Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 220.0093.900

220.0093.900 Engaged in Business. A nonprofit organization located out of state, among other things, has relatively insubstantial mail order sales of products such as science books and posters, and also leases its mailing lists. All sales and leases are handled by its out-of-state office. Some customers are located in California.

The organization has hired a California professor as a part-time editor of its exempt periodical journal. The editor performs no editing activities in California, but does perform other services for the organization in California, such as correspondence and telephone calls from his faculty office. In appreciation for the availability of the editor's office space, and for an assistant who is a university employee, the organization makes a non negotiated payment to the university which payment is not directly related to the value of the university's resources used by the organization. In addition, the organization has a western division (Division) which includes California and has no official designated office and no employees in California. The only persons regularly performing services for the

Division are two employees of a California nonprofit organization who have been authorized to spend about one-half of their time on Division activities, and to use their regular place and facilities. The organization pays the California nonprofit organization one-half of the salaries of the two employees. There is no payment made for office space. However, the Division pays $600 per year as a goodwill gesture, and, also pays for postage and one telephone line. The Division does own some office equipment located in the building. The Division activities consist primarily of arranging annual meetings, printing a newsletter, and publishing books based on symposia presented at its annual meetings. The California nonprofit organization finances the publications, handles the sales, collects sales taxes, and remits net receipts to the Division. Neither the editor nor the Division has any role in the sales of the organization's products or the leases of its mailing lists.

The organization is engaged in business in California within the meaning of section 6203 (a), by reason of its Division's activities and its editor's activities in this state. The Division operates as the publisher of books, publishes a newsletter, organizes meetings, and handles telephone calls and related correspondence. Likewise, the editor uses his university office for correspondence and telephone calls related to the publication of the organization's journal. The Division's employees and the editor use those offices for organization activities with the approval and support of the California nonprofit organization and the university, and those individuals are compensated for their organization-related activities by the organization.

With respect to mailing list, section 6203(c) makes any lessor of tangible personal property leased in California a retailer engaged in business in this state for purposes of collecting use tax from its lessees. Thus, if the mailing list is provided to a lessee in a taxable manner, i.e., on magnetic tape or similar devices, the rentals are taxable and the organization is required to collect the use tax from its lessees. (Regulation 1504.) However, even if the organization's rentals of the mailing list are taxable, this fact by itself would not have made the organization liable for use tax collection on its sales of other tangible personal property to California customers. It must have activities described above to be required to collect the use tax on such sales. 11/26/85.

(Note: Subsequent statutory change re application of tax to mailing lists.)