Was an employer a reseller of safety glasses when employees paid only 15% of the employer's cost?

Plain-English summary

An employer bought safety glasses from a dispensing optician and furnished them to employees for a charge equal to 15% of the employer's cost.

Tax counsel treated the employer as the consumer rather than a reseller. The employee charge was too remote from fair retail value to serve as taxable retail gross receipts or make the optician's sale an exempt sale for resale.

The memorandum did not say every below-cost sale should be ignored. It emphasized that established prices ordinarily were respected, but a merely nominal charge could not turn property effectively furnished for the employer's own purposes into resale merchandise. The boundary depended on the facts of each case.

Citations and references

• The official memorandum cites no statute, regulation, case, or prior ruling by number.
• May 15, 1951 memorandum and previous correspondence concerning the employer's safety-glasses arrangement — referenced; dates and contents beyond the May 15 subject, authors, recipients, and copies not reproduced in the official PDF
• Employer purchases from a dispensing optician, employee furnishing, fifteen-percent charge, fair retail value, and company purpose — facts supplied; purchase orders, invoices, cost and value evidence, employee agreements, payments, prescriptions, distribution records, and tax records not reproduced in the official PDF
• Official Annotation 295.0700's employer consumer status, dispensing-optician purchase, employee furnishing, fifteen-percent-of-cost charge, and June 5, 1951 date — annotation omits the prior-record provenance, resale-exemption analysis, ordinary-price caveat, admitted line-drawing difficulty and case-specific limit, unidentified company account and missing records, absence of numbered legal authority, and later outcome and supplies no additional transaction record
• Possible optician sale, employee charge or furnishing, return filing, audit adjustment, 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/295-0700.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

295.0700

Sacramento
June 5, 1951
To:

Mr. Burnett Sheehan (ESA)

From:

E. H. Stetson

Subject:

S--- O--- Company

Account No. X-XXXX
SZ – XX-XXXXXX

Following consideration of your memo of May 15, and previous correspondence on this matter, it is our opinion that S--- O--- Company is the consumer of the safety glasses which it purchases from a dispensing optician and furnished to its employees to whom a charge is made of 15% of the cost of the glasses to S---. We are of the opinion that under these circumstances we are not warranted in regarding S--- as having sold the glasses to its employees to the extent that the sale of the glasses to S--- is tax exempt as a sale for resale. A charge of merely 15% of the cost price does not seem to us sufficiently related to the fair retail selling price to regard it as gross receipts within the meaning of the statute. We do not, of course, take the position that a person may not sell his merchandise for whatever price he may wish to fix and ordinarily we should not question established selling prices, even though the selling prices may in some cases be less than the cost of the goods. Where, however, the discrepancy between selling price and cost is as great as in the present case, we do not believe that the tax law contemplated that the tax would be measured by such a nominal amount. Just where to draw the line is admittedly difficult and the facts of each case must be considered. A line must be drawn somewhere otherwise it is obvious that the tax with respect to so-called self-consumed merchandise could be virtually nullified by the making of a nominal charge for goods to all intents and purposes given away.

EHS:ph
cc:

Mr. W. S. Freeman