Were retail sales of pocketbooks exempt as newspapers or periodicals?

Plain-English summary

A redacted retailer explained in an absent October 15 letter how it completed sales-and-use-tax returns. California addressed five sets of items.

First, former Ruling 48 made retail seed sales taxable unless the products grown were food for human consumption, so retail flower-seed sales did not support the retailer's “Flower and garden seeds” deduction.

Second, former Ruling 57 permitted deduction of federal taxes imposed on retail sales from gross receipts but included manufacturer taxes in taxable gross receipts. The letter treated federal excise taxes on jewelry, furs, toilet preparations, and luggage as retail taxes, while treating those on photographic equipment and supplies, sporting goods, and many other items as manufacturer taxes.

Third, under former Ruling 71, tangible property purchased tax-paid and resold in the regular course of business before use received a cost-price deduction. The sale price first went in total sales at historical Line 1, and the cost price went at Line 11 under “Tax-Paid Purchases Resold.”

Fourth, former Ruling 50 exempted newspapers and periodicals published at average intervals no longer than three months. “Pocketbooks” were neither and remained taxable at retail.

Finally, the letter advised reporting only the purchase price of property bought without sales or use tax at historical Line 2, without adding the sales or use tax due on those purchases.

Source and live-annotation limits

The official PDF does not include the October 15 request, returns, schedules, flower or garden seeds, grown products, pocketbooks, newspapers or periodicals, merchandise, purchase or resale records, property use evidence, federal excise-tax records, charges, gross receipts, Lines 1, 2 or 11 entries, deductions, calculations, payments, enclosed Rulings 48, 50, 57 or 71, audit, assessment, claim, appeal, or other outcome. The retailer, merchandise, transactions, tax periods, amounts, federal taxes, and copied recipient are redacted or unidentified.

The live annotation preserves only the statement that pocketbooks are not exempt periodicals. It omits the October request and return-reporting provenance, Rulings 48, 50, 57 and 71 and all four missing enclosures, flower seeds and food exception, federal retail-versus-manufacturer excise-tax treatment and examples, tax-paid-resale deduction, historical line instructions, redactions, missing records, and outcome limits.

What this means for you

Retailers and tax professionals

Classify each deduction by the legal character of the item or tax. Preserve merchandise, purchase, use, resale, expense, federal-tax, return, calculation and payment records, and use current instructions rather than the 1950 return lines.

Common questions

Q: Were pocketbook sales exempt?

A: No. They were taxable retail sales.

Q: When were flower-seed sales deductible?

A: When the products grown from the seeds constituted food for human consumption.

Q: Which federal excise taxes reduced gross receipts?

A: Taxes imposed on retail sales, not manufacturer taxes.

Q: What deduction applied to tax-paid property resold before use?

A: The cost price could be deducted as a tax-paid purchase resold after the resale price was included in total sales.

Citations and references

• Former California Sales and Use Tax Rulings 48, 50, 57, and 71
• October 15 request, returns and schedules, merchandise, seed and federal-tax records, purchases and resales, all four ruling enclosures, tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Board letter:

Accordingly, no deduction should be taken for your retail sales of flower seeds.

A deduction of the cost price of such merchandise may then be taken at Line 11, under the heading, "Tax-Paid Purchases Resold".

As "pocketbooks" are not newspapers or periodicals, this exemption does not apply, and the sale of such "pocketbooks" at retail is subject to the tax.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0440
• Original supporting opinion: 385.0440 PDF

Original ruling text

385.0440

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 4, 1950

Re: ---Gentlemen:
This is in answer to your letter of October 15 in which you explain the manner in which you complete your sales and use tax returns. We note that you take a deduction under the heading, "Flower and garden seeds". As indicated by Sales and Use Tax Ruling 48, copy enclosed, the tax applies to the sale of seeds at retail unless the products thereof constitute food for human consumption. Accordingly, no deduction should be taken for your retail sales of flower seeds. The application of the State sales tax to the amount of federal excise tax is governed by Ruling 57, copy enclosed. As therein indicated, a federal tax imposed upon or with respect to retail sales is deductible from your gross receipts. As indicated by the second paragraph of said ruling, however, your gross receipts subject to sales tax include the amount of any manufacturer's tax. In view of the foregoing, it is obviously necessary for you to determine the nature of a particular federal tax in order to determine whether or not it is deductible from your gross receipts subject to the sales tax. As indicated by the first paragraph of said Ruling 57, the federal excise tax imposed with respect to jewelry, furs, toilet preparations, and luggage, are imposed upon or with respect to the retail sale of such merchandise. On the other hand, the federal excise tax imposed with respect to photographic equipment and supplies, sporting goods, and many other items of merchandise is a manufacturer's tax for which no deduction may be taken. As indicated by Ruling 71, copy enclosed, you are correct in your understanding that you may take a deduction in the amount of the cost price of tangible personal property purchased on a tax-paid basis, which is resold in the regular course of your business before any use is made thereof. The sales price of merchandise purchased on a tax-paid basis should be included in your total sales at Line 1 of your return. A deduction of the cost price of such merchandise may then be taken at Line 11, under the heading, "Tax-Paid Purchases Resold". As indicated by Ruling 50, copy enclosed, the tax does not apply with respect to sales of newspapers or periodicals published at average interval s not exceeding 3 months. As "pocketbooks" are not newspapers or periodicals, this exemption does not apply, and the sale of such "pocketbooks" at retail is subject to the tax.

We do not feel that adding sales or use tax to purchases reported at Line 2 would clarify your return. As that line is designated to include only the purchase price of property purchased without sales or use tax, it is our suggestion that you report thereon only such items without including the amount of the sales or use tax required to be paid in connection therewith.

R. G. Hamlin