What tax consequences arose when a business gave away tax-paid cars to promote another company's products and was reimbursed?

Plain-English summary

A business distributed chances for free automobiles to customers to promote another company's petroleum products. It bought the cars tax-paid, transferred title to winning ticket holders, and was then reimbursed for the automobile cost by the petroleum company.

The memorandum treated the business's use of the cars to promote sales as a taxable use. It also treated the transfer and reimbursement arrangement as a taxable sale by the prize-awarding business to the petroleum company.

For sales-tax purposes, the source said it did not matter that consideration came from someone other than the person who received the tangible personal property.

Citations and references

• The source memorandum cites no statute or regulation by number.
• July 23 Stockton correspondence, tax-paid automobile purchases, customer chance distribution, petroleum-product promotion, winner selection, title transfer, and petroleum-company cost reimbursement — facts supplied; correspondence, promotion and reimbursement agreements, tickets, customer eligibility and winner records, vehicle orders and invoices, tax-paid proof, titles, registration, delivery, reimbursement invoices and payments, books, returns, and tax computations not reproduced in the official PDF
• Official Annotation 280.1160's free chances, tax-paid purchase, later reimbursement, promotional use, third-party consideration, and taxable-sale summary — annotation supplies no additional agreement, vehicle, winner, title, reimbursement, or implementation record
• Possible later vehicle transfer, reimbursement, 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 280.1160
• Original supporting opinion: 280.1160 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

280.1160
Sacramento
August 13, 1957

To:

Stockton – Auditing (LFG)

From:

Headquarters – Sales Tax Counsel (JJD)

Subject:

The P--- P--- Company
P.O. Box XXX
---

Account K-X-XXXXX
Yours of July 23

As we understand the facts, the P--- P--- Co., Inc., distributes chances on a free automobile to its customers as a means of furthering the sales of C--- O--- Co. P---. The automobiles which are given away are purchased by P--- P--- on a tax-paid basis. Following the signing over of the pink slip to the holder of the lucky ticket, C--- reimbursed P--- P--- for the cost of the automobile. It is our opinion that P--- P--- Co., Inc. makes a taxable use of the automobiles in furthering their sales of petroleum products. We are of the further opinion that the transfer of the automobiles to the holder of the winning ticket in return for reimbursement paid by C--- O--- Co. would result in a taxable sale being made by P--- P--- to C--- O--- Co. For sales tax purposes it is of no consequence that a seller receives consideration from a person other than the person to whom he transfers the tangible personal property

James J. Delaney

JJD:cl