When did use tax apply to a printing press held for resale for four years and then transferred with the business?

Plain-English summary

A printing company bought a Cottrell press at a bankruptcy sale and stored it in a warehouse. Audits in 1960 and 1961 found that it was not wired or bolted to the floor, and company representatives repeatedly said it was being held for resale. The Board therefore did not assess use tax while the resale purpose continued.

Counsel concluded that the first use beyond storage and use for resale occurred when the press was transferred to new owners through the sale of the business's stock. A printer could broaden its business to acquire a press for resale, so the fact that printing was its ordinary business did not make the earlier resale position impossible.

The taxpayer then argued that limitations had expired and that the press could not have been held for resale in its regular course of business. Counsel recommended denial. The Board had relied on the taxpayer's resale representations when it refrained from issuing a determination in 1960, and tax applied to overt acts rather than a privately formed intent to sell stock.

Proceeding record and limits

Associate Tax Counsel John H. Knowles wrote to the taxpayer's lawyers about a petition for redetermination of use tax on a Cottrell press. Their June 5, 1964 letter had asked the Board to delay its report while they contacted heirs of the prior owner. After two months without additional information, counsel proceeded but said the hearing report would not prevent a later submission.

The source reconstructs the press history from records not reproduced in the PDF. Auditors first learned of it in 1958; a February 5 Santa Ana office letter said tax applied unless it was held for resale. Counsel believed another 1958 investigation occurred but said no record appeared. At a 1960 audit, Auditor John K. Gee reported on June 20 that the manager said the press remained for resale; physical inspection found it warehoused, unwired, and unbolted. A 1961 close-out audit found the same situation, and Gee reported that the new owners recognized tax liability when first use occurred.

Counsel viewed the stock-sale transfer to the new owners as the first use beyond resale storage. The recommendation rejected the argument that a printer could not acquire a press for resale in its business, noting the bankruptcy purchase at a considerable saving and later conduct showing an expected resale profit. It distinguished Market Street Railway and its discussion of Bigsby, treated auditor interviews and hearing statements as evidence under section 6246, and said tax attached to overt acts rather than the early-1960 formation of an intent to sell stock.

The Board had not issued a June 1960 determination because it relied on repeated resale representations. The source says the taxpayer should not reverse that position and visibly prints that all the elements of estoppel in paid are present; it supplies no correction of in paid. It also prints We do not believer in the case discussion. This page preserves both source forms without silently rewriting them.

The approved hearing officer's report was dated September 3, 1964 and concerned a May 20 Hollywood hearing; the PDF says two copies were attached but does not include them. Nor does it include the press purchase record, bankruptcy-sale record, February 1958 letter, 1960 and 1961 audit reports, interview notes, warehouse records, wiring or installation evidence, resale advertising, ownership and stock-sale documents, tax measure, determination, petition, June 5 letter, heirs' evidence, preliminary-hearing record, waiver forms, assessment, payment, Board hearing, final action, appeal, or later outcome.

The live annotation preserves the bankruptcy purchase, four-year resale storage, third-party transfer, use-tax conclusion, and defeated limitations position. It omits the petition and hearing posture, 1958/1960/1961 evidence chain, missing investigation record, unwired and unbolted condition, stock-sale mechanism, considerable saving and profit expectation, case analysis, section 6246 evidence, overt-act rule, reliance and estoppel rationale, source wording defects, hearing and waiver options, missing attachments, and absent final Board action.

What this means for you

Businesses holding equipment for resale

Contemporaneous statements, physical storage conditions, and later transfer conduct can determine when resale holding ends and taxable use begins.

Accountants and tax professionals

Keep audit correspondence and evidence of wiring, installation, operation, advertising, and transfer. A taxpayer may face difficulty reversing a factual position on which the agency relied.

Common questions

Q: Was warehouse storage itself treated as taxable use?
A: No. The press remained unwired, unbolted, and represented as held for resale.

Q: What event triggered counsel's use-tax conclusion?
A: The transfer of the press to the new owners through the stock sale.

Q: Could a printing company buy a press for resale?
A: Yes. The letter said a business could broaden its activities to include that transaction.

Q: What did counsel recommend?
A: Denial of the redetermination petition, subject to the taxpayer's right to request a Board hearing.

Q: Did the PDF include the audit and hearing reports supporting the recommendation?

A: No. It describes the audit trail and says two approved hearing-report copies were attached, but none of those records appears in the official PDF.

Q: Was the recommendation the final Board action?

A: No final action is shown. The letter gave 30 days to request a hearing or return hearing-waiver forms.

Citations and references

• California Revenue and Taxation Code §§ 6008, 6009, 6201, and 6246
• Market Street Railway Co. v. State Board of Equalization, 137 Cal. App. 2d 87 (290 P.2d 20)
• Bigsby v. Johnson, 18 Cal. 2d 860 (118 P.2d 289)
• February 5, 1958 Santa Ana letter, June 20, 1960 auditor report, and 1961 close-out audit material — described but not included
• September 3, 1964 hearing officer's report — two approved copies described as attached but not included
• Purchase, bankruptcy-sale, audit, interview, storage, installation, resale, ownership, stock-sale, tax, petition, correspondence, hearing, waiver, assessment, payment, Board-action, appeal, and later-outcome records — implicated but not documented

Verbatim support

From the official September 22, 1964 recommendation:

On this basis, we conclude that the first use other than storage and use for resale was the transfer of the press to the T--- M--- - T--- Company through the sale of stock.

In such circumstances, the Board of Equalization would not try to impose the use tax as long as no use other than holding it for resale was made.

