Were a corporation's equipment sales counted separately by school location when deciding whether they were frequent enough to lose occasional-sale treatment?

Plain-English summary

A corporation operated business schools at multiple California locations. Each location held a permit for textbook and supply sales. The audits separately listed transfers and sales of school fixtures and equipment at San Francisco, Oakland, Santa Barbara, and San Diego locations.

Transfers between the corporation and its parent were recorded at book value as intercompany receivables and payables. The hearing officer treated those booked transfers as credit sales. More importantly, the corporation's schools were departments or divisions, not separate legal entities, so all equipment sales across its accounts had to be counted together.

At the single-corporation level, the sales were sufficient in number and character to prevent occasional-sale exemption. The recommendation nevertheless reduced the disputed San Diego measure to $305 based on proof of the correct amount, while leaving the Oakland and Santa Barbara accounts otherwise unadjusted.

Entity-level schedules, source defects, and source limits

Hearing Officer Robert H. Anderson heard three H---'s B--- College account petitions together in San Francisco at 3 p.m. on November 20, 1972. H--- Colleges controller E. B--- appeared for the petitioners, and San Francisco Audit Supervisor E. Hargrove appeared for the Board. The hearings were also coordinated with four accounts of parent I--- B--- Schools, Inc.; an Exhibit I reportedly listed all entities, schools, and accounts, but it is not included.

H---'s was a corporation operating schools in San Francisco, Oakland, Santa Barbara, San Diego, San Mateo, Hayward, San Jose, and Sacramento. Each school held a permit for textbook and supply sales to students. No determination issued for the latter four locations because their amounts were too small.

H---'s was wholly owned by I---, which operated schools too. Equipment moved both directions at book value and was recorded as intercorporate receivables and payables. The source says transfers from H---'s to I--- totaled $3,131 and transfers back totaled $2,825, then prints a $303 net due H---'s. Those displayed totals differ by $306; the source supplies no reconciliation, so this page does not choose a corrected net.

After the audit periods, parent I--- merged statutorily into H---'s, the survivor became H--- Colleges, and the combined business had one permit. Those later events did not turn the earlier schools into separate legal entities.

The schedule for April 30, 1969 through December 31, 1971 listed San Francisco with 15 transfers worth $2,138 and 11 sales worth $2,571; Oakland with one $75 transfer and 13 sales worth $1,702; Santa Barbara with two transfers worth $650 and three sales worth $5,148, including one $4,529 bulk sale; and San Diego with one sale initially listed at $529 but proven to be $305. Only fixtures and equipment appeared in this analysis—no bookstore sales.

Section 6006 made a transfer of title or possession for consideration a sale. Reciprocal receivable and payable entries therefore made the parent-subsidiary transfers credit sales, despite the companies' claim that they were not intended as sales. Because the schools were departments or divisions of H---'s rather than distinct legal entities, every account's sales were aggregated at the corporate level.

Anderson said that if each school were a distinct entity, sale dates would have made Oakland taxable but not San Diego, while Santa Barbara would be taxable only in 1969 when it made three sales. That hypothetical did not govern because one corporation owned the schools. CDTFA's live annotation cites section 6019 for the entity-level twelve-month retailer rule, but the supporting recommendation itself cites only section 6006.

The recommendation reduces San Diego to $305 and directs a refund, then immediately repeats the same San Diego paragraph. It directs no adjustments for Santa Barbara and Oakland. The San Francisco audit produced a net credit and was not protested. An internal line assigns adjustments to Petitions, and a Principal Tax Auditor signed review December 21. The PDF does not establish that the adjustments, refund, or redeterminations were finally made.

The PDF does not include the petitions, joint-hearing Exhibit I, hearing transcript, individual audits or workpapers, determinations, entity and account records, school permits, textbook or supply sales, equipment inventories, transfer documents, ledgers underlying receivables and payables, asset and bulk-sale agreements, invoices, proof reducing San Diego to $305, merger documents, surviving permit, tax computations, payments, adjustment or refund records, Board minutes or orders, or later appeals.

The live annotation preserves one corporation, multiple separately permitted schools, entity-level asset-sale counting, section 6019, twelve-month retailer status, and December 18, 1972 date. It omits the three petitions and joint parent hearings, cities, small accounts, parent-subsidiary transfers and credit-sale analysis, merger, detailed schedules, arithmetic conflict, hypothetical separate-entity outcomes, San Diego reduction and duplicated recommendation, other account dispositions, audit review, missing records, and absent final outcome.

What this means for you

Multi-location businesses

Separate permits and locations do not necessarily create separate sellers. Asset-sale frequency may be measured across the entire legal entity.

