Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2015
Sales and Use Tax Annotations
280.0000 GIFTS, MARKETING AIDS, PREMIUMS AND PRIZES— Regulation 1670
280.0570 Fund Raising Organization—Supplies and Premiums. A fund raising organization sells goods through student groups and operates in a manner which makes it the retailer of the goods sold through the student solicitors. In connection with these fund raising activities it provides the following category of goods:
(A) Catalogs, posters, and other such items which it ships from its California warehouse to its employees for distribution to school groups.
(B) Samples of prizes and merchandise.
(C) Envelopes, mailing labels and flyers which are shipped from the organization's California warehouse directly to the school groups.
(D) Prizes which are awarded to students and sponsors.
All this property has been purchased ex-tax either under a resale certificate or from an out-of-state supplier.
The fund raising organization is responsible for the tax on these items as follows:
(1) It is the consumer of catalogs, posters and other such items. While the total amount the organization received for all of the merchandise includes the recouped cost of these items, there is no specific consideration for these items. The school groups pay only for merchandise sold. If no items are sold or the event is canceled, the school groups pay nothing.
(2) The fund raising organization is liable for sales tax on the items it improperly purchased in California under a resale certificate because it knowingly gave a resale certificate which it had been advised by the Board was improper. (Section 6094.5.) It is responsible for use tax on the items purchased out of state and shipped to in-state employees for delivery to in-state schools.
(3) Those items purchased out of state and sent to employees out of state to be delivered to school groups out of state are not subject to tax under the provisions of section 6009.1 because the gift of the merchandise took place out of state.
(4) The fund raising organization is the consumer of the samples. While the samples were used for demonstration and display, they were not held for sale in the regular course of business. They were purchased in small lots for the limited purpose of being used as samples and upon obsolescence they were destroyed or given away. No attempt was made to sell them.
(5) The fund raising organization is liable for tax on the flyers, mailing labels and envelopes in the same manner as the catalogs, etc., except that the section 6009.1 exclusion is not available. Because the property was sent directly to the student groups, the gift took place in California when the property was deposited in the mail. Accordingly, there was a "use" in California and the property is subject to tax, not withstanding any subsequent out-of-state shipment.
(6) The fund raising organization is the retailer of the prizes since the award of such prizes was dependent upon the number of sales made by the participants or by other goals. Accordingly, valid consideration was received. Prizes shipped out of state are exempt as sales in interstate commerce and the in-state deliveries are subject to tax measured by the stated value of the prize. If there is no stated value, the fund raising organization's cost will be presumed to be the selling price. 4/26/90.