Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
570.0000 USE OF PROPERTY IN STATE AND USE TAX GENERALLY
(a) IN GENERAL
570.0113 Display Shelving and Signage Purchased by Retailers. A company offers a co-operative advertising plan that provides advertising support for retail advertising of its products. The plan is offered on a proportionately equal basis to its retailer customers in the United States. Retailer co-op funds are accrued by the company, on behalf of the retailers, into a single trust fund from purchases made by retailers. Qualifying media advertising, visual-merchandising shelving, signage and other items are reimbursed from the collective fund at up to 50% of the cost price. Purchase of merchandising shelving and signage can occur by three methods:
(1) A retailer can arrange for the purchase and shipment of promotional shelving and signage to its own stores located in California. The shelving and signage manufacturer's invoice will note the retailer as the 'sold to' and 'ship to' entity. When the retailer receives the invoice from the manufacturer, the retailer remits the invoice to the company for reimbursement of 50% of the cost price.
Under this scenario, the company has no obligation to collect, report or pay tax to this Agency with respect to the sale of the shelving and signage from the third party vendor to the company's customer. The vendor must report and pay tax measured by its gross receipts where its sale to the company's customer is subject to sales tax. The vendor must alternatively collect use tax from the company's customer where the sale is subject to use tax and the vendor is a retailer engaged in business in this state pursuant to section 6203 of the California Revenue and Taxation Code. If the purchaser does not pay use tax to a retailer engaged in business in this state, the purchaser is obligated to self-report use tax measured by the purchase price of the shelving and signage. The taxable gross receipts or sales price from this transaction include all amounts received with respect to the sale of the shelving and signage. The amount of co-op funds paid by the company to its customer as reimbursement may not be excluded from the measure of the gross receipts or sales price.
(2) The company arranges for the purchase and shipment of promotional shelving and signage on behalf of its customer. The customer is shown on the invoice as the 'sold to' and, in some cases, the 'ship to' entity. The company does not obtain possession of the shelving and signage; they are drop shipped directly to its customer's stores. The company will pay the invoice it receives from the shelving and signage manufacturer with funds from the retailer co-op trust fund and will bill its customer for 50% of the cost.
In this situation, the company directly contracts with the vendor for the purchase of shelving and signage. This is a sale of tangible personal property to the company. If the company is a retailer engaged in business in this state pursuant to section 6203, it may purchase the shelving and signage for resale. The company's subsequent sale of these items to its customer is subject to tax. The amount of co-op funds utilized by the company toward the purchase of the shelving and signage that were earned by its customer may not be excluded from the measure of taxable gross receipts or sales price.
(3) This scenario contemplates the same facts as number two except the company does obtain temporary possession of the shelving and signage; however, they are subsequently transported to the retailer store locations. The application of tax to this situation is the same as in number two. 09/18/00. (2001–3).