Accountants and tax professionals

Identify the legal owner behind each account, then aggregate its transfers and sales over the relevant period. Booked intercompany receivables and payables may evidence credit sales.

Common questions

Q: Were the schools treated as separate legal sellers?
A: No. They were divisions of one corporation with several accounts.

Q: Did each school's separate permit isolate its asset sales?
A: No. The recommendation counted the entity's fixture and equipment sales across locations.

Q: How were booked parent-subsidiary equipment transfers treated?
A: Reciprocal receivable and payable entries made them credit sales.

Q: Was any audit amount adjusted?
A: Yes. The recommendation reduced the San Diego measure to $305 based on the petitioner's proof.

Q: What is wrong with the intercompany net?

A: The source prints transfers of $3,131 and $2,825, which differ by $306, but states the net was $303. It provides no explanation.

Q: How many asset transactions did the schedule list?

A: San Francisco had 15 transfers and 11 sales; Oakland one transfer and 13 sales; Santa Barbara two transfers and three sales; and San Diego one sale.

Q: Were bookstore sales counted?

A: No. The decision says only fixture and equipment sales and deemed sales appeared in the activity analysis.

Q: Did the recommendation list San Diego twice?

A: Yes. The identical reduction-and-refund paragraph appears twice in succession.

Q: Does the source show that the refund was made?

A: No. It contains the recommendation and an audit-review signature but no final redetermination, adjustment posting, refund record, or Board order.

Citations and references

• California Revenue and Taxation Code section 6006; section 6019 appears on the current live annotation but not in the supporting recommendation
• Exhibit I listing related entities, schools, and accounts — referenced but not included
• Petitions, hearings, audits, account and permit records, intercompany transfers and ledgers, asset-sale evidence, San Diego proof, merger, tax adjustments, refund, Board action, and outcome — described or implicated but not included

Verbatim support

From the official December 18, 1972 Hearing Officer recommendation:

These were made at book value at the time of the transfers and were recorded as inter-corporate receivables and payables.

In this instance, all of the schools must be considered as one single corporate entity. The various schools are separate departments (like divisions) of the corporation.

In summary, H---'s B--- College is looked upon as a single entity with several accounts. The sales by the entity, through the various accounts, were sufficient in number and character so as to preclude a finding that they were occasional in nature and exempt from sales tax.

Account SR -- XX-XXXXXX (San Diego); Redetermine, reaudit, and adjust the measure of tax by reducing it to $305. Make a refund accordingly.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0570
• Original supporting opinion: 395.0570 PDF

Original ruling text

STATE OF CALIFORNIA

395.0570

BOARD OF EQUALIZATION

In the Matter of the Petition For Redetermination )
of Sales Taxes and Transactions Taxes,
)
)
H---’S B--- COLLEGE,
)
Petitioner )
In the Matter of the Petition For Redetermination )
of Sales Taxes;
)
)
H---’S B--- COLLEGE
)
dba S--- B--- B--)
COLLEGE,
)
Petitioner )
In the Matter of the Petition For Redetermination )
of Sales Taxes;
)
)
H---’S B--- C--)
dba K--- – J--- COLLEGE,
)
Petitioner )

DECISION AND RECOMMENDATION OF
HEARING OFFICER
Account No. SR – XX-XXXXXX

Account No. SR – XX-XXXXXX

Account No. SR – XX-XXXXXX

The above-entitled matters came on regularly for hearing on Monday, November 20, 1972 at 3:00 p.m., in San Francisco, California. Appearances: For Petitioners:

Mr. E. B---, Controller
H--- Colleges

For Board of Equalization:

Mr. E. Hargrove, Aud. Supervisor
San Francisco District

Protests
Petitioners protest the following items and amounts:
SR -- XX-XXXXXX: Sales of furniture and equipment measured at the 5 percent rate on $734 and at the ½ percent rate on $99. Audit period: 4/01/69 through 12/31/71. SR -- XX-XXXXXX: Sales of furniture and equipment; measure Bulk sale of furniture and equipment Audit Period: 04/01/69 through 11/15/71.

Total

$1,269
4,529
$5,798

H---’s B--- College
SR – XX-XXXXXX, et al.

