Did a retailer's sale of market fixtures qualify as occasional, and could it exclude location-related value from gross receipts?

Plain-English summary

A retailer sold dairy supplies, drinks, fountain equipment, miscellaneous equipment, and fixed assets. It also had corporate subsidiaries engaged in buying and selling markets. Counsel concluded that its retail sale of market fixtures belonged to a series sufficient in number, scope, and character to require a seller's permit, even though the fixtures differed from its ordinary goods.

The company argued that meat and produce fixtures should be exempt. The letter acknowledged that those fixtures could be occasional when sold in a single market sale because they were not held or used in a permit-requiring activity. That did not help here, because this fixture transfer was part of the company's broader series of retail sales.

The company also sought to remove an intangible benefit associated with the fixtures' location in an operating market from the tax measure. Counsel rejected that adjustment. Section 6012 measured gross receipts by total consideration without deductions for costs, expenses, services forming part of the sale, or other receipts, so the full selling price remained in the measure.

Two statutory limbs, valuation, and source conflicts

Associate Tax Counsel John H. Knowles informed company A of Legal's position on its redetermination petition and recommended denial. The petitioner was a retailer selling ice buckets, dairy supplies, orange drink, fruit punch, fountain equipment, other equipment, and fixed assets. Its corporate subsidiaries also bought and sold markets.

Counsel parsed section 6006.5(a) into two exclusions from occasional-sale treatment. The first covered assets held or used in selling activity, such as fixed assets; he said that category did not apply here. The second covered a series sufficient in number, scope, and character to require a permit. The company had already made a long series of retail sales, and its dairy, equipment, and subsidiaries' market-trading activities put the fixture transfer within that series even though the property differed from its ordinary goods.

The petitioner separately objected to including meat- and produce-department fixtures in the audit. Counsel said those fixtures could be occasional in a single market sale because they were not held or used in a permit-requiring activity. Here, however, the second statutory limb controlled because their disposition belonged to the petitioner's broader series.

The valuation objection concerned an intangible benefit from the tangible goods' location in an operating market. Counsel quoted section 6012's total-consideration definition, which disallowed deductions for property cost, materials, labor or service, interest, losses, other expenses, services forming part of the sale, cash, credits, property, and amounts credited to the purchaser. He therefore kept the full receipts, including location-related benefit embedded in the tangible fixtures' selling price, in the measure.

The current live annotation says the dairy had been engaged in buying and selling markets. The supporting letter instead says that business was conducted by the petitioner's corporate subsidiaries. This page reports the entity attribution in the supporting source and flags the live summary's phrasing.

The PDF's embedded Title and Subject are 395.0383; its Keywords say Market Fixtures, 395.0383; and its Author is Gary J. Jugum. The visible document, official URL, and live page identify Annotation 395.0560, and the letter is visibly signed by John H. Knowles. The metadata conflict is not used to change the document identity or authorship.

The source offered a Board hearing if requested within 30 days; otherwise, the petitioner could return two enclosed hearing-waiver forms. The PDF does not include the petition, audit, retailer and subsidiary records, ordinary sales, market acquisitions or dispositions, subject fixture inventory, meat or produce operations, sale agreement, consideration or allocation, valuation evidence, location-benefit computation, returns, tax calculation, assessment, payment, hearing request, waiver forms, Board minutes or order, refund or collection record, or later appeal. It does not establish final action.

The live annotation preserves the dairy supply and equipment company, market fixtures, prior equipment sales, series-of-sales rationale, meat and produce fixtures, non-occasional-sale result, and August 31, 1964 date. In addition to the entity-attribution issue, it omits the petition, detailed product sales, two statutory limbs, subsidiaries, valuation dispute and section 6012, denial recommendation, hearing and waiver options, PDF metadata conflict, missing records, and absent final outcome.

What this means for you

Retailers selling unusual fixed assets

A sale does not become occasional merely because the asset differs from ordinary inventory. The seller's full pattern of taxable retail activity can control.

Market buyers, sellers, and advisers

Allocate purchase price carefully before closing. This historical letter included location-related value embedded in the consideration for tangible fixtures.

Common questions

Q: Were market fixtures different from the company's ordinary goods? A: Yes, but counsel found that difference insufficient to make the sale occasional.

Q: Could meat and produce fixtures ever qualify as occasional? A: The letter said they could on a single market sale, but not when their sale was part of a sufficient series.

Q: Was an intangible location benefit deducted from gross receipts? A: No. The full consideration for the tangible property remained in the tax measure.

Q: What did counsel recommend?
A: Denial of the redetermination petition, with a Board hearing available on request.

Q: Why did the first occasional-sale limb not decide the case?

