Were calcium and sodium propionate exempt food when sold for use in bread?

Plain-English summary

Calcium propionate and sodium propionate were not exempt food products merely because they became ingredients of bread. The food exemption depended on the nature of the property when sold, and tax counsel treated the propionates themselves as nonfood products.

Sales to bakeries that resold the resulting bread were nevertheless exempt as sales for resale. The seller was told to obtain resale certificates from those customers.

Sales to a customer such as the county described in the letter were taxable when that customer baked bread for its own use rather than reselling the bread or the incorporated product. The letter also withdrew the Board's contrary March 10 answer.

The official annotation title uses “Epodium Propionate,” but the supporting letter says “Sodium Propionate.” This page preserves the official title in the source identity while describing the chemical named in the letter.

Common questions

Did becoming part of bread make the propionates exempt food?

No. The letter distinguished the food-product exemption from the separate resale exemption.

When did resale treatment apply?

It applied to sales to bakeries that incorporated the product into bread they resold, supported by resale certification.

Why was a sale to the county taxable?

The county made bread for its own use, so it did not resell either the bread or the incorporated propionate.

Citations and references

• California Sales and Use Tax Law — food-product and resale exemptions distinguished in the letter
• Sales and Use Tax Ruling 63 — historical resale-certificate form referenced in the letter
• Redacted seller's recent correspondence with the County of [XYZ] concerning calcium propionate — correspondence described; not reproduced in the official PDF
• Board's March 10, 1955 letter to the seller — identified as erroneous and withdrawn; letter not reproduced in the official PDF
• Seller's permit application and fee, planned permit issuance, yearly reporting status, and January 31, 1956 first-return deadline — administrative status stated; application, payment record, permit, and return not reproduced in the official PDF
• Calcium and sodium propionate sales to bakeries and the County of [XYZ] — products, customers, and uses described; underlying formulas, labels, agreements, invoices, bread-production records, resale certificates, and customer-use evidence not reproduced in the official PDF
• Sales and Use Tax Ruling 63 enclosure — stated as enclosed but not reproduced in the official PDF
• Possible permit issuance, return filing, sale, audit, assessment, refund claim, appeal, or other agency action after the letter — no follow-up or final outcome supplied 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/245-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/245-0205.pdf

Original ruling text

245.0205

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 24, 1955

[X]

Attention:

[X]

Gentlemen:
Your recent correspondence with the County of [XYZ] in regard to your sale of Calcium Propionate has been referred to this office for review in the light of the letter of March 10 which was addressed to you. We find that the letter of March 10 was in error and wish to withdraw it. We regret that this occurred, but it is in a field which can sometimes be easily confused. The California Sales and Use Tax Law contains a food product exemption and a resale exemption. The food product exemption is based upon the nature of the property at the time it is sold. It is our opinion that neither Calcium Propionate nor Sodium Propionate are food products, although they do become an ingredient of bread which is, of course, a food product. Accordingly, you are making sales of an item, the retail sale of which is not exempt from tax, and you will be required to hold a seller's permit and file returns. We already have your application for a seller's permit and the permit fee. You will be mailed the permit in due course and will be placed on a yearly reporting basis. Your first return will be due no later than January 31, 1956, covering the calendar year 1955. Your sales to bakeries will, of course, be exempt, but they fall under the resales exemption rather than under the food product exemption. You should obtain resale certification from your customers. The form of resale certificate is set out in Sales and Use Tax Ruling 63, copy enclosed. Tax applies to sales to a customer such as the County of [XYZ] which does not resell the bread and, therefore, does not resell your product. Very truly yours,

Bill Holden
cc:

New York (SS)