Were separately charged advertising cutouts taxable when the agency retained possession but used them solely for the customer's benefit?

Plain-English summary

An advertising firm separately charged customers for special-order cutouts. The firm kept physical possession of the cutouts but used them solely for each advertising customer's benefit.

Tax counsel concluded that the cutouts were sold within Revenue and Taxation Code section 6006(f), which covered transfers for consideration of title or possession of tangible personal property produced, fabricated, or printed to a customer's special order.

The letter compared the cutouts to drawings, lettering, and special assemblies produced for advertising clients. It distinguished reusable sign panels that the firm owned, painted, and displayed.

Counsel recommended redetermination without adjustment. The letter itself said a later notice of redetermination would constitute official notice of the petition's disposition.

What this means for you

Advertising firms

Keeping special-order property in your facility does not necessarily prevent a taxable sale when it is produced and used solely for a particular customer's benefit.

Sign and display businesses

Distinguish customer-specific cutouts from reusable panels or equipment retained for the firm's broader use.

Accountants and tax professionals

Review who ordered the item, who benefits from it, whether it is reusable across customers, and how the charge is stated.

Common questions

Q: Did the agency have to hand the cutout to the customer?

A: No. The letter treated the retained cutout as sold because it was special-order property used solely for that customer.

Q: Why were reusable sign panels different?

A: The firm owned, retained, painted, and displayed those panels rather than producing the cutout as customer-specific merchandise.

Q: Was the cutout charge separately stated?

A: Yes, and the source addressed whether tax applied to that separate charge.

Q: Was this letter the final notice on the petition?

A: No. It said a later notice of redetermination would be the official notice of action.

Citations and references

• California Revenue and Taxation Code § 6006(f)
• Historical Sales and Use Tax Ruling 2(c)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0328
• Original supporting opinion: 100.0328 PDF

Original ruling text

100.0328

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)

August 11, 1971

Mr. W--- K. F--Vice President
dba H--- S--- Advertising
XXX East --- Avenue
---, CA XXXXX

SR -- XX XXXXXX

Dear Mr. F---:
This is with reference to your petition for Redetermination of sales and use taxes which was reviewed at a preliminary hearing held in Pasadena on April 24, 1971. The question presented is whether the tax applies to a separate charge made to your advertising customers for cutouts. The cutouts are a type of special order merchandise produced to the order of the advertising customer. While possession of the cutout is retained by your firm we have concluded that they are used solely for the benefit of the advertising customer and are sold within the meaning of Revenue and Taxation Code section 6006(f) which defines a sale to mean and include: “A transfer for a consideration of the title or possession of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, or of any publication.” The utilization of the cutout on behalf of the customer is considered to be comparable to drawings, lettering, special assemblies, etc., produced for clients by advertising agencies in the course of providing an advertising service. Such items are classified as sales pursuant to the provisions of paragraph (C) for sales and use taxes ruling 2 (copy enclosed). The cutouts are distinguishable from the sign copy because it is painted and displayed on reusable panels owned and retained by your firm. In reviewing the board’s files we find that the issue presented by your petition has been previously considered by the board at an oral hearing. A copy of a letter commenting on the board’s decision is enclosed for your review.

Mr. W--- K. F--SR -- XX XXXXXX

-2-

August 11, 1971
100.0328

In view of the above stated conclusion we have recommended that the taxes in question be redetermined without adjustment. In due course you will receive a notice of Redetermination which will constitute official notice of the action taken on the petition. Very truly yours,

W. E. Burkett
Tax Counsel

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Enclosure