A: Counsel said the fixtures were not held or used in the petitioner's selling activity under that limb. The sale still failed under the separate series-of-sales limb.

Q: Whose business bought and sold markets?

A: The supporting letter says the petitioner's corporate subsidiaries did. The live annotation compresses that into a statement that the dairy had done so.

Q: What is wrong with the PDF metadata?

A: It identifies Annotation 395.0383 and Gary J. Jugum, while the visible letter and official page identify 395.0560 and the letter is signed by John H. Knowles.

Q: Did the Board finally deny the petition?

A: The source does not show. It contains a recommendation and offers a hearing or waiver, but no response, order, payment, refund, or later disposition.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a) and 6012
• Redetermination petition, audit, retailer and subsidiary records, market and fixture transactions, valuation and allocation evidence, tax proceeding, hearing request or waiver, Board action, and outcome — described or implicated but not included

Verbatim support

From the official August 31, 1964 Associate Tax Counsel letter:

We believe that in view of your widespread activities involving not only dairy sales, but the sales of various items of equipment and in view of the business conducted by your corporate subsidiaries in buying and selling markets, the sale in question is one in a series sufficient in number, scope and character to require the holding of a seller's permit.

Meat and produce fixtures are exempt occasional sales upon a single sale of a market because these assets are not held or used in connection with an activity requiring the holding of a seller's permit as provided in the first part of Section 6006.5(a).

Insofar as the consideration includes an intangible in the selling price of tangible personal property, it must be included in the measure of tax.

You are entitled to a Board hearing in this matter; if you disagree with our conclusions and desire such a hearing, please let us know within 30 days so we may make the necessary arrangements.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0560
• Original supporting opinion: 395.0560 PDF

Original ruling text

STATE OF CALIFORNIA

395.0560

STATE BOARD OF EQUALIZATION

August 31, 1964

"A"
This is to inform you of the position we have taken with respect to your petition for redetermination of sales tax. We regret we must recommend to the Board that the petition be denied. "A" is a retailer making taxable sales of a variety of items including ice buckets, dairy supplies, orange drink, fruit punch, fountain equipment, and miscellaneous other equipment, including sales of fixed assets. The sale in question concerns the sale of market fixtures at retail. Thus, the only question is whether the sale qualifies for the occasional sale exemption. Section 6006.5(a) defines occasional sale to include sales which are not in two categories. The first category is sales of assets held or used in a selling activity, e.g., fixed assets. This is not applicable here. The second category excluded from the definition is a series of sales sufficient in number, scope and character to require the holding of a seller's permit. Your company, of course, made such a series of sales prior to the sale in question. Thus, the sale in question became one in a long series of retail sales made by your company. We do not believe the language "sufficient in number, scope and character" requires a different conclusion. We believe that in view of your widespread activities involving not only dairy sales, but the sales of various items of equipment and in view of the business conducted by your corporate subsidiaries in buying and selling markets, the sale in question is one in a series sufficient in number, scope and character to require the holding of a seller's permit. While the property was of a different type than the goods ordinarily sold by you, it was the kind of property subject to the sales tax act. We believe nothing more is required by the statutory language to make it one of a series. We also note your objection to the sale of fixtures in the meat and produce departments. We believe these items were correctly included in the audit. Meat and produce fixtures are exempt occasional sales upon a single sale of a market because these assets are not held or used in connection with an activity requiring the holding of a seller's permit as provided in the first part of Section 6006.5(a). However, this is not true where the sale of these assets is one of a series as provided in the second portion of this section. The sale of the fixtures here involved, is one of a series as mentioned above and, thus, the exemption is inapplicable.

Finally, we cannot agree with your objection to the valuation as including an intangible benefit derived from the goods' location in an operating market. The sales tax is a gross receipts tax measured by the actual consideration involved. Insofar as the consideration includes an intangible in the selling price of tangible personal property, it must be included in the measure of tax. Section 6012 of the California Sales and Use Tax Law which defines the tax states: " 'Gross receipts' mean the total amount of the sale or lease or rental price, as the case may be, of the retail sales of retailers, valued in money, whether received in money or otherwise, without any deduction on account of any of the following: "(a) The cost of the property sold… "(b) The cost of the materials used, labor or service cost, interest paid, losses, or any other expense… "The total amount of the sale or lease or rental price includes all of the following: "(a) Any services that are part of the sale. “(b) All receipts, cash, credits and property of any kind. "(c) Any amount for which credit is allowed by the seller to the purchaser..." We think it is clear that the sales price must reflect all receipts and that no deduction can be made for any intangible benefit derived from the location of the goods at the time of the sale. You are entitled to a Board hearing in this matter; if you disagree with our conclusions and desire such a hearing, please let us know within 30 days so we may make the necessary arrangements. 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
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