Who sold premium merchandise to grocers who earned points for selling a manufacturer's products?

Plain-English summary

A manufacturer awarded grocers points for selling its products. Grocers could surrender the points at one cent each for catalog merchandise supplied by four vendors, either through the manufacturer's warehouse or by direct shipment from a supplier.

The letter treated the manufacturer as seller to the grocer in both shipment structures. The selling price was the number of points surrendered, valued at one cent per point.

Under historical Ruling 55, the source treated deliveries to out-of-state grocers as exempt interstate-commerce transactions and California deliveries as taxable. Because the manufacturer was reselling the premiums, it could give suppliers resale certificates even for direct shipments and could claim the historical Ruling 71 deduction for tax-paid purchases resold.

Citations and references

• Historical California Sales and Use Tax Ruling 55, section A-1-(c) — cited and characterized; ruling text not reproduced in the official PDF
• Historical California Sales and Use Tax Ruling 71 — cited and characterized; copy identified as enclosed but not reproduced in the official PDF
• Controller's Apr. 25 request — facts and question recited; year, letter, attachments, and Long Beach referral record not reproduced in the official PDF
• Nationwide grocers, sales-earned points, 60 catalog items valued $2–$500, one cent per point, four suppliers, direct and warehouse shipments, assumed grocer orders, California and out-of-state destinations, resale certificates, and tax-paid purchases — facts supplied or assumed; program terms, point records, catalog, orders, supplier agreements and invoices, shipping and delivery proof, certificates, tax payments, and deductions not reproduced in the official PDF
• Official Annotation 280.0740's grocer points, catalog, manufacturer sale, supplier shipment, one-cent rate, and destination treatment — live page renders the rate as “1H per point,” omits the resale and tax-paid-purchase directions, and supplies no additional transaction record
• Possible later premium delivery, return filing, audit, assessment, payment, deduction, 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 280.0740
• Original supporting opinion: 280.0740 PDF

Original ruling text

280.0740

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
August 31, 1955

S--- F---, Inc
T--- I--California
Attention:

SR -- XX XXXXXX
Mr. R--- R. K--Controller

Gentlemen:
Your letter of April 25 addressed to our Long Beach office has been forwarded to this office for reply. You request our opinion concerning the application of tax to your “Grocer Premiums Incentive Program”. Grocers throughout the nation are given points for selling your products. They are also supplied with catalogs which list 60 items of merchandise with retail values ranging from $2.00 to $500.00 The grocer may acquire one of the premium items by surrendering the points he has earned at the rate of 1¢ per point. Premium merchandise is supplied by four suppliers. In some cases the supplier will ship direct to the grocer and in other cases he will ship to your warehouse from which you will make shipment to the grocer. We assume that the grocer sends his order for premium merchandise to you. It is our opinion that your are selling the merchandise to the grocer whether you make shipment yourself or direct a supplier to make shipment. It is our opinion that the selling price is the number of points surrendered by the grocer for the premium merchandise at the rate of 1¢ per point. As indicated in Section A-1-(c) of Ruling 55 your delivery to an out-of-state grocer is an exempt interstate commerce transaction. Deliveries to California grocers are, however, subject to tax and you must pay this tax measured by the selling price. Since you are regarded as selling the premium merchandise, you may issue a resale certificate to your supplier. A resale certificate should be furnished to the supplier even if he makes shipment directly to the grocer. If you have paid tax on purchases, you will be entitled to a deduction for tax-paid purchases resold as set out in Ruling 71, copy enclosed. Very truly yours,

Bill Holden
Associate Tax Counsel
BH:tj
cc:
Long Beach – Auditing