Were washers and dryers exempt as an occasional sale when owners sold a combined snack-bar and laundromat business?

Plain-English summary

A husband and wife applied for and received a seller's permit to operate a “snack bar with laundromat.” Staff said the same-address activities had no physical barriers and operated jointly as one business, not two.

After selling tangible property from the business, the owners initially reported washers, dryers, pool tables, and games as taxable. They then amended the return, claiming only fixtures and equipment were taxable while washers and dryers were exempt as an occasional sale.

The Legal Division disagreed. Because the owners ran one retail establishment requiring a seller's permit, the washers and dryers were property used in that permit activity and their sale was subject to tax. The source does not show the amended return's disposition.

Permit and return record, integrated-business rules, and source limits

Tax Counsel Donald L. Fillman wrote to Aaron Phillips of the Audit Review and Refund Section on December 21, 1992 about M--- C. and M--- A. E--- and account SR--XX-XXXXXX. He had reviewed the owners' July 30 letter and their seller's-permit application, neither of which is reproduced.

The application described a “snack bar with laundromat.” The same owners operated both at one address, without physical barriers, as a joint endeavor. The source provides no site plan, lease, hours, employees, cash handling, management, books, customer terms, pricing, equipment-use records, or separate financial statements.

The owners sold tangible property and reported the sale on a sales and use tax return. Washers, dryers, pool tables, and games were initially reported taxable. An amended return claimed only fixtures and equipment were taxable and that washers and dryers qualified as an occasional sale. The PDF does not explain how pool tables and games were classified on amendment or give any asset, price, tax, return, refund, or credit amount.

Sections 6367 and 6006.5(a) supplied the occasional-sale exemption and definition. Fillman emphasized the condition that sold property not be held or used in an activity requiring the seller to hold a permit.

Regulation 1595(a)(3) showed genuinely separate businesses: a hardware store and real-estate brokerage at different locations with only common ownership. Brokerage furniture could be occasional, while hardware-store furniture could not. Regulation 1595(a)(5)(B)(2) covered a service enterprise and sales business operated together as one business and taxed the business's asset sale.

Fillman also cited Annotation 395.0240. That historical entry involved a self-laundry and laundry-equipment retail business at the same place and denied occasional-sale treatment to used self-laundry machines. The 395.1255 source uses it as a comparison; the underlying 1953 transaction is not the E---s' transaction.

Legal Division concluded that the E---s' retail establishment was a single permit-requiring business and the washer and dryer sale was taxable. The PDF does not include the July 30 letter, permit application or permit, business registration, sale agreement, buyer, sale date, asset list, values, invoices, site and barrier evidence, operation records, original or amended return, tax calculation, audit, assessment, refund or credit request, administrative response, Board action, appeal, payment, or later outcome.

The live annotation preserves the permit wording, tangible-property sale, same address, no barriers, joint operation, one retail establishment, and taxable washer-and-dryer conclusion. It omits the owners and reviewer, July 30 letter, original and amended returns, pool tables and games, fixtures-and-equipment amendment wording, sections 6006.5(a) and 6367, both Regulation 1595 provisions and examples, Annotation 395.0240, missing records, and absent amended-return or tax outcome.

What this means for you

Owners combining retail and service activities

Under this memorandum, sharing one location without physical or operational separation made washer and dryer assets part of the combined seller-permit activity.

Accountants and tax professionals

Evaluate ownership, addresses, physical barriers, employees, books, pricing, customer access, management, asset use, and permit history before claiming separate activities.

Common questions

Q: Why were the activities not treated separately?
A: They shared one address, had no physical barriers, and were operated jointly.

Q: Did laundromat equipment automatically qualify for exemption?
A: No. Its use in the combined retail establishment defeated occasional-sale treatment.

Q: What property had initially been reported taxable?
A: Washers, dryers, pool tables, games, fixtures, and equipment.

Q: What was the conclusion?
A: The washers and dryers were taxable when sold.

Q: What did the owners change on the amended return?

A: They claimed only fixtures and equipment were taxable and that washers and dryers were occasional-sale property. The source does not explain the amended treatment of pool tables and games.

Q: What separate-business example did staff use?

A: A hardware store and real-estate brokerage at different locations with no relationship beyond common ownership.

Q: Why did Annotation 395.0240 matter?

A: It denied occasional-sale treatment to used self-laundry machines where the owner also sold laundry equipment at the same place.

Q: Was the amended return accepted?

A: The memorandum states Legal Division's taxable view but supplies no return processing, audit, refund or credit, Board action, or later outcome.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a) and 6367
• California Sales and Use Tax Regulation 1595(a)(3)
• California Sales and Use Tax Regulation 1595(a)(5)(B)(2)
• California Sales and Use Tax Annotation 395.0240, dated February 16, 1953
• July 30, 1992 owner letter and seller's-permit application — reviewed but not included
• Permit, business, location, operation, asset-sale, invoice, value, original-return, amended-return, tax, audit, refund, administrative, and outcome records — described or implicated but not included

Verbatim support

From the official December 21, 1992 Donald L. Fillman memorandum:

The E---s applied for and received a permit to operate a “snack bar with laundromat.” It appears that this was one business, not two, located at the same address, without any physical barriers, and operated as a joint endeavor.

An amended return was filed in which the E---s claimed that only the fixtures and equipment were subject to sales tax, while the washers and dryers should be exempt as an “occasional sale.”

The E---'s retail establishment, which was run as a single business, required a seller's permit. It is our opinion that the sale of the washers and dryers is subject to sales tax.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.1255
• Original supporting opinion: 395.1255 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum

To:

Aaron Phillips
Audit Review and Refund Section

From:

Donald L. Fillman
Tax Counsel

Subject:

M--- C. and M--- A. E--SR -- XX-XXXXXX

395.1255
Date:

December 21, 1992

We have reviewed the letter from Mr. and Mrs. E--- dated July 30, 1992, as well as their application for a seller's permit. The E---s applied for and received a permit to operate a "snack bar with laundromat." It appears that this was one business, not two, located at the same address, without any physical barriers, and operated as a joint endeavor. The E---s sold tangible personal property from their business and reported the sale on their sales and use tax return. Included were washers and dryers, pool tables, and games, all of which was initially reported as subject to sales tax. An amended return was filed in which the E---s claimed that only the fixtures and equipment were subject to sales tax, while the washers and dryers should be exempt as an "occasional sale." An "occasional sale" is made exempt by section 6367, and is defined in section 6006.5(a) of the Revenue and Taxation Code. A part of this definition includes the requirement that the tangible personal property sold not be held or used by a seller in the course of activities for which he or she is required to hold a seller's permit or permits. Regulation 1595(a)(3) acknowledges the fact that a single owner could own two separate businesses. The example was "a hardware store at one location and a real estate brokerage business at another location, with no relationship between the two activities except that of common ownership." In this example the real estate business could have an exempt occasional sale of its office furniture, while office furniture sold from the hardware store would not be exempt.

Mr. Aaron Phillips

-2-

December 21, 1992
395.1255

Regulation 1595(a)(5)(B)(2) gives an example of "[w]here a service enterprise and a sales business are operated together so as to constitute one business tax will apply to the sale of the assets of the business." Annotation 395.0240 involved a situation in which the retailer operated two businesses at the same location. One was a self-laundry (which could often be an exempt business) and the other was a retail store selling laundry equipment. The sale of used machines from the selflaundry portion was not an exempt occasional sale. The E---'s retail establishment, which was run as a single business, required a seller's permit. It is our opinion that the sale of the washers and dryers is subject to sales tax.

DLF:wk