How did California tax books and other physical materials bundled with a nationwide correspondence course?

Plain-English summary

A nationwide correspondence school made about 97% of its sales to people outside California. Its course included books, lesson materials, kits, models, records, and other physical property transferred to students.

The Board concluded that California tax applied to the fair retail selling price of those materials furnished to in-state students, even if the school did not separately state their price. Materials mailed to a destination outside California were not taxed under the cited rule.

Because the school resold the course materials, it could buy them ex tax using a resale certificate. By contrast, it consumed its advertising material, so the printer's sale of that material to the school was taxable.

Citations and references

• Sales and Use Tax Ruling 55, section A-1-(c) (as cited)
• Sales and Use Tax Ruling 68 (as cited)
• Nationwide correspondence school's inquiry concerning course and advertising materials — facts and questions supplied; request, attachments, course contracts, catalog, price schedule, and student identities not reproduced in the official PDF
• Approximately 97-percent out-of-state sales, books and lesson materials, kits, models, records, mail destinations, fair-retail-value allocation, course-material resale purchases, and consumed advertising — facts and treatments supplied; student agreements, invoices, material lists, cost and value calculations, mailing records, printer invoices, advertising copies, resale certificate, returns, and tax computations not reproduced in the official PDF
• Enclosed copies of Historical Ruling 55 and Historical Ruling 68 — identified; rulings, copies, and enclosures not reproduced in the official PDF
• Official Annotation 295.0140's in-state books and lesson materials, fair-retail-value measure, resale purchases, and out-of-state mailing summary, dated Oct. 23, 1953 — annotation omits the 97-percent figure, kits/models/records, advertising-material treatment, seller's-permit suggestion, historical authorities, and missing records and supplies no additional transaction record
• Possible later local-office conference, seller's-permit application or issuance, allocation agreement, resale-certificate use, course sale, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0140.pdf

Original ruling text

295.0140

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 23, 1953
L--- S--- of P--- N--XXX --- Street
--- --- XX, California
Attention:

Mr. L--- W--Director

Gentlemen:
You sell a correspondence course on a nationwide basis with about 97% of sales made to persons outside California. You inquire concerning the application of sales tax to your sales and to the cost of printing the course and advertising material. The sales tax is imposed upon retail sales of tangible personal property in this state. It is our opinion that the tax applies to that portion of your total charge to students that represents the fair retail selling price of the books, lesson material, kits, models, records, and other tangible personal property to which the student obtains title. The tax would not apply, of course, to property which you mail to a point outside of California. See Section A-1-(c) of Sales and Use Tax Ruling 55 (copy enclosed). The sales tax does not apply to sales for the purpose of resale in the regular course of business. Since you are regarded as selling the course material, it may be purchased ex tax for resale even though only a small portion of your retail sales will be taxable. You should furnish the printer with a resale certificate in the form prescribed in Ruling 68 (copy enclosed). You are using the advertising material and the printer’s sale to you is therefore a taxable retail sale. We suggest you confer with a representative from our local office to file an application for a seller’s permit and to work out the measure of tax upon your sales of course materials. Very truly yours,

Bill Holden
Junior Counsel
BH:ja
cc:
Santa Monica - Compliance