Is a permit holder's sale of an unusual item automatically an exempt occasional sale because the business does not normally sell that kind of property?

Plain-English summary

The original 1964 memorandum considered a glove-and-file retailer and wholesaler that bought a Lima crane from a permit-holding logging contractor for $20,000 solely to resell it for profit, disclosed that intent to the Board, issued no resale certificate, and later sold the crane to a user for $28,000. It analyzed which party owed tax by asking whether the retailer's resale was one of enough sales to require a permit.

A 1998 email made a permanent correction and called the backup letter definitely wrong, although it said the annotation itself was close to or arguably correct. A retailer can buy unusual property for resale as part of its business even when it does not normally sell that kind of item. The resale is not an exempt occasional sale merely because the item falls outside the retailer's usual stock.

The correction said the crane record lacked enough facts for certainty. A corporate sale of the crane would almost certainly not be occasional. For an individual permit holder, it looked to whether the person sold in an individual capacity, unrelated to the usual selling business. A transaction conducted from home, away from a separate business location and outside normal business hours, was only its example of a probable individual sale. If the sale was generated in any way through the selling business, staff would reject occasional-sale treatment and regard the upstream purchase as a nontaxable sale for resale in the regular course of business.

Source record and limits

The PDF preserves two different records. The first is an August 19, 1964 Tax Counsel memorandum to Audit Review responding to an August 11 memorandum that is not included. It says a permit-holding logging contractor sold the crane to the retailer and presents two liability branches: under its fewer-than-three-sales assumption, the upstream contractor owed tax on $20,000; if the retailer's crane sale belonged to a permit-requiring series, the retailer owed tax on $28,000 and the upstream sale was for resale. The memorandum does not identify the parties, document their permits or other sales, reproduce the purchase or resale records, or show an assessment or outcome.

The second record is David Levine's February 24, 1998 email to Vic Anderson and Leila Khabbaz. It changes the relevant phrase from retail activity to sales activity, rejects the old analysis of what made the later sale occasional, and says property other than vehicles, vessels, and aircraft could be bought for resale as part of the retailer's business even if that property type was not normally sold. Its hardware-store example assumes computer equipment sold and leased back before use and says the sale or leaseback would be taxable. The email visibly cites Reg. 16668(d); no corrected citation appears in the source, so this page does not silently substitute one.

The email does not decide what actually happened. It says there were not enough facts to be sure, does not establish whether the taxpayer was a corporation or individual, and supplies no evidence of where, when, or through what activity the crane was sold. Nor does the official PDF contain the August 11 request, permit files, resale certificate, Board disclosure, contracts, invoices, payment records, advertisements, communications, business-location or hours evidence, delivery or use records, tax returns, audit, determination, protest, hearing, payment, appeal, or later outcome.

The live annotation publishes the corrected individual-capacity and sales-activity rule under section 6006.5(a), with dates 8/24/64; 2/24/98 and marker (Am. M98–3). The PDF's original memorandum is dated August 19, not August 24, and the correction's subject line says 395.0040 (1/19/64) even though the underlying memorandum says August 19. Neither source explains those differences or supplies the M98-3 amendment text. The live annotation omits the parties' businesses, crane amounts, no-certificate fact, competing liability branches, source criticism, excluded property categories, sale-leaseback example, factual uncertainty, corporate and individual hypotheticals, missing records, and absent outcome.

What this means for you

Seller-permit holders

Do not classify an asset sale solely by whether you usually sell that product category. Determine whether the transaction is connected to your sales business.

Individual business owners

The correction used a home transaction outside a separate business location and normal business hours as one probable example, not a complete safe harbor. Preserve the full record showing whether the sale arose through the selling business.

Accountants and tax professionals

Read the 1998 correction with the 1964 memorandum and live annotation. The official correction calls the older backup analysis definitely wrong and leaves the actual crane result uncertain on the sparse facts.

Common questions

Q: Is an unusual product automatically outside a retailer's regular course of business?
A: No. A retailer may properly buy an unusual item for resale as part of its business.

Q: What makes an individual owner's sale potentially occasional?
A: The person must sell in an individual capacity and independently of the usual sales activity.

Q: Would a corporation's sale of the crane likely be occasional?
A: The 1998 clarification says it almost certainly would not be.

Q: Why does the upstream seller's tax depend on the later resale?
A: If the buyer's later sale is a business resale, the upstream transfer may have been a sale for resale; if the later transfer is an exempt occasional sale, the upstream sale can be retail.

Q: Did staff conclusively decide whether this crane sale was occasional?

A: No. The correction said it was probably not exempt but that the record lacked enough facts for certainty.

Q: Did the PDF document the transaction or final tax result?

A: No. It states the transaction facts and competing liability analysis but includes no contracts, invoices, permit history, assessment, hearing, or final outcome.

