Was a new manufacturer's one-time sale of recently purchased excess furniture and equipment exempt as an occasional sale?

Plain-English summary

A Delaware corporation qualified to do business in California in June 1997. It designed satellite television receivers and decoders, outsourced manufacturing, and sold finished units to wholesale customers. It bought furniture and sophisticated electronic equipment, paid sales tax, and used the property in engineering and prototyping. Within about 60 days, market changes and difficulty hiring skilled staff led it to reorganize and propose selling excess items.

The Board concluded that the sale did not qualify as an occasional sale. Section 6006.5(a) excludes only property not held or used in activities for which the seller must hold a seller's permit. This company was a seller of tangible products, and the furniture and equipment had supported that permitted business.

The fact that the disposal was intended as a one-time event, involved property outside the company's normal product line, and followed a tax-paid purchase did not change the prior business use. If the disposal was a retail sale, sales tax applied.

Request and record limits

Tax Counsel Janice L. Thurston answered an unidentified corporation's September 19, 1997 letter about a proposed sale of excess furniture and equipment. The published PDF quotes the request at length but does not reproduce it as a separate record. The salutation itself leaves the addressee blank, and the corporation's name and California certificate number are redacted.

According to that quoted request, the company performed engineering design, outsourced manufacturing, and sold finished satellite receiver and decoder units wholesale. Sophisticated electronic equipment supported design and prototyping. Furniture and equipment had been purchased within the prior 60 days with sales tax paid, but unforeseen market changes and difficulty obtaining highly skilled personnel led to a reorganization and planned one-time disposal.

The legal conclusion rests on prior business use, not the buyer's identity or price. The letter says the company was a seller of tangible personal property and held a Board seller's permit. Because the equipment and furniture appeared to have been used in that business, section 6006.5(a) did not apply. The final tax answer remains conditional: If the sale is at retail, it is subject to sales tax.

The source does not include the September 19 request, corporate qualification record, seller's permit, detailed asset list, purchase invoices, acquisition-tax proof, usage logs, reorganization plan, appraisal, buyer, sale agreement, price, gross-receipts calculation, invoice, closing, tax-reimbursement contract, return, tax calculation or payment, audit, claim, appeal, or later outcome.

The live annotation preserves the company's business, recent tax-paid purchases, market and staffing reasons, one-time-sale argument, seller-permit analysis, and retail-sale condition. It compresses the California-qualification, outsourced-manufacturing, engineering and prototyping, wholesale-customer, gross-receipts, use-tax, and reimbursement details and supplies no implementation record. It also carries (M99–1) without providing amendment text or history.

What this means for you

Manufacturers and startups

A rapid change in plans does not automatically make a business-asset disposal occasional. Ask whether the assets were already used in the permitted selling business.

Reorganization teams

Inventory the function of each asset before sale. Office furniture and engineering equipment can both be held or used in the course of the company's seller-permit activities.

Accountants and tax professionals

Prior tax payment and downstream sales tax are separate questions. Paying tax when the asset was purchased did not exempt the later retail sale.

Common questions

Q: Did the company's one-time intent make the sale occasional?
A: No. The property had been used in activities for which the company was required to hold a seller's permit.

Q: Did it matter that the company sold satellite equipment rather than furniture?
A: No. The furniture and electronics supported the same permitted business operations.

Q: Did the recent tax-paid purchase prevent sales tax on disposal?
A: No. The letter says the retail sale was taxable if it did not otherwise qualify for exemption.

Q: What business use did the electronic equipment serve?
A: Engineering design and prototyping of the company's satellite receivers and decoders.

Q: Did the letter decide that every possible disposal was taxable?

A: No. It decided that the occasional-sale exemption did not apply on the stated use facts and said sales tax applied if the sale was at retail.

Q: Does the source document the actual assets, buyer, price, or closing?

A: No. It describes a proposed one-time disposal but supplies none of those records or a later outcome.

Q: What does the live page's M99-1 marker mean?

