How were television sets and other prizes valued when a manufacturer exchanged them for on-air identification and promotion?

Plain-English summary

A manufacturer supplied merchandise as television game-show prizes in exchange for product identification or other on-air promotion. Counsel treated the merchandise-for-advertising exchange as a sale.

In the first agreement, the network promised to pay “dealer's cost” if a taped program and its identification were not broadcast. That substitute-payment term established the exchange sales price as the manufacturer's wholesale price to dealers. Suggested retail prices listed for contestants to guess did not control that agreement.

The second agreement promised about 10 seconds of visual identification plus 15 to 20 words of audio copy for each exposure but gave no air-time value or substitute cash price. Because the only listed values were suggested retail prices, counsel used those as the exchange price.

Common questions

Was giving merchandise away as a prize itself enough to avoid a sale?

No. The manufacturer received advertising in exchange, creating consideration.

Why did the two agreements use different values?

One contract expressly supplied dealer cost as the substitute payment; the other supplied only suggested retail values.

Citations and references

• Annotation 280.0840 was considered inapplicable because the manufacturer agreed not to represent itself as program sponsor; the underlying annotation is not reproduced here.
• August 30, 1977 and November 9, 1977 redacted program agreements (analyzed but not reproduced)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/140-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/140-0003.pdf

Original ruling text

State of California

140.0003

Board of Equalization

Memorandum

To:

Inglewood – Auditing (RLI)

From:

Headquarters – Legal (JM)

Subject:

Merchandise Given Away on T.V. Shows

Date:

August 22, 1978

We have received the agreements between television networks and REDACTED TEXT Corporation submitted for our evaluation. With respect to the agreement of August 30, 1977 involving the REDACTED TEXT program, it is our opinion that a sale has occurred by virtue of the exchange of the merchandise provided by REDACTED TEXT for advertising (air time) provided by REDACTED TEXT 2 in connection with its program, and that the “sales price” of the merchandise is “Dealer’s Cost” which we interpret to be the wholesale price, i.e., the price REDACTED TEXT charges its dealers for such merchandise. The agreement provides at Article III 3, that “the merchandise will be supplied as a prize in exchange for an identification.” If REDACTED TEXT 2 omits a broadcast (and corresponding identification) of a previously taped program where a prize has been given to a contestant, REDACTED TEXT 2 agrees that in lieu of a broadcast (and identification), payment for the merchandise will be made at “dealer’s cost” to REDACTED TEXT or its agent. (Agreement Article IV and paragraph 1 of Standard Terms and Conditions, on back of agreement.) We believe the prices stated for the described items at the beginning of this agreement relate only to the suggested retail price or the average prevailing retail price in the [city] area for purposes of the contest wherein the contestant attempts to guess the value of the merchandise and does not relate to the sales price of the merchandise to REDACTED TEXT 2 under the exchange provisions of the agreement. The letter agreement dated November 9, 1977, concerning REDACTED TEXT 2’s program, presents a more difficult problem since its form is less revealing of the intent of the parties. However, in substance it appears to be another kind of an exchange agreement. REDACTED TEXT is to supply property as prizes for the program in consideration of the television promotion of its products. Under the provisions of the agreement the “prize” is to receive approximately 10 seconds of visual identification simultaneously with 15 - 20 words of audio copy for each exposure. The value of the prize merchandise furnished constitutes the entire consideration for the T.V. promotion of the products. The only values indicated in the agreement are the suggested retail prices.

REDACTED TEXT agrees not to represent in any way that it is the sponsor of the program; accordingly, we do not believe that Annotation 280.0840 is applicable. Absent any express provision as to the value of the air time or an agreed upon price to be paid by REDACTED TEXT in lieu of REDACTED TEXT 2 providing air time (as is provided in the Program - dealer’s cost), it is our opinion that the stated retail prices constitute the exchange price. JM:rt