Could an electric utility buy model-kitchen appliances for resale when it mainly used them to promote electricity sales?

Plain-English summary

An electric utility bought home appliances for a model kitchen. Other than later sales to employees or back to the original vendor, the utility did not ordinarily sell major appliances. Its model-kitchen use promoted sales of electrical energy.

The Board concluded that the utility purchased the appliances for consumption, not resale. Demonstration and display treatment required use in furtherance of selling the same kind of tangible property by a person in that sales business. Promoting electricity did not qualify under sections 6094 and 6244.

The utility therefore had to pay tax when buying the appliances. When it later sold them to employees or other consumers, sales tax also applied to the actual selling price, even if below original cost. A sale back to the original vendor or another retailer buying for resale could qualify differently.

What this means for you

Utilities and demonstration centers

Using tangible products to promote a service or another product category is not necessarily demonstration of those products for resale.

Appliance retailers

The Board focused on whether the user was actually in the regular business of selling appliances and whether the display furthered appliance sales.

Accountants and tax professionals

Paying tax as consumer on purchase does not automatically exempt a later retail sale. Track the later sales price and the purchaser's resale status.

Common questions

Q: Why was the model-kitchen display taxable?
A: Its purpose was to promote electrical-energy sales, and the utility did not otherwise sell major appliances in the regular course of business.

Q: Could the utility issue a resale certificate?
A: No. The letter directed it to buy as a consumer and pay sales or use tax.

Q: Were later employee sales taxable?
A: Yes, measured by the actual sales price even if it was lower than original cost.

Q: What if an appliance was sold back to a vendor or another reseller?
A: The letter excepted sales to the original vendor or another seller buying for resale in the regular course of business from its statement about taxable later sales.

Citations and references

• California Revenue and Taxation Code §§ 6094 and 6244
• Requester's May 25 letter — model-kitchen purchases and later sales described; year and separate letter not supplied in the official PDF
• Copy to the Sacramento Tax Administrator — copy recipient listed; no separate transmittal record supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 210.0320
• Original supporting opinion: 210.0320 PDF

Original ruling text

210.0320

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 17, 1955

S--XXXX --- Street
P.O. Box XXXX
--- XX, California
Attention:
Gentlemen:

• • XXXXX

Mr. Wm. S. B--Now: SS -- XX XXXXXX

We acknowledge your letter of May 25 requesting a ruling as to the application of the State sales tax to purchases and sales of home appliances used in your model kitchen. Upon further consideration of this matter, we have reached the conclusion that, under the circumstances, your purchase these appliances for a purpose other than resale, i.e., use in promoting the sale of electrical energy. The sale of these appliances to you is, accordingly, a taxable retail sale. While under the law it is permissible for a person engaged in the business of selling tangible personal property to use property purchased for resale for demonstration or display without incurring tax liability, we believe that the demonstration or display must be in furtherance of the sale of the kind of property being demonstrated or displayed and that the person must be in the business of selling that kind of property. You state that, except for the sale of the appliances to your employees or back to the original vendor, you do not otherwise sell any major appliances. It thus appears that you are using the appliances to further the sale of electrical energy, which in our opinion, constitutes a use other than demonstration or display, within the meaning of Sections 6094 and 6244 of the Sales and Use Tax Law. You should, accordingly buy these appliances as a consumer, either reimbursing your vendor for the sales tax or paying the use tax to the vendor or to the State, as the case may be. When you ultimately sell the appliances, the tax applies to your gross receipts, except from the sale of the appliances to the original vendor or to some other seller or retailer purchasing them for the purpose of resale in the regular course of business.

S---

-2-

June 17, 1955
210.0320

The measure of the tax with respect to sales to employees or other consumers is, of course, the amount of the sales price, even though that may be less than the original cost of the merchandise. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:ph
cc:

Sacramento – Tax Administrator