How should a wholesaler tax a deal combining resale merchandise with premiums the retailer would not resell?

Plain-English summary

A wholesaler asked about premiums furnished to retailers in connection with wholesale sales. The letter applied historical Ruling 72's rule that tangible personal property provided as a premium with other sold property is treated as a sale of both articles.

When the main merchandise was sold for resale but the retailer did not acquire the included premiums for resale, the wholesaler had to allocate a portion of the total deal price to the premiums. That allocated amount represented gross receipts from a taxable retail sale.

The source said no general allocation formula would work for every arrangement. It invited the wholesaler to submit complete facts for a particular transaction and said prior drug-wholesaler audits used the method most appropriate to each case.

Citations and references

• Historical California Sales and Use Tax Ruling 72 — cited and characterized; copy identified as enclosed but not reproduced in the official PDF
• Wholesaler's Jan. 6 and Feb. 20 letters concerning premiums and request for a rulings mailing list — questions and request described; years, letters, attachments, and transaction details not reproduced in the official PDF
• Prior drug-wholesaler audits using circumstance-specific allocation methods — practice described; taxpayers, periods, workpapers, transactions, methods, findings, and final outcomes not reproduced in the official PDF
• Principal resale merchandise, nonresale retailer premiums, total deal charge, allocated premium gross receipts, and transaction-specific ruling invitation — rule and procedure supplied; agreements, orders, invoices, premium identities and costs, resale certificates, allocation workpapers, gross-receipts records, returns, and tax payments not reproduced in the official PDF
• Sales and Use Tax Rules and Regulations availability through the Printing Division Documents Section and commercial tax services — historical access information supplied; catalog, edition, order, and publication records not reproduced in the official PDF
• Official Annotation 280.1180's mixed deal, sale-of-both-articles, premium allocation, and allocated-tax-measure summary — annotation omits the no-universal-method warning, prior-audit practice, ruling invitation, and publication request and supplies no additional transaction record
• Possible later transaction-specific submission, allocation, ruling, 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 280.1180
• Original supporting opinion: 280.1180 PDF

Original ruling text

280.1180

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 24, 1950

B--- D--- Company
XXXX South --- --- Avenue
P.O. Box XXXX, --- ----- --- XX, California

Attention:

• • XXXX

Mr. F. D. C---:
Treasurer

This is in answer to your letters of January 6, and February 20 regarding the application of the sales tax and use tax with respect to premiums furnished to retailers in connection with wholesale sales to such retailers. The basic rule governing the application of the tax with respect to premiums is set forth in Sales and Use Tax Ruling 72, copy enclosed. You will note that where tangible personal property is furnished as a premium together with other tangible personal property sold, the transaction is regarded as a sale of both articles. Thus, where the principal merchandise is sold for resale and hence the sale thereof is not taxable, but included in the “deal” are premiums which are not sold for resale, it is necessary for the seller of the “deal” to ascertain that portion of the total charge made properly allocable to the premiums and return the tax measured by such amount. The precise method of determining this amount which is deemed to represent gross receipts from the retail sale of the premiums is difficult to set forth in any general statement that would be applicable in all situations. In previous audits of drug wholesalers we have attempted to arrive at this figure by that method which appears most appropriate to the circumstances in each case. If you wish us to give you a ruling in any particular transaction or type of transaction, we shall be pleased to have you furnish us with complete details of a particular transaction or type of transaction so that we will have all the facts before us.

B--- D--- Company

-2-

March 24, 1950
280.1180

We note your request to be placed on the mailing list to receive all rulings issued under the Sales and Use Tax Law. We do not maintain such a mailing list, but the Sales and Use Tax Rules and Regulations are available through the Printing Division, Documents Section, 11th and O Streets, Sacramento, and also from publishers of various tax services, such as California Tax Service, 1096-1098 Dwight Way, Berkeley. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:ph
cc:

Mr. William R. Thomson