Were promotional devices bought from a manufacturer and resold to appliance dealers at or below cost taxable retail sales?

Plain-English summary

A household-appliance distributor bought small electric signs for $20 each and supplied them to dealers for $10. In a later program, a manufacturer bought promotional devices for $167, sold them to the distributor for $83.50, and the distributor planned to bill dealers the same $83.50.

The letter treated the manufacturer-to-distributor transactions as sales for resale and the distributor-to-dealer transactions as taxable retail sales.

Tax was measured by the distributor's actual gross receipts from each dealer: $10 for each sign in the first program and $83.50 for each device in the second, despite the below-cost or at-cost pricing.

Citations and references

• The source letter cites no statute or regulation by number.
• Distributor's earlier $20 electric-sign cost and $10 dealer charge, later manufacturer's $167 device cost and $83.50 distributor price, and planned $83.50 dealer billing — facts and amounts supplied; inquiry, promotional programs, product specifications, manufacturer and distributor agreements, orders, invoices, payments, dealer billings, delivery records, gross-receipts records, returns, and tax computations not reproduced in the official PDF
• Official Annotation 280.0880's manufacturer sale for resale, distributor taxable retail sale, at-or-below-cost pricing, and actual-charge measure — annotation generalizes the appliance and price facts and supplies no additional transaction or implementation record
• Possible later device purchase or sale, 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 280.0880
• Original supporting opinion: 280.0880 PDF

Original ruling text

280.0880

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 19, 1954

H. R. B--- Co.
XXX XXth Street
--- --- X, California
Account No. X - XXX
SR -- XX-XXXXXX
Attention:

Mr. W. P. M--Secretary

Gentlemen:
You are a distributor of the larger type of household appliances and several years ago you purchased some small electric signs to be used in connection with the promotion of one of your merchandise lines. The signs cost you $20.00 each, but you furnished them to your dealers at $10.00 each. You have a similar situation arising again except that the manufacturer has obtained the sales promotion devices at a cost of $167.00 each. They are furnishing them to you at one-half price or $83.50 each. You, in turn, will bill them to your dealers at $83.50. It is our opinion that in both cases you are acquiring the items for resale and your sale to your dealer is the retail sale and subject to tax. The measure of tax is your gross receipts from this retail sale, in the first instance $10.00 for each sign and in the second instance $83.50 for each device. Very truly yours,

Bill Holden
Assistant Counsel

BH/ja
cc:

--- --- - Auditing