Who sold mail-order needlepoint premiums advertised on foil cartons when another manufacturer held inventory, took payment, fulfilled orders, and paid the advertiser a commission?

Plain-English summary

An aluminum-foil manufacturer advertised needlepoint kits on its cartons. Another manufacturer created and held the kits, operated the order address under a fictitious name, received payment, processed orders, shipped customers' kits, and paid the foil manufacturer commissions.

The recommendation concluded that the kit supplier—not the foil manufacturer—was the seller because it retained possession and the power to transfer title. The advertising's “available only through” language did not outweigh the actual fulfillment arrangement.

The protested estimated premium-sales item was deleted and redetermination without other adjustment was recommended.

What this means for you

Seller identity follows the actual contract and transaction: inventory possession, customer payment, order processing, shipment, and title-transfer power matter more than promotional wording alone.

Citations and references

• Business Taxes Law Guide Annotation 280.0220 (Apr. 1, 1965) — cited and characterized; underlying opinion not reproduced in the official PDF
• Feb. 16, 1979 submission, waived appearance, file materials, Apr. 1, 1973–June 30, 1977 audit, and Jan. 24, 1979 determination — procedure and arguments supplied; letter, file, audit report and workpapers, determination, and taxpayer records not reproduced in the official PDF
• $12,500 state/local/county and $1,248 transit-district protested measures estimated from 25,000 kits, 10 percent California sales, and $5 per kit because records were unavailable — amounts and method supplied; sales records, population support, sampling analysis, and calculations not reproduced in the official PDF
• Foil-carton advertising, needlepoint-kit contract, 25,000-kit guarantee, additional offers, approvals, fictitious-name post office box, order processing, customer mailing, correspondence split, customer list, commissions, and $4.50–$5 prices — terms supplied; contract, carton and kit offers, inventory, correspondence, orders, payments, mailings, list, accounting, and commission records not reproduced in the official PDF
• Official Annotation 280.0790's two-manufacturer program, order processing, shipment, seller disclosure, and premium-supplier retailer summary — annotation omits the audit, estimate, contract detail, and deletion recommendation and supplies no additional transaction or final-action record
• Possible later Petition Unit adjustment, redetermination, payment, refund claim, appeal, or other final outcome — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 280.0790
• Original supporting opinion: 280.0790 PDF

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION
In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law
Petitioner

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280.0790

DECISION AND RECOMMENDATION

Petitioner waived appearance in the above entitled matter and requested redetermination based on arguments and facts presented in a letter dated February 16, 1979. This hearing report is based on that letter and material in the file. H. L. Cohen, Hearing Officer PROTEST Petitioner protests the assertion of tax on transfers of premiums. Tax was asserted on the basis of an audit covering the period from April 1, 1973 through June 30, 1977, and pursuant to a determination dated January 24, 1979. The amount upon which the protested tax is based is
$12,500 for state, local, and county tax purposes and $1,248 for transit district tax purposes. CONTENTIONS Petitioner contends that it was not the seller of the property in question and is not liable for the tax. SUMMARY

1. Petitioner is a corporation engaged in manufacture and sale of aluminum and aluminum
   products. The last previous audit was for the period through September 30, 1972.
2. Petitioner manufactures aluminum foil for household use which is sold at retail principally
   through grocery stores. As part of a retail marketing program, the cartons containing the foil also contained an offer to sell to the foil purchaser needlepoint kits manufactured by ---. The contract between petitioner and --- provided that --- would create, manufacture and sell the kits and that petitioner would at its own expense advertise the kits to consumers. Each kit was to contain an offer for additional kits which was printed by petitioner at its own expense. The advertisements were to be reviewed and approved by --- was to establish a post office box in the name of --- in the vicinity of Providence, Rhode Island. --- was responsible for processing all orders and for mailing the kits to customers. The advertising stated that the kits were available only from --petitioner’s product. Petitioner guaranteed the sale of a minimum of 25,000 kits and agreed to purchase from --- the number of kits equal to the difference between 25,000 and the number actually sold. Petitioner was to handle only that correspondence concerning the quality of the kits and their conformity to advertising representations and related matters. --- was to handle all other correspondence. --- was to prepare a list of all customers which became the sole property of petitioner. Petitioner was to receive a commission on all sales of kits. --- has no place of business or agents in California. The price of the kits ranged from $4.50 to $5.00 depending on the quantity ordered.

3. The auditor, relying on the wording of the offer that the kits were available only from --- held that petitioner was the retailer of the kits and liable for the tax. Because no records were made available, the auditor estimated receipts based on sale of all 25,000 kits, 10 percent of sales in California, and $5 per kit. ANALYSIS AND CONCLUSIONS Petitioner’s contract with --- clearly provided that --- retained possession of the kits and the power to transfer title. Although petitioner’s advertising stated that the kits were available only through petitioner, the mailing instructions specified a fictitious name which was in fact ---. Payment for the kits was to the --- fictitious name and not to petitioner. Petitioner received only an accounting and commissions from. In a similar case we have held that the supplier of the premium rather than the premium advertiser was the seller. See Business Taxes Law Guide, Annotation 280.0220, April 1, 1965. RECOMMENDATION Delete the protested item from the measure of tax. Petition Unit to make adjustment. Redetermine without other adjustment.

H.L. Cohen, Hearing Officer

Date

3/30/1979