Who had to report gasoline sales when one company owned the fuel and an independent mini-mart operator sold it to consumers?

Plain-English summary

A corporation without its own seller's permit used a mini mart's account number to buy gasoline from a distributor. The distributor invoiced the corporation, while the gasoline was sold to consumers through the mini mart.

The memorandum treated the mini-mart operator as the retailer. He was not the corporation's employee; he was an independent contractor who possessed the corporation's fuel and sold it on consignment. Under Regulation 1569, a person who possesses another's property and can transfer it to a consumer without further owner action is the retailer and owes tax on the gross receipts.

The source also addressed the break in the audit trail. The corporation described itself in its agreement as engaged in distributing and selling gasoline and petroleum products, so counsel said it clearly should hold its own seller's permit rather than rely on the mini mart's account number.

Common questions

Who reported the consumer gasoline sales?

The mini-mart operator, as the consignee and retailer.

Why was the operator not treated as the corporation's employee?

The memorandum identified him as an independent contractor possessing and selling the fuel on consignment.

Did the fuel-owning corporation need a seller's permit too?

Yes. Its own agreement said it was engaged in distributing and selling gasoline and other petroleum products.

Citations and references

• California Sales and Use Tax Regulation 1569 (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/185-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/185-0141.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. E. J. Snortland

From:

Ronald L. Dick
Senior Tax Counsel

Subject:

J---, Inc.
N--- N. A---

185.0141

September 19, 1990

No Permit
SR -- XX-XXXXXX

This is in reply to your August 6, 1990 memorandum regarding the application of sales tax to sales of fuel from the E--- Mini Mart, operated by N--- N. A---. You noted the following facts: “J---, Inc. does not have a seller’s permit. J--- uses E--- Mini Mart’s account number to buy the gas from the distributor. The distributor invocies J--- (sic) and E--- does not even get a copy of the invoice. “The consignee, E--- Mini Mart, supposedly reports the net of the tax collected less the 4 or 4.5 cents paid by the consigner to his vendor.” You asked for our opinion as to how these transactions should be handled. We believe that Mr. A--- is the retailer who should report and pay sales tax on the fuel sales. Mr. A--- is not an employee of J---, Inc.; he is an independent contractor taking possession of fuel owned by J---, Inc., to sell on consignment. In this regard, Sales and Use Tax Regulation 1569, Consignees and Lienors of Tangible Personal Property for Sale, provides in relevant part: “A person who has possession of property owned by another, and also the power to cause title to that property to be transferred to a third person without any further action on the part of its owner, and who exercises such power, is a retailer when the party to whom title is transferred is a consumer. Tax applies to his gross receipts from such a sale….” Your memorandum notes that there is a break in the audit trail between the distributor and the entity that sells the gasoline to the consumer. I assume that you are referring to the fact

Mr. E. J. Snortland

-2-

September 19, 1990
185.0141

that J--- does not hold a seller’s permit. We believe that it is clear the J--- should hold a seller’s permit. In fact, the first paragraph of the recitals in the agreement between J--- and Mr. A--notes that, “Consignor (J---, Inc.) is engaged in the distribution and sale of gasoline and other petroleum products….” If you have any further questions regarding this, feel free to contact me.

RLD:sr