. Former subdivision (b)(1)(D) redesignated (c)(1)(E) and revised to conform the regulation to the provisions of Chapter 954, Statutes of 1996. New subdivision (c)(1)(F) added. Former subdivision (b)(1)(E) re-designated (c)(1)(G) and amended. Subdivision (c)(3) rewritten for clarity. New subdivision (d) added. Former subdivisions (b)(3 5), (c), (d), (e), and (f) are redesignated as subdivisions (d)(1 5), respectively, and revised for clarity. Former subdivisions (g) and (h) deleted. New subdivision (e) added. An example of an exemption certificate also added.


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Regulation 1594. Watercraft.

Reference: Sections 6368, 6368.1, and 6421, Revenue and Taxation Code.

Special provisions affecting watercraft, see Regulation 1610.

(a) GENERAL EXEMPTIONS. Tax does not apply to the sale of nor to the storage, use, or other consumption of watercraft which are used, leased to a lessee for use, or sold to persons for leasing to lessees for use either in interstate or foreign commerce, in commercial deep sea fishing, or in transporting persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state.

(1) INTERSTATE OR FOREIGN COMMERCE. Tax does not apply if the watercraft for which the exemption is claimed is used either exclusively in interstate or foreign commerce involving the transportation of persons or property for hire or both in interstate or foreign commerce and in intrastate commerce provided the principal use of the watercraft is transportation for hire in interstate or foreign commerce. The exemption may apply to watercraft which operates between termini within the state, such as ferry boats or barges operating entirely within the state if they are principally used to transport interstate passengers or cargo and tugs that operate entirely within the state and are principally used to convoy or aid the departure or arrival of vessels to or from points outside the state.

(A) The tax applies with respect to watercraft making voyages both in interstate or foreign commerce and voyages that are exclusively in intrastate commerce where the principal use of the watercraft is in intrastate commerce.

(B) With respect to watercraft sold on or after January 1, 1987, it shall be presumed that the watercraft is not regularly used in the transportation for hire of property or persons if the annual gross receipts from such use of the watercraft do not exceed ten percent (10%) of the cost of the watercraft to the person using it, or twenty-five thousand dollars ($25,000), whichever is less.

(C) With respect to watercraft leased on or after January 1, 1987, it shall be presumed that the watercraft is not regularly used in the transportation for hire of property or persons, if the annual gross receipts of the lessor from the lease of the watercraft to persons using it in this manner do not exceed ten percent (10%) of the cost of the watercraft to the lessor, or twenty-five thousand dollars ($25,000), whichever is less.

(D) The presumptions explained in subdivisions (B) and (C) above may be rebutted by contrary evidence satisfactory to the board showing that the watercraft is regularly used in the transportation for hire of property or persons.

(E) When determining whether watercraft is regularly used by the owner or lessee in the transportation for hire of property or persons, the first 12-month period after the first functional use of the watercraft shall be used. Gross receipts from the transportation for hire of property or persons, whether in interstate or foreign commerce or in intrastate commerce, may be used to meet the minimum gross receipts requirements stipulated in subdivisions (B) and (C) above.

(2) COMMERCIAL DEEP SEA FISHING. Tax does not apply if the watercraft for which the exemption is claimed is used in commercial deep sea fishing operations outside the territorial waters of this state by persons who are regularly engaged in commercial deep sea fishing if the principal use of the watercraft occurs outside the territorial waters of this state. It shall be rebuttably presumed that "persons who are regularly engaged in commercial deep sea fishing" do not include persons who have gross receipts from commercial deep sea fishing operations that total less than $20,000 a year with respect to watercraft sold on or after July 29, 1991, and $5,000 a year with respect to watercraft sold during the period January 1, 1980 through July 28, 1991. When determining whether a person has less than the minimum amount of $5,000 or $20,000 (as applicable) in gross receipts from commercial deep sea fishing operations, the first 12-month period after the first functional use of the watercraft shall be used if the person purchasing the watercraft was not engaged in commercial deep sea fishing at the time of purchase. If the person purchasing the watercraft is already engaged in commercial deep sea fishing operations, the person will not be considered to be regularly engaged in the business of commercial deep sea fishing unless receipts from commercial deep sea fishing operations aggregate at least the minimum amount during any consecutive 12-month period which includes the first operational use of the watercraft as to which exemption is claimed. Fish receipts from either commercial deep sea fishing within the territorial waters of this state or from commercial deep sea fishing outside the waters of California may be used to meet the minimum fish receipts requirements. The tax applies with respect to watercraft used in commercial deep sea fishing operations if the principal use occurs within the territorial waters of this state.

(3) TRANSPORTING PERSONS OR PROPERTY TO VESSELS OR OFFSHORE DRILLING PLATFORMS. Tax does not apply if the watercraft is used in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state provided that the watercraft is functionally used 80 percent or more of the time in such transportation activities.

(b) USE OF WATERCRAFT.

(1) INTERSTATE OR FOREIGN COMMERCE. In addition to the requirement that the watercraft be regularly used in the transportation for hire of property and persons, the watercraft for which the exemption is claimed must actually be used principally in interstate or foreign commerce. In determining whether a purchaser or a lessee of a watercraft is using that watercraft in interstate or foreign commerce, only that use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered.

(2) COMMERCIAL DEEP SEA FISHING. In addition to the requirement that the watercraft be used by persons who are regularly engaged in commercial deep sea fishing, the watercraft as to which exemption is claimed must itself actually be used principally in commercial deep sea fishing operations outside the territorial waters of this state. In determining whether a buyer or a lessee of a watercraft is using that watercraft in commercial deep sea fishing operations outside the territorial waters of this state, only that use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered.

(3) TRANSPORTING PERSONS OR PROPERTY TO VESSELS OR OFFSHORE DRILLING PLATFORMS. In determining whether a purchaser or a lessee of a watercraft is using that watercraft in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state, only that functional use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered.

(4) For purposes of this regulation:

(A) "Principal use" means more than one-half of the operational use during the test period.

(B) "Operational use" or "functional use" means the actual time during which the watercraft is operated and shall not include storage, modification, repair, or replacement.

(c) COMPONENT PARTS OF WATERCRAFT. The tax does not apply with respect to tangible personal property becoming a component part of watercraft, exempt under subdivision (a) of this regulation, in the course of constructing, repairing, cleaning, altering or improving that watercraft.

(1) ITEMS INCLUDED. To be considered a "component part" of a watercraft for purposes of the exemption the property must be an integral part of the watercraft, affixed or attached thereto in a substantial manner when in use. The following examples are illustrative only, and do not constitute a complete list:

The hull and all affixed property constituting an integral part thereof.

All property affixed or attached to the structure of the watercraft used while thus affixed or attached for navigation or operation, such as; radio transmitters, receivers and other radio equipment, radar equipment, intercommunication systems, winches, anchors, lifeboats, engines, generators, switchgear, compasses, indicators, levers, control and signal systems, lamps, chains and cables.

All property affixed or attached to the structure of the watercraft used while thus affixed or attached for the comfort or convenience of the passengers and crew, such as; built-in bunks, furniture attached by bolts, screws or otherwise, including counters, shelves, stools, railing, stairs, partitions, doors, windows, window shades and curtains, awnings, hardware, stoves, sinks and other plumbing fixtures, and paint.

(2) ITEMS EXCLUDED. Property is not considered a component part of a watercraft for purposes of the exemption if it is a kind commonly treated as expense items and is not affixed or attached to the watercraft in a substantial manner when in use. The following examples are illustrative only, and do not constitute a complete list:

Portable equipment, furniture, devices and other property, such as; chairs, deck chairs, table or floor radios, table or floor lamps, dishes and other utensils, tables, bedding, linen, mattresses, cots, athletic or recreational equipment (not affixed or attached), pictures, fire extinguishers (portable), tools, brooms, mops, rags, towels, oil, grease, soap, cleaning materials and other consumable supplies.

(d) WATERCRAFT EXEMPTION CERTIFICATE. The law provides that for the purposes of the proper administration of the sales and use tax and to prevent the evasion of the sales tax it shall be presumed that all gross receipts are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale of watercraft or component parts of watercraft by establishing to the satisfaction of the Board that the gross receipts from the sale are not subject to the tax or by timely taking a watercraft exemption certificate substantially in the form set forth below. The certificate shall relieve the seller from liability for the sales tax only if it is taken in good faith.

For special provisions affecting watercraft, see Regulation 1610 (18 CCR 1610), "Vehicles, Vessels and Aircraft".

History: Adopted October 6, 1949.

Amended September 2, 1965.

Amended and renumbered August 5, 1969, effective September 6, 1969.

Amended September 28, 1978, effective November 18, 1978. Amends (a); renumbers (a)(3)(A), (B), (C) to (a)(1), (2), (3); adds (b)(1), (2), (3), (4); renumbers (b) to (c); adds (d).

Amended February 6, 1980, effective March 29, 1980. In (a)(3), first sentence, added "by persons who are regularly engaged in commercial deep sea fishing," and added everything except the last sentence. In (b)(2) added a new first sentence. Added lines for more information on signature portion of exemption certificate.

Amended June 26, 1985, effective September 22, 1985. Adds new subdivision (b)(3) entitled "Transporting Persons or Property to Vessels or Offshore Drilling Platforms." This new subdivision explains the criteria to be used in determining whether a purchaser or lessee of a watercraft qualifies as using that watercraft in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state. Renumbers the section entitled "For Purposes of This Regulation" from subdivision (b)(3) to subdivision (b)(4). In (B) of renumbered subdivision (b)(4), provides that the terms "functional use" and "operational use" are synonymous. Deletes subdivision (b)(4)(B)(4) since the provisions referring to the operative date of the test period are outdated and no longer necessary. In subdivision (c), deletes the explanation regarding the type of watercraft exempt from tax and instead provides a reference to subdivision (a) of the regulation. Renumbers the section entitled "Watercraft Exemption Certificate" from subdivision (d) to subdivision (e) and adds new subdivision (d) entitled "Diesel Fuel Used in Operating Watercraft." New subdivision (d) provides that effective October 1, 1984, tax does not apply to the storage, use, or other consumption of diesel fuel used in operating watercraft in commercial deep sea fishing operations outside the territorial waters of the state. Sets forth the criteria for determining whether the operator is "regularly engaged in business", and whether the watercraft is "regularly operated outside the territorial waters of this state." Adds to the appendix an example of a diesel fuel exemption.

Amended October 7, 1987, effective December 25, 1987. In subdivision (a)(1), clarifies the fact that watercraft which operate entirely within California are exempt only when they are used principally as one part of a journey in interstate or foreign commerce. Added subdivision (a)(1)(A) to clarify that watercraft used principally in intrastate commerce are subject to tax. Added subdivisions (a)(1)(B), (a)(1)(C) and (a)(1)(D) which establish a rebuttable presumption that watercraft is not regularly used in interstate commerce if certain prescribed conditions are not met. Added subdivision (a)(1)(E) to explain what gross receipts shall be used to determine if watercraft is regularly used in the transportation for hire of property or persons. In subdivision (b)(1), clarifies the fact that the principal use test and minimum gross receipts test must be considered together when determining whether watercraft is principally used in interstate or foreign commerce. In subdivision (d) deleted the "Diesel Fuel Used In Operating Watercraft" and the Diesel Fuel Exemption Certificate provisions.

Amended June 2, 1988, effective August 26, 1988. In subdivision (d), added provisions that explain that diesel fuel used in operating watercraft in commercial deep sea fishing operations by certain persons is exempt from tax.

Amended August 27, 1992, effective January 20, 1993.

Paragraph (a)(2) increased the minimum amount of gross receipts from commercial fishing operations necessary to be considered regularly engaged in the business of commercial deep-sea fishing from $5,000 a year to $20,000 a year. Eliminated the Diesel Fuel Exemption Certificate and added two rebuttable presumptions to the Watercraft Exemption Certificate.


WATERCRAFT EXEMPTION CERTIFICATE

I HEREBY CERTIFY: That the aircraft identified below will be used

( ) In the transportation by water of persons or property for hire in interstate or foreign commerce;*

( ) In commercial deep sea fishing operations outside the territorial waters of this state;*

( ) In transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state;

That all tangible personal property which I shall purchase from _________________________________________________________________ described on purchase orders, or invoices, as tax exempt under Section 6368 of the Sales and Use Tax Law and Regulation 1594 consists of watercraft or tangible personal property becoming a component part of watercraft in the course of constructing, repairing, cleaning, altering, or improving the same, which watercraft will be used principally in the operation checked above.

