Was selling a cash-purchased gift certificate or assigning a customer's financed account receivable subject to sales tax?

Plain-English summary

Customers bought gift certificates with cash and could give them to someone who would obtain merchandise or apply the certificate to a charge account. The letter treated the certificate as evidence of an intangible right, so its sale was not subject to sales tax.

Applying a certificate to a charge account was not a merchandise return because no merchandise was being sold in that step. Tax applied only when the customer purchased tangible personal property.

Similarly, when a retailer assigned a customer's financed account to a bank or finance company, the source found no second sale. The retailer transferred an intangible contract right, not merchandise.

Citations and references

• The source letter cites no statute or regulation by number.
• Retailer's Jan. 20, 1961 letter — questions described; letter and attachments not reproduced in the official PDF
• Cash-purchased gift certificates, stated merchandise amount, gifts, charge-account application, customer financing, and assignment to a bank or finance company — practices described; certificate, purchase receipt, merchandise sale, account ledger, financing contract, assignment, bank or finance-company agreement, and payment records not reproduced in the official PDF
• Road-tax-exemption request and Controller referral — identified but not resolved; request, referral date, copies, and Controller response not supplied
• Official Annotation 280.0580's cash purchase, intangible right, charge-account application, and no-merchandise-return summary — annotation omits the assigned-receivable and road-tax-referral issues and supplies no additional transaction or implementation record
• Possible later certificate redemption, account credit, receivable assignment, Controller response, return filing, audit, assessment, payment, refund claim, appeal, or other outcome — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 280.0580
• Original supporting opinion: 280.0580 PDF

Original ruling text

280.0580

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 25, 1961

[X]

Dear Mr. [X]:

This is in reply to your letter of January 20, 1961, concerning sales tax treatment gift certificates and assignment of accounts receivable. Gift certificates are purchased with cash; when given as a gift, they entitle the owner to merchandise in the amount shown on the certificate. The customers may also apply them to their charge accounts. The gift certificate is evidence of an intangible right and is, therefore, not subject to sales tax. Applying gift certificates to charge accounts does not constitute “merchandise returned” because there is no sale of merchandise in question. Tax should only be charged these customers on the purchase of items of tangible personal property. When a person charges an item to his account and later finances it through a bank or finance company, there is no second sale involved. You are assigning an intangible contract right and, therefore, there is no sales tax consequences involved. This should not be treated as merchandise returned. Your request for a “road tax exemption” will be referred to the office of the Controller and that office will direct you in the proper procedure. Very truly yours,

R.H. Stetson
Tax Counsel
JHK:o’b
cc:

San Jose - Administrator