Were folders enclosed with dolls resale items or taxable advertising materials?

Plain-English summary

A doll company enclosed printed folders with its dolls. California recommended removing the price of folders containing stories or verses from the tax measure because buyers wanted their educational and collection value. Those folders could be treated as sold for resale with the dolls.

Folders that only listed other available dolls were different. California treated the doll seller as consuming those folders as advertising material.

The letter explained a broader historical rule: an enclosure primarily used for advertising was taxable, while directions, instructions, or other information wanted or needed by the consumer could qualify even if some advertising also appeared. Doubtful cases depended on examining the actual enclosure.

Common questions

Did any advertising make an enclosure taxable?

No. The primary purpose controlled under the letter's analysis.

Why did the story folders qualify?

Counsel found that buyers valued their educational content and their contribution to the doll collection.

Citations and references

• Sales and Use Tax Ruling 49 — advertising enclosures and consumer information discussed; copy and fuller version details not supplied in the official PDF
• Requester's April 20, 1951 letter — clarification request and enclosure issue described; separate letter not reproduced in the official PDF
• A. A. S--- P--- Company's petition for redetermination and March 28, 1951 determination — file review and procedural posture stated; petition, determination, and company file not supplied in the official PDF
• Hollywood Dolls story, verse, and other-doll-list folders — contents and purpose described after counsel's examination; folder samples not reproduced in the official PDF
• Counsel's recommendation to the Board and advice to the company to remove qualifying folder prices from the tax measure — recommendation stated; final Board action and separate company communication not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/195-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/195-1700.pdf

Original ruling text

195.1700

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 9, 1951
Mr. E. G. V--Accounting and Tax Counsellor
P--- Association
XXXX West ----- --- X, California
Account No. -- - XXXXXX
A. A. S--- P--- Company
Dear Mr. V---:
After receipt of your letter of April 20 we reviewed the file of the A. A. S--- P--- Company which had filed a petition for redetermination of the determination which we had made under date of March 28. While the matter may be not entirely free from doubt, we have reached the conclusion that the folders containing stories or verses relating to the dolls with which the folders are enclosed when the dolls are sold may be regarded as a sale for resale by the printer of the folders. Those folders that contain only a list of other dolls available we believe should be considered as consumed by the seller of the dolls as advertising material. The stories and verses appear to be of interest to the purchaser of the dolls who desires to have them for their educational value, and to increase the value of the collection of dolls. Accordingly, we have advised the company that we would recommend to the Board that the sales price of the folders containing the stories or verses be eliminated from the measure of the tax. You indicate the need of clarification of the last paragraph of Ruling 49 stating that tax applies to sales of such items as advertising matter enclosed with the property sold. We think that if the enclosure is primarily for advertising purposes the tax is applicable. If, however, the enclosure is in the nature of directions, instructions, or information desired or needed by the consumer of the goods, the mere fact that advertising is also contained in the enclosure will not cause the tax to apply. In some instances it may be difficult to determine the primary purpose of inserting the enclosure in the package. In doubtful cases we shall be glad to examine the enclosures as we have in the case of the enclosures with the Hollywood Dolls. Very truly yours,

E. H. Stetson
Tax Counsel
EHS:ph