Can a carpet dealer buy samples for resale when it displays them first and definitely intends to sell them afterward?

Plain-English summary

A carpet distributor bought samples from a manufacturer for $10 each and resold them to customers for the same $10 price, reporting and collecting tax on its sales. The manufacturer nevertheless said its own sale to the distributor was taxable.

The Board concluded that the distributor could issue a resale certificate. A carpet dealer's purchase qualifies for resale when the dealer has a definite intention to sell the samples after using them for demonstration or display.

The result did not formally depend on sample size. The letter cautioned, however, that pieces so small that no practical use could be made of them normally would not be intended for resale.

What this means for you

Carpet distributors and flooring dealers

Document the plan to sell display samples when their demonstration period ends. Actual pricing and resale practices can support that intent.

Carpet manufacturers

A sale to a dealer is not automatically retail merely because the dealer displays the sample first. The buyer's definite intention to sell the same property afterward matters.

Accountants and tax professionals

Distinguish useful samples held for eventual customer sale from tiny marketing pieces that have no practical resale use.

Common questions

Q: Did displaying the carpet samples defeat resale treatment?
A: No. Demonstration and display before the intended sale were compatible with the dealer's resale position.

Q: Did the dealer have to charge more than its $10 cost?
A: No. The described dealer bought and sold each sample for $10, and the Board still allowed a resale certificate based on definite resale intent.

Q: Does sample size determine the legal result?
A: Not by itself. But the letter says impractically small pieces normally are not intended for resale.

Q: What if the dealer uses or gives away the samples instead?
A: The letter says tax would clearly apply to the sale to the dealer, as well as to a later customer sale where applicable.

Citations and references

• California Sales and Use Tax Regulation 1670
• Requester's October 1, 1982 letter — sample purchases, resales, reporting, and manufacturer position described; separate letter not reproduced in the official PDF
• Manufacturer's advice that its sample sales were taxable — described without a separate communication or manufacturer identity in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 210.0058
• Original supporting opinion: 210.0058 PDF

Original ruling text

210.0058

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

October 6, 1982

W--- -. R--- & Company
XXX --- Street
---, CA XXXXX
Attn: Ms. D--- F--Gentlemen:

SR – XX-XXXXXX
This is in response to your letter of October 1, 1982.
You have raised a question with respect to the application of the California sales tax to sales of carpet samples. We understand that as carpet distributors you have recently purchased a number of carpet samples from a manufacturer for $10. You in turn are selling them to your customers for
$10. You report tax on this selling price and collect “sales tax” from your customer. You suggest that in accordance with our Regulation 1670, “Gifts, Marketing Aids, Premiums, and Prizes,” you may purchase these items for resale since you are selling the items for over 50 percent of your cost. The manufacturer has advised you that tax applies to the sale to you. Tax applies to retail sales of tangible personal property. As you indicate, if you were to use the samples or to give them away, it is clear that tax would apply to the sale to you as well as to your sale to your customer. As a general rule, tax would apply to sales of carpet samples by a manufacturer to a carpet dealer. It has been our position, however, that where a carpet dealer purchases carpet

W--- -. R--- & Company
SR – XX-XXXXXX

-2-

October 6, 1982
210.0058

samples with a definite intention of eventually selling them, after their use for demonstration or display has ended, the sale of the samples to the dealer qualifies as a sale for resale and is not subject to tax. This is without regard to the size of the sample. However, it is our understanding that samples of a size so small as to prevent any practical use being made of them are not normally intended to be resold. Since it is apparent that you are purchasing the samples with the definite intention of reselling them, you may issue a resale certificate to the manufacturer for these items. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel