Was a printer's separate engraving charge part of gross receipts from labels or posters when the customer never received the engraving?

Plain-English summary

A corporation used engravings to produce labels, folders, posters, and similar items for customers. The engravings remained the corporation's property; customers received neither title nor possession.

The corporation was the consumer of the engraving materials, so tax applied to the supplier's sale of those materials to it. A separate engraving charge billed with labels or posters was a production expense and formed part of gross receipts from the finished goods under section 6012.

If the labels or posters were sold in a taxable transaction, the engraving charge was included in taxable receipts. If the finished sale was exempt as a resale or interstate-commerce sale, none of the customer's gross receipts—including that charge—was taxable on the rationale stated.

Citations and references

• California Revenue and Taxation Code section 6012 (as cited)
• March 9 and June 9 internal Sheehan memoranda about engraving charges — years, complete subjects, analyses, attachments, and copies not supplied
• Conditions of sale retaining engraving title and possession in the corporation — agreement, terms, customer identities, and copy not reproduced in the official PDF
• Engraving materials, supplier sale to the corporation, tax assumed paid, labels, folders, posters, customer billings, resale transactions, and interstate-commerce sales — purchase invoices, tax-payment record, engraving records, sales invoices, resale certificates, shipping records, and accounting records not reproduced in the official PDF
• July 5, 1950 internal Board memorandum copied to George R. Reilly — no recipient response, confirmation of assumed payment, transaction treatment, audit, assessment, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1320's separate engraving charge, labels-or-posters gross-receipts conclusion, and July 5, 1950 date — annotation omits the March and June memoranda, corporation and conditions of sale, title and possession, material-sale and assumed-payment treatment, folders, resale and interstate-commerce limits, copied official, underlying records, later outcome, and reliance status and supplies no additional proceeding record

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/295-1320.pdf

Original ruling text

State of California

Memorandum

To:

Mr. Burnett Sheehan (ESA)

From:

E. H. Stetson

Subject:

Board of Equalization

295.1320
Sacramento
July 5, 1950

This is with reference to your memos of March 9 and June 9 concerning the application of the sales tax to certain charges made by the above-named corporation for engravings used by the corporation in producing labels, folders, etc., for customers. Apparently, there is neither transfer of title or possession by the corporation of these engravings to its customers and the conditions of sale are quite specific that the engravings remain the property of the corporation. It appears, accordingly, that the tax applies with respect to the sale to the corporation of the materials from which the engravings are made. We assume that the tax has been paid in view of the corporation’s position in the instant matter. We think, however, that the separate charge for the engravings made in connection with the sale of labels or posters is properly regarded as a part of the gross receipts from the sale of the labels or posters. Thus, if the sale of these items is a taxable sale, the taxable gross receipts include the amount received from the customer pursuant to the billings for the cost of the engravings. This appears to be merely an item of expense in producing the deisred goods specifically a part of gross receipts as defined in Section 6012. If, however, the sale of the labels or posters is exempt as a sale for resale or a sale in interstate commerce, then no portion of the gross receipts from the customer would be subject to the tax.

EHS:ph

cc:

Honorable George R. Reilly