Page 2 of 4
395.0570

SR -- XX-XXXXXX: Sale of furniture: $529. Audit Period: 4/01/69 through 12/31/71.
Only the measure of tax is protested.
Contentions
Transfers of equipment from one school to another amounted to transfers from a school of a parent corporation to a school of a wholly owned subsidiary corporation and were not intended to be sales or in the alternative were occasional sales. Sale of fixtures and equipment made in conjunction with the sale of the business was an occasional sale and exempt from taxation. Summary Hearings on the above three accounts were held in conjunction with hearings on four I--- B--- Schools, Inc. accounts. Exhibit I is a list of the entities, schools, and accounts involved. Generally, H---’s B--- College is a corporation that operates business schools at different locations. Each school held a seller’s permit for the purpose of reporting sales of school textbooks and supplies to students. Schools were located in San Francisco, Oakland, Santa Barbara, San Diego, San Mateo, Hayward, San Jose, and Sacramento. There was no determination issued against the San Mateo, Hayward, San Jose, and Sacramento accounts because the amounts were too small to assess. H---’s B--- College is a wholly owned subsidiary of I--- B--- Schools, Inc. I---, like H---’s operated a few schools too. There were some transfers of school equipment from H---’s schools to I---’s schools and vice versa. These were made at book value at the time of the transfers and were recorded as inter­ corporate receivables and payables. The audit revealed that between the two corporate entities transfers by H---’s Business College to I--- B--- Schools had a total book value of $3,131 while transfers by I--B--- Schools to H---’s B--- College had a total book value of $2,825. Offsetting receivables and payables produced a net of $303 due H---’s from I---. In the course of events after the periods covered by the various audits, I--- B--- Schools (the parent) was merged (by statutory merger) into H---’s B--- College and the name of the surviving corporation was changed to H--- Colleges. Today there is only one permit or account and it is under number SY -XX-XXXXXX. Inter-corporate transfers of equipment were not considered to be retail sales by those in control of the corporations even though they were set up at book value as payables and receivables. Further, the transfers of equipment were not transfers of equipment held and used in any activity for which the

H---’s B--- College
SR – XX-XXXXXX, et al.

various schools held seller’s permits.
facility) did not need a seller’s permit.

Page 3 of 4
395.0570

Without the bookstore operations, the schools (educational

The audit of the San Francisco account, SR -- XX-XXXXXX, resulted in a net credit and this was not protested by H---’s B--- College. The following is a summary of the transfers of school equipment from one school owned by H---’s to another school owned by I--- and sales of school equipment to unrelated persons between April 30, 1969 and December 31, 1971: SR – XX-XXXXXX (San Francisco)

15 transfers
11 sales

$2,138
2,571

SR -- XX-XXXXXX (Oakland)

1 transfer
13 sales

75
1,702

SR -- XX-XXXXXX (Santa Barbara)

2 transfers
3 sales

650
5,148*

1 sales

529*

*Includes one bulk sale for $4,529.
SR -- XX-XXXXXX (San Diego)

*Petitioner contents and has proven this should be $305.
All of the sales and the transfers deemed to have been sales and which are included in the above schedule were those involving fixtures and equipment only. No bookstore sales were included. In other words, only the sales of fixtures and equipment were considered in analyzing the selling activities of the corporation. Conclusions “Sale” is defined to mean and include any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. (Section 6006, California Revenue and Taxation Code.) Thus, where a H---’s B--- College asset is transferred to one of I--- schools, and it is set up as a receivable on H---’s books and a payable on I---’s books there is a credit sale. If H---’s B--- Colleges were to make enough of them in any twelve-month period, tax would apply to all of the sales. In this instance, all of the schools must be considered as one single corporate entity. The various schools are separate departments (like divisions) of the corporation. If each were, in fact, a separate legal entity then only the sales of each entity could be considered in determining whether they were sufficient in number, scope, and character so as to preclude a finding that they were occasional sales and exempt.

H---’s B--- College
SR – XX-XXXXXX, et al.

Page 4 of 4
395.0570

In summary, H---’s B--- College is looked upon as a single entity with several accounts. The sales by the entity, through the various accounts, were sufficient in number and character so as to preclude a finding that they were occasional in nature and exempt from sales tax. As in the case of the I--- schools, if we were able to treat each school as a separate and distinct entity, rather than integral divisions of H---’s B--- College, which is a separate and distinct entity, then by reason of the dates of the sales tax would apply to the Oakland school sales but not the San Diego school sales. The Santa Barbara school sales would only be taxable in 1969 when they were three. Recommendations Account SR -- XX-XXXXXX (San Diego); Redetermine, reaudit, and adjust the measure of tax by reducing it to $305. Make a refund accordingly. Accounts SR -- XX-XXXXXX (San Diego); Redetermine, reaudit, and adjust the measure of tax by reducing it to $305. Make a refund accordingly. Accounts SR -- XX-XXXXXX (Santa Barbara) and SR -- XX-XXXXXX (Oakland); Redetermine without adjustments. Adjustment to be made by Petitions.

Dec. 18 1972
Robert H. Anderson, Hearing Officer

Date

REVIEWED FOR AUDIT:

12-21-72
Principal Tax Auditor

Date