Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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475.0000 RESALE CERTIFICATES—Regulation 1668

Annotation 475.0008

475.0008 Art Purchased by a Nondealer. A corporation is engaged in the sales of building material. Its president, a former art student, commenced purchasing early California art for the corporation's account. Artwork purchases were made ex-tax under resale certificates. It was the president's intention to dispose of the existing corporate operation in two or three years and to establish an art gallery featuring early California art as a form of retirement activity. While the president had previously acquired artwork for himself and paid tax thereon, he considered the ex-tax purchases to be true purchases for resale because of his expressed intention to use the corporation to enter the art gallery field at some time in the future. This intention was duly recognized in the minutes of the Board of Directors. The president's practice was to purchase slightly damaged or soiled paintings at bargain prices and to have them restored and cleaned, after which they were stored usually at the president's residence.

More than three years has passed since the first ex-tax purchases of art were made and none of the paintings have been sold. Nor was there a gallery location. Under these circumstances, it was concluded that the ex-tax purchases of art were not purchases for resale because the corporation was not engaged in the business of selling art at the time that it made these purchases. Persons purporting to hold property for resale must be able to prove that they actively engage in business as a seller of such property and have relevant evidence showing such activity. Such evidence includes the number, scope, and character of the person's purchases and sales, evidence of the person's effort to advertise and hold himself out to the public as being engaged in the business as a seller, and the acquisition of necessary local business licenses, etc. 6/16/80.