Did a textbook publisher owe use tax on examination copies shown before a school sale and retained afterward as desk copies?

Plain-English summary

A textbook publisher supplied examination copies while negotiating a textbook sale to a school. When the school completed the purchase, it retained those copies as desk copies and could receive additional desk copies.

The Board's counsel concluded that no use tax applied. Before the sale, the examination copies were held for demonstration and display. After the sale, the retained and additional desk copies were treated as a service forming part of the completed textbook transaction.

The memorandum said the taxpayer's position was correct unless its transactions differed from the comparison case considered at a Board hearing.

What this means for you

Textbook and educational publishers

Document the relationship between examination copies and the resulting school order. The conclusion connected the copies directly to negotiating and servicing the textbook sale.

School procurement teams

The opinion distinguished pre-sale examination use from post-sale desk-copy use but treated both as parts of the same textbook sales process.

Accountants and tax professionals

Confirm that the copies follow the described pattern. The memorandum expressly conditioned its conclusion on the taxpayer's facts matching the comparison transactions.

Common questions

Q: How were examination copies treated before the school bought the textbooks?
A: They were held for demonstration and display and were not subject to use tax.

Q: What happened after the sale?
A: The examination copies became desk copies, and both those and additional desk copies were treated as a service included in the sale.

Q: Did the memorandum say every free book furnished to a school is exempt?
A: No. It addressed examination and desk copies tied to a completed textbook order under the specific comparison facts.

Q: Was this the counsel's original conclusion?
A: No. The memorandum says additional material and discussion of a Board hearing changed the determination stated in an earlier May 5 memorandum.

Citations and references

• May 5, 1967 Tax Counsel memorandum — prior determination reversed; separate memorandum not reproduced in the official PDF
• Additional material and May 11, 1967 discussion — prompted reconsideration; identities and separate records not supplied
• Board hearing in the case of S and discussion with Mr. Delaney — hearing date, participants, identifier, transcript, and separate consultation record not supplied

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 210.0120
• Original supporting opinion: 210.0120 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-State – Auditing (JDD)

From:

Tax Counsel (EHS:AWP)

210.0120

Date:

May 11, 1967

Following our discussion today, and upon examining the additional material you presented, my determination as to the taxability of examination copies of texts and desk copies has changed from that which I set forth in my memo of May 5, 1967. I have discussed the case of “S” with Mr. Delaney in light of the results of the hearing held before the Board and these are our conclusions: 1.

Prior to the consummation of a sale of textbooks to a school, examination copies are being held for demonstration and display and therefore are not subject to use tax liability.

2.

Once a sale has been consummated, the examination copies become desk copies and they, as well as additional desk copies forwarded the customer, are considered as a service which is a part of the sale and therefore tax exempt.

In light of this determination, it appears that unless the transactions of “H” differ from those of “S”, the taxpayer’s contention is correct and the value of examination copies and desk copies are not subject to use tax liability.

AWP:ggw

[1b]