Did separately charging customers at cost make a furniture packer and mover a retailer of packing materials?

Plain-English summary

California treated a taxpayer principally engaged in intrastate packing and moving of others' furniture as consumer of packing materials even though it separately charged customers its cost. Staff assumed the customers did not bargain for specific materials, making the charge expense recovery rather than a retail sale.

The memorandum's main discussion separately addressed contracts to pack machine parts for two Kansas companies. It reached the same consumer conclusion because customers had not bargained for specific materials and at-cost charges merely recovered expense. On the stated assumptions, staff believed no further refund was due but asked Los Angeles Auditing for comments before reviewing the audit further.

Identical materials could be bought tax-free for resale if some packed furniture the taxpayer itself apparently sold, but the taxpayer remained consumer of the portion used for Kansas machine-part packing. The source gives no allocation, refund action or later outcome.

Kansas contracts, local-office advice, refund posture, and furniture addendum

Headquarters Sales Tax Counsel identified as WWM reviewed a file and discussed it with Mr. Stetson and other legal staff. None of the file, discussions, facts or participants' full identities is supplied.

The source asks staff to revisit a taxpayer letter dated June 17, 1953. Counsel's impression was that the taxpayer initially thought itself a consumer under contracts with two Kansas companies. The local office may have advised reporting packing-material cost on line 2 of its return as self-consumed merchandise and apparently said the taxpayer could reimburse itself for that expense. Staff believed the taxpayer misunderstood this as taxable retail sales. The letter, advice, return and line-2 form are absent.

The Kansas customers reportedly did not bargain for specific materials, and the separately stated charge was no more than taxpayer cost. Counsel treated that as evidence of expense recovery for a packing service, not a personal-property sale. The source later identifies the contract work as packing machine parts but gives no companies, parts, materials, services, contract terms, quantities, charges, costs, shipments or destinations.

The analysis points to Los Angeles Auditing's answer to Question 3 in a September 23, 1954 memorandum responding to Headquarters' May 25 memorandum and to the second paragraph of E. H. Stetson's May 15, 1950 letter to two redacted recipients. None of those authorities is reproduced, so their separate facts are not imported.

Staff requested Los Angeles Auditing's comments and said that after reviewing the audit and comments it might advise the taxpayer to pay vendor sales tax on contract packing materials. Based on the assumptions, staff did not believe any further refund was due. This is a conditional internal position, not proof that a refund was finally denied.

If identical materials packed both Kansas machine parts and furniture the taxpayer apparently sold, the taxpayer could buy all materials tax-free for resale while treating the machine-part portion as consumed. The source does not identify the furniture sales, resale certificates, vendors, tax reporting or allocation.

A closing addendum states that staff understood taxpayer's principal activity was packing and moving others' furniture in intrastate commerce. It separately charged at cost, and staff again assumed customers had not bargained for specific materials. On those facts it was consumer. The source does not state that the Kansas companies bought furniture-moving services, so this page keeps the machine-part contracts and furniture activity distinct.

The live 400.0080 annotation publishes only the addendum's bottom line that persons packing and moving furniture for others consume the materials used. It omits the at-cost and no-specific-material bargain assumptions; Kansas contracts; machine parts; local-office advice; prior letters and memoranda; return treatment; resale allocation; refund posture; requested comments; and missing outcome.

The official first page is numbered 400.0080, matching the live annotation and PDF URL. The continuation-page header instead prints 440.0080. Its body continues the first-page analysis without interruption and ends with the separate WWM furniture addendum. This page preserves and discloses the incompatible header rather than changing the ruling ID.

The official two-page PDF has a clean rendered text layer and no body-page image. Two fresh downloads and extractions matched exactly, and the preserved source tail remains byte-identical after removal of only pdftotext's terminal newline and form feed. No case citation appears.

What this means for you

Packers and furniture movers

A separate material line did not create a retail sale where it merely recovered cost and customers bought a service. Document what the customer actually bargains for, how charges are calculated and whether any materials are transferred as property.

Accountants and tax professionals

When identical materials support resale and service uses, document vendor treatment and the consumed allocation. Preserve contracts, cost support, resale certificates, returns and refund records; this memorandum supplies no completed audit or refund result.

Common questions

Did a separate material charge establish a retail sale?

No, not on the memorandum's assumptions that it merely recovered cost and customers had not bargained for specific materials.

What was the true customer purchase?

For the final furniture discussion, packing and moving service. The main Kansas-contract analysis separately concerns packing machine parts.

Could identical materials ever be bought under resale treatment?

Yes. The memorandum allowed tax-free-for-resale purchase if some packed furniture the taxpayer sold, while treating the portion used for Kansas machine-part contracts as consumed.