*NOTE: Revenue and Taxation Code section 6368(b) creates a rebuttable presumption that you are not regularly engaged in commercial deep sea fishing if your gross receipts from such operations are less than twenty thousand dollars ($20,000) a year. Revenue and Taxation Code section 6368(c) creates a rebuttable presumption that the watercraft is not regularly used in interstate or foreign commerce if your yearly gross receipts from such operations do not exceed 10 percent of the cost of the watercraft or twenty-five thousand dollars ($25,000), whichever is less.

 

 

 


Date Certificate Given

Purchaser

(Company Name)

Address

Signed By

(Signature of Authorized Persons)

 

(Print or Type Name)


Title

(Owner, Partner, Purchasing Agent, etc.)

Seller's Permit No. (if any) ______________________________________

and/or Fish and Game License No.________________________________

Names of Watercraft for which certifying purchaser will be making purchases:












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Regulation 1595. Occasional Sales—Sale of a Business—Business Reorganization.

Reference: Sections 6006, 6006.5, 6014, 6015, 6019, 6066, 6075, 6281, 6282, 6283, 6292, 6358(b), and 6367, Revenue and Taxation Code.

(a) ACTIVITIES REQUIRING SELLER'S PERMIT.

(1) GENERAL. Tax applies to all retail sales of tangible personal property including capital assets whether sold in one transaction or in a series of sales, held or used by the seller in the course of an activity or activities for which a seller's permit or permits is required or would be required if the activity or activities were conducted in this state. See subdivision (e) below for special rules regarding sales of property by producers of hay.

Generally, a person who makes three or more sales for substantial amounts in a period of 12 months is required to hold a seller's permit regardless of whether the sales are at retail or are for resale. Each sale of the person during the 12 month period is included in determining whether that person is required to hold a permit, or would be required to hold a permit if the activities were conducted entirely inside this state. Thus, a sale occurring outside California, whether at retail or for resale, is included, even though it would not be subject to California sales tax. A person who makes a substantial number of sales for relatively small amounts is also required to hold a seller's permit.

Tax does not apply to a sale of property held or used in the course of an activity not requiring the holding of a seller's permit unless the sale is one of a series of sales sufficient in number, scope and character to constitute an activity for which the seller is required to hold a seller's permit or would be required to hold a seller's permit if the activity were conducted in this state. If tangible personal property is leased under a lease which is a "sale" as defined in Revenue and Taxation Code Section 6006 or a "purchase" as defined in Revenue and Taxation Code Section 6010, tax applies to the lease as provided in Regulation 1660 (18 CCR 1660), and the lessor must hold a seller's permit as provided in Regulation 1699 (18 CCR 1699). The lessor is not making an occasional sale since the lessor is making a "continuing sale" and is thereby holding the leased property in an activity requiring the holding of a seller's permit. As such, the lessor's sale of the leased property at the end of the lease term is likewise not an occasional sale.

(2) PROPERTY HELD OR USED IN AN ACTIVITY, OR ACTIVITIES REQUIRING THE HOLDING OF A SELLER'S PERMIT. A seller's permit is required of a person engaged in the business of selling tangible personal property. An activity requiring the holding of that permit includes, but is not limited to, the acquisition and sale of tangible personal property, whether the person's sales are all at retail, all for resale, or include both sales at retail and sales for resale.

Acquisition includes the obtaining of the property in any manner whatsoever. For example, raw materials may be purchased or may be obtained by extraction from the earth, air or waters of the earth. These may be sold in raw form or processed or manufactured into other raw materials, component parts or finished items which are sold. Each of these activities is an activity which is so related to the sale of tangible personal property, that it is part of the activity requiring the holding of a seller's permit.

(3) SEPARATE BUSINESSES. A person engaged in an activity or activities requiring the holding of a seller's permit or permits may also be engaged in entirely separate endeavors which do not require the holding of a seller's permit or permits. Tax applies to the sale of tangible personal property held or used in the course of an activity requiring the holding of a seller's permit. Tax does not apply to the sale of property held or used by the seller in the non-selling endeavors which do not require the holding of a permit unless that sale is itself one of a series of sales requiring the holding of a seller's permit. For example, a person may own a hardware store at one location and a real estate brokerage business at another location, with no relationship between the two activities except that of common ownership. Under these circumstances, a sale of furniture used in the brokerage business would not be a sale of property held or used in an activity requiring the holding of a seller's permit unless it was one of a series of sales of the property of the brokerage business. A sale of tangible personal property held or used in the hardware business would be a sale of property held or used in an activity requiring the holding of a seller's permit.

(4) SERIES OF SALES REQUIRING THE HOLDING OF A SELLER'S PERMIT. A person not otherwise engaged in an activity requiring the holding of a seller's permit may make a series of sales sufficient in number, scope and character to require the holding of a seller's permit. The sale in that series of sales, and subsequent sales, during any 12-month period which resulted in the requirement to hold a permit are subject to tax, unless otherwise exempt.

(A) Number.

1. Generally the minimum number of sales to require the holding of a seller's permit by a person not otherwise engaged in a selling activity is three within any 12 month period.

2. When calculating the minimum number of sales which requires a person to hold a seller's permit, the following types of sales are excluded:

a. Sales made by an auctioneer on behalf of the person. In such transactions, the auctioneer is the retailer liable for tax.

b. Sales through claiming races of horses owned by the person. In such transactions, the racing association is the retailer liable for tax.

c. Sales of vehicles, mobilehomes, commercial coaches, vessels, or aircraft which are exempted from sales tax by Revenue and Taxation Code Sections 6282 and 6283.

d. A trade-in made by the person which is incidental to a nonselling activity of the person.

(B) Scope. The extent of the sales measured by their frequency or dollar volume.

(C) Character. This relates to the similarity in type and value giving effect to the taxpayer's operations. For example, a processor of food products for human consumption is not required to hold a seller's permit for the processing and sale of food products. Sales of used lug boxes, obsolete or used machinery, food handling and similar items are of a character that three or more sales of sufficient scope will require the processor to hold a seller's permit for this selling activity.

(5) EXAMPLES APPLYING THE ABOVE PRINCIPLES.

(A) Service enterprises which make some incidental sales.

1. Operators of service enterprises such as hospitals, hotels, theaters, schools, laundromats, car washes, transportation companies, and trucking companies may make some sales incidental to their primary service business. A hospital may operate a pharmacy and cafeteria as an adjunct to the hospital. A hotel may operate a restaurant and a bar. A theater may sell popcorn to patrons. A school may operate a cafeteria and bookstore. A laundromat may sell soap to its customers.

If any of these businesses were sold, tax would apply only to the gross receipts from the tangible personal property held or used in the selling activity.

2. If, in any 12 month period, the operator of the service enterprise makes more than two sales in substantial amounts of tangible personal property used in the service enterprise, the first two sales are exempt occasional sales, but the operator is required to hold a permit for the third and subsequent sales during any12-month period. The gross receipts from the third and subsequent sales during any such 12-month period are subject to tax, unless otherwise exempt. For example, the only sales that a service enterprise made were the following sales (each of which was "substantial" for purposes of this regulation) of tangible personal property used in the service enterprise:

a. February 23, 1996 Occasional sale
b. August 16, 1996 Occasional sale
c. January 8, 1997 Not occasional sale
d. February 8, 1997 Not occasional sale
e. January 27, 1998 Occasional sale
f. February 3, 1998 Not occasional sale
g. August 11, 1999 Occasional sale
h. December 12, 1999 Occasional sale
i. September 8, 2000 Occasional sale
j. December 9, 2000 Not occasional sale

Sales a. and b. are occasional sales since they were the first two sales made by the service enterprise.

Sales c. and d. are not occasional sales since they were the third and fourth sales in the series of sales commencing on February 23, 1996, which was less than 12 months prior to these sales.

Sale e. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on February 8, 1997. The January 8, 1997 sale is not relevant since it occurred more than 12 months prior to sale e.

Sale f. is not an occasional sale since it was the third sale in the series of sales commencing on February 8, 1997, which was less than 12 months prior to this sale.

Sale g. is an occasional sale since the service enterprise made no other sales in the prior 12 months.

Sale h. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on August 11, 1999.

Sale i. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on December 12, 1999.

Sale j. is not an occasional sale since it was the third sale in the series of sales commencing within the prior 12 months, on December 12, 1999.

(B) Other businesses.

1. Tax applies to the sales of assets of a business which is not essentially a service enterprise. Examples of this are sales of grocery stores and liquor stores making both exempt sales of food products for human consumption and taxable sales of other tangible personal property, service stations which sell gasoline, oil and similar items and which also perform automotive repairs and lubrication services, and computer stores which also provide training in the use of computers and repairs for computer products.

2. Where a service enterprise and a sales business are operated together so as to constitute one business, tax will apply to the sale of the assets of the business. For example, if a car wash and gasoline station are operated at the same premises and the car wash is available only to persons who buy gasoline or if the price of the car wash is reduced if gasoline is purchased, tax applies to the sale of the car wash.

3. A person purchases a hardware store with the intent of selling tangible personal property. The person must hold a seller's permit regardless of the number of sales of tangible personal property actually made. For example, if the person makes only two sales, a sale of a hammer and a sale of the business, neither sale is an occasional sale.

4. A person intends to create and sell custom furniture. The person must hold a seller's permit for all his or her sales of furniture. This is true even if, because of the time necessary to create each piece of furniture and the profit resulting from each sale, the person averages one sale of furniture per year.

(6) TRANSFER OF SHARES IN A CORPORATION. The sale of stock of a corporation is not a sale of tangible personal property and is not subject to sales tax. A stock purchase is not a purchase of tangible personal property and is not subject to sales or use tax notwithstanding the fact that the stock purchase may be treated as an asset acquisition for federal income tax purposes pursuant to Internal Revenue Code Section 338.

(b) SALE OR REORGANIZATION OF ALL OR PART OF A BUSINESS.

(1) GENERAL. In general, when a person sells a business which is required to hold a seller's permit, tax applies to the gross receipts from the retail sale of tangible personal property held or used by that business in the course of its activities requiring the holding of the seller's permit. The gross receipts from the sale of the business include all consideration received by the transferor, including cash, notes, and any other property as well as any indebtedness assumed by the transferee. It is irrelevant that the indebtedness assumed may have arisen solely in connection with the transferor's acquisition of the tangible personal property transferred, the other property transferred, or some combination thereof. That is, the transferor is selling a business, and all consideration received is for that business. The measure of tax is the price agreed to by the parties. In the absence of an agreement as to the price of the tangible personal property, the gross receipts from that sale is allocated among the taxable portion and the nontaxable portion by dividing the selling price of the tangible personal property acquired by the purchaser for use rather than resale by the selling price of the entire business sold, and then multiplying that amount by the total gross receipts (i.e., all consideration) received for the business. Book value will be regarded as establishing the price of properties sold. (See Regulation 1610 for special rules applicable to sales of vehicles, vessels, and aircraft.)

(2) TRANSFERS OF SUBSTANTIALLY ALL PROPERTY WITHOUT SUBSTANTIAL CHANGE IN OWNERSHIP. Tax does not apply to a transfer of all or substantially all the property held or used by a person in the course of activities for which the person is required to hold a seller's permit or permits or would be required to hold a seller's permit or permits if the activities were conducted in this state, provided that after the transfer the real or ultimate ownership of the property is substantially similar to that which existed before such transfer. "Substantially all the property" means 80 percent or more of all the tangible personal property held or used by the person in the course of activities requiring the holding of a seller's permit, including tangible personal property located outside of this state. If a person engages in two or more separate selling activities, for each of which the person is required to hold a seller's permit or would be required to hold a seller's permit if the activity were conducted in this state, a transfer of 80 percent or more of the tangible personal property held or used in the combined activities must be made in order to qualify for the exemption described in this paragraph. If a person simultaneously transfers all or substantially all of its assets to more than one entity, the transfer will qualify for the exemption if the ownership remains substantially similar. Stockholders, bondholders, partners, or other persons holding an ownership interest rather than a security interest in the corporation or other entity are regarded as having the real or ultimate ownership of the property of the corporation or other entity.

