How should a retailer tax a lump-sum survival kit containing exempt food and taxable nonfood items?

Plain-English summary

The proposed survival kit combined exempt and taxable property and was sold for one lump-sum price. The retailer therefore had to allocate the price between the two groups using the reasonable market value of the individual items.

The letter expressly treated the multipurpose food and vitamin C wafers as exempt. It said the other listed items were taxable at retail. Those other contents were pure water, a can opener, a measure, a utility can, a mixing can, and instructions.

For the historical return described, the total package price went on line 1, wholesale sales were deducted on line 4, and food-product sales were deducted on line 5. The remaining amount represented taxable gross receipts attributable to the taxable items.

Common questions

Could the entire kit be treated as exempt food?

No. The kit also contained items the letter treated as taxable.

How was the lump-sum price divided?

The allocation had to use the reasonable market value of the various items.

Which contents were expressly exempt?

The multipurpose food and vitamin C wafers.

Citations and references

• Sales and Use Tax Ruling 52 — historical food-products ruling cited for the exempt contents; stated copy and other enclosure material not reproduced in the official PDF
• California sales tax reasonable-market-value allocation and historical return reporting — applied without a statute, regulation, form number, ruling beyond Ruling 52, or case citation
• Redacted attorney's November 14, 1961 letter concerning a client's proposed survival-kit retail sales — request and client proposal referenced; neither reproduced in the official PDF
• Survival kit containing multipurpose food, pure water, vitamin C wafers, can opener, measure, utility can, mixing can, and instructions — contents and lump-sum sale described; item specifications, packages, samples, market-value evidence, supplier records, invoices, and sales records not reproduced in the official PDF
• Historical sales tax return lines 1, 4, and 5 for total price, wholesale-sale deduction, and food-product deduction — instructions stated; return form, filed return, computations, supporting schedules, and payment records not reproduced in the official PDF
• Official annotation's impossible November 31, 1961 date and supporting letter's November 21, 1961 date — page uses the formal source-body date
• Copy to the San Francisco Tax Administrator and possible later kit sale, audit, assessment, refund claim, appeal, or other agency action — copy notation present; no copy, 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/245-1080.pdf

Original ruling text

245.1080

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 21, 1961

[X]

Dear Mr. [X]:
Re:

[X]

This is in reply to your letter of November 14, 1961 concerning the application of sales tax to a survival kit which your client, [X], contemplates retailing. The survival kit contains multi-purpose food, pure water, vitamin C wafers, a can opener, a measure, a utility can, a mixing can and instructions. The multi-purpose food and the vitamin C wafers are exempt under the food products exemption, see Ruling 52 (copy enclosed). However, the other items are subject to tax where sold at retail in this State. Since this packet is sold at a lump sum price, some allocation between the taxable and nontaxable items must be made. The allocation should be made on the reasonable market value of the various items. You also ask how these items should be reported. The total sales price of the packet should be entered on line 1 of the taxpayer's sales tax return. Wholesale sales should then be deducted on line 4 and sales of food products on line 5. This will leave the taxable gross receipts at the value of the retail sales price of the taxable items. Very truly yours,

E. H. Stetson
Tax Counsel
By John H. Knowles
JHK:ac
Enclosures
cc:

San Francisco – Tax Administrator