Were both first-year and renewal fees taxable when a purchasing service sold merchandise to members at wholesale prices?

Plain-English summary

A merchandise purchasing service charged subscribers $60 for the first year and $10 for each renewal year. Membership entitled subscribers to buy merchandise from the service at wholesale prices.

The service's representative argued that first-year fees might relate to specific planned purchases but renewal fees did not. Tax counsel found no essential difference between them.

Both initial and renewal fees were sufficiently connected with anticipated retail sales to belong in taxable gross receipts.

Citations and references

• No numbered statute or regulation cited in the supporting letter
• August 12 representative letter concerning the client's petition for redetermination and arguing that $60 initial fees could relate to specific planned purchases while $10 annual renewals did not — year, request, authority, exhibits, and correspondence history not reproduced in the official PDF
• Petition for redetermination concerning initial and renewal membership fees and San Diego office determination treating both as taxable gross receipts — petition and determination dates and identifiers, tax period, disputed amounts, audit schedules, membership agreements, subscriber records, merchandise lists, wholesale prices, sales records, and copies not reproduced in the official PDF
• September 1, 1965 Associate Tax Counsel George A. Trigueros response declining to recommend deletion of either fee component from the determination — no staff disposition, revised determination, Board decision, refund, court appeal, or later outcome supplied
• Official Annotation 295.1580's $60 initial, $10 renewal, wholesale-price, anticipated-sale, and September 1, 1965 rule — annotation omits the petition, San Diego determination, representative's distinct renewal argument, counsel's recommendation-only posture, absent 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/295-1580.pdf

Original ruling text

295.1580

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 1, 1965

Gentlemen:
This is in reply to your letter of August 12 regarding your client's petition for redetermination of sales tax. It is our understanding that your client operates a merchandise purchasing service. He charges subscribers $60 the first year for the service and $10 per year for renewal. In consideration of such membership, your client sells merchandise to subscribers at the wholesale price. Our San Diego office has taken the position that the initial membership fees as well as the renewal fees are part of gross receipts subject to sales tax. It is your contention that, since new members have specific purchases in mind when they subscribe, it could be concluded that the new membership fees are sufficiently related to sales that they may be regarded as gross receipts, whereas renewal fees are not so related to sales. It appears to us that there is no essential distinction between the nature of the initial membership fees and the renewal fees. It is further our opinion that these fees are so related to anticipated retail sales as to be includible in taxable gross receipts. In view of the foregoing, we cannot recommend that the portion of the determination attributable to initial membership fees nor renewal membership fees be deleted from the determination of tax.

Very truly yours

George A. Trigueros
Associate Tax Counsel
GAT:o'b [lb]