The real or ultimate ownership is "substantially similar" to that which existed before a transfer if 80 percent or more of that ownership of the tangible personal property is unchanged after the transfer. In the following example, the ownership is "substantially similar" to that which existed before the transfer:


Stockholders

Interests in Transferor Corporation

Interests in Transferee Corporation

Interests Common Before and After Transfer

A

40%

33 1/3%

33 1/3%

B

40%

33 1/3%

33 1/3%

C

20%

33 1/3%

20%

 

100%

100%

86 2/3%


(3) STATUTORY MERGER. A transfer pursuant to a statutory merger is not a sale but is instead a transfer by operation of law. Thus, tax does not apply to a transfer of property of a constituent corporation to a surviving corporation or new corporation pursuant to a statutory merger under Sections 6010–6022, 1100–1305, or 15678.1–15678.9 of the California Corporations Code or similar laws of this state or other states. The surviving corporation stands in the place of each constituent corporation (including the disappearing corporation(s)). As a result, if property acquired by the surviving corporation in the merger had been purchased and held by the constituent corporation for resale, then the surviving corporation must report and pay use tax on the constituent corporation's purchase price if it makes any use of such resale property, just as the constituent corporation would have owed such tax if it had used the property. Similarly, if the constituent corporation had avoided paying tax measured by the purchase price of mobile transportation equipment by making a timely election to report tax on the fair rental value, the surviving corporation must continue to report tax measured by the fair rental value on its leases of the mobile transportation equipment; if the surviving corporation makes any use of that mobile transportation equipment other than leasing it to another person, the surviving corporation must report tax on the purchase price paid by the constituent corporation.

(4) CONTRIBUTION TO COMMENCING CORPORATION, LIMITED LIABILITY COMPANY, PARTNERSHIP, OR JOINT VENTURE. The transfer of tangible personal property to a commencing corporation, commencing limited liability company, commencing partnership, or commencing joint venture in exchange solely for first issue stock of the commencing corporation or an interest in the commencing limited liability company, partnership, or joint venture is not a sale since the interest received by the transferor is not regarded as having measurable value at the time of the transfer. The transferor is the consumer of such property. However, such a transfer is a sale if the transferor receives any consideration, such as cash, notes, or an assumption of indebtedness (whether or not the transferor retains any joint liability with respect to the indebtedness assumed by the transferee), and tax applies to that sale unless it otherwise qualifies for exemption. For purposes of determining the measure of tax from the sale, it is irrelevant that any of the transferor's indebtedness assumed by the transferee may have arisen solely in connection with the transferor's acquisition of the tangible personal property transferred, the other property transferred, or some combination thereof. The gross receipts from that sale is allocated among the taxable portion and the nontaxable portion by dividing the selling price of the tangible personal property transferred to the purchaser for use rather than for resale by the selling price of all property transferred and then multiplying that amount by the total gross receipts (i.e., all consideration) received by the transferor.

When the transferor is a consumer under the previous paragraph, no tax applies with respect to the transfer provided the transferor's use of the property in California would not otherwise be subject to tax. For example, in the case of property purchased by the transferor for resale without payment of the tax, the transferor is the consumer of such property which the transferee will not sell. Since the transferor's use of such resale inventory is subject to tax, the transferor owes tax measured by its purchase price. However, no tax applies with respect to the transfer of such resale inventory provided the transferee will sell such property without any use other than retention, demonstration, and display while holding the property for sale. If the transferee thereafter makes any other use of such property, it must report use tax measured by the transferor's purchase price.

(5) DISSOLUTION OF CORPORATION. A distribution of assets, including tangible personal property, by a corporation upon its dissolution to its stockholders in accordance with their ownership interests is a liquidating dividend and is not a sale when no consideration is received by the corporation other than the stockholders' return of stock certificates for purposes of cancellation. The corporation is the consumer of such property and no tax applies with respect to the transfer provided the corporation's use of the property in California would not otherwise be subject to tax. If consideration is given or received for the transfer, such as an assumption of liabilities by the stockholders, tax applies measured by that consideration.

(6) DISSOLUTION OF LIMITED LIABILITY COMPANY. A distribution of assets, including tangible personal property, by a limited liability company upon its dissolution to its members (i.e., persons holding membership interests and persons holding economic interests) in accordance with their ownership interests is a liquidating dividend and is not a sale when no consideration is received by the limited liability company other than cancellation of the members' interests. The limited liability company is the consumer of such property and no tax applies with respect to the transfer provided the limited liability company's use of the property in California would not otherwise be subject to tax. If consideration is given or received for the transfer, such as an assumption of liabilities by the members, tax applies measured by that consideration.

(7) DISSOLUTION OF PARTNERSHIP. A partnership is a person for sales and use tax purposes. (Revenue and Taxation Code Section 6005.) However, a partnership is defined for general law purposes as an association of two or more persons to carry on as co-owners a business for profit. (Corporations Code Section 15006.) Dissolution of a partnership is caused by withdrawal of a partner or admission of a new partner, unless otherwise provided in an agreement in writing signed by all the partners, including any such withdrawing partner or any such newly admitted partner before such withdrawal or admission. (Corporations Code Section 15031(7).)

Under Corporations Code Section 15026, a partner's interest in the partnership is the partner's share of the profits and surplus, and is personal property. Under Corporations Code Section 15027(1), a conveyance by a partner of that partner's interest in the partnership does not in itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with the partnership contract the profits to which the assigning partner would otherwise be entitled. The assignment of a partnership interest in this technical sense is not a sale of tangible personal property and is not subject to tax.

In common usage, however, the term "partnership interest" refers to all of the rights of a partner including (1) the person's rights in specific partnership property, (2) the person's interest (in the technical sense) in the partnership, and (3) the person's right to participate in the management. In a typical commercial transaction when a partner "sells the person's interest in a partnership" to another, it is intended that the person "selling the interest" will withdraw from the partnership and the person "purchasing the interest" will be admitted to the partnership. The legal effect of this transaction is to dissolve the first partnership and to create a new partnership, in the absence of a provision in the agreement providing for continued life of the partnership. The effect for sales and use tax purposes is that there is a dissolution of the partnership, a distribution of the assets on a pro rata basis, and a sale by the withdrawing partner of the person's ownership interest in the tangible personal property distributed to that person. Except as provided in subdivision (c), this sale of tangible personal property will qualify as an occasional sale under Revenue and Taxation Code Section 6006.5 and will be nontaxable under Section 6367, unless the withdrawing partner holds a seller's permit or the sale of tangible personal property is one of a series of sales sufficient in number, scope, and character to require the holding of a seller's permit.

A distribution of assets, including tangible personal property, by a partnership upon its dissolution to the partners in accordance with their ownership interests in the partnership is a liquidating dividend and is not a sale when no consideration is received by the partnership other than cancellation of the partners' interests. The partnership is the consumer of such property and no tax applies with respect to the transfer provided the partnership's use of the property in California would not otherwise be subject to tax. If consideration is given or received for the transfer, such as an assumption of liabilities by the partners, tax applies measured by that consideration.

Where a partnership distributes some of its assets in the form of a partial liquidation of the business, the transfer will be regarded as a liquidating dividend, subject to the rules set forth in the previous paragraph, if an entire segment of the business of the partnership is being liquidated. For example, a partnership operates a lumberyard and an automobile repair and parts business. If the partnership ceases operation of the lumberyard and distributes its assets to the partners in accordance with their interest in the partnership and the partnership receives no consideration from the partners such as an assumption of liabilities, the transfer is a liquidating dividend subject to the rules set forth in the previous paragraph. If, however, the partnership ceases operating the repair portion of the automobile repair and parts business and distributes the assets of that portion of the business, it is not liquidating an entire segment of its business and the transfer does not qualify as a nontaxable liquidating dividend.

(8) DISSOLUTION OF JOINT VENTURE. For purposes of this paragraph, a joint venture is an undertaking by two or more persons jointly to carry out a single enterprise for profit. The rules applicable to a partnership's liquidating dividends apply to a joint venture's liquidating dividends. The distribution of assets by a joint venture will be regarded as a liquidating dividend, subject to the rules set forth for partnerships, provided at least 80 percent of the purpose of the joint venture has been completed at the time of the distribution. The distribution of the assets of a joint venture prior to 80 percent completion of the purpose of the joint venture cannot qualify as a liquidating dividend and is a sale transaction subject to tax.

(9) SALE FOLLOWING LIQUIDATION. Except as provided in subdivision (c), the transferee's sale of assets acquired in a transfer qualifying as a liquidating dividend, as discussed in this regulation, would be an exempt occasional sale if the property is not sold as part of an activity requiring the holding of a seller's permit and is not one of a series of sales requiring the holding of a seller's permit.

(c) VEHICLES, MOBILEHOMES, COMMERCIAL COACHES, VESSELS, AND AIRCRAFT. There is no occasional sale exemption for the sale or use of vehicles required to be registered with the Department of Motor Vehicles, or off-highway vehicles subject to identification under Division 16.5 of the Vehicle Code, mobilehomes and commercial coaches required to be registered with the Department of Housing and Community Development, vessels, or aircraft, as defined by the law and in Regulation 1610 (18 CCR 1610) or in Regulation 1610.2 (18 CCR 1610.2), except when such property is included in a transfer of all or substantially all the property held or used in the course of business activities of the person selling the property and the real or ultimate ownership of the property is substantially similar to that which existed before such transfer. The rules set forth in subdivision (b)(2) of this regulation are applicable in determining under this paragraph whether a transfer is of substantially all the property and whether the ownership is substantially similar.

(d) MANUFACTURERS AND WHOLESALERS. A manufacturer, wholesaler, or other person in the business of making sales for resale of tangible personal property of a kind the retail sale of which is taxable whether or not the property is ever sold at retail or is suitable for sale at retail, is liable for tax measured by receipts from any of the person's retail sales of tangible personal property.

(e) PRODUCERS OF HAY. A producer of hay is required to hold a seller's permit by reason of the producer's sales of hay, regardless of whether the hay is sold for resale or at retail, and regardless of whether the hay sold at retail constitutes feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, unless, operative April 1, 1996, the producer is a grower who produces hay for sale only to beef cattle feedlots or dairies or is a grower who sells exclusively through a farmer-owned cooperative.

However, an occasional sale includes a sale of property by a producer of hay, other than hay, provided that the sale is not one of a series of sales sufficient in number, scope, or character to constitute an activity for which the producer would be required to hold a seller's permit if the producer were not also selling hay.

The producer's sale of tangible personal property held or used in the course of an activity of producing the hay (such as farm equipment and machinery) is an occasional sale, provided all of the following conditions apply:

(1) The sale is not one of three or more sales of tangible personal property (other than hay) for substantial amounts in any period of 12 months.

(2) The sale is not one of a substantial number of sales of tangible personal property (other than hay) for relatively small amounts in any period of 12 months.

(3) The tangible personal property was not also held or used in the course of an activity (other than the production of hay) for which a seller's permit is required, or would be required if the activity were conducted in this state.

History: Effective June 19, 1947.

Amended July 23, 1949.

Amended August 2, 1965, applicable on and after August 1, 1965.

Amended September 12, 1968.

Amended and renumbered November 3, 1969, effective December 5, 1969.

Amended May 10, 1972, effective June 18, 1972.

Amended April 22, 1975, effective May 29, 1975. Unitary business concept added to determine if an otherwise exempt business activity is part of a business requiring a seller's permit and added explanation that separate selling activities by the same person must be considered together when applying the 80 percent rule for tax free transfers of retail businesses.

Amended May 23, 1979, effective July 13, 1979. In (3) (K) excluded nominal sales; defined nominal. In (b) (3) deleted "or consolidation" and changed Corporations Code section number.

Amended February 3, 1983, effective July 7, 1983. In subdivision (c), added "MOBILEHOMES, COMMERCIAL COACHES," to the title and added references to mobilehomes and commercial coaches in the text.

Amended February 22, 1985, effective March 24, 1985. Revised subdivision (a); deleted former subdivision (a)(3); added new (a)(2); renumbered former (a)(2) to (a)(3); added new (a)(4) and (5); deleted "he" in (b)(2) and substituted "the person"; added reference to Regulation 1610.2 to (c); deleted former (d); revised and relettered former (e) to (d).

Amended June 11, 1986, effective August 20, 1986. In subdivision (a), added a reference to subdivision (e) which explains the special rules applicable to sales of tangible personal property by producers of hay. In subdivision (b)(1), added a reference to Regulation 1610 for special rules regarding sales of vehicles. Added subdivision (e), which interprets and explains the occasional sales rules applicable to producers of hay.