Citations and references

• California Revenue and Taxation Code § 6006.5(a) — cited by the 1964 memorandum, 1998 correction, and live annotation
• California Revenue and Taxation Code § 6007 — cited by the 1964 memorandum
• Reg. 16668(d) — exact citation form printed by the 1998 correction; the source supplies no correction
• Amendment marker M98-3 — shown only by the live annotation, without amendment text
• August 11, 1964 Audit Review memorandum and transaction, permit, tax, administrative, and outcome records — implicated but not included

Verbatim support

From the official supporting memorandum and correction:

The fact that A may intend to resell the property at a profit is immaterial. This would be an occasional sale under section 6006.5(a).

This annotation is close to being correct, but the backup letter is definitely wrong.

It does not have to be the type of property usually resold by the taxpayer.

In the case considered in the backup to the annotation, although there are not sufficient facts to be sure, the taxpayer’ sale of the crane was probably not an exempt occasional sale.

On the other hand, if the sale was in any way generated in connection with the taxpayer’s selling business, we would not accept it as an occasional sale, and we would regard the sale to the taxpayer as having been a nontaxable sale for resale in the regular course of business.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0040
• Original supporting opinion and correction: 395.0040 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Audit Review

From:

Tax Counsel (PM)

Subject:

Question of Whether Sales or Use Tax Applies.

395.0040

August 19, 1964

This is in reference to your memo of August 11 requesting advice on the application of tax in the following situation: A is a retailer and wholesaler of gloves and files; B is a permittized logging contractor. A purchases a Lima crane from B for $20,000 with the sole intent of reselling it for a profit. This intent is made known by A to the Board. A, however, issues no resale certificate to B. A eventually resells the piece of equipment to a user for $28,000. Under these circumstances, B would be liable for tax on the $20,000 sale to A, assuming A makes less than three sales during a 12-month period (exclusive of his stock-in-trade sales). The sale to A is a retail sale under Section 6007 because it is for a purpose other than resale “in the regular course of business.” The fact that A may intend to resell the property at a profit is immaterial. This would be an occasional sale under section 6006.5(a). On the other hand, if the sale of the crane by A is one of a series of sales sufficient to constitute an activity requiring a seller’s permit, A would be liable for tax on the $28,000 and B would be relieved of any liabilty since his sale to A was, in fact, a sale for resale “in the regular course of business.”

PM:ls

[1b]

See e-mail of 2/24/98 for corrections & clarifications. DHL.

Audit Review

-2-

August 19, 1964
395.0040

Levine, David
From: Levine, David
To:
Anderson, Vic; Khabbaz, Leila
Subject: 395.0040 (1/19/64)
Date: Tuesday, February 24, 1998 10:03 AM
This annotation is close to being correct, but the backup letter is definitely wrong. The annotation says that a person with a permit who sells property of a kind which he or she does not normally sell can be regarded as making an occasional sale only if made in his or her individual capacity and the sale is unrelated to normal retail activity. For one thing, it is not “retail activity” that is relevant, but sales activity. The major problem is the backup. It is focusing on the sale of the property to our taxpayer, who purchases it with the intent of reselling the property at retail. The backup concludes that, since the sale by the taxpayer would be an occasional sale, the sale to the taxpayer is a taxable retail sale. If the taxpayer’s sale were an exempt occasional sale, this would be correct (and probably should be annotated). The problem is with the analysis of what would constitute an exempt occasional sale. Although a taxpayer may not normally sell a certain type of property, he or she can properly issue a resale certificate for property (other than vehicles, vessels, and aircraft) which he or she will sell as part of that retailer’s business. It does not have to be the type of property usually resold by the taxpayer. (See, e.g., Reg. 16668(d).) For example, a hardware store could purchase computer equipment for resale if it intended to sell it and lease it back prior to use (the sale or leaseback would be taxable). The sale by the hardware store would not be an occasional sale just because it did not normally resell computer equipment since that resale was part of its business activities. In the case considered in the backup to the annotation, although there are not sufficient facts to be sure, the taxpayer’ sale of the crane was probably not an exempt occasional sale. For example, if the business was run by a corporation and the crane was sold by that corporation, the sale was almost certainly not an occasional sale. If the taxpayer were an individual, we would need to know how the property was sold. If the taxpayer had a business location separate from his home and conducted the whole transaction from his home and not during his normal business hours, then he probably sold it individually (i.e. unrelated to his usual selling business) and the backup would be correct. On the other hand, if the sale was in any way generated in connection with the taxpayer’s selling business, we would not accept it as an occasional sale, and we would regard the sale to the taxpayer as having been a nontaxable sale for resale in the regular course of business. As indicated above, the annotation is arguably correct. This message will become a permanent part of the backup to this annotation. Perhaps that is enough. If you determine that is the case, please add the date of this message to the annotation (and change “retail” to “sales”). Otherwise, please rewrite the annotation.

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