Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Sales and Use Tax Annotations


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S

495.0000 SALE

Annotation 495.0736.800

(d) TRANSFERS BETWEEN RELATED LEGAL ENTITIES

495.0736.800 Transfer Between Related Corporations. Company A is planning to purchase advertising material solely from Company B, a related corporation. Both of the companies are located in California. The ownership of the two corporations is identical, but they are separate entities with different officers, bank accounts, and records. Company A will purchase advertising material (not qualifying as printed sales messages under section 6379.5) solely from Company B. Company B will have the material printed and drop shipped by the printer to a California mailing house. Another vendor will provide mailing envelopes which will be sold to Company B and drop shipped by the vendor to the same mailing house. Company B will sell the finished printed material and envelopes to Company A at a price that includes all cost, overhead, and a small mark up. As provided in the mailing instructions received by Company B from Company A, and pursuant to the contract of sale between the related companies, Company B will direct the mailing house to mail the property to recipients located in California as well as in other states.

A transfer between related parties is treated the same as a transfer between unrelated parties when the sales price includes all of the transferor's cost, including the cost of the property and any overhead expenses reasonably allocable to the cost and sale of that property. Based on facts submitted, the transfer from B to A will be treated as a sale for sales and use tax purposes.

Sales tax applies to B's sales to A of the printed material mailed to California consumers, measured by the mark-up sales price to A. B's sales to A of property shipped out of state would be an exempt sale in interstate commerce if the contract of sale requires B to ship the property outside California and the property is so shipped by facilities of the retailer or by common carrier. 1/3/95. (Am. 2001–3).