Was a pharmacist's fixed annual family fee taxable when it covered on-call service, prescription records, and cost-plus pricing?

Plain-English summary

A registered pharmacist proposed a fixed $25 annual family fee. It covered 24-hour availability, maintenance of family prescription records, and a yearly itemization of tax-deductible expenses; any merchandise sales would be separately priced at cost plus 10%.

Tax counsel concluded that the annual fee was not included in taxable gross receipts because it stayed the same regardless of whether the pharmacist made any sales or how much the family purchased.

The official source later appended a 2001 note directing readers to Regulation 1584, originally adopted February 22, 1996—more than 30 years after the letter. Current treatment therefore requires review of that later rule rather than reliance on the 1965 letter alone.

Citations and references

• No numbered statute or regulation cited in the January 18, 1965 supporting letter
• California Sales and Use Tax Regulation 1584, identified in an appended November 1, 2001 note as originally adopted February 22, 1996, 30 years after the letter — note cites no subdivision, version, amendment history, or specific effect on the 1965 facts
• December 30, 1964 correspondent letter describing a proposed $25-per-family annual fee, 24-hour availability, family prescription file, annual tax-deductible-expense itemization, and separate sales priced at cost plus 10% — request, service agreement, enrollment materials, prescription files, price and sales records, expense itemizations, and actual transaction records not reproduced in the official PDF
• January 18, 1965 response signed for Tax Counsel E. H. Stetson by Philip R. Dougherty, tentatively stating that the fee did not appear includible in taxable gross receipts — no correspondent reply, implemented program, return, audit, assessment, refund claim, appeal, or later outcome supplied
• Official Annotation 295.1600's 24-hour, prescription-file, cost-plus-10%, expense-itemization, purchase-independent-fee, and January 18, 1965 rule — annotation states the conclusion categorically and omits the proposed posture, counsel's “does not appear” wording, underlying request and records, appended Regulation 1584 warning, 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/295-1600.pdf

Original ruling text

295.1600

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 18, 1965

Gentlemen:
This is in reply to your letter of December 30, 1964, in which you inquire if a yearly charge by a registered pharmacist for professional services is subject to the sales tax. As we understand the situation, the pharmacist will charge a separate fee for his professional services at the rate of $25 per family per year. The fee will be the same whether the pharmacist makes any sales to the family during the year or not, but any sales to the family will be priced on a cost plus 10 percent basis. The pharmacist will be on 24hour call, will keep a file of the family prescriptions, and will supply a yearly itemization of tax-deductible expenditures. Since the amount of the fee is not affected by the number or amount of yearly sales, the fee does not appear to be includible in the pharmacist's taxable gross receipts. It appears to be similar to the membership fees charged for the privilege of buying at discount houses, which fees are not subject to tax. If you have any further questions on the particular aspects of the situation, please do not hesitate to write to us again.

Very truly yours,

E. H. Stetson
Tax Counsel
By Philip R. Dougherty
PRD:dse [lb]
Note: see regulation 1584 originally adopted 2/22/96 30 years after this letter was written SPJ 11/01/01