Did sales tax apply when a contest winner took cash instead of a prize car and never received title or possession of the vehicle?

Plain-English summary

A dealer was asked to deliver a new vehicle from its inventory to a contest winner. The winner did not need the car and wanted the dealer to keep it and pay cash instead.

Tax counsel assumed the winner would receive neither title nor possession. Without either transfer, there was no vehicle gift from the dealer and no resale of the vehicle back to the dealer. The cash simply replaced a prize the winner never owned or possessed.

That cash arrangement had no sales-tax consequence under the stated assumptions. The dealer's later retail sale of the vehicle to another customer was taxable in the ordinary way.

What this means for you

Document whether title or possession ever passes before substituting cash for a tangible prize. The source warns that any title transfer changes the analysis.

Common questions

Q: Did the winner buy and resell the car?

A: No, because the winner never received title or possession.

Q: Was the dealer's later customer sale taxable?

A: Yes.

Citations and references

• California Revenue and Taxation Code §§ 6006(a) and 6051
• “Rev. & Tax. Code § 1656.1” — as printed in the official PDF concerning contractual collection of sales-tax reimbursement
• Dealer's Feb. 8, 1993 letter and telephone conversation — letter quoted and call referenced; complete letter, attachments, and call notes not reproduced in the official PDF
• 1993 contest award, manufacturer/distributor supply, dealer inventory and flooring, winner's cash request, no title or possession, and planned later retail sale — facts supplied or assumed; contest rules, award notice, vehicle invoice, title, registration, floorplan agreement and statements, cash agreement and payment, and later-sale record not reproduced in the official PDF
• Official Annotation 280.0345's manufacturer request, inventory delivery, cash-in-lieu, no-title-or-possession, and no-sales-or-use-tax summary — annotation supplies no additional contest, vehicle, financing, cash, or later-sale record
• Possible later cash payment, title or registration action, vehicle sale, return filing, audit, assessment, 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 280.0345
• Original supporting opinion: 280.0345 PDF

Original ruling text

280.0345

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

March 26, 1993

GRAY DAVIS
Controller, Sacramento
────────
BURTON W. OLIVER
Executive Director

Mr. T--- V--P--- P--- C--XXXX --- --- Lane
---, CA XXXXX
Re:

SR -- XX-XXXXXX

Dear Mr. V---:
This is in response to your letter dated February 8, 1993 in which you state: "Mr. J--- recently won a contest from C--- C--- and P--- M--- D--- of G---. The award is a new 1993 [car]. As we are the nearest [car] Dealer to Mr. J---, we were asked to deliver the vehicle to him. "The above vehicle is in our inventory and it was purchased from P--- M--- D--by P--- P---. We floor all our vehicles with G---, therefore P--- M--- D--- was paid for this vehicle and P--- P--- owns this vehicle through G--- with flooring (interest) paid monthly. "Mr. J--- has no need for this car and would like P--- P--- to repurchase this vehicle and issue cash to Mr. J--- in lieu of the vehicle. "This is acceptable to P--- P---. responsible for the sales tax.

Our only concern is who (if anybody) is

"Per our phone conversation, it appears the sales tax would not have to be collected as the prize winner is never actually taking possession of the winning vehicle.

Mr. T--- V---

-2-

March 26, 1993
280.0345

"P--- P--- is keeping and retailing this vehicle to another customer who will actually pay the sales tax. If this is true and accurate, please respond to me so we can be in agreement." Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. A sale includes any transfer of title or possession, in any manner or by any means whatsoever, of tangible personal property for a consideration. Rev. & Tax. Code § 6006(a). As we understand the facts, Mr. J--- will not receive possession of the [car]. We assume also that your dealership will not pass title to him. In other words, he will never own or possess the [car] and thus cannot pass title or possession to the vehicle back to your dealership. Therefore, there has been no gift from your dealership to Mr. J--- and no sale from Mr. J--- to your dealership. The cash he receives is in lieu of the vehicle which he never owned or possessed.1/ Since there is no sale from your dealership to Mr. J--- or from Mr. J--- to your dealership, this transaction has no sales tax consequences. Your sale of the vehicle to another customer is subject to sales tax which is imposed upon your dealership. Your dealership may, however, collect sales tax reimbursement (usually itemized on the invoice as "sales tax") from the purchaser if the contract of sale so provides. Rev. & Tax. Code § 1656.1. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl

1/

If title does pass to Mr. J---, at any time, the tax consequences will not be as stated above.