Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2015
Sales and Use Tax Annotations
515.0000 SERVICE ENTERPRISES GENERALLY—Regulation 1501
(a) IN GENERAL—SERVICE DISTINGUISHED FROM SALE
515.0001.100 Agent for Client. The client of the Taxpayer is a full-service corporate meeting and event planning company that negotiates and procures services for the client including, but not limited to, food, beverage, transportation, leisure activities, décor, entertainment, audio visual and multi- media services, premium gifts, etc. The client is billed for all products and services procured on the client's behalf itemized at cost along with a separately stated management fee.
The California Civil Code defines an agent as, "one who represents another, called the principal, in dealings with third persons." The difference between an agent and a supplier of property is discussed in the Restatement Second of Agency at section 14K which states, "one who contracts to acquire property from a third person and convey it to another is the agent of the other only if he is to act primarily for the benefit of the other and not for himself." Restatement Second of Agency section 424 requires that, " . . . an agent employed to buy . . . is subject to a duty to the principal, within the limits set by the principal's directions, to be loyal to the principal's interests and to use reasonable care to obtain terms which best satisfy the manifested purposes of the principal."
Therefore, in order to be recognized for purposes of the Sales and Use Tax Law as an agent that may obtain tangible personal property on behalf of a client, the taxpayer must do all of the following:
1. Taxpayer must have written evidence of its status as the client's agent (this may be included in its contract with its client);
2. Taxpayer must clearly disclose to all third-party vendors of tangible personal property the name of the client and that Taxpayer is acting as an agent of its client in making any purchases; and
3. Taxpayer must bill the same amount to the client as the third-party vendor bills to Taxpayer.
In order to confirm in an audit that Taxpayer is the agent of its client, Taxpayer must separately state on its invoices to the client all amounts billed to the client for tangible personal property and all amounts billed as a "management fee." Additionally, as an agent, Taxpayer may make no use for its own account of any tangible personal property it purchases for the client, and may not issue a resale certificate for any property that it purchases for the client. 3/20/07. (2008–1).