The tax, however, applies to overt acts and not to the formation of intent.

We would again like to call to your attention that the only reason the tax was not imposed in June of 1960 was the taxpayer’s insistence that the press was being held for resale.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0020
• Original supporting opinion: 395.0020 PDF

Original ruling text

395.0020

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 22, 1964

G---, D--- & C--Lawyers
XXX --- --- Street
--- ---, California XXXXX
Attention:

Mr. J--- M. M---

-- A - X-XXXXX
C--- R--Company

Gentlemen:
Your letter of June 5, 1964, requested that we withhold submitting our report until you have been able to contact the heirs of the C--- R--- Company. Since two months have elapsed, we assume that you have not been able to receive other information from them. At any rate, the submission of our hearing report does not cut off your right to submit other information, and we therefore have proceeded with it. This letter is to inform you of our recommendation to the board in the matter of the above named taxpayer’s petition for redetermination of use tax on the Cottrell Press. We regret that we must recommend that the petitioner be denied. As you know, § 6201 of the California Sales and Use Tax Law imposes the use tax upon the storage, use, or other consumption of tangible personal property purchased from a retailer for use in California. Sections 6008 and 6009 exclude from “storage” and “use” any storage and use for purposes of resale. Our auditors first became aware of the press in 1958, and we have a letter dated February 5, 1958, from our Santa Ana office who was then conducting an audit of Mr. C--- M. B---, the president of the taxpayer. This letter notes that the press is subject to tax unless it is being held for resale. We believe a further investigation was conducted at this time although no record of it appears. At any rate, a thorough investigation was made at the time of an audit of the taxpayer in 1960. Auditor John K. Gee reported on June 20, 1960, that he spoke with Mr. S--- G---, manager of the C--- R--- Company and that he told him that the press was still being held for resale. The auditor made a physical investigation of the press and noted it was stored in a warehouse on East XXth Street and was not electrically wired or bolted to the floor. It should be noted that if the press was subject to the tax upon being brought into California, a timely determination could have been issued in June of 1960. The reason it was not issued was the taxpayer’s representations to our auditors that the press was being held for resale. Again in 1961 upon a close out audit, an investigation was made, and the same situation was found to exist. Mr. Gee reported at this time, “The new owners [the T--- M--- - T--- Company] recognize the problem of tax liability when the

G---, D--- & C--- (-- - X-XXXXX)

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September 22, 1964
395.0020

first use is made.” On this basis, we conclude that the first use other than storage and use for resale was the transfer of the press to the T--- M--- - T--- Company through the sale of stock. Your principal argument is the statute of limitations and specifically that the press could not have been held for resale in the regular course of business of the taxpayer. The taxpayer’s course of business was printing. We believe it is perfectly proper for a printer to purchase a press for resale. If it was not previously in his course to do so, there is no reason why he cannot broaden his business to include such a transaction. This is even clearer when the circumstances of the present acquisition are reviewed. The taxpayer purchased the press at a considerable saving from a bankruptcy even though it apparently did not intend to use it at the time. Subsequent actions demonstrate that it hoped to sell the press at a profit. In such circumstances, the Board of Equalization would not try to impose the use tax as long as no use other than holding it for resale was made. We do not believer the case Market Street Railway Co. v. State Board of Equalization, 137 Cal. App. 2d 87 [290 P.2d 20] cited in your letter of June 5, 1964, is controlling. In that case, the court merely commented on “the course of business” in Bigsby v. Johnson (1941), 18 Cal. 2d 860
[118 P.2d 289]. This was not an attempt to define the sections in issue here. The court merely was answering the contention of the taxpayer that a certain sale was not made in its regular course of business. The court in Bigsby held that whether a sale was made in the retailer’s regular course of business did not matter because the tax applied in any event. The court was assuming for purposes of argument that the sale was not in the regular course of business and saying that the tax applied anyway. Your letter also mentions that we do not have any evidence overcoming § 6246. To the contrary, we have reports of our auditors made after interviews with the taxpayer in 1960 and 1961. We also have their statements at the preliminary hearing that they were told that the press was being held for resale. You also mention that the period of the assessment is erroneous because the petitioner formed an intent to sell their stock in the early part of 1960. The tax, however, applies to overt acts and not to the formation of intent. We would again like to call to your attention that the only reason the tax was not imposed in June of 1960 was the taxpayer’s insistence that the press was being held for resale. A determination made at that time would have covered the period when the press was first brought into California. The sales tax is a self-assessed tax and depends upon taxpayer’s cooperation. Our auditors were most cooperative in allowing the press to be held for resale for a period of some four years. They have documented this action by reports of conversations with the taxpayer’s representatives. In these circumstances, we feel the taxpayer should not be allowed to take a position which contradicts its earlier one. Indeed, we think all the elements of estoppel in paid are present, which would prevent the taxpayer’s assertion of a defense based on the statute of limitations. You are entitled to a board hearing on this matter. If you disagree with our conclusions and desire a hearing, please let us know within 30 days. If you still wish to contact the heirs of the

G---, D--- & C--- (-- - X-XXXXX)

-3-

September 22, 1964
395.0020

previous owner, we, of course, can extend this time. If you do not desire such a hearing, please sign and return two of the enclosed waiver of board hearing forms. The third copy is for your files. Very truly yours,

John H. Knowles
Associate Tax Counsel

JHK:lar
Enclosures

cc:

Hollywood – Subdistrict Administrator
Attached are two copies of hearing officer’s report dated September 3, 1964, which has been approved. This hearing was held in Hollywood on May 20, 1964.