Amended November 20, 1996, effective March 6, 1997. Amended subdivision (a)(1) & (2) to designate the types of sales to be counted and to include leases. Added phrase "unless . . . permit" to the third and fifth sentences. Designated the one sentence of subdivision (a)(4)(A) as new Subdivision (a)(4)(A)1. and added "by a person . . . activity." Added new subdivision (a)(4)(A)2. Added phrase "none . . . sale" to the second sentence of subdivision (a)(5)(A)2; made second sentence part of the first and added and deleted language to clarify that tax applied unless otherwise exempt; added sentence "For . . . taxable."; added language to, and deleted language from, fourth sentence to clarify that sales or use tax applied to qualifying sales; and deleted fifth sentence. Added to second sentence of subdivision (a)(5)(B)1. phrases "making both exempt sales of food products for human consumption and taxable sales of other tangible personal property" and "and computer stores . . . computer products" and deleted phrases "selling . . . items," and "pharmacies . . . sundries." Added subdivision (a)(6). Amended subdivision (b)(1) by deleting most of old section and adding new language. Added to subdivision (b)(2) phrases "by the person" and "requiring the holding of a seller's permit" and "If a . . . similar." Added new language "A transfer . . . Thus," cross references to the Corporations Code Section 6010–6022 and 15678.1–15678.9, and "The surviving . . . constituent corporation." to subdivision (b)(3). Rewrote former sole paragraph of subdivision (b)(4) as first paragraph and added second paragraph. Added new subdivisions (b)(5)-(9).Added cross references to Regulation 1610 and 1610.2 and new sentence "The rule . . . similar." to subdivision (c). Added new last phrase to subdivision (e) (First Paragraph) regarding permits for hay growers.

Amended November 1, 2000, effective February 4, 2001. Subdivision (a)(4)—amended by re-writing the first sentence for clarity and adding a new sentence. Subdivision (a)(5)(A)2.—phrase "none of the sales qualify as an
occasional sale" and "the first two sale . . . period" added in the first sentence; phrase "the third and subsequent sales during any such 12-month period" added in second sentence; deleted "For example . . . used in this state." Remainder of subdivision added. Subdivisions (a)(5)(B)3. and
(a)(5)(B)4. added.


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Regulation 1596. Buildings and Other Property Affixed to Realty.

Reference: Sections 6006, 6010, 6012.2, 6012.8, 6012.9, 6016, 6016.3, 6276, 6276.1, and 6379, Revenue and Taxation Code.

Leased property affixed to realty as tangible personal property when lessor has right to remove, see Regulation 1660.

(a) BUILDINGS AND MINERALS. The transfer of buildings or minerals or the like affixed to land is taxable as a sale of personal property if, pursuant to the contract or agreement of sale, the buildings or minerals or the like are to be severed by the seller thereof. If, pursuant to the contract or agreement of sale, such buildings or minerals or the like are to be severed by the purchaser thereof, such a transfer is not taxable as a sale of personal property.

The gross receipts from the sale of or the storage, use, or other consumption in this state of any used mobilehome the initial retail sale of which qualified for the 60 percent exclusion provided for by Revenue and Taxation Code Section 6012.8 for the period January 1, 1980 to June 30, 1980, inclusive, is exempt from the sales and use tax.

Operative July 1, 1980, the gross receipts from the sale of, and the storage, use, or other consumption in this state of any used mobilehome subject to local property taxation is exempt from the sales and use tax.

The exemptions for sales of used mobilehomes does not extend to accessories or other items as defined in Regulation 1610(b)(3)(B)1 that are not an integral part of the mobilehome at the time of sale.

(b) TIMBER. The transfer of timber to be severed is taxable as a sale of personal property, regardless of whether the timber is to be severed by the seller or by the purchaser thereof.

(c) FIXTURES, MACHINERY AND EQUIPMENT, AND DRAPERIES AFFIXED TO REAL PROPERTY. The transfer "in place" of affixed fixtures, machinery and equipment, or draperies is taxable as a sale of personal property when removal of the fixtures, machinery or equipment, or draperies by the seller or purchaser is contemplated by the contract of sale. The transfer "in place" of affixed fixtures, machinery and equipment, or draperies owned by a lessee of land or buildings to which those items are affixed, is also taxable as a sale of personal property when the lessee-seller has the present right to remove the items either as trade fixtures under Section 1019 of the Civil Code or under the express terms of the lease.

The measure of tax with respect to the sale of fixtures, machinery and equipment, or draperies does not include any value attributable to their attachment to real property, even though such value might be included in the agreed price. In the absence of evidence requiring a different method of computation, when the agreed price includes the value attributable to the attachment of the items, the measure of tax will be determined by applying to the agreed price that percentage which the original cost of the property bears to the total of that cost and the cost of attachment, i.e.,

cost of items / cost of items + cost of attachment * agreed price = measure of tax.

History: Adopted February 17, 1970, effective March 22, 1970.

Amended May 21, 1975, effective June 29, 1975. Added formula for determining taxable percentage of sale of an in-place fixture.

Amended July 27, 1978, effective September 7, 1978. In (c) added "draperies".

Amended August 1, 1980, effective August 22, 1980, operative July 1, 1980. In (a) added last three paragraphs.

Amended November 19, 1980, effective January 16, 1981. In (a), fourth paragraph, added reference to Regulation 1610(b)(3)(B)1.


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Regulation 1597. Property Transferred or Sold by Certain Nonprofit Organizations

Reference: Sections 6018.9, 6359.3, 6360, 6361, 6361.1, and 6370, Revenue and Taxation Code.

Scholastic Book Clubs, Inc. v. State Board of Equalization (1989)
207 Cal.App.3d 734.

(a) IN GENERAL. Sections 6018.9, 6359.3, 6360, 6361, 6361.1 and 6370 of the Revenue and Taxation Code provide that certain organizations are consumers and not retailers of specified kinds of tangible personal property under certain conditions. The subsections which follow describe the organizations and the kind of tangible personal property involved.

(b) FLAGS SOLD BY NONPROFIT VETERANS' ORGANIZATIONS. Any nonprofit veterans' organization is a consumer of and shall not be considered a retailer of flags of the United States which it sells where the profits are used solely and exclusively in furtherance of the purpose of the organization.

(c) PRISONERS OF WAR BRACELETS TRANSFERRED BY CHARITABLE ORGANIZATIONS. Any charitable organization qualifying for the welfare exemption from property taxation under Section 214 of the Revenue and Taxation Code is the consumer of bracelets designed to commemorate American prisoners of war, which it distributes, whether or not a contribution is made to such organization, where the profits are used solely and exclusively in furtherance of the purposes of such organization.

(d) HANDCRAFTED OR ARTISTIC TANGIBLE PERSONAL PROPERTY SOLD BY CERTAIN QUALIFIED ORGANIZATIONS. Any organization which is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code (26 U.S.C.A.); which, as its primary purpose, provides services to individuals with developmental disabilities or, effective August 3, 1995, to children with severe emotional disturbances, and which does not discriminate on the basis of race, sex, nationality, or religion is the consumer and not the retailer of any tangible personal property sold by them if all of the following conditions are met:

(1) The tangible personal property is of a handcrafted or artistic nature and is designed, created, or made by individuals with developmental disabilities or, effective August 3, 1995, by children with severe emotional disturbances, who are members of, or receive services from, the qualified organization.

(2) The price of each item of tangible personal property sold does not exceed twenty dollars ($20) or ten dollars ($10) if sold prior to August 3, 1995.

(3) The qualified organization's sales are made on an irregular or intermittent basis.

(4) The qualified organization's profits from the sales are used exclusively in furtherance of the purposes of the organization.

(e) FOOD PRODUCTS, NONALCOHOLIC BEVERAGES AND OTHER TANGIBLE PERSONAL PROPERTY SOLD BY NONPROFIT YOUTH ORGANIZATIONS.

(1) A qualified youth organization is the consumer and not the retailer of food products, nonalcoholic beverages, and tangible personal property created by members of the organization, which are sold on an irregular or intermittent basis provided the profits from such sales are used solely and exclusively in the furtherance of the purpose of the organization.

(A) "Qualified youth organization" means and includes:

1. any nonprofit organization which qualifies for tax-exempt status under Section 501(c) of the Internal Revenue Code (26 U.S.C.A.); which provides a supervised program of competitive sports for youth or promotes good citizenship in youth as its primary purpose; and which does not discriminate on the basis of race, sex, nationality, or religion, or

2. any youth group or club sponsored by or affiliated with a qualified educational institution, including but not limited to any student activity group, e.g., debating team, swimming team, band, or choir.

(B) "Qualified educational institution" means and includes:

1. any public elementary, secondary, or vocation-technical school which provides education for either kindergarten; grades 1 through 12, inclusive; or college or university undergraduate programs, or any part thereof, or

2. any nonprofit private school which provides education programs for either kindergarten; grades 1 through 12, inclusive; or college or university undergraduate programs, or any part thereof. Nonprofit private school educational programs must meet the requirements of the State Department of Education and must satisfy the requirements of state and local laws governing private educational institutions in effect on January 1, 1990. The term does not include a nonprofit private school which otherwise qualifies but which discriminates on the basis of race, sex, nationality, or religion. For example, a youth group sponsored by a private school which has enrollment open only to females is not a "qualified youth organization".

(C) "Irregular or intermittent" is defined to mean sales made at particular events, such as fairs, galas, parades, scout-a-ramas, games, and similar activities, which are not conducted on a regularly scheduled basis. Sales made at refreshment stands or booths at scheduled events of organized youth sports leagues are considered made on an "irregular or intermittent" basis; however, sales made in storefront or mobile retail outlets which ordinarily require local business licenses do not qualify.

(2) The following organizations are "qualified youth organizations" and are consumers, not retailers, of tangible personal property under the circumstances described in paragraph (e)(1):

Little League, Bobby Sox, Boy Scouts, Cub Scouts, Girl Scouts, Campfire, Inc., formerly Campfire Girls, Young Men's Christian Association, Young Women's Christian Association, Future Farmers of America, Future Homemakers of America, 4-H Clubs, Distributive Education Clubs of America, Future Business Leaders of America, Vocational Industrial Clubs of America, Collegiate Young Farmers, Boys' Clubs, Girls' Clubs, Special Olympics, Inc., American Youth Soccer Organization, California Youth Soccer Association, North, California Youth Soccer Association, South, and Pop Warner Football.

(f) TANGIBLE PERSONAL PROPERTY SOLD BY CERTAIN NON PROFIT ORGANIZATIONS. The following organizations are consumers and not retailers of any tangible personal property sold by them if the profits from such sales are used exclusively in the furtherance of the purposes of the organization:

(1) Nonprofit parent-teacher associations chartered by the California Congress of Parents, Teachers, and Students, Incorporated, and equivalent organizations performing the same type of service for public or private schools and authorized to operate within the school by the governing authority of the school.

(2) Nonprofit associations commonly called Friends of the Library, and equivalent organizations performing auxiliary services to any library district, municipal library, or county library in the state, which are authorized to operate within the library by the governing authority of the library.

(3) Nonprofit parent cooperative nursery schools.

(g) RESALE CERTIFICATES: OBLIGATIONS OF PERSONS WHO SELL TO CONSUMERS. An organization classed as a consumer under this regulation may not give a resale certificate with respect to the property it transfers.

All persons, other than organizations classed as consumers, who make sales of tangible personal property not otherwise exempt, should report tax on their sales unless the purchasers furnish resale certificates which can be accepted in good faith.

It will be presumed that all sales of tangible personal property not otherwise exempt, by organizations not classed as consumers, for delivery in this state to purchasers who do not furnish resale certificates which the seller accepts in good faith are subject to sales tax or that the seller is obligated to collect use tax from the purchasers.

(h) TAXABLE SALES OF TANGIBLE PERSONAL PROPERTY BY OR THROUGH NONPROFIT ORGANIZATIONS. A nonprofit organization is treated as a consumer of tangible personal property it may sell under circumstances described in subdivisions (d), (e) and (f) of this regulation. In other cases, a nonprofit organization is regarded as a retailer of property it sells to consumers, or it is regarded as an agent of the companies which furnish the property to it for delivery to consumers.

When a nonprofit organization solicits orders, collects payments, and distributes tangible personal property for a supplier, it is considered to be the agent of that supplier. Accordingly, the supplier, not the organization, is the retailer of the merchandise sold. This is true unless documentation establishes that the nonprofit organization is buying and selling for its own account. The nonprofit organization is presumed to be buying and selling on its own account if all of the following factors are present: 1) the organization solicits the orders from the public in its own name; 2) the organization collects the sale price from the customer in its own name; 3) the organization is responsible for and pays the supplier for the merchandise; and 4) the contract between the organization and the supplier clearly identifies the fact the organization will purchase and resell the products to its customers. If it is selling for its own account, the nonprofit organization will be required to obtain a permit and will be considered the retailer, unless the supplier has been classified by the Board as a retailer under Revenue and Taxation Code Section 6015, or the nonprofit organization is classified under subdivisions (d), (e) and (f) of this regulation.

