Could the drug-store retailer use the grocery-store percentage method to compute tax on its food sales?

Plain-English summary

The drug-store retailer could not use the alternate grocery-store method to compute tax on its food sales. It needed appropriate records to substantiate its claimed food exemptions.

The same letter separately allowed a historical cost-plus method for the retailer's sideline sales of newspapers and periodicals: it could compute those receipts by adding 35 percent to the net publisher or distributor charge. That magazine method did not establish the treatment of food sales.

Common questions

Could the retailer estimate exempt food sales using the grocery method?

No. The official annotation says a drug store selling food could not adopt the percentage-of-purchases method, and the letter directed the retailer to keep supporting records.

Did the letter allow any alternate computation?

Yes, but only for the sideline newspaper and periodical sales described under historical Ruling 50.

What did the Board recommend?

It suggested consulting branch-office staff about the records needed to substantiate exempt food sales.

Citations and references

• Sales and Use Tax Ruling 50, Section D — historical cost-plus method for sideline newspaper and periodical receipts
• Sales and Use Tax Ruling 52, Section E — historical grocery-store alternate method discussed and rejected for the food sales at issue
• Redacted retailer's recent inquiry about computing magazine- and food-sales deductions — request referenced without a date; not reproduced in the official PDF
• Sales and Use Tax Ruling 50 enclosure — stated as enclosed; not reproduced in the official PDF
• Magazine and newspaper publisher or distributor charges, retail receipts, food sales, claimed exemptions, and supporting records — transactions and recordkeeping discussed; underlying invoices, statements, sales journals, returns, exemption schedules, and records not reproduced in the official PDF
• Suggested consultation with Board branch-office staff — recommendation stated; no consultation record, advice, or follow-up reproduced in the official PDF
• Official Annotation 245.0380 description identifying the retailer as a drug store — the redacted supporting letter itself does not state that business classification
• Possible later return filing, audit, assessment, refund claim, appeal, or other agency action — 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/245-0380.pdf

Original ruling text

245.0380

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 8, 1950

[X]
Re:

[X]

Gentlemen:
This is in answer to your recent inquiry concerning ways of computing deductions with respect to your sales of magazines and food products for sales tax purposes. As indicated by Section D of Sales and Use Tax Ruling 50, copy enclosed, a retailer who deals in newspapers or periodicals, as therein defined, as a sideline, may compute the amount of his receipts from the sales of such magazines and newspapers by adding 35 percent to the net amount charged him for the newspapers and magazines by the publishers or distributors thereof, for the purpose of filing returns. The application of the tax to sales of food products is governed by Sales and Use Tax Ruling 52. Section E thereof indicates an alternate method of computing the tax by operators of grocery stores. This method, however, is not applicable to sales of food products by retailers selling food products. We, therefore, suggest that you consult a member of the staff of our branch office with respect to the proper records to be kept to substantiate your claim of exemption with respect to sales of food products. Very truly yours,

R. G. Hamlin
Associate Tax Counsel
RGH:HB