Did an industry association's shoe donations and nonprofit status qualify its annual meeting for a general sales-tax exemption?

Plain-English summary

The industry association's nonprofit and federal tax status did not create a general California sales-and-use-tax exemption for its annual meeting or shoe-donation program.

On the limited facts, the section 6375 charitable-sales exemption did not apply. The association apparently lacked a permanent location with the required welfare exemption, did not appear primarily engaged in relief of poverty and distress, and the donated shoes were likely withdrawals from donors' resale inventories rather than property made, prepared, assembled, or manufactured by the association.

Hotel meal sales remained taxable, and a room charge necessary to the meal service could enter the tax measure. Any transient-occupancy-tax exemption was a separate locally administered question.

Common questions

Did donating shoes to homeless people automatically qualify?

No. The organization still had to satisfy every statutory and regulatory condition.

Who owed tax when California retailers donated inventory shoes?

The letter said California shoe donors would owe use tax on inventory withdrawals on the assumed facts.

Were hotel rooms and meals generally exempt for the nonprofit meeting?

No. The letter found no general sales-tax exemption and treated hotel meal sales as taxable.

Citations and references

• California Revenue and Taxation Code section 6375 and Regulation 1570 — charitable-sales conditions applied
• California Revenue and Taxation Code section 214 — location-based welfare exemption discussed
• California Revenue and Taxation Code sections 6051 and 6091 — general retail-sales tax and taxable-gross-receipts presumption applied
• Regulations 1570(a)(4)(A) and 1597 — location-specific welfare exemption and listed-organization rules applied
• California Code of Regulations, title 18, section 1603(a) — hotel meal tax treatment applied; Regulations 1570 and 1603 were enclosed
• Sales and Use Tax Annotations 390.0020 and 390.0040 — no general nonprofit sales- or use-tax exemption, as cited
• Sales and Use Tax Annotation 550.0260 — necessary room rental included in the meal-sale measure, as cited
• Market Street Railway Co. v. California State Board of Equalization (1953 as printed), 137 Cal.App.2d 87, 96 [290 PO.2d 201J as printed] — statutory basis required for an exemption; the reporter citation resolves to the 1955 case
• Standard Oil Co. v. State Board of Equalization (1974) 39 Cal.App.3d 765, 769 [114 Cal.Rptr. 571] — taxpayer's burden to establish an exemption

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/165-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/165-0070.pdf

Original ruling text

165.0070

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

1020 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 920 - 7445

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

June 14, 1994
REDACTED TEXT

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

REDACTED TEXT
Re:

[No Permit Number]
REDACTED TEXT

Dear REDACTED TEXT:
I am responding to your letter to the Legal Division dated April 6, 1994. I apologize for the delay. We did not receive the original letter but did receive the copy attached to your follow-up letter of May 6, 1994. You indicate that you represent the REDACTED TEXT 1 a tax-exempt organization based in Maryland, which has also been classified as a “supporting organization” under the Internal Revenue Code for the REDACTED TEXT 1. The REDACTED TEXT 1 will be conducting its annual meeting in San Francisco in August. You anticipate that the REDACTED TEXT 1 will assume responsibility for the scientific and educational functions of the meeting. Each participant will donate either $25 or a new pair of shoes for distribution to the homeless. The cash contributions will be, after expenses, utilized to purchase additional shoes for the homeless. All such distributions will be carried out by the REDACTED TEXT 2 in San Francisco. You ask if the REDACTED TEXT 1 will be exempt from sales and use taxes, including any local taxes, in conjunction with the meeting. You based your request on Revenue and Taxation Code sections 214 and 6375. (Unless otherwise stated, all statutory references are to the Revenue and Taxation Code.) OPINION A.

Sales and Use Tax Generally.

In California, except where specifically exempted by statute, section 6051 imposes an excise tax, computed as a percentage of gross receipts, upon all retailers fort the privilege of selling tangible personal property at retail in this state. “[I]t shall be presumed that all gross receipts are subject to tax until the contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon the person who makes the sale ...” (§ 6091.) “Exemptions from taxation must be found in the statute.” “Market St. Ry. Co. v. Cal. St. Bd. of Equal. (1953) 137 Cal.App.2d 87, 96 [290 PO.2d 201J. The taxpayer has the burden of showing that he clearly comes within the exemption.” Standard Oil Co. v. St. Bd. of Equalization (1974) 39 Cal.App.3d 765, 769 [114 Cal.Rptr. 571]. )

REDACTED TEXT

B.

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June 14, 1994
165.0070

Non-Profit Organizations.

There are no statutory exemptions from either the sales or use tax merely because the user of the property purchased is a nonprofit organization. (Annots. 390.0020, 390.0040. Sales and Use Tax Annotations are excerpts from previous Board staff opinion letters and serve as a guide to staff positions.) There are certain restricted exemptions and partial exemptions found in the statutes interpreted and implemented in Regulations 1570 and 1597. Since REDACTED TEXT 1 is not any one of the organizations listed in Regulation 1597 the only exemption that could apply is found in Regulation 1570 which, in sub-division (a), sets out the four conditions that section 6375 requires to be present before sales by charitable organizations are exempt from tax: “(1) The organization must be formed and operated for charitable purposes and must qualify for the ‘welfare exemption’ provided by section 214. “(2) and distress.

The organization must be engaged in the relief of poverty

“(3) The organization’s sales or donations must be made
principally as a matter of assistance to the purchasers or donees in distressed financial condition. “(4) The property sold or donated must have been made, prepared, assembled, or manufactured by the organization.” Unfortunately, you do not give enough information for me to give you a definitive opinion. However, I am of the opinion that it is not likely that the exemption applies to the shoe donation. First, REDACTED TEXT 1 does not (apparently) work out of a permanent location. The welfare exemption is available only to property owned and operated by a charitable organization and which is used or operated exclusively for one of the purposes enumerated in the statute, and, in order to receive the sales tax exemption, the welfare exemption must be obtained for that location. (Reg. 1570(a) (4) (A).) Second, REDACTED TEXT 1 does not appear to be engaged in the relief of poverty and distress. Also, the shoes that are donated are likely withdrawn from the donors’ resale inventories, not “made, prepared, assembled, or manufactured” by them. The shoe donors (at least, those in California) would owe use tax on those donations. Thus, in the absence of further information, we conclude that the charitable exemption under Regulation 1570(a) does not apply to this donation. You also seem to be concerned about liability for taxes due on the hotel and meal costs in San Francisco. Again, there is no general exemption for hotels renting room and furnishing meals to a charitable organization. Tax applies to sales of meals and hot prepared foods by hotels whether served on or off the premises. (Reg. 1603(a).) Where the rental of the rooms is a necessary part of the meal service, the room rental is included in the measure of tax, whether or not the room charge is separately stated. (Annot. 550.0260.) There may be exemptions from such locallyimposed taxes as transient occupancy taxes, but those taxes are imposed and administered locally. You would need to check with the hotel itself.

REDACTED TEXT

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June 14, 1994
165.0070

For your information, I have included copies of Regulations 1570 and 1603. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely, John L. Waid Tax Counsel JLW:es Enclosure: Reg. 1570, 1603