Were three farm-equipment sales by a cafe operator exempt occasional sales when the farm was treated as a separate activity?

Plain-English summary

A cafe operator also owned and operated a farm. Around September 1962 it discontinued farming, leased the land, and sold some equipment to the lessee for $33,600. It made two additional farm-equipment sales in January and June 1963 for $920 and $1,800.

The audit did not show that farm products were supplied to the cafe, so counsel assumed for this letter that farming was a separate activity. Even with that assumption, the three equipment sales did not qualify as occasional.

Historical section 6019 classified a corporation making more than two retail sales within 12 months as a retailer. The three sales also involved the same kind of property, were made to farmers for presumed farm use, and each involved substantial consideration. Counsel therefore found them sufficient in number, scope, and character to require a seller's permit and recommended no adjustment.

Assumed separation, three-sale analysis, and source limits

Associate Tax Counsel John H. Murray reviewed The B--- C---'s November 14, 1963 redetermination petition and said the Board wished to try resolving the issue by correspondence. The petitioner operated a cafe, was a retailer for that activity, and held a seller's permit. It also owned and operated a farm.

Around September 1962 the petitioner stopped farming, leased the land, and sold part of the equipment to the lessee for $33,600. It made additional farm-equipment sales in January and June 1963 for $920 and $1,800. Audit staff treated all three as taxable, and counsel described the transaction facts as apparently undisputed.

The petition raised whether the farm was distinct from the cafe and, if so, whether its equipment dispositions themselves formed a taxable activity. The absent audit report did not indicate that farm products supplied cafe sales. On that silence, Murray assumed only for this letter that farming was separate under section 6006.5(a); he did not decide the separation as an established fact.

Section 6367 exempted occasional-sale receipts, while section 6006.5(a) required both property outside a permit-requiring activity and no series sufficient in number, scope, and character to require a permit. Counsel applied section 6019's then-rule that a corporation making more than two retail sales in twelve months was a retailer, finding the three-sale number requirement met.

For scope and character, counsel considered the property's nature, purpose, and consideration. Each transaction involved farm equipment, each buyer was a farmer presumed to use it on a farm, and counsel called every price substantial, including the $920 minimum. The combined facts required a permit and defeated occasional-sale treatment.

Murray recommended no adjustment but gave the petitioner 30 days to request an oral Board hearing in Sacramento. An internal note told the Petition Unit to schedule a hearing if requested, otherwise to schedule redetermination. The source does not show which path followed or whether the recommendation became final.

The current live annotation states that farming was separate and no farm food was offered through the cafe. The supporting letter only assumes separation because its audit report did not indicate supply to the cafe. The live page preserves the cafe, three sales and exact amounts, twelve-month period, number/scope/character conclusion, taxable result, and September 10, 1964 date. It omits the petition and correspondence posture, farm closure and land lease, lessee, cafe permit, audit-staff position, conditional assumption, sections 6006.5, 6019 and 6367, scope and character factors, no-adjustment recommendation, hearing options, missing records, and absent final outcome.

The PDF does not include the petition, audit report, cafe and farm business records, evidence of farm products or cafe sourcing, permits, land lease, equipment inventories, buyers or farmer status records, use evidence, sale agreements, invoices or payments, returns, tax calculations, assessment, payment, Board-hearing request or transcript, final redetermination, refund or collection record, or later appeal. It copies Charles H. Otterman and the Fresno District Administrator without providing their related files.

What this means for you

Businesses closing a farm or side operation

Separating an activity from the seller's main business does not by itself make repeated liquidation sales occasional. The number, size, property type, buyers, and timing still matter.

Accountants and tax professionals

Aggregate asset sales across every rolling 12-month period and retain schedules showing the property, purchaser, use, price, and relationship to the seller's other activities.

Common questions

Q: Did counsel decide that the farm and cafe were legally separate activities? A: No. The letter assumed separation because the audit did not show farm products supplied to the cafe.

Q: How many equipment sales occurred?
A: Three within 12 months.

Q: What were the sale amounts?
A: $33,600, $920, and $1,800.

Q: Why did occasional-sale treatment fail?
A: The series was sufficient in number, scope, and character to require a seller's permit.

Q: What supported the farm/cafe separation?