If the supplier is a 6015 retailer, the supplier must pay the tax and the organization does not need a seller's permit. The measure of tax is the amount charged to the consumer. When this price is unknown by the supplier, tax will apply to the suggested retail selling price. If the nonprofit organization is classified as a consumer under subdivisions (d), (e) and (f) of this regulation, the supplier will calculate tax measured by the selling price to the nonprofit organization.

(i) TRANSFER OF TANGIBLE PERSONAL PROPERTY TO MEMBERS. From April 1, 2010, until January 1, 2015, an organization described under Section 501(c) of the Internal Revenue Code (26 U.S.C.A.) is the consumer of tangible personal property transferred to its members, if the following requirements are met:

(1) The tangible personal property bears a logo or other identifying mark of the organization and is a promotional item or other item commonly associated with use by a member to demonstrate the memberís association with, or membership in, the organization.

(2) The cost to the member of the organization for the acquisition of the tangible personal property is not more than the cost to the nonprofit organization to obtain and transfer to the member the tangible personal property, including any applicable sales or use tax paid by the nonprofit organization.

(3) Reasonable steps are taken by the organization to ensure that no member is allowed to acquire more than 30 identical items of tangible personal property or to resell the items to another person.

(4) The tangible personal property is not distributed for purposes of organized political campaigning or issue advocacy.

History: Adopted October 6, 1970, effective October 9, 1970.

Amended December 15, 1971, applicable on and after December 15, 1971.

Amended February 16, 1972, effective March 25, 1972.

Amended February 7, 1973, effective March 16, 1973.

Amended December 18, 1974, effective January 26, 1975. Added (d) and reference to Section 6361 of the Revenue and Taxation Code and clarified (e).

Amended May 21, 1975, effective June 29, 1975. Excluded state and its political subdivisions from (d).

Amended September 28, 1978, effective November 18, 1978. Adds (e); renumbers (e) to (f), and amends (f) to refer to sales of tangible personal property rather than a detailed list of specific types of property.

Amended February 6, 1980, effective March 29, 1980. Added subsection (f); relettered former (f) to (g) and substituted "this regulation" for subsection letters.

Amended May 6, 1986, effective July 6, 1986. In subdivision (d), amended regulation to limit organizations covered by regulation and made the organizations consumers of certain items of tangible personal property.

Amended June 17, 1987, effective September 19, 1987. In subdivision (d), added to the list of nonprofit youth organizations identified by Legislature as consumers, not retailers, of certain property sold under specified conditions.

Amended August 24, 1988, effective November 17, 1988. In subdivision (e)(3) added nonprofit parent cooperative nursery schools to list of organizations which qualify as consumers of tangible personal property.

Amended April 5, 1989, effective June 17, 1989. The regulation title was shortened to eliminate unnecessary verbiage. Subdivision (a) was amended to add section 6361.1 added to the Revenue and Taxation Code by Chapter 711 (1988). Subdivisions (b), (d) and (e) were amended to replace the word "transferred" with the word "sold" to eliminate confusion. Subdivision (d)(1) was amended to explain that a nonprofit youth organization is a consumer and not a retailer of certain items sold in a specified manner for a defined purpose; (d)(1)(A) defines "qualified youth organization"; (d)(1)(B) relocates the definition of "irregular or intermittent". Subdivision (d)(2)(C) adds specified qualified organizations and (d)(3) adds the board's authority to approve certain youth organizations not listed in the statute (Chapters 709, 710, 711 (1988)).

Amended January 8, 1991, effective March 16, 1991. Subsection (a) deleted reference to Section 6368.1 which was repealed. Subsection (d) redefined "qualified youth organization" and added the definition of "qualified educational institution". Subsection (d)(3) was deleted. Subsection (e)(1) added the word "Incorporated".

Amended November 30, 1993, effective March 5, 1994. Amended subdivision (g) to add the factors to establish the presumption that a nonprofit organization is buying and selling tangible personal property on its own account and added clarifying language regarding an organization's permit status and calculation of tax when classified as a consumer under subdivisions (d) and (e).

Amended December 7, 1994, effective July 15, 1995. Added new subparagraph (d) to provide guidance to nonprofit organizations selling handcrafted tangible personal property as to when they are regarded as the consumers of such property, as required by Statutes 1993, Chapter 653.

Amended April 23, 1996, effective May 23, 1996. Subdivision (d) amended to add the provisions of Chapter 290 of Statutes of 1995 regarding the sale of handcrafted or artistic tangible personal property by children with severe emotional disturbances. Subdivision (f)(3) was amended to remove an obsolete effective date.

Amended January 27, 2010, effective March 16, 2010. Subdivision (a) amended to add new RTC section 6018.9. New subdivision (i) - (i)(4) added to incorporate provisions of RTC section 6018.9.


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Regulation 1598. Motor Vehicle and Aircraft Fuels.

Reference: Sections 6011, 6012, 6051.8, 6201.8, 6245.5, 6357, 6357.3, 6357.5, 6357.7, and 6423, Revenue and Taxation Code.

(a) IN GENERAL. Sales tax or use tax applies to the sale or use of fuel for propelling motor vehicles or aircraft or for other purposes, except as stated below.

(b) EXCEPTIONS.

(1) Neither the sales tax nor the use tax applies to the sale or use of motor vehicle fuel used in propelling aircraft, the distribution of which in this state is subject to the tax imposed by Part 2 (commencing with Section 7301) of Division 2 of the Revenue and Taxation Code. This type of fuel includes gasoline and similar fuels but does not include aircraft jet fuel.(See subdivision (h) for requirements for supporting aircraft fuel exemptions.)

(2) Neither the sales tax nor the use tax applies to the sale or use of aircraft fuel sold to an air common carrier for immediate consumption or shipment in its business as an air common carrier on a flight whose final destination is a foreign destination (see Regulation 1621, Sales to Common Carriers).

(c) MEASURE OF TAX.

(1) The measure of tax includes:

(A) The tax imposed by the United States upon importers or producers of gasoline, diesel, and jet fuel, except as provided in (c)(2)(D) and (c)(2)(E),

(B) The tax imposed upon distributors of gasoline and similar fuels by the State of California pursuant to Part 2 of Division 2 of the Revenue and Taxation Code, and which has not been refunded, and

(C) The tax imposed by the State of California on aircraft jet fuel pursuant to Chapter 2.5 of Part 2 of Division 2 of the Revenue and Taxation Code.

(2) The measure of tax does not include:

(A) The use fuel tax, including the annual flat rate fuel tax, imposed by the State of California pursuant to Part 3 of Division 2 of the Revenue and Taxation Code on the following fuels:

1. Compressed natural gas.

2. Liquid natural gas.

3. Liquefied petroleum gas.

4. Ethanol or methanol containing not more than 15 percent gasoline or diesel fuel.

5. All other fuels not taxed under Parts 2 or 31 of Division 2 of the Revenue and Taxation Code.

(B) The diesel fuel tax, imposed by the State of California pursuant to Part 31 of Division 2 of the Revenue and Taxation Code.

(C) The federal retailer's excise taxes on:

1. Gasoline used as a fuel in noncommercial aircraft.

2. Jet fuel used as a fuel in noncommercial aircraft.

3. Diesel fuel.

4. Special motor fuels.

(D) Prior to July 1, 1995, the federal excise tax imposed pursuant to Section 4091 of the Internal Revenue Code with respect to diesel fuel and jet fuel for which the purchaser certifies that he or she is entitled to either a direct refund or credit against his or her income tax for the federal excise tax paid. (See subdivision (j) for requirements for supporting claimed exclusions.)

(E) Beginning July 1, 1995, the federal excise tax imposed pursuant to Sections 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, and jet fuels for which the purchaser certifies that he or she is entitled to either a direct refund or credit against his or her income tax for the federal excise tax paid. (See subdivision (i) for requirements for supporting claimed exclusions.)

(F) Beginning January 1, 2001, the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, and jet fuels for which the purchaser provides a valid certificate pursuant to subdivision (k).

(d) PARTIAL EXEMPTION FOR MOTOR VEHICLE FUEL. Operative July 1, 2010, section 6357.7 of the Revenue and Taxation Code provides a partial exemption from sales and use tax for the sale of, and the storage, use, or other consumption in this state of motor vehicle fuel. "Motor vehicle fuel" means gasoline and aviation gasoline and does not include jet fuel, diesel fuel, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, alcohol, or racing fuel, as defined in the Motor Vehicle Fuel Tax Law.

For the period commencing on July 1, 2010, and ending on June 30, 2011, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6051.7, 6201, 6201.3, and 6201.7 of the Revenue and Taxation Code (cumulative statewide 6% sales and use tax rate), but does not apply to the taxes imposed or administered pursuant to sections 6051.2, 6051.5, 6201.2, or 6201.5 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution.

For the period commencing on July 1, 2011, and ending on December 31, 2012, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2, 6051.5, 6201.2, or 6201.5 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution.

For the period commencing on January 1, 2013, the partial exemption applies to the taxes imposed by section 36 of article XIII of the California Constitution and sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2, 6051.5, 6201.2, or 6201.5 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution.

(e) ADDITIONAL TAX ON SALE OF DIESEL FUEL.

(1) Operative July 1, 2011, an additional state sales and use tax is imposed on the sale and the storage, use, or other consumption of "diesel fuel" as defined in section 60022 of the Revenue and Taxation Code. As defined in this section, diesel fuel does not include gasoline, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, or alcohol.

(2) The additional state sales and use tax is imposed at the following rates:

(A) 1.87 percent for the period July 1, 2011, through June 30, 2012;

(B) 2.17 percent for the period July 1, 2012, through June 30, 2013;

(C) 1.94 percent for the period July 1, 2013, through June 30, 2014; and

(D) 1.75 percent on or after July 1, 2014.

(3) Exemptions and Exemption Certificates.

(A) An exemption from the additional state sales and use tax is provided for diesel fuel purchased for use or used in a manner that is exempt from the taxes imposed pursuant to Part 31 (commencing with section 60001) of Division 2 of the Revenue and Taxation Code and not subject to the back up tax imposed by section 60058 or the payment requirement specified in section 60108 of the Revenue and Taxation Code.

(B) Exempt bus operators. An exemption from the additional state sales and use tax is provided for diesel fuel subject to the payment requirement specified in section 60502.2 of the Revenue and Taxation Code.

(C) Sellers of diesel fuel for which the purchaser claims exemption from the measure of tax under this subdivision shall secure from the purchaser and retain a certificate in substantially the form prescribed below. The certificate shall relieve the seller from liability for any tax due only if it is timely taken in good faith. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of property to the purchaser. The certificate will be valid until revoked in writing by the purchaser.



Certificate for Exemption from the Additional State Sales and Use Tax Imposed Under Sections 6051.8 and 6201.8

This certificate may be issued by a purchaser whose fuel purchase is exempt from the diesel fuel taxes imposed under section 60050 and not subject to the backup tax imposed under section 60058 or the payment requirement specified in section 60108 of the Revenue and Taxation Code.

This certificate may be issued by a purchaser whose fuel purchase is subject to the payment requirement specified in section 60502.2 of the Revenue and Taxation Code.

This certificate entitles the seller to exclude the sale amount from the measure of sales subject to the additional state sales and use tax imposed on sales and purchases of diesel fuel under sections 6051.8 and 6201.8 of the Revenue and Taxation Code.

I HEREBY CERTIFY: That the purchase of diesel from

[   ] is exempt from diesel fuel taxes (e.g., exempt train operators or exempt off-highway use).

The purchase is not subject to the additional state sales and use tax because it is exempt from the diesel fuel taxes imposed under Revenue and Taxation Code section 60050 and not subject to the backup tax imposed by section 60058 or the payment requirement specified in section 60108.

OR

[   ] is purchased by an exempt bus operator.

The purchase is not subject to the additional state sales and use tax because it is subject to the payment requirement specified in Revenue and Taxation Code section 60502.2.

In the event the diesel fuel is not used in a manner which entitles me to an exemption from the additional state sales and use tax, it is understood that I am required by the Sales and Use Tax Law to report and pay the additional sales tax imposed by Revenue and Taxation Code section 6051.8 on the sales price of the diesel fuel to me, with applicable interest, as if I were a retailer making a retail sale of the diesel fuel at the time the fuel is so used. This certificate is valid until revoked in writing by the purchaser.

Purchaser:

(Company Name)

Address:

Phone Number:

Signature:

(Signature of Authorized Agent)

Date:

Title:

(Owner, Partner, Purchasing Agent, etc.)

