Could a company combine 14 used-computer dispositions from one repossession and treat its later $700,000 asset sale as occasional?

Plain-English summary

A company made 14 separate sales of used computers, another disposition described as a $5,000 sale of two computers, and then a final $700,000 asset sale. It argued that the 14 used-computer dispositions should count as one sale because they resulted from one repossession.

The Legal Division rejected that approach. The memorandum ultimately treated 15 sales averaging more than $1,000 within one year as enough by themselves to constitute a selling activity requiring a seller's permit. The final asset sale was part of the same series and did not qualify as an occasional sale.

The memorandum also noted that the company's California computer-leasing activity independently required a seller's permit in staff's view, but the petitioner had not yet had an opportunity to respond to that separate point.

Petition record, transaction count, staff analysis, and source limits

Senior Tax Counsel Ronald L. Dick sent the internal memorandum to Petition Section Supervisor J. W. Cornelius on January 27, 1993. It answers a redacted petitioner's contentions regarding a petition for redetermination. The source mentions a Board hearing, the petitioner's September 14, 1992 letter, attached invoices, audit Schedule 12C2, and audit item D, but the published three-page PDF includes none of those underlying records.

Section 6019 supplied the memorandum's starting point: a firm making more than two retail sales of tangible personal property during any twelve-month period was generally a retailer. The memorandum describes a $5,000 August 10, 1989 sale of two computers to “A.” It then says counsel explained at the Board hearing that this was actually two transactions, including a $200 computer sold to the petitioner's controller. The next sentence identifies 14 other separate used-computer sales that the petitioner had treated as subject to sales tax.

Those statements do not yield an unambiguous transaction count on their face. Nevertheless, the memorandum later says the attached invoices covered “the 15 sales in question” and repeatedly bases its conclusion on 15 sales. The published PDF does not include the invoices needed to reconcile the description, so this page preserves the source's ultimate count without inventing an arithmetic resolution.

The petitioner relied on Hotel del Coronado v. State Board of Equalization, 15 Cal.App.3d 612 (1971), to argue that 14 dispositions from one repossession should be viewed as one sale. Dick answered that the Board had won that case, that the court had not held the hotel's multiple sales represented one sale, and that the opinion instead said the salvage sales did not necessarily represent one sale. Regulation 1595(a)(4) generally set three sales in twelve months as the minimum, then measured scope by frequency or dollar volume and character by similarity in type and value.

Dick concluded that 15 sales averaging more than $1,000 within one year were alone a permit-requiring series in number, scope, and character. He treated the $700,000 final asset disposition as another sale in that series, so it did not qualify as occasional under section 6006.5(a).

While drafting the memorandum, Dick also found a separate issue in Schedule 12C2. The workpapers reportedly showed California computer leases to “A” that the petitioner had incorrectly treated as nontaxable interstate-commerce sales. The amount was included in audit item D, with which the petitioner had agreed. Staff believed the leasing activity independently required a seller's permit, but expressly acknowledged that the petitioner had not had an opportunity to respond to that transaction.

The PDF does not supply the petition, audit report or period, assessment or tax amounts beyond the listed sales, September 14 letter, hearing transcript or exhibits, 15 invoices, repossession record, asset-sale agreement or schedule, Schedule 12C2, audit item D, lease documents, interstate-commerce evidence, petitioner's response to the new leasing theory, staff recommendation, later briefing, or final Board action. It therefore supports the Legal Division's analysis, not a claim about how the Board finally resolved the petition.

The live annotation retains the 14-sale repossession issue, the separate two-computer sale, the ultimate 15-sale count, the more-than-$1,000 average, Hotel del Coronado, and the non-occasional result. It omits the $5,000, $200, and $700,000 amounts; the August 10, 1989 date; the hearing and September 14 letter; the unclear transaction-count description; the quoted regulation; the missing invoices and other records; the California leasing and audit-item issue; the petitioner's lack of an opportunity to respond; the final-outcome gap; and the memorandum's nonbinding internal posture.

What this means for you

Businesses disposing of used equipment

A common origin—such as one repossession—does not necessarily combine multiple customer transactions into one sale for occasional-sale analysis.

Accountants and tax professionals

Count actual dispositions and assess their frequency, dollar volume, and similarity. Also review leasing activity separately, and retain invoices and transaction records because the published source itself illustrates how an unclear count can complicate the analysis.

Common questions

Q: How many relevant used-computer sales did staff use? A: Staff ultimately used 15 sales within one year, averaging more than $1,000 each. The earlier transaction description is not arithmetically clear, and the cited invoices are absent.

Q: Why were they not treated as one sale?
A: They were separate transactions, and the cited court decision did not require multiple dispositions from one source to be collapsed.

Q: What happened to the final asset sale?
A: It was treated as part of the sales series and did not qualify as occasional.

Q: Was leasing an independent basis for retailer status?
A: Staff said it was, but expressly noted that the petitioner had not yet had an opportunity to respond to that transaction.

Q: Does the memorandum show the final result of the petition?

A: No. It gives the Legal Division's analysis but supplies no final Board action.

Q: Are the 15 invoices available in the supporting PDF?

A: No. The memorandum says they were attached, but the published PDF contains only the three memorandum pages.

Q: Did the live annotation preserve the separate leasing issue?

A: No. That issue and the petitioner's lack of an opportunity to respond appear only in the supporting memorandum.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a) and 6019
• California Sales and Use Tax Regulation 1595(a)(4)
• Hotel del Coronado v. State Board of Equalization (1971) 15 Cal.App.3d 612
• Petition for redetermination and Board hearing — identified but not included
• Petitioner's September 14, 1992 letter and 15 invoices — identified but not included
• Audit Schedule 12C2 and audit item D — described but not included
• Repossession, sale, lease, interstate-commerce, response, and final-outcome records — described or implicated but not included

Verbatim support

From the official January 27, 1993 Legal Division memorandum:

Attached are copies of the invoices for the 15 sales in question. We believe that if a food processor's three sales of used lug boxes requires the processor to hold a seller's permit, petitioner's 15 sales in amounts averaging in excess of $1,000 within one year are alone a series of sales sufficient in number, scope, and character to constitute an activity for which petitioner was required to hold a seller's permit.

The final sale of petitioner's assets for $700,000 was also one of that series and does not qualify as an exempt occasional sale as defined at Revenue and Taxation Code section 6006.5, subdivision (a).

We believe that, independent of the other sales, petitioner's leasing activity would require it to hold a seller's permit. Of course, petitioner has not had an opportunity to respond to this transaction.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.0675
• Original supporting opinion: 395.0675 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum

395.0675

0B

To

:

Mr. J. W. Cornelius
Supervisor, Petition Section

From :

Ronald L. Dick
Senior Tax Counsel

Subject:

---.
---

Date: January 27, 1993

This is in reply to contentions raised by ---. (petitioner) regarding its Petition for Redetermination. The issue in this case boils down to whether petitioner qualifies as a retailer under Revenue and Taxation Code section 6019 which defines "retailer" generally as every individual, firm, co-partnership, joint venture, trust, business trust, syndicate, association or corporation making more than two retail sales of tangible personal property during any 12month period. In this case, petitioner made a number of sales. First, petitioner made a sale of two computers to A for a total of $5,000 on August 10, 1989. At the Board hearing, petitioner's counsel noted that sale was actually two transactions which included a sale of a $200 computer to Mr. XX, controller of petitioner. Petitioner made 14 other separate sales of used computers which it correctly considered as sales subject to sales tax. Petitioner also made the final sale in issue. We believe that, under section 6019, petitioner qualifies as a retailer. Petitioner takes the position that the Board should view the 14 separate sales of used computers as one sale, because the sales resulted from one repossession. In this regard, petitioner relies on dicta in the case, Hotel del Coronado v. State Board of Equalization (1971) 15 Cal.App.3d 612, wherein the court noted: U

U

U

U

"The occasional exemption is not available if the sale in question was one of a series of sales sufficient in number (here, 12 salvage sales between August 20, 1962, and March 28, 1963), scope and character to require the holding of a seller's permit. " The Board won the Hotel Del Coronado case. The court did not hold that the Hotel's U

U

Mr. J. W. Cornelius

-2-

January 27, 1993
395.0675

multiple sales would represent one sale. As noted by petitioner in its September 14, 1992 letter, the court noted on page 616 of its opinion that the salvage sales "do not necessarily represent one sale, but may represent more than one sale." I believe that, had the facts been such that the court interpreted a series of sales to be one sale and the Board were to have lost the case on that interpretation, the Board would have appealed the decision. Petitioner believes that its sales were not of sufficient number, scope, and character to require it to hold a seller's permit. Subdivision (a)(4) of Sales and Use Tax Regulation 1595, Occasional Sales--Sale of a Business--Business Reorganization, provides: "When a person not otherwise engaged in an activity requiring the holding of a seller's permit makes a series of sales sufficient in number, scope and character to require the holding of a seller's permit, the gross receipts from all of such sales are subject to tax. "(A) Number. Generally the minimum number of sales to require the holding of a seller's permit is three within any 12 month period. "(B) Scope. The extent of the sales measured by their frequency or dollar volume. "(C) Character. This relates to the similarity in type and value giving effect to the taxpayer's operations. For example, a processor of food products for human consumption is not required to hold a seller's permit for the processing and sale of food products. Sales of used lug boxes, obsolete or used machinery, food handling and similar items are of a character that three or more sales of sufficient scope will require the processor to hold a seller's permit for this selling activity." Attached are copies of the invoices for the 15 sales in question. We believe that if a food processor's three sales of used lug boxes requires the processor to hold a seller's permit, petitioner's 15 sales in amounts averaging in excess of $1,000 within one year are alone a series of sales sufficient in number, scope, and character to constitute an activity for which petitioner was required to hold a seller's permit. The final sale of petitioner's assets for
$700,000 was also one of that series and does not qualify as an exempt occasional sale as defined at Revenue and Taxation Code section 6006.5, subdivision (a).

In reviewing the file to draft this memorandum, I note another relevant transaction. Schedule 12C2 in the audit workpapers indicates that petitioner was leasing the computers to

Mr. J. W. Cornelius

-3-

January 27, 1993
395.0675

A in California and erroneously considering the leases as nontaxable sales in interstate commerce. The amount was included in audit item D with which petitioner agreed. We believe that, independent of the other sales, petitioner's leasing activity would require it to hold a seller's permit. Of course, petitioner has not had an opportunity to respond to this transaction.

RLD:sr
Attach.