Is a machine still held for sale when a retailer uses it exclusively as a demonstrator and does not offer it for sale until its demonstration period ends?

Plain-English summary

A farm and garden machinery retailer took a machine bought for resale to a prospective customer's farm and demonstrated it. The customer bought another machine. The retailer intended to keep the demonstrated unit as its designated demonstrator until the unit's usefulness for that purpose ended, then sell it.

The Board concluded that the machine remained held for sale. Exclusive demonstration or display did not divert it to personal use, and the retailer did not need to offer the demonstrator itself for immediate sale throughout its demonstration period.

The key limits were exclusive demonstration use and eventual sale of the same machine.

What this means for you

Machinery and farm-equipment dealers

A designated demonstrator can remain resale inventory even when customers buy other units, provided the demonstrator is used only for demonstration and is later sold.

Sales teams

Record each customer demonstration and avoid operational, rental, personal, or other non-demonstration use of the designated unit.

Accountants and tax professionals

The letter assumed a later sale. If the demonstrator is retained permanently, consumed, or put to mixed use, the stated conclusion may not apply.

Common questions

Q: Did the customer have to buy the demonstrated machine?
A: No. The customer bought another machine, while the demonstrated unit remained the dealer's demonstrator.

Q: Was the demonstrator actually offered for sale during its useful demonstration period?
A: Apparently not. The Board still regarded it as held for sale because it would be sold afterward.

Q: What use was permitted?
A: Solely demonstration or display.

Q: What historical authority did the letter reference?
A: Sales and Use Tax Ruling 69, a copy of which was enclosed with the original letter.

Citations and references

• Former California Sales and Use Tax Ruling 69 — copy listed as enclosed but not included in the official PDF
• Requester's May 24 letter, including question 2 — year and separate letter not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 210.0160
• Original supporting opinion: 210.0160 PDF

Original ruling text

210.0160

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 29, 1956

Mr. O--- R--XXXXX --- --- ----- ---, California
Dear Mr. R---:
This is in reply to your letter of May 24 in which you inquire concerning liability under the Sales and Use Tax Law of your client, a retailer of farm and garden machinery, who takes a machine purchased for resale to a prospective customer’s farm and demonstrates the machine. The customer then purchases another machine. As indicated in Ruling 69, copy enclosed, tax liability is not incurred through the use of property purchased for resale solely for demonstration or display. If your client’s sole use of the machine is in demonstration or display, the machine is not considered to be diverted to personal use. As you will observe, the property used for demonstration is not subject to use tax provided it is held for sale in the regular course of business. Apparently, under question 2 of your letter, a certain machine is used as a demonstrator and is not itself held for sale. We assume, however, that after it has been used for demonstration purposes, it will be sold. We believe a proper interpretation of the law is that if a machine is used exclusively for demonstration purposes and is later sold, it is properly regarded as being held for sale even though it may be intended for use as a demonstrator and not actually offered for sale until its usefulness as a demonstrator has ended. Very truly yours,

E. H. Stetson
Tax Counsel
EHS:ds
Enclosure