License/permit No. (if any):

(Exempt bus operator, train operator, fuel registration)


(f) SALES OF MOTOR VEHICLE FUEL ON SALES TAX-INCLUDED BASIS. Sales tax reimbursement will be deemed included in the total price per gallon of gasoline dispensed through an apparatus on which there is a price per gallon display including all taxes as required by Business and Professions Code Section 13470. Sales tax reimbursement will be deemed included in the total price per gallon of other motor vehicle fuel if the retailer posts on the premises a notice reading substantially as follows:

"The price per gallon of all motor vehicle fuel includes reimbursement for applicable sales taxes computed to the nearest mill."

Following are examples of prices computed on a tax-included basis:

(A)


Sales price per gallon of gasoline net of all taxes $2.435
Federal excise tax * .184
State excise tax * .353
Total $2.972
* Sales tax reimbursement computed at 2¼%* of $2.972 .067
Total tax-included price per gallon $3.039

(B)

Sales price per gallon of diesel fuel net of all taxes $2.355
Federal excise tax * .244
Total $2.599
* Sales tax reimbursement computed at 9%* of $2.599 .234
State excise tax * .13
Total tax-included price per gallon $2.963

* The rates used are for purposes of this example only. The rates in effect at the time of the sale and at the place where the business is located must be used in computing the tax-included selling price of fuel.

(g) APPLICATION OF SALES OR USE TAX TO FUEL FURNISHED WITH LEASED VEHICLES OR AIRCRAFT. The lessor is the retailer of fuel furnished to a lessee of a vehicle or an aircraft if the sales price of the fuel is separately stated from the rental charge for the vehicle or aircraft. The lessor is also the retailer of fuel furnished to a lessee under a lease which is a "sale" or "purchase" (see Regulations 1660 and 1661) and under which the rental charge includes fuel for the operation of the vehicle or aircraft (such arrangements are sometimes called "wet rentals"). The lessor may purchase such fuel for resale.

The lessor is the consumer of fuel furnished to a lessee of a vehicle or an aircraft under a lease which is not a "sale" or "purchase" (see Regulations 1660 and 1661) and under which the rental charge includes fuel for the operation of the vehicle or aircraft. If a lessor of mobile transportation equipment elects under Regulation 1661 to report and pay use tax measured by the "fair rental value" of the mobile transportation equipment leased, the "fair rental value" does not include the sale price to the lessor of fuel which is furnished under the lease to the lessee.

(h) REFUNDS OF EXCISE TAX.

(1) FEDERAL EXCISE TAXES. The refund of the federal excise tax on gasoline, diesel or jet fuel (either by direct refund or as a credit against income tax) is an adjustment to the sales price of the gasoline, diesel or jet fuel. Accordingly, the retailer who paid the sales tax or the purchaser who paid use tax measured by the sales price of the gasoline, diesel, or jet fuel which included that federal excise tax may file with the Board a claim for refund of tax measured by the amount of the federal excise tax so refunded or credited. The claim must be supported by proof of the exempt use of the gasoline, diesel, or jet fuel and of the refund or credit of the federal excise tax to the purchaser.

(2) SALES OR USE TAX REFUNDS. If the sales or use tax refund is made to a person other than the consumer, the person receiving the refund must pay it to the consumer.

(i) SUPPORTING DATA FOR AIRCRAFT FUEL EXEMPTIONS. Sellers of motor vehicle fuel which, at the time of sale, is exempt from sales and use tax under subdivision (b)(1), shall secure and retain documentary evidence to support their exempt sales.

(1) The exemption with respect to motor vehicle fuel sold and delivered directly into the fuel supply tank of aircraft may be supported either by a properly completed sales invoice or an aircraft fuel exemption certificate in the form prescribed in subdivision (i)(2). If a sales invoice is used, it must show the purchaser's name and address, the aircraft identification number, the number of gallons sold, the price per gallon, the amount of sale, the date of sale, and the name and address of the seller.

(2) The exemption with respect to retail sales of motor vehicle fuel delivered into the purchaser's storage facilities or receptacles other than the fuel tanks of aircraft, for use in propelling aircraft shall be supported by an aircraft fuel exemption certificate and an invoice. An exemption certificate in substantially the following form and signed by the purchaser shall be retained by the seller as evidence to support such exempt sales. The exemption certificate will be valid until revoked in writing by the purchaser.



Exemption Certificate for Motor Vehicle Fuel for Propelling Aircraft

This certificate may be issued by a purchaser for purchases of motor vehicle fuel (other than aircraft jet fuel) for use in propelling aircraft.

I HEREBY CERTIFY: That I am the owner or operator of the aircraft identified below; that the motor vehicle fuel which I shall purchase from ______________________________________________________ , will be used in propelling aircraft; and that the distribution of this fuel is subject to the tax imposed by the Motor Vehicle Fuel License Tax Law (Revenue and Taxation Code section 7301 et seq.) and not subject to refund.

In the event that any of this motor vehicle fuel is used for purposes other than propelling aircraft, it is understood that I am required by the Sales and Use Tax Law to report and pay tax measured by the purchase price of such fuel. This certificate is valid until revoked in writing by the purchaser.


Purchaser:

(Company Name)

Address:

Phone Number:

Signature:

(Signature of Authorized Agent)

Date:

Title:

(Owner, Partner, Purchasing Agent, etc.)

Seller's Permit No. (if any):

Identification Numbers of Aircraft Owned or Operated












(j) CERTIFICATE FOR EXCLUSION OF FEDERAL EXCISE TAXES FROM MEASURE OF TAX. Sellers of gasoline, diesel, or jet fuel for which the purchaser claims exclusion from the measure of tax under subdivision (c)(2)(D) or (c)(2)(E) shall secure from the purchaser and retain a certificate in substantially the form prescribed in subdivision (j)(1).

(1) The certificate prescribed below shall relieve the seller from liability for any tax due only if it is timely taken in good faith. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of property to the purchaser. The certificate will be valid until revoked in writing by the purchaser.



Certificate for the Exclusion of Sales and Use Tax on Federal Excise Taxes

This certificate may be issued by a purchaser whose entire fuel purchase is entitled to a direct refund or credit for the federal excise taxes for income tax purposes. This certificate entitles the seller to exclude the amount of federal excise taxes imposed on fuel purchases from the measure of sales and use tax.

I HEREBY CERTIFY: That I am entitled to either a direct refund or credit against my income tax for the federal excise tax paid pursuant to Internal Revenue Code Section 4081 or 4091 for the gasoline/diesel/jet fuel I shall purchase from ____________________________________________________________________.

In the event the fuel is not used in a manner which entitles me to a direct refund or credit against my income tax or if I do not receive such refund or credit, it is understood I am required by the Sales and Use Tax Law to report and pay tax measured by the amount of federal excise tax paid to the extent the seller has not remitted sales or use tax measured by that amount. This certificate is valid until revoked in writing by the purchaser.


Purchaser:

(Company Name)

Address:

Phone Number:

Signature:

(Signature of Authorized Agent)

Date:



Title:

(Owner, Partner, Purchasing Agent, etc.)

Seller's Permit No. (if any):



(2) Any person, including any officer or employee of a corporation who gives the certificate described in subdivision (j)(1) and who knows at the time of purchase that he or she is not entitled to either a direct refund or credit against his or her income tax is liable to the state for the amount of sales or use tax that would be due had he or she not given the certificate. In addition to the tax, interest, and other penalties, the person is liable for a penalty of 10 percent of the tax or five hundred dollars ($500), whichever is greater, for purchases made for personal gain or to evade payment of taxes.

(k) ALTERNATE CERTIFICATE FOR EXCLUSION OF FEDERAL EXCISE TAXES FROM MEASURE OF TAX. On and after January 1, 2001, a purchaser of gasoline, diesel, or jet fuel who is qualified under subdivision (k)(1) may issue a certificate in substantially the form set forth in subdivision (k)(3) to the seller of that fuel. A seller who takes and retains such certificate shall be relieved of liability for tax due measured by the federal excise taxes imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code on the fuel sold under the certificate, provided the certificate is timely taken in good faith. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of property to the purchaser. The certificate will be valid until revoked in writing by the purchaser.

(1) A purchaser is qualified and may issue a certificate under subdivision (k) if satisfying all the following requirements:

(A) The purchaser was entitled to either a direct refund or credit against his or her income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of all the purchaser's purchases of gasoline, diesel, and jet fuel during the prior calendar year on an aggregate basis. A purchaser who was entitled to a direct refund or credit against his or her income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of that purchaser's purchases of one type of fuel, e.g., diesel, but not more than 50 percent of all that purchaser's purchases of gasoline, diesel, and jet fuel on an aggregate basis is not a qualified purchaser, and may not issue a certificate under this subdivision, for any of that purchaser's purchases of fuel.

(B) The purchaser's business remains substantially the same as during the prior calendar year whereby the purchaser reasonably expects to be entitled to either a direct refund or credit against his or her income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of the purchaser's purchases of gasoline, diesel, and jet fuel on an aggregate basis.

(C) The purchaser holds a valid California seller's permit.

(2) With respect to any fuel purchased under the certificate which is used in a manner whereby the purchaser is not entitled to a direct refund or credit against his or her income tax of the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code, the purchaser is liable for use tax on the amount of that federal excise tax. The purchaser must report and pay such use tax with the purchaser's return for the period in which the fuel was used. A certificate may not be issued under this subdivision when the purchaser knows that all of the fuel that would be purchased under the certificate will be used in a manner whereby the purchaser is not entitled to a direct refund or credit against his or her income tax of the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code.

(3) A certificate issued under this subdivision shall be in substantially the following form:



Revenue and Taxation Code Section 6245.5 Certificate for the Exclusion of Sales and Use Tax on Federal Excise Taxes

This certificate may be issued for purchases of gasoline, diesel, or jet fuel by a purchaser who meets all the required conditions. This certificate entitles the seller to exclude the amount of federal excise taxes imposed on such fuel purchases from the measure of sales and use tax.

I HEREBY CERTIFY that I satisfy all of the following conditions:

1. I was entitled to either a direct refund or credit against my income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of my purchases of gasoline, diesel, and jet fuel on an aggregate basis during the prior calendar year.

2. My business remains substantially the same as during the prior calendar year such that I reasonably expect to be entitled to either a direct refund or credit against my income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of my purchases of gasoline, diesel, or jet fuel on an aggregate basis.

3. I hold a valid California seller's permit, the number for which is set forth below.

With respect to any fuel that is not used in a manner which entitles me to a direct refund or credit against my income tax of the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code, or if I do not receive such refund or credit, I will report and pay tax, measured by the amount of the federal excise tax that had been paid in connection with that fuel, with my return for the period in which the fuel is used. This certificate is valid until revoked in writing by the purchaser.


Purchaser:

(Company Name)

Address:

Phone Number:

Signature:

(Signature of Authorized Agent)

Date:



Title:

(Owner, Partner, Purchasing Agent, etc.)

Seller's Permit No. (if any):



History: Amended and adopted December 8, 1970, as a restatement of Ruling 1325 (Use Fuel Tax Law), effective January 15, 1971.

Amended June 9, 1972, effective July 15, 1972.

Amended July 31, 1972, effective August 2, 1972.

Amended September 14, 1972, effective September 15, 1972.

Amended January 18, 1973, effective January 26, 1973.

Amended May 9, 1973, effective June 17, 1973.

Amended November 19, 1975, effective January 1, 1976. Deleted (b)(2) due to expiration of Section 6357 of the Revenue and Taxation Code, amended (c)(2)(A) to reflect the annual flat rate fuel tax authorized by Section 8651.7 of the Revenue and Taxation Code, and amended (d) to reflect increased tax rate and prices.

Amended June 22, 1976, effective July 25, 1976. Added Santa Clara County Transit District transaction and use tax.

Amended December 7, 1978, effective January 28, 1979. Amends subsection (f)(1); deletes section (d)(2) and amends subsection (d) to establish the presumption that sales tax will be considered included in the price per gallon of gasoline or diesel fuel sold if proper notice is posted.

Amended April 2, 1981, effective August 19, 1981. In (b) added last sentence re "gasohol." Added (e) "Partial Exemption of Gasohol." Relettered remaining subsections. Added 6357.5 to references.

Amended July 28, 1982, effective December 8, 1982. Deleted (e) (1) (D), gasohol color requirement; added the last sentence of (e) (2) (C), referring to Los Angeles and San Mateo transit taxes; and made various technical changes.

Amended July 27, 1983, effective November 13, 1983. Amended subdivision (c) to reflect current tax rates; deleted listing of transit districts imposing the ½ of 1 percent transit tax.

