Did tax apply when a graphic-finishing business reimbursed reprinting costs after ruining a customer's print job?

Plain-English summary

A printer sent a customer's completed print job to a graphic-arts finishing business. If the finisher made an error, the job had to be reprinted and the finisher sometimes reimbursed the replacement cost.

Under the Board's assumptions, the retail customer contracted with the printer and paid only the original order price. The printer's transfer of the completed order to the customer was the taxable retail sale. Redoing the work created no additional tax consequence because the customer was not charged a second sale price.

If the finisher reimbursed the customer for the printing price, that payment was damages for the error rather than consideration for a sale of tangible personal property, so no tax was due on the reimbursement.

The letter also answered an administrative question: a resale-certificate holder's address change did not require a new certificate, but the Board should be notified so its records could be updated.

Key assumptions

• The printer, not the finisher, contracted with the retail customer.
• The finisher billed the printer for finishing services.
• The retail customer paid only the original order price after the job was redone.

Citations and references

• The supporting opinion cites no statute, regulation, case, or prior ruling by number.
• March 10, 1993 letter asking about tax on reimbursement for a replacement printing job and address changes by resale-certificate holders — question and facts supplied; letter and supporting records not reproduced in the official PDF
• Printing order, finishing work, error, replacement printing, original customer price, printer billing, and possible customer reimbursement — facts supplied; order, contracts, printed matter, invoice, payment, error record, reprint, reimbursement, and title-transfer records not reproduced in the official PDF
• Assumptions that the retail customer contracted with the printer, the finisher billed the printer, and the customer was billed only the original order price after replacement — express conditions of the opinion
• Resale certificate and holder's address change — administrative question answered; certificate date, number, holder, copy, address notice, and later update not supplied in the official PDF
• Official Annotation 295.0432's customer-printer contract, printer-to-graphic-artist transfer, defective work, replacement cost, original-price billing, no-additional-tax, damages, title-transfer, and May 5, 1993 summary — annotation characterizes the finisher as a graphic artist and omits the March 10 request, express assumptions, resale-certificate address question, missing records, absence of numbered legal authority, and later outcome and supplies no additional transaction record
• Possible replacement order, reimbursement, address update, revised resale certificate, return filing, audit, assessment, refund claim, appeal, or other later 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/295-0432.pdf

Original ruling text

295.0432

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6496

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS

Controller, Sacramento

May 5, 1993

BURTON W. OLIVER

Executive Director

Ms. M--- H--I--- P---, Inc.
XXX C--- Drive
--- ---, CA XXXXX
Re:

Applicability of Sales Tax
SR -- XX-XXXXXX

Dear Ms. H---:
This office has received your letter dated March 10, 1993 in which you requested information concerning the applicability of sales tax in certain situations. You state in your letter that I--- P---, Inc. is a graphic arts finishing business. I--- P--puts the finishing touches on printing jobs forwarded by printers. Sometimes, I--- P--- makes an error on a job. The job must be redone and I--- P--- must sometimes reimburse the customer for reprinting the job. You asked if this is taxable. It is assumed that the retail customer contracts with the printer for the job order. The printer forwards the printed order to I--- P--- for their services and I--- P--- bills the printer for the work which it performs on the order. If the job order must be redone, it is further assumed that the retail customer is billed only for the price specified in the original order. Under these circumstances, the act of redoing the job has no tax consequence. Tax applies only to the amount billed to the retail customer by the printer since this is a transfer of title to the order only from the printer to the customer. If I--- P--- must reimburse the retail customer for the price paid on the printing order billed by the printer, there is no tax due on this amount. The payment of such cost is in the nature of "damages," not the sale of tangible personal property.

Ms. M--- H---

-2-

May 5, 1993
295.0432

You also ask if a resale certificate holder changes their address, is it necessary that a new resale certificate be obtained? A new resale certificate should not be obtained in this situation, but the Board should be notified in order that it may change its mailing list and put the correct address in the file. Very truly yours,

Thomas Cooke
Tax Counsel

TC:cl

cc:

--- --- District Administrator