Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
280.0000 GIFTS, MARKETING AIDS, PREMIUMS AND PRIZES— Regulation 1670
280.0356 Dealer Incentive Program. Company A's client established a dealer incentive program whereby dealers are offered various premiums based on the amount of merchandise purchased by them for resale. Upon making a purchase, a dealer selects his premium from a catalog or brochure and submits a special order form along with the merchandise order to the client. The client notes its approval and forwards the special order to A. A sends an order to an out-of-state supplier of the premium who ships the premium directly to the dealer and bills A for the premium. A in turn obtains reimbursement from its client at A's cost plus 10 percent.
The client is the retailer of the premium delivered to its dealers. Tax applies with respect to the sale of premium items delivered to California dealers but not with respect to premium items delivered to out-of-state dealers. It is immaterial that the premium items delivered to California dealers may have been shipped directly to the dealers from an out-of-state supplier. Tax applies to the gross receipts from the sale of the premium, which will be regarded as the cost of the premium to the client (A's cost + 10%), in the absence of any evidence that the client is receiving a larger sum. 1/6/78.