Was equipment used to make nonreturnable molded-pulp food containers outside a permit-requiring activity because many container sales were for resale?

Plain-English summary

A manufacturer transferred all property and claimed the sale was occasional. Its business made nonreturnable molded-pulp food containers.

The letter explained that retail container sales, such as sales to institutions or buyers not reselling the contents, were taxable. Containers could be bought ex tax when resold with their contents, but that treatment arose from resale, not from a blanket exemption for the container type.

Because selling the containers was an activity requiring a seller's permit, the production equipment was held or used in a permit-requiring activity. Its sale therefore did not qualify as an exempt occasional sale.

Return position, permit analysis, and source limits

Tax Counsel E. H. Stetson responded on November 29, 1965 to an attachment to the unnamed seller's second-quarter 1965 sales and use tax return. The attachment claimed that the June 8 transfer of all the seller's property to an entity identified only as P was exempt as an occasional sale. The seller actually held permit No. X.

Section 6066, as described in the letter, required a permit for a person seeking to conduct business as a seller in California. Section 6014's quoted definition included anyone in the business of selling tangible personal property of a kind whose retail gross receipts belong in the sales-tax measure. Counsel treated the seller's nonreturnable molded-pulp food-container sales as that kind of activity because retail sales to an institution or another buyer that did not resell the contents were taxable.

Section 6364 produced a different result when the purchaser put contents in a container and resold them together: the purchaser could acquire the container ex tax for resale. The seller of the filled package would owe tax on the total charge for container and contents unless the contents sale itself was exempt, as with food products. Counsel therefore reasoned that the seller's container transfers escaped tax only when they were resale transactions, not because every sale of those containers was exempt.

Because the container-selling activity required the permit, the transferred equipment had been held or used in a permit-requiring activity. Counsel concluded that the equipment sale did not qualify as an exempt occasional sale under section 6006.5.

The PDF does not include the return attachment, return, seller or buyer identity, permit record, property schedule, transfer agreement or instruments, container orders or invoices, purchaser resale records, package sales, allocation, valuation, reported measure, tax calculation, assessment, payment, refund claim, protest, appeal, or later outcome. It does not show how the seller reported the June 8 transfer or whether the Board assessed or collected tax.

The live annotation preserves the permit-requiring container activity, production-equipment link, non-occasional-sale result, and November 29, 1965 date. It omits the filed-return posture, June 8 transfer of all property, purchaser and permit placeholders, molded-pulp description, taxable institution and end-user sales, container-with-contents resale rule, total-package charge and exempt-food qualification, sections 6006.5, 6014, 6066 and 6364, missing records, and absent tax outcome.

What this means for you

Packaging manufacturers

Some resale transactions do not make the overall product category exempt. Retail taxability can still require a permit and affect later equipment sales.

Accountants and tax professionals

Distinguish product exemptions from resale treatment and trace how manufacturing equipment supports the seller's taxable and resale transactions.

Common questions

Q: Were all nonreturnable food-container sales exempt?
A: No. Retail sales to users such as institutions were taxable.

Q: When could a buyer purchase containers ex tax?
A: When placing contents in them and reselling the containers with those contents.

Q: Why did the manufacturer need a permit?
A: It sold tangible property whose retail sales were taxable.

Q: Was the production-equipment sale occasional?
A: No. The equipment was used in the permit-requiring container business.

Q: What transaction prompted the letter?

A: The seller's second-quarter 1965 return attachment claimed that its June 8 transfer of all property to P was an occasional sale.

Q: Was every filled-package sale taxable?

A: No. The letter said the full package charge was taxable unless the contents sale was exempt, giving food products as the example.

Q: Does the source show the tax ultimately assessed or paid?

A: No. It includes counsel's response but no return, calculation, assessment, payment, refund proceeding, or later disposition.

Citations and references

• California Revenue and Taxation Code sections 6006.5, 6014, 6066, and 6364
• Second-quarter 1965 sales and use tax return and attachment, permit record, property and transfer documents, sales and resale records, tax calculation, and administrative outcome — described or implicated but not included

Verbatim support

From the official November 29, 1965 Tax Counsel letter:

The sale of nonreturnable molded pulp food containers is, in our opinion, an activity requiring the holding of a seller's permit.

It is only when resold along with the contents that under Section 6364 they may be purchased ex tax by the person who places the contents therein and sells the contents together with the container.

Since the sale of the containers by you is exempt only because they are resold and not because of any exemption applicable to all sales of such containers, the selling of them requires the holding of a seller's permit, and, in fact, you hold permit No. "X".

Therefore, the property which is the subject of the sale in question was held or used in an activity which required the holding of a seller's permit and, therefore, the sale of the equipment does not qualify as an exempt occasional sale under Section 6006.5 of the Sales and Use Tax Law.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0140
• Original supporting opinion: 395.0140 PDF

Original ruling text

395.0140

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 29, 1965

Gentlemen:
The attachment to your 2nd Quarter 1965 sales and use tax return in which you claim exemption from sales tax of the transfer on June 8, 1965 of all of your property to "P" upon the basis that the sale is an occasional sale has been referred to the undersigned for consideration and comment. The sale of nonreturnable molded pulp food containers is, in our opinion, an activity requiring the holding of a seller's permit. Such a permit is required by Section 6066 of the Sales and Use Tax Law of every person desiring to engage in or conduct business as a "seller" within this state. Section 6014 defines "seller" to include "every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax." The sale of nonreturnable molded pulp food containers at retail (e.g., to an institution or other purchaser not selling the contents) would be subject to the sales tax. It is only when resold along with the contents that under Section 6364 they may be purchased ex tax by the person who places the contents therein and sells the contents together with the container. The person selling the contents in the containers would be required to pay tax on the total amount charged for the entire package, i.e., container plus contents, unless the sale of the contents were exempt as in the case of food products. Since the sale of the containers by you is exempt only because they are resold and not because of any exemption applicable to all sales of such containers, the selling of them requires the holding of a seller's permit, and, in fact, you hold permit No. "X". Therefore, the property which is the subject of the sale in question was held or used in an activity which required the holding of a seller's permit and, therefore, the sale of the equipment does not qualify as an exempt occasional sale under Section 6006.5 of the Sales and Use Tax Law.

Very truly yours,

E. H. Stetson
Tax Counsel
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