What was the tax measure when a jeweler gave a contest winner a diamond but required a paid ring setting?

Plain-English summary

An Oakland jeweler awarded a contest winner a diamond valued at $50 but required the winner to have it set in a ring for a charge. The winner bought a ring, and the jeweler billed $129.50 less a $50 diamond allowance, leaving $79.50 due.

The letter treated the $79.50 balance as the taxable sale to the winner. It classified the diamond itself as an advertising giveaway consumed by the jeweler.

Tax therefore applied both to the $79.50 sale and to the jeweler's cost of the diamond. If the diamond had been acquired under a resale certificate, the source said its cost had to be reported as self-consumed inventory.

Citations and references

• The source letter cites no statute or regulation by number.
• March 26 inquiry — contest facts recited; year, letter, and any attachments not reproduced in the official PDF
• Oakland Count-the-Diamonds contest, $50 diamond, required setting, $129.50 billed price, $50 allowance, $79.50 balance, assumed resale-certificate purchase, and Line 2 reporting — facts, assumption, amounts, and direction supplied; contest rules, entries, winner record, advertisement, invoice, diamond cost, resale certificate, and return not reproduced in the official PDF
• Official Annotation 280.0340's diamond value, ring sale, allowance, advertising-consumption, tax-measure, and resale-certificate summary — annotation supplies no additional contest, invoice, diamond-cost, return, or implementation record
• Possible later return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 280.0340
• Original supporting opinion: 280.0340 PDF

Original ruling text

280.0340

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 11, 1954

J--- A--- S--- Committee
C--- R--- J--- A---, Inc.
XXXX -----, California
Your letter of March 26
Attention:

Mr. J--- L--Chairman

Gentlemen:
Recently an Oakland jeweler ran a contest “Count-the-Diamonds” in which the winner received a $50.00 diamond. However, the winner was required to have the diamond set in a ring, a charge being made for the setting. In this case the winner decided to purchase a ring from the jeweler and have the stone set in it. The jeweler billed him for a total price of $129.50 less allowance of $50.00 for the diamond, leaving a balance of $79.50. It is our opinion that the proper measure of tax upon the sale is $79.50 and that the jeweler has given away the diamond for advertising purposes and is therefore the consumer of the diamond. Accordingly, the tax applies to the sale of $79.50 plus the cost to the jeweler of the diamond. Assuming that the jeweler purchased the diamond under a resale certificate, he would be required to include its cost on Line 2 of his return. Yours very truly,

Bill Holden
Assistant Counsel

BH:ja
cc:

Oakland – Auditing