A: Only the audit report's failure to indicate that farm products supplied cafe sales. Counsel assumed separation for the letter rather than finding it conclusively.

Q: What facts showed scope and character?

A: All three transactions involved farm equipment, went to farmers for presumed farm use, and had consideration counsel considered substantial, with $920 the smallest.

Q: Did the source show a final Board result?

A: No. It recommended no adjustment and offered a 30-day hearing option; the internal note contemplated either a hearing or redetermination, but neither outcome appears.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a), 6019, and 6367
• November 14, 1963 redetermination petition and audit report — described but not included
• Farm and cafe records, sourcing evidence, land lease, equipment sales and buyer-use evidence, permits, tax proceeding, Board hearing or redetermination, and outcome — described or implicated but not included

Verbatim support

From the official September 10, 1964 Associate Tax Counsel letter:

Since our audit report does not indicate that the farm was used to supply food products for sale through the café, we shall for the purpose of this letter assume that the farming operations were a separate activity from the café for the purpose of Section 6006.5(a).

Here, petitioner made three sales within a 12-month period. It is a “retailer” under Section 6019.

In each case the property sold was farm equipment. Each sale was to a farmer presumably for use on his farm. The consideration received from each sale was substantial, the smallest being $920.

We cannot recommend any adjustment. However, if you disagree with our conclusions and desire an oral hearing before the Board please advise us within 30 days.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0500
• Original supporting opinion: 395.0500 PDF

Original ruling text

395.0500

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 10, 1964

The B--- C--XXXX --- Avenue
---, CA

ST -- XX XXXXXX

Gentlemen:
Your petition for redetermination dated November 14, 1963 has been referred to me for review. It is our desire to attempt to resolve the issue raised by correspondence. The facts giving rise to the determination appear to be undisputed. The are: Petitioner owned and operated a farm. About September 1962 the farming operations were discontinued, the land leased, and a portion of the equipment sold to the lessee for $33,600. Additional sales of farm equipment were made in January and June 1963 for $920 and $1,800, respectively. Our audit staff considered these sales to be subject to sales tax. As you are aware, sales tax applies to gross receipts from retail sales of retailers. Petitioner is a “retailer” with respect to its café operation and holds a seller’s permit. The questions which your petition raises appear to be (1) were the farming operations so distinct from the café operations as to be a separate and distinct activity for sales tax purposes and (2) assuming they were, were the sales sufficient to constitute a taxable activity. Section 6367 of the Sales and Use Tax Law exempts from tax the receipts from “occasional sales”. Section 6006.5(a) defines “occasional sale” as including a sale of property not held or used in the course of an activity requiring the holding of seller’s permit, provided the sale is not one of a series sufficient in number, scope and character sufficient to constitute an activity requiring the holding of a seller’s permit. Since our audit report does not indicate that the farm was used to supply food products for sale through the café, we shall for the purpose of this letter assume that the farming operations were a separate activity from the café for the purpose of Section 6006.5(a). Accordingly, our inquiry is limited to whether the three sales were sufficient in number, scope and character to constitute an activity requiring the holding of a seller’s permit. Section 6019 provides that every corporation making more than two retail sales within any 12-month period is a retailer. Here, petitioner made three sales within a 12-month period. It is a “retailer” under Section 6019. This appears to satisfy at least the number requirement of Section 6006.5(a).

The B--- C---

-2-

September 10, 1964
395.0500

For “scope” and “character” we may look to the nature of the property sold, the purpose for which it was sold, and to the amount of the consideration received. In each case the property sold was farm equipment. Each sale was to a farmer presumably for use on his farm. The consideration received from each sale was substantial, the smallest being $920. From this we must conclude that the sales were sufficient in number, scope and character to constitute an activity requiring the holding of a seller’s permit. We cannot recommend any adjustment. However, if you disagree with our conclusions and desire an oral hearing before the Board please advise us within 30 days. Such hearings are held monthly in Sacramento. Any request for a Board hearing should be addressed to: State Board of Equalization, 1020 N Street, Sacramento, Attention R. N. Zambelich. Very truly yours,

John H. Murray
Associate Tax Counsel

JHM:mm
cc:

Mr. Charles H. Otterman
Fresno – District Administrator

Note to Petition Unit. If petitioner requests an oral hearing please schedule the petition for Board hearing. If no request is made schedule for redetermination.