Were a for-profit company's medical identification cards exempt under California's medical-tag provision?

Plain-English summary

The company's retail sales of its Medical Data I.D. card were taxable because the seller was not an organization exempt under section 23701.

Section 6371 required both an exempt organization and a qualifying medical identification tag. The company's articles did not state that it was organized and operated as a nonprofit, and its operations did not appear to fall within a specified exempt-organization category.

Because the seller failed the organizational requirement, the letter expressly found it unnecessary to decide whether the wallet card—designed to alert others to a holder's medical condition—qualified as a statutory medical identification tag.

Common questions

Did providing a useful medical service make the seller exempt?

No. The seller had to obtain the required organizational tax-exempt status.

Did the letter decide that a wallet card could never be a medical tag?

No. It left that product-definition question unresolved.

Who determined organizational exemption?

The letter directed organization-status questions to the Franchise Tax Board.

Citations and references

• California Revenue and Taxation Code section 6371 — medical-identification-tag exemption analyzed
• California Revenue and Taxation Code section 23701 — required exempt-organization status discussed
• California Revenue and Taxation Code section 6051 — general retail-sales tax rule applied

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/165-0148.pdf

Original ruling text

165.0148

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
MATTHEW K. FONG
Fourth District, Los Angeles

August 4, 1994

BURTON W. OLIVER
Executive Director

REDACTED TEXT
Re:

GRAY DAVIS
Controller, Sacramento

REDACTED TEXT

Dear REDACTED TEXT,
This is a response to your letter dated July 7, 1994 regarding the application of tax to sales of medical identification cards. You state: “My company, REDACTED TEXT, manufacturers and markets the ‘Medical Data I.D.’ card. The purpose of this card, like an identification tag, is to alert other persons to the medical condition of the card holder. If the card holder is unable to speak, the card, ‘Medical Data I.D.,’ will do the talking for him or her. This card is always carried in the wallet or purse with one’s driver’s license.” You ask “if … [your] company is eligible to become tax exempt because of the service you provide.” Discussion It is unclear whether REDACTED TEXT requests our opinion on how become a tax exempt company for income tax purposes or whether its sales of the “Medical Data I.D.” card may be exempt from sales tax. For purposes of this opinion, we assume that REDACTED TEXT asks whether sales of its identification card are exempt from sales tax. Questions regarding a company’s tax exempt status should be directed to the Franchise Tax Board (“FTB”). Sales tax is imposed on a retailer’s gross receipts from the retail sale of tangible personal property in California unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) A “retail sale” means a sale for any purpose other than resale in the regular course of business in the form of tangible personal property. (Rev. & Tax. Code § 6007.) This means that REDACTED TEXT’s retail sale of its medical data identification card in California is subject to sales tax unless an exemption applies. The sales tax exemption relevant to REDACTED TEXT is set forth in Revenue and Taxation Code section 6371 as follows:

“(a) There are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption of, medical identification tags furnished by an organization which is exempted from taxes under Section 23701. “(b) For purposes of this section, ‘medical identification tags’ includes any tag worn by a person for the purpose of alerting other persons that the wearer of the tag has a medical disability or allergic reaction to certain treatments.” A sales tax exemption for sales of identification cards by your company accordingly depends on whether: 1) REDACTED TEXT is exempt from taxes under Revenue and Taxation Code section 23701; and, 2) REDACTED TEXT’s medical data identification card constitutes a “medical identification tag.” REDACTED TEXT is not exempted from taxes under Revenue and Taxation Code section 23701. That section requires, among other things, that REDACTED TEXT be organized for nonprofit purposes within a specific section of that article, file an application and fee for exemption with the FTB, and be subject to a determination by the FTB that your organization is exempt. (A copy of Rev. & Tax. Code § 23701 is enclosed for your review.) We initially note that the articles of incorporation accompanying REDACTED TEXT application for a seller’s permit do not state that it is organized and operated as a nonprofit corporation. (See Corp. Code § 5130.) Moreover, REDACTED TEXT’s operations do not appear to fall within one of the specified organization set forth in Revenue and Taxation Code section 23701 et seq. Those organizations consist of, among other things, labor organizations (Rev. & Tax. Code § 23701a), fraternal societies (Rev. & Tax, Code § 23701b) and religious organizations (Rev. & Tax. Code § 23701d). Since REDACTED TEXT is not exempt from taxes under Revenue and Taxation Code Section 23701, it is not necessary to decide whether REDACTED TEXT medical identification card qualifies as a “medical identification tag.” REDACTED TEXT’s retail sales of its medical data identification card are accordingly subject to sales tax. If you have any further questions, feel free to write again. Sincerely, Warren L. Astleford Staff Counsel WLA:plh Enclosure - Rev. & Tax. Code § 23701 cc: Oakland District Administrator - CH