Were free paint color cards and chips exempt labels or premium merchandise?

Plain-English summary

A paint company supplied color cards and chips to retailers without charge to help them sell its paint.

California treated that activity as the company's use of the materials and also found taxable storage in the state. The cards and chips were not premium merchandise because they were not given in exchange for a purchase and had no independent value to the retailer beyond selling paint.

They also were not exempt labels because they were neither attached to the paint nor sold with it. Counsel said the tax should be redetermined without adjustment unless the petitioner timely requested an oral hearing.

Common questions

Did giving the materials to retailers make them resale property?

No. They were sales aids supplied for the paint company's own selling purpose.

Were the cards treated as labels?

No. They were not attached to or sold with the paint.

Citations and references

• Cal. Rev. & Tax. Code § 6009 — taxable use definition quoted
• Cal. Rev. & Tax. Code § 6008 — taxable storage definition quoted
• Sales and Use Tax Ruling 49 — historical label rule cited; copy listed as enclosed but not included in the official PDF
• Petitioner's petition for redetermination and preliminary hearing — described without dates; separate petition and hearing record not reproduced 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/195-1940.pdf

Original ruling text

STATE OF CALIFORNIA

195.1940

STATE BOARD OF EQUALIZATION
July 6, 1967
Gentlemen:
We have completed our review of your petition for redetermination of sales and use taxes. We have concluded that the color cards and color chips were properly included in the measure of tax. The material is of the nature of sales aids provided to your retailers without charge to facilitate the sale of your paint products. This utilization constitutes a use of the property under the provisions of Section 6009 of the Revenue and Taxation Code which provides as follows: " 'Use' includes the exercise of any right or power over tangible personal property incident to the ownership of that property, and also includes the possession of, or the exercise of any right or power over, tangible personal property by a lessee under a lease, except that it does not include the sale of that property in the regular course of business." Use tax also applies to your storage of the property under the provisions of Section 6008 of the Revenue and Taxation Code which provides as follows: " 'Storage' includes any keeping or retention in this State for any purpose except sale in the regular course of business or subsequent use solely outside this State of tangible personal property purchased from a retailer." The color cards and color chips are not regarded as premium merchandise because they were not in fact given as a premium for the purchase of other property and for the additional reason that they are without independent value to the retailer. Their use is limited solely to the sale of paint. The color cards and color chips do not qualify as exempt labels for the reason that they are not affixed to the property to be sold and are not in fact sold with the property (see enclosed copy of sales and use tax Ruling 49). At the conclusion of our preliminary hearing, you inquired if an oral hearing could be granted in the event of an unfavorable ruling on your petition. Please review our letter and advise us, in view of what is set forth herein, if you now desire such a hearing. If we do not hear from you within a period of 30 days from this date, we shall conclude that no such hearing is desired and will direct that the tax be redetermined without adjustment. Very truly yours, W. E. Burkett Associate Tax Counsel WEB:kc [lb]