A: The live annotation displays it, but neither that page nor the supporting PDF supplies the amendment text or history.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a), 6014, 6051, and 6367
• California Revenue and Taxation Code §§ 6011, 6012, 6201, and 6401 (general tax-base provisions discussed in the letter)
• California Civil Code § 1656.1
• September 19, 1997 request — quoted in part but not separately included
• Live Annotation 395.0013.250's M99-1 marker — no amendment text or history supplied
• Corporate, qualification, permit, asset, purchase, acquisition-tax, usage, reorganization, appraisal, buyer, agreement, price, invoice, closing, return, tax, audit, dispute, and later-outcome records — implicated but not documented

Verbatim support

From the official November 12, 1997 letter:

Basically our people do the engineering design, out-source the manufacturing, and then sell the finished units to wholesale customers.

These furniture and equipments were bought in the last 60 days and their sales tax has been paid in full.

That equipment, as well as the furniture that --- intends to sell, appears to have been used in the course of the company's business.

That sale therefore does not qualify as an occasional sale under section 6006.5(a). If the sale is at retail, it is subject to sales tax.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0013.250
• Original supporting opinion: 395.0013.250 PDF

Original ruling text

395.0013.250

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 12, 1997

Re:

Sale of Furniture and Equipment

Dear Mr.
This is in response to your letter dated September 19, 1997 regarding the application of sales tax to a sale of excess furniture and equipment. You state:
--- a Delaware corporation, received the Certificate of Qualification # --doing business in California in June, 1997. "Our business is in the design and manufacturing of satellite television integrated receivers and decoders. Basically our people do the engineering design, out-source the manufacturing, and then sell the finished units to wholesale customers. "In the course of the engineering design and prototyping, our people have to depend on sophisticated electronic equipments. Due to unforeseen market changes and difficulty to get high skill personnel, we have found that we need to reorganize and dispose some of the furniture and expensive equipments that are now III excess. "These furniture and equipments were bought in the last 60 days and their sales tax has been paid in full.

"We feel that such a sale should qualify as an "occasional sale", i.e. exemptable from sales tax in view of the following: “-Our company is in a business of designing, manufacturing, and selling satellite television integrated receiver and decoder systems and not in selling such furniture and equipments. “-This is a one time event, i.e. getting rid of identifiable excess furniture and equipments." Sales tax is imposed on a retailer's retail sale of tangible personal property in this state, measured by a percentage of gross receipts, unless the sale is specifically exempt by statute. (Rev. & Tax. Code § 6051.) Although sales tax is imposed on the retailer, the retailer may collect sales tax reimbursement (usually itemized on the invoice as "sales

tax") from the purchaser if the contract of sales so provides. (Civ. Code § 1656.1.) When sales tax does not apply, use tax applies to the storage, use or other consumption of tangible personal property purchased from any retailer for the storage, use or other consumption in this state, measured by a percentage of the sales price, unless that use is specifically exempt by statute. (Rev. & Tax. Code §§ 6201, 6401.) "Gross receipts" or "sales price" generally include all amounts received with respect to the sale of tangible personal property, with no deduction for the cost of materials used, labor or service costs, or other expenses of the retailer, unless there is a specific statutory exclusion. (Rev. & Tax. Code §§ 6011, 6012.) Certain occasional sales are exempt from both the sales and the use tax. (Rev. & Tax. Code § 6367.) As relevant to your inquiry, the term "occasional sale" is defined in part in Revenue and Taxation Code section 6006.5(a) as follows: "A sale of property not held or used by a seller in the course of activities for which he or she is required to hold a seller's permit or permits or would be required to hold a seller's permit or permits if the activities were conducted in this state, provided the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which he or she is required to hold a seller's permit or would be required to hold a seller's permit if the activity were conducted in this state." A seller is a person who is engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are subject to sales tax. (Rev. & Tax. Code § 6014). A is in the business of designing, manufacturing and selling satellite television integrated receivers and decoders to wholesale customers. That is, --is a seller of tangible personal property, and it therefore holds a seller's permit from the Board of Equalization. According to your letter of September 19, 1997 --- depends on sophisticated electronic equipment to carry out its business. That equipment, as well as the furniture that --- intends to sell, appears to have been used in the course of the company's business. --- will be selling tangible personal property (equipment and furniture) that it held or used in the course of activities for which it was required to hold a seller's permit. That sale therefore does not qualify as an occasional sale under section 6006.5(a). If the sale is at retail, it is subject to sales tax. If you have further questions, please feel free to write again.

Very truly yours,

Janice L. Thurston
Tax Counsel
JLT/cmm
cc:
District Administrator