Did directing part of a painting's required price to charity reduce the California taxable sales price?

Plain-English summary

A painting sold for a required $750 price. The artist received $500, a charitable organization received $250, and the buyer was told that the charitable portion constituted a contribution.

Tax counsel concluded that sales tax applied to all $750 because that was the amount the customer had to pay to acquire the painting. How the seller disposed of the proceeds did not change gross receipts from the sale.

The source distinguished statutory exemptions for qualifying sales by certain charitable organizations. Merely directing sale proceeds to charitable purposes did not make the buyer a beneficiary of charity or exempt part of the seller's receipt.

Citations and references

• California Revenue and Taxation Code sections 6012 and 6375 (as cited)
• Requester's Jan. 17, 1966 letter to the Board's Hollywood subdistrict office about a painting sale and charitable allocation — facts and question supplied; request, attachments, requester and purchaser identities, artist identity, charity identity, and referral record not reproduced in the official PDF
• $750 painting price, $500 artist payment, $250 charitable allocation, and purchaser notice treating the $250 as a contribution — facts supplied; painting, sale agreement, invoice, notice, contribution receipt, payment and allocation records, charity qualification materials, returns, and tax computations not reproduced in the official PDF
• Official Annotation 295.0220's stipulated painting price, artist/charity allocation, full-price tax, and no-effect-of-proceeds-disposition summary, dated Feb. 11, 1966 — annotation omits the Jan. 17 request and referral provenance, dollar amounts, purchaser notice, sections 6012 and 6375 analysis, charitable-beneficiary limitation, source wording defect, and missing records and supplies no additional transaction record
• Possible later painting sale, contribution acknowledgment, allocation or payment, return filing, charitable-exemption determination, 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/295-0220.pdf

Original ruling text

295.0220

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 11, 1966

Dear:
Your letter of January 17, 1966, addressed to our Hollywood subdistrict office, has been referred to this office for reply. The question is the measure of sales tax when a painting is sold for $750, the artist being paid $500 and a charitable organization receives
$250 of the $750. You state that the purchaser is advised that the $250 of the total amount constitutes a contribution to the charitable organization. It is our opinion that the sales tax validly applies to the total sales price of $750. It is fundamental in sales tax law that the disposition of the proceeds of a sale do not affect the taxability of the gross receipts from the sale. If the customer must pay $750 to acquire the item in question, we do not believe the law permits that this amount be broken down so as to apply the sales tax to the gross receipts less the amount earmarked for charity. This conclusion is based upon the broad definition of "gross receipts" contained in § 6012 of the Sales and Use Tax Law, and the basic concept that the disposition of the proceeds of the sale do not determine taxability. The Legislature provided in § 6375 of the Sales and Use Tax Law, added in 1959, for an exemption with respect to sales by certain charitable organizations provided the sales are made, among other conditions, “as a matter of assistance to the purchasers.” Many organizations engage in selling activities the proceeds from which largely, or even entirely, go to charitable purposes. The purchasers, however, are not the beneficiaries of the charity. Such sales are not considered exempt in whole or in part from the sales tax, the economic burden of which is passes on to the purchaser.

Very truly yours,

E. H. Stetson
Tax Counsel
cc:

Hollywood – Subdistrict Administrator
Los Angeles District – District Principal Auditor