Which annotation ID does this page use?

400.0080, as shown by the official annotation URL and first source page. The continuation page prints 440.0080.

Was the refund finally denied?

The memorandum says no further refund was believed due on its assumptions, but asks for audit-office comments and supplies no final action.

What did the local office actually advise?

The source is tentative: it says the office may have advised reporting cost on line 2 as self-consumed merchandise. No advice record is included.

Citations and references

• June 17, 1953 taxpayer letter — referenced but not included
• September 23, 1954 Los Angeles Auditing memorandum, answering Question 3 in Headquarters' May 25, 1954 memorandum — referenced but not included
• May 15, 1950 E. H. Stetson letter to two redacted recipients — referenced but not included
• Taxpayer and file; Kansas contracts and customers; machine parts; furniture sales and moving customers; packing materials; charges and costs; local-office advice; return and line 2; resale certificates and consumed allocation; audit and comments; refund request and amount; assessment; claim; appeal; and outcome — described, assumed or implicated but not included

Verbatim support

From the official January 7, 1955 memorandum:

The Kansas customers did not really bargain for specific materials.

Furthermore, the fact that taxpayer’s billing was made at cost of materials is some indication that a sale of personal property was not intended but that it was merely recovering one of its expenses of performing a packing service.

Based on the foregoing assumptions, we do not believe it is entitled to any further refund with respect to materials used under these contracts.

Under these facts, we feel taxpayer is a consumer of the packing materials.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0080
• Original supporting opinion: 400.0080 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Los Angeles – Auditing (LJR)

From:

Headquarters – Sales Tax Counsel (WWM)

Subject: [X]

400.0080

Date:

January 7, 1955

Account No. -- - XXXXX

I have reviewed the file and have discussed with Mr. Stetson and the other members of the legal staff the problem of whether taxpayer should be considered as a retailer or consumer under its contract with the two Kansas companies. Please refer once more to the taxpayer’s letter of June 17, 1953. The impression we received from that letter is that taxpayer, at the time it consulted the local office, really thought it was a consumer of packing materials under the contract. And it appears it was further so advised by the local office, which may have informed it that it should report the cost of such packing materials to it on Line 2 of its own return as self-consumed merchandise. Apparently taxpayer was also informed that it would be perfectly proper for it to reimburse itself for this additional expense, just as it reimburses itself for any other expense of doing business. Taxpayer apparently misunderstood the advice given and construed it to mean that it was really making taxable sales to the Kansas companies. As indicated in taxpayer’s letter of June 17, it further appears that, while taxpayer made a separately stated charge for the packing materials, that charge was no greater than the cost to it of the materials. It is our view that taxpayer is really a consumer under these conditions. The Kansas customers did not really bargain for specific materials. See in this connection your answer to Question 3 in your memorandum of September 23, 1954, in reply to our memorandum of May 25, 1954. Therefore, even though a separate charge was made for the materials, we do not believe this should result in regarding taxpayer as a retailer of the materials. See the second paragraph of Mr. Stetson’s letter of May 15, 1950, to [A] and [B]. The fact that a separate charge was made for “reimbursement” merely appeared to result by chance and not because taxpayer and its outof-state customers really thought there was any sale of personal property involved. Furthermore, the fact that taxpayer’s billing was made at cost of materials is some indication that a sale of personal property was not intended but that it was merely recovering one of its expenses of performing a packing service.

Los Angeles – Auditing (LJR)

-2-

January 7, 1955
440.0080

In review, we apparently do not have a situation here where taxpayer and its customer originally bargain for a sale of personal property. We would appreciate your comments concerning the foregoing discussion. After we review the audit and your comments, we may deem it advisable to inform the taxpayer that it might best pay sales tax to its vendor with respect to packing materials purchased to carry out these contracts. Based on the foregoing assumptions, we do not believe it is entitled to any further refund with respect to materials used under these contracts. If taxpayer purchases identical materials to pack these machine parts and to pack the furniture which it apparently sells, it would be in order for taxpayer to purchase all of the materials on a tax-free for resale basis with the understanding that it is a consumer thereafter of that which is used to pack the machine parts. Whether taxpayer wishes to recover this additional expense of doing business from the Kansas companies is, of course, its own affair. W. W. Mangels WWM: ja

We would like to add that we understand taxpayer’s principal activity is packing and moving furniture of others in intra-state commerce. We understand it also makes a separate charge for materials in this activity, but that such charge is at cost to it. We again assume the customer has not bargained for specific materials. Under these facts, we feel taxpayer is a consumer of the packing materials. W. W. M.