Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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495.0000 SALE

Annotation 495.0453


495.0453 School Cash Register Receipts Program. Company A operates a program where schools collect cash register tapes from supermarkets and redeem them for merchandise. When a school has collected sufficient tapes to redeem the item it wants, it submits a redemption certificate to Company A. Company A then issues a purchase order to a non-California supplier who drop ships the item directly to the school. The supplier invoices Company A who in turn invoices the supermarket an amount greater than its cost. There is no fee to the school for participation in the program and the school does not advertise for the supermarket.

Under the scenario, neither the supermarkets nor anyone else receives any consideration from the schools. Thus, the transfer to the school is not a sale. Rather, the supermarkets are regarded as the consumer of the property at the time the title is transferred to the donee (schools). Title to the property is transferred to the donee (school) outside California. Therefore, neither the use tax nor the sales tax applies since the purchaser (supermarket) does not use the property in California (gift takes place outside California).

On the other hand, if the item is shipped from an in-state location of the supplier directly to the school in California, the transaction is regarded as a taxable sale in California. If Company A is a retailer engaged in business in California, sales tax would apply to the sale. If Company A is not a retailer engaged in business in California, the supplier would be regarded as the retailer pursuant in section 6007 of the Revenue and Taxation Code and would owe sales tax on the sale. 10/9/92.