Was a pharmacy's $5,000 asset transfer exempt because the fixtures and personal property were used only to dispense prescription drugs?

Plain-English summary

A California corporation bought a redacted pharmacy and acquired $5,000 of trade fixtures and other personal property that had been, and would continue to be, used only to dispense prescription drugs. Its representative argued that the transfer was exempt under Revenue and Taxation Code sections 6367 and 6006.5(a).

The seller actually held a seller's permit because it retailed taxable items. The representative nevertheless argued that the code would not require a permit if a person sold only exempt items. Tax Counsel Gary J. Jugum answered that broader legal premise.

Section 6066 required a person wanting to conduct business as a seller to file for a permit, while section 6014 defined a seller by the kind of tangible personal property sold. Counsel distinguished a property class whose retail sales were inherently outside the tax from property exempt only under specified transaction conditions. Section 6369 exempted sales of medicines under specified conditions, but medicines was broader than prescription-only property and could include baby powder and lubricating jelly sold under nonexempt conditions. A person selling medicines exclusively therefore still needed a permit even if every medicine sale happened to be exempt.

Counsel concluded that the transferred property had been held or used in an activity requiring a seller's permit and that tax properly applied to the transfer. The source does not separately analyze section 6367, quote the occasional-sale text in section 6006.5(a), calculate tax, or provide an assessment, payment or later administrative outcome.

Source posture and later use

The live 410.0250 annotation, in the 2026 revision of the Business Taxes Law Guide, retains the circumstance-dependent medicine exemption and permit conclusion. It supplies section 6369(b) for the medicine definition and section 6369(a) for the exemption, subdivisions not printed in the 1971 opinion. It omits the buyer, $5,000 asset transfer, seller's actual taxable sales and permit, the purchaser's cited sections 6367 and 6006.5(a), baby-powder and lubricating-jelly examples, cross-reference to Annotation 410.0280, missing records and absence of a later outcome.

The 1971 opinion cites Annotation 410.0280 and its May 