Ezel / Tax Rulings / CA

Was a 'free' premium transferred for reopening an account and buying other merchandise treated as resold property?

Short answer Yes. Because the premium was provided only with a contemporaneous purchase, the source treated the retailer as reselling it rather than making an advertising gift, sample, or chance-or-skill prize.
State
CA
Ruling
Annotation 280.0780
Tax type
Sales and Use Tax
Issued
1954-05-19
Issued by
California State Board of Equalization
Requested by
Board San Jose auditing staff
Topics
resale exemption sales invoice
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1954. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1954
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This May 19, 1954 sales-tax-counsel memorandum applies historical Ruling 72 to premiums available only when former customers bought merchandise within ten days after notice and reopened or added to an account. The PDF does not reproduce the May 7 or May 6 memoranda, attachments, notice, customer and account records, purchase order, invoice, product cost, inventory, delivery, Ruling 72, return, or tax computation. It prints 'In othe words'; that source form is preserved. CDTFA's current annotation generalizes the ten-day notice and omits the invoice and Ruling 72 analysis. Another taxpayer should check current premium, bundled-sale, consideration, customer-reactivation, invoice, resale, valuation, recordkeeping, and sales-and-use-tax law. Another taxpayer should not treat it as binding. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A retailer offered towels and similar property to former customers who reopened or added to their accounts by buying other merchandise within ten days. The premium appeared on the invoice with no separate sales amount and was never supplied unless another purchase occurred.

The memorandum treated the retailer as reselling the premium merchandise. It reasoned that the property was not an advertising giveaway, sample, or prize dependent on chance or skill.

Because the premium was provided only together with tangible personal property sold at the same time, the source placed it within the last paragraph of historical Ruling 72.

Citations and references

  • Historical California Sales and Use Tax Ruling 72, last paragraph — cited and characterized; ruling text not reproduced in the official PDF
  • San Jose Auditing's May 7 memorandum and attached May 6 memorandum — facts and question recited; memoranda and attachments not reproduced in the official PDF
  • Former-customer notice, ten-day period, account reopening or addition, other merchandise purchase, towel or similar premium, no separate invoice amount, and contemporaneous delivery — facts supplied; notice, customer and account records, purchase order, invoice, product costs, inventory, delivery, and tax records not reproduced in the official PDF
  • Official Annotation 280.0780's former-customer, reopen-or-add, limited-time purchase, and resale summary — annotation generalizes the ten-day notice and omits the invoice and Ruling 72 analysis and supplies no additional transaction record
  • Possible later premium transfer, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Jose – Auditing (RGS)

From:

Headquarters – Sales Tax Counsel (WWM)

Subject:

K--- J--- Co. of S--- J---, Inc.
XX South --- Street
--- ---, California

280.0780
Sacramento, California
May 19, 1954

Account No. SR --H XX XXXXXX

This is in answer to your memorandum of May 7 and the attached memorandum of May 6. It appears that K--- J--- offers certain personal property such as towels, etc., to former customers who will reopen or add to their account within ten days after receiving a notice to that effect from K--- J---. In othe words, if the former customer will buy something within the prescribed period, he receives the premium merchandise free of charge and the additional merchandise is never furnished until other merchandise is purchased. The premium merchandise is listed on the sales invoice with no sales amount. You inquire whether K--- J--- is selling or giving the premium merchandise away under the California Sales and Use Tax Law. We are of the opinion that K--- J---, under the above facts, may properly be regarded as a reseller of the premium merchandise, in view of the fact that the property is not given away for advertising purposes, given away for sample use, or awarded as prizes the winning of which depends upon chance or skill. Therefore, it apparently comes within the exact wording of the last paragraph of Ruling 72, since it is only given together with tangible personal property sold at the same time.

W. W. Mangels

WWM:ja

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