Amended March 27, 1984, effective April 24, 1984. In subsection (c)(2)(B)1 changed number 12 to 3.

Amended May 1, 1985, effective May 31, 1985. Subdivision (b), has deleted from its reference to the partial gasohol exemption which existed and expired December 31, 1983. Subdivision (c) specifies how the sales tax applies to various state and federal taxes on fuel based on tax rates in effect as of October 1, 1984. Subdivision (e), has been deleted in its entirety. Subdivisions (f), (g), and (h), have been renumbered to (e), (f), and (g), respectively.

Amended April 30, 1990, effective July 7, 1990. Added paragraphs (b)(2) and (b)(3) to clarify the two exceptions to the application of the sales and use tax to the sale of aircraft fuel to air common carriers under certain circumstances and added reference to Regulation 1621. Added paragraph (c)(1)(A) to explain measure of tax includes federal excise taxes on diesel and jet fuel, except as provided in (c)(2)(C) which was added to identify the exclusion of federal importer's or producer's excise tax for which a certification is obtained that a credit or refund is due against income tax from the measure of the sales and use tax. Added paragraph (h) to assist in preparation of the certificate for claiming the exemption.

Amended August 1, 1991, effective August 29, 1991. Amended pursuant to Chapter 85, Statutes of 1991, and Chapter 88, Statutes of 1991, to provide for repeal of the exemption from sales tax for the sale of aircraft fuel to air common carriers for immediate shipment outside California consumed by the common carrier in the conduct of its business after reaching the first out-of-state destination. Chapter 85, Stats. 1991, repealed the exemption effective July 1, 1991; Chapter 88, Stats. 1991, changed the effective date to July 15, 1991.

Amended June 23, 1993, effective October 13, 1993. Added paragraph (b)(2) to provide that sales tax does not apply to certain manufacturers' or importers' federal excise tax imposed under Section 4091 of the Internal Revenue Code. Amended paragraph (b)(2) to extend the exemption from the sale or use of aircraft fuel sold to an air common carrier for immediate consumption or shipment in its business as an air common carrier on a flight whose first destination is a foreign destination to similarly sold fuel for immediate consumption or shipment on a flight whose final destination is a point outside the United States. Amended paragraph (f) to explain refund procedures with regard to manufacturer's excise tax which has been refunded and added paragraph (b)(1)(B) to clarify the refund procedures for federal importer's or producer's excise tax which has been refunded or credited by the federal government.

Amended January 10, 1996, effective March 28, 1996. Added new subdivision (c)(2)(B) and renumbered the following sub-subdivisions of subdivision (c)(2); amended new subdivision (c)(2)(D); added new subdivision (c)(2)(E); and deleted subdivision (f)(1)(A) and denominated former subdivision (f)(1)(B) as subdivision (f)(1). Deleted gender-based language from subdivision (e) and corrected clerical errors in subdivisions (c)(1)(B), (d), (e), and (h).

Amended June 14, 1996, effective August 23, 1996. Corrected the California Code of Regulations as amended effective March 28, 1996 to add subdivision (c)(2)(E).

Amended August 1, 2001, effective December 1, 2001. Word "subparagraph" changed to "subdivision" throughout. Phrase "importer's or producer's" before word "excise" deleted throughout. Subdivision (c)(2): (E) word "and" changed to "or" ; (F) added. Subdivison (f): (1) phrase "which included that federal excise tax" deleted; words "OR USE" added to title of (2). Subdivision (g)(2)—last sentence added. Exemption Certificate—new first unnumbered paragraph added; second unnumbered paragraph—words "aircraft fuel (gasoline)" replaced with "motor vehicle fuel"; phrase "and . . . Law" deleted and phrase "and . . . refund" added; third unnumbered paragraph—words "Motor vehicle" added and "(gasoline)" deleted; fourth unnumbered paragraph—certificate format changed for ease of use. Subdivision (h)(1)—last sentence added. Exemption Certificate—new title and new first unnumbered paragraph; third unnumbered paragraph—last sentence added; format of certificate rewritten for clarity. New subdivision (i) added.

Amended July 15, 2010, effective August 26, 2010. Added new subdivision (d) regarding partial exemption for sale of motor vehicle fuel operative July 1, 2010. Renumbered existing subdivisions (d) through (i) as subdivisions (e) through (j), respectively and corresponding references to subdivisions throughout. Revised selling price and tax rates used in examples of tax-included prices for gasoline and diesel fuel in subparagraphs (d)(A) and (d)(B), respectively.

Amended July 26, 2011, effective October 26, 2011. The amendments added new subdivision (e); renumbered prior subdivisions (e) through (j) as subdivisions (f) through (k); revised subdivision (b)(1) so that it cross-references renumbered subdivision (i), instead of subdivision (h); revised subdivisions (c)(2)(D) and (E) so that they cross-reference renumbered subdivision (j), instead of subdivision (i); revised subdivision (c)(2)(F) so that it cross-references renumbered subdivision (k), instead of subdivision (j); updated the amount of "state excise tax" and the "total tax-included price per gallon" used in example (B) in renumbered subdivision (f); revised renumbered subdivision (i)(1) so that it cross-references renumbered subdivision (i)(2), instead of subdivision (h)(2); added a comma after the word "diesel" in the first sentence of renumbered subdivision (j); revised the first sentences of renumbered subdivisions (j) and (j)(2) so that both sentences cross-reference renumbered subdivision (j)(1), instead of subdivision (i)(1); revised the first sentence of renumbered subdivision (k) so that the sentence cross-references renumbered subdivisions (k)(1) and (k)(3), instead of subdivisions (j)(1) and (j)(3), respectively; revised renumbered subdivision (k)(1) so that it cross-references renumbered subdivision (k), instead of subdivision (j); corrected the spelling of the word "calendar" in renumbered subdivision (k)(3); and added citations to Revenue and Taxation Code sections 6051.8, 6201.8, and 6357.3 to and deleted the citation to section 6385 from the reference note.

Amended March 13, 2013, effective July 11, 2013. Amended subdivision (d) to add third paragraph to reflect the decrease in the partial exemption rate to 5% on July 1, 2011 caused by the expiration of sections 6051.7 and 6201.7 on June 30, 2011. Additionally, added fourth paragraph to reflect the increase in the partial exemption rate to 5.25% on January 1, 2013 caused by the addition of section 36 to article XIII of the California Constitution.


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Regulation 1598.1. Diesel Fuel Prepayment Exemption.

Reference: Sections 6357.1, 6480, 6480.1, and 6480.3, Revenue and Taxation Code.

(a) DEFINITIONS.

(1) "Bulk deliveries" mean transfers of diesel fuel into storage tanks holding 500 gallons or more.

(2) "Cardlock, keylock, or other unattended mechanism" means an unattended, completely automated fueling station at which a purchaser obtains diesel fuel through use of a coded card or key and an access code. Charges for sales of diesel fuel to customers are usually consolidated at a central location and periodically invoiced to the purchaser.

(3) A "diesel fuel consumer" or "diesel fuel consumers" mean a person or persons that use diesel fuel in a manner that qualifies for the partial sales and use tax exemption set forth in Revenue and Taxation Code section 6357.1 and Regulation 1533.2, Diesel Fuel Used in Farming Activities or Food Processing.

(4) "Diesel fuel," for purposes of the imposition of the prepayment of sales tax, is defined in Revenue and Taxation Code section 6480(c) (by reference to Revenue and Taxation Code section 60022) and means any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle. A liquid meets this requirement if, without further processing or blending, the liquid has practical and commercial fitness for use in the engine of a diesel-powered highway vehicle. However, a liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the engine of a diesel-powered highway vehicle.

Diesel fuel does not include gasoline, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, or alcohol.

Diesel fuel does not include the water in a diesel fuel and water emulsion of two immiscible liquids of diesel fuel and water, which emulsion contains an additive that causes the water droplets to remain suspended within the diesel fuel, provided the diesel fuel emulsion meets standards set by the California Air Resources Board.

(5) "Qualified retailer" means a person who meets the requirements of subdivisions (b)(1) through (b)(5).

(6) "Seller" means either the supplier or the wholesaler, as those terms are defined in Revenue and Taxation Code section 6480(c), that sells diesel fuel to a qualified retailer.

(7) "Total taxable sales" means the gross receipts from the sale of tangible personal property subject to tax, including sales of diesel fuel.

(b) APPLICATION OF TAX. Commencing on and after October 9, 2002, a seller of diesel fuel is not required to collect the prepayment of sales tax on that percentage of diesel fuel specified in the retailer's diesel fuel prepayment exemption certificate that is otherwise required by Revenue and Taxation Code section 6480.1, provided the diesel fuel is sold to a retailer who:

(1) Will resell the diesel fuel in the ordinary course of business,

(2) Issues a diesel fuel prepayment exemption certificate to the seller as set forth in subdivision (c),

(3) Sells diesel fuel to a diesel fuel consumer,

(4) During the calendar year immediately preceding any purchases of diesel fuel, sold diesel fuel to diesel fuel consumers in which the gross receipts from such sales exceeded 25 percent of that retailer's total taxable sales, and

(5) Sold more than 50% of its diesel fuel through bulk deliveries or through a cardlock, keylock, or other unattended mechanism, or both.

For purposes of calculating the percentage set forth in subdivision (b)(4) above, the numerator shall be the sum total of amounts entered on Form BOE 401GS line 10(e)(4) (Amount Subject to the Diesel Fuel Used in Farming and Food Processing

Exemption) for each return filed during the preceding calendar year and the denominator shall be the sum total of amounts entered on line 14(a) (Transactions Subject to County Tax) for each return filed during the preceding calendar year.

(c) PREPAYMENT EXEMPTION CERTIFICATE.

(1) IN GENERAL. A seller of diesel fuel who takes a diesel fuel prepayment exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a qualified retailer, is relieved from the liability for the sales tax prepayment subject to the exemption under this regulation, or the duty of collecting the sales tax prepayment subject to exemption under this regulation. A diesel fuel prepayment exemption certificate will be considered timely if it is taken any time before the seller bills the qualified retailer for the diesel fuel, any time within the seller's normal billing or payment cycle, or any time at or prior to delivery of the diesel fuel to the qualified retailer. A diesel fuel prepayment exemption certificate which is not taken timely will not relieve the seller of the liability for the sales tax prepayment excluded by the exemption; however, the seller may present satisfactory evidence to the Board that the seller sold the diesel fuel to a qualified retailer. A diesel fuel prepayment exemption under this part shall not be allowed unless the seller claims the exemption on its sales and use tax return for the reporting period during which the transaction subject to the diesel fuel prepayment exemption occurred. The diesel fuel prepayment exemption certificate form set forth in the Appendix may be used to claim the diesel fuel prepayment exemption.

(2) BLANKET PREPAYMENT EXEMPTION CERTIFICATE. In lieu of requiring a diesel fuel prepayment exemption certificate for each transaction, a qualified retailer may issue a blanket diesel fuel prepayment exemption certificate. The diesel fuel prepayment exemption certificate form set forth in the Appendix may be used as a blanket diesel fuel prepayment exemption certificate. The diesel fuel prepayment exemption certificate in the Appendix may also be used as a specific diesel fuel prepayment exemption certificate if the qualified retailer provides the purchase order or sales invoice number and a precise description of the property being purchased. A blanket diesel fuel prepayment exemption certificate is only valid during the calendar year in which it is provided to the seller.

(3) FORM OF PREPAYMENT EXEMPTION CERTIFICATE. Any document, such as a letter or purchase order, timely provided by the qualified retailer to the seller will be regarded as a diesel fuel prepayment exemption certificate with respect to the sale of diesel fuel if it contains all of the following essential elements:

(A) The signature of the qualified retailer, qualified retailer's employee, or authorized representative of the qualified retailer.

(B) The name, address and telephone number of the qualified retailer.

(C) The number of the seller's permit held by the qualified retailer.

(D) A statement setting forth the requirements of subdivisions (b)(1) through (b)(5).

(E) A statement of what percentage of total diesel fuel purchases will be resold to diesel fuel consumers.

(F) Date of execution of document.

(4) RETENTION AND AVAILABILITY OF PREPAYMENT EXEMPTION CERTIFICATES. A seller must retain each diesel fuel prepayment exemption certificate received from a qualified retailer who purchases diesel fuel for resale to diesel fuel consumers for a period of not less than four years from the date on which the qualified retailer claims an exemption for sales tax prepayment based on the diesel fuel prepayment exemption certificate. The Board may require, within 45 days of the Board's request, sellers to provide the Board access to any and all diesel fuel prepayment exemption certificates, or copies thereof, accepted for the purposes of supporting the diesel fuel prepayment exemption.

