Can a retailer donate tax-free merchandise that was acquired under a resale certificate?

Plain-English summary

The 1966 letter began with the general rule that a person who buys merchandise tax-free for resale and then gives it away or otherwise uses it becomes liable for the tax that would have applied to a nonresale purchase. It distinguished merchandise that had genuinely become unsalable and had to be discarded, saying that property could be donated to charity or otherwise disposed of without tax.

The official source adds a 1989 note stating that Revenue and Taxation Code section 6403 exempts qualifying storage, use, or consumption of property donated by a retailer to an organization described in Internal Revenue Code section 170(b)(1)(A) and located in California.

A 1998 note limits that point: a person may not buy property under a resale certificate for the purpose of obtaining the section 6403 exemption. The exemption can apply when the property was first held in legitimate resale inventory and was later used through a qualifying donation.

Citations and references

• California Revenue and Taxation Code § 6403
• Internal Revenue Code § 170(b)(1)(A)
• Taxpayer's Nov. 3, 1966 letter to R. J. Haines and Franchise Tax Board referral — question and referral implied; letter, referral, and attachments not reproduced in the official PDF
• Tax-free resale purchase, later unsalability, required discard, charity gift or other disposal, and qualifying later donation from legitimate resale inventory — rules supplied; merchandise identity, invoices, resale certificate, inventory history, unsalability evidence, discard decision, charity status and location, donation receipt, valuation, and tax records not reproduced in the official PDF
• D. J. Hennessy's Apr. 17, 1989 section 6403 note and DHL's Feb. 20, 1998 qualifying-donation limitation — notes supplied; statute versions, legislative history, analysis, and editorial records not reproduced in the official PDF
• Official Annotation 280.0660's unsalable-resale-inventory and charity-or-other-disposal summary — annotation omits the 1989 and 1998 PDF notes and supplies no taxpayer-specific inventory, donation, or implementation record
• Possible later disposal, donation, exemption claim, 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 280.0660
• Original supporting opinion: 280.0660 PDF

Original ruling text

280.0660

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 28, 1966
H--- D---’s S--W--XX-XXX E--- P--P--- D---, California
SR – XX-XXXXXX
Dear Ms. D---:
Your letter of November 3 to Mr. R. J. Haines of the Franchise Tax Board has been referred to this Board which administers the Sales and Use Tax Law. When merchandise purchased without tax for resale is used for any purpose other than resale, such as giving it away, the user becomes liable for the amount of tax that would have been paid had the property been purchased for gifts or for any purpose other than resale. When, however, merchandise purchased for resale has become unsalable and, thus, must be discarded, it may be given to charity or otherwise disposed of without incurring tax liability. Very truly yours,

E. H. Stetson
Tax Counsel
EHS:fb
cc:

--- --- – Admin.

Section 6403 has been added to the Revenue and Taxation Code providing that the storage, use, or other consumption in this state of property donated by any retailer to any organization described in Section 170(b)(1)(A) of the Internal Revenue Code and located in California, is exempt from the use tax. D. J. Hennessy 4/17/89

As with the circumstances in the annotation, a person may not purchase property under a resale certificate for the purpose of obtaining a section 6403 exemption. It would apply, however, if a person held property in legitimate resale inventory & then used it by making a qualifying donation. DHL 2/20/98