(5) GOOD FAITH. A seller will be presumed to have taken a diesel fuel prepayment exemption certificate in good faith in the absence of evidence to the contrary. However, a diesel fuel prepayment exemption certificate cannot be accepted in good faith where the seller has knowledge that the diesel fuel will not be sold to a retailer who meets the requirements of subdivisions (b)(1) through (b)(5), will not otherwise be used by diesel fuel consumers, or that the percentage listed on the exemption certificate for sales tax prepayment is inaccurate. A blanket diesel fuel prepayment exemption certificate utilized for sales occurring in a subsequent calendar year in which the blanket diesel fuel prepayment exemption certificate was initially provided to the seller is not accepted in good faith for sales occurring in that subsequent calendar year.

(d) RETAILER'S LIABILITY FOR THE PAYMENT OF TAX.

(1) A qualified retailer providing a diesel fuel prepayment exemption certificate pursuant to subdivision (c) is liable for the taxes imposed by the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, and the tax that is imposed under Revenue and Taxation Code section 6051.2 or 6201.2, or under section 35 of article XIII of the California Constitution on the sale of diesel fuel to diesel fuel consumers.

(2) A qualified retailer providing a diesel fuel prepayment exemption certificate pursuant to subdivision (c) is liable for sales tax on any portion of the gross receipts derived from the sale of diesel fuel that is not sold to diesel fuel consumers.

(3) A qualified retailer that is liable for the tax under the provisions of subdivisions (d)(1) or (d)(2) shall report and pay that tax with the sales and use tax return filed for the reporting period during which the qualified retailer sells the diesel fuel.

(e) IMPROPER USE OF PREPAYMENT EXEMPTION CERTIFICATE. Any person who gives a diesel fuel prepayment exemption certificate pursuant to this regulation for the purpose of evading the prepayment of sales tax on sales of diesel fuel that he or she knows at the time of sale do not qualify for the diesel fuel prepayment exemption is guilty of a misdemeanor punishable as provided in Revenue and Taxation Code section 7153. In addition, such person shall be liable to the state for a penalty of one thousand dollars ($1,000) for each diesel fuel prepayment exemption certificate issued for personal gain or to evade the prepayment of sales tax.

(f) RECORDS. Adequate and complete records must be maintained by the seller and qualified retailer as evidence that the diesel fuel qualifies for the diesel fuel prepayment exemption.

(g) OPERATIVE DATE. This regulation is operative as of October 9, 2002.

History: Adopted on September 24, 2003, effective January 21, 2004.

Diesel Fuel Prepayment Exemption Certificate

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Regulation 1599. Coins and Bullion.

Reference: Sections 6007, 6008, 6009, 6011, 6354, and 6355, Revenue and Taxation Code.

(a) GENERAL.

(1) SALES OF COINS. The transfer of coins for use solely as a medium of exchange, i.e., as legal tender, is not subject to tax even though the transferee pays an amount exceeding the face amount. For example, tax does not apply to a transaction whereby a coin changer returns only 95 cents on a dollar. On the other hand, tax does apply to sales of coins as collector's items or as an investment, except as otherwise specified in this regulation.

(2) SALES OF GOLD OR SILVER BULLION. Tax applies to sales of gold or silver bullion except as provided in subdivision (a)(3) below.

(3) SALES IN BULK OF MONETIZED BULLION, NONMONETIZED GOLD OR SILVER BULLION, AND NUMISMATIC COINS. Sales in bulk of "monetized bullion", nonmonetized gold or silver bullion, and numismatic coins which sales are substantially equivalent to transactions in securities or commodities through a national securities or commodities exchange, are exempt from both the sales tax and the use tax. The exemption for sales in bulk of nonmonetized gold or silver bullion and numismatic coins is effective with respect to sales occurring on and after January 1, 1986.

"Monetized bullion" means coins or other forms of money manufactured of gold, silver, or other metal and heretofore, now, or hereafter used as a medium of exchange under the laws of this state, the United States, or any foreign nation. The medium of exchange must have had a legal status equivalent to legal tender.

Effective September 28, 1983, "monetized bullion" includes gold medallions struck under authority of the American Arts Gold Medallion Act (Title IV of Public Law 95-630).

Nonmonetized bullion means gold or silver which has been smelted or refined and has a value dependent primarily upon its gold or silver content and not upon its form.

Neither the sales tax nor the use tax applies to sales of "monetized bullion," nonmonetized gold or silver bullion, and numismatic coins provided the following conditions are met:

(A) The sale is in bulk amount. For sales occurring on or before December 31, 2008, a sale in bulk occurs if the total market value of the monetized bullion, nonmonetized gold or silver bullion, and numismatic coins sold in a single transaction is $1,000 or more. For sales occurring on or after January 1, 2009, a sale in bulk occurs if the total market value of the monetized bullion, nonmonetized gold or silver bullion, and numismatic coins sold in a single transaction is $1,500 or more, or is equal to or exceeds the adjusted amount as computed by Revenue and Taxation Code Section 6355. For purposes of this regulation, market value means sales price as defined in Section 6011 of the Sales and Use Tax Law.

(B) The sale is by or through a person registered pursuant to the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) or not required to be registered under the Commodity Exchange Act.

(4) SALES OF COMMEMORATIVE "CALIFORNIA GOLD" MEDALLIONS. Effective September 27, 1985, tax does not apply to the sale of or the storage, use, or other consumption in this state of commemorative "California Gold" medallions produced and sold in accordance with Chapter 25 (commencing with Section 7551) of Division 7 of Title 1 of the Government Code.

(b) APPLICATION OF TAX TO SPECIFIC TYPES OF TRANSACTIONS.

(1) OPTIONS TO BUY. "Options to buy" are contracts in which the seller agrees to sell specified property, usually at a predetermined price, while the buyer obtains the right but not the duty to purchase the property. Accordingly, the "buyer" has the option to purchase the property but may decide not to purchase without breaching the contract. A sale happens if the buyer exercises his or her option to purchase the property and tax applies at the time the option is exercised unless the sale is otherwise exempt. On the other hand, if the option is not exercised, no sale happens and no tax applies.

(2) OPTIONS TO SELL. "Options to sell" are contracts in which the buyer agrees to buy specified property, usually at a predetermined price, while the seller obtains the right but not the duty to sell the property. A sale happens if the option is exercised and tax applies unless otherwise exempt.

(3) FUTURE SALES AND PURCHASES. A contract to sell and buy goods in the future obligates the seller to sell and the buyer to buy goods at a particular time in the future. The price of the goods is usually set at the time of contracting, but neither the title nor possession of the goods is then transferred. If the title (or the possession in lieu of title) is later transferred, the sale happens, and tax applies unless the sale is otherwise exempt. However, the seller and the buyer or their assignees may agree to cancel the contract before performance. If they do so, no sale happens and no tax applies. "Future" sales do not include present sales of tangible personal property for future delivery.

(4) PRESENT SALES FOR FUTURE DELIVERY. A present sale for future delivery is a contract in which the title is intended to pass from seller to buyer at the time the contract is entered but the seller is not obligated to deliver possession of the goods until some future date. The sale happens when title passes and tax applies unless the sale is otherwise exempt.

(5) CREDIT TRANSACTIONS. When a consumer makes a down payment and enters a contract for the purchase of coins, the parties may regard it as a credit transaction. But the sale may or may not happen at the time the "credit" is extended.

In some instances, the buyer receives a loan of the balance of the purchase price, and the title to the coins is transferred to the buyer. But the creditor, who may be the buyer's broker or the seller, retains possession of the property owned by the buyer as collateral for the loan to him or her. The buyer's creditor has the power to sell the buyer's property and pay off the loan if the market price of the property falls and approaches the amount of the loan. Often the broker or seller has power to repledge the property to his or her creditor to secure a loan to him or her. In any event a sale of tangible personal property to the consumer happens and tax applies unless otherwise exempt. These transactions are usually referred to as "margin" or "margined" purchases.

In other instances, the contract conditions the passage of title to the goods to the buyer on his payment of the full purchase price (conditional sales contract). The seller does not deliver possession of the goods until the payment of the full purchase price. Under this arrangement neither title nor possession in lieu of title can pass until full payment, and so a sale cannot happen until then. The seller and the buyer can agree to cancel the contract before title passes to the buyer and so no sale may ever happen under the contract. But if the title does pass after full payment, the sale happens and tax applies unless otherwise exempt. Because the seller may hold goods for the buyer, and the market price of the goods may fluctuate, the seller may regard the contract as an extension of credit to the buyer or may refer to the transaction as a "margin" or "margined" purchase.

Other "credit" arrangements are possible. Each transaction must be examined to determine if or when a sale or purchase happened.

(6) FEES. "Fees" charged by a seller for services in connection with the sale of coins, silver and gold bullion, or other precious metals are a part of the sales price of the property with the exception of insurance, interest, finance and carrying charges as provided in Regulation 1641 (18 CCR 1641) with respect to credit sales.

(7) INTERSTATE SALES. The same rules with respect to interstate sales that are applicable to sales and purchases of other tangible personal property also apply to sales of coins, silver and gold bullion, and other precious metals.

(c) PURCHASE OF COINS AND BULLION AS INVESTMENT. Purchases of coins and bullion as investments are purchases at retail. It is immaterial that a gain, benefit, or advantage may not be realized until the resale of the coins and bullion. A resale certificate may not be issued for purchases for this purpose.

A person purporting to hold coins or bullion solely for resale in the regular course of business must be able to prove that they actively engage in business as a seller of coins and bullion. The following are some examples of relevant evidence:

(1) The number, scope, and character of the person's purchases and sales of coins or bullion.

(2) Evidence of the person's continuing efforts to advertise and sell coins or bullion.

(3) Evidence that the person held out to the public that they were engaged in business as a seller of coins or bullion at an identified place of business.

(4) The manner in which income from transactions in coins or bullion was reported by that person for income tax purposes.

(5) Whether a local business license was issued to that person to engage in sales of coins or bullion.

Seller's permits may be held only by persons actively engaging in the business of selling tangible personal property.

History: Adopted April 23, 1975, effective May 29, 1975.

Amended July 27, 1978, effective September 7, 1978. In (a) (4) (A) deleted paragraphs referring to "monetized bullion"; criterion for value of U.S.A. coins is face amount, and for foreign coins is sales price; adds provision for single sale of combined types of coins. Amendment meets requirements of Alan Van Vliet Enterprises, Inc. v. State Board of Equalization, 65 Cal. App. 3d 164 (1977).

Amended February 7, 1980, effective March 3, 1980. In (a)(2) added "Until July 1, 1980" to first sentence of second paragraph and added a fourth paragraph; in (a)(3) added "Until July 1, 1980" to first sentence of the first paragraph and added a third paragraph; and rewrote (a)(4)(B) adding registered persons.

Amended April 1, 1981, effective August 19, 1981. In (a)(2) deleted "a bank." In (a)(4)(B) deleted provisions re registration pursuant to "California Commodity Law" and substituted provisions re "Commodity Exchange Act" with applicable dates.

Amended May 9, 1984, effective August 25, 1984. Deleted former subdivisions (a)(2) and (a)(3) and added new subdivision (a)(2). Renumbered former (a)(4) to (a)(3); deleted effective date and added third paragraph; completely revised (a)(3)(B).

Amended April 9, 1986, effective July 5, 1986. In subdivision (a)(3), amended regulation to add provisions concerning the sales in bulk of nonmonetized gold or silver bullion and numismatic coins. In subdivision (a)(3)(A), amended definition of sale in bulk. In subdivision (a)(4), added provision concerning "California Gold" medallions.

Amended March 30, 1988, effective June 8, 1988. Amended subdivision (a)(4) to delete the January 1, 1988 exemption expiration date pursuant to AB 257, Statutes of 1987, Chapter 1095.

Amended November 18, 1994, effective December 16, 1994. Amended subparagraph (a)(3)(A) to incorporate the new definition of "bulk sale" and the method of adjusting the bulk-sale threshold provided in Statutes 1993, Chapter 977; deleted gender-based language from subparagraphs (b)(1) and (5), (c), and (c)(3); and added a reference to the California Code of Regulations to subparagraph (b)(6).

Amended August 20, 2008, effective September 24, 2008. Amended subparagraph (a)(3)(A) to show that for sales occurring on or after January 1, 2009, the threshold for a "sale in bulk" increases from $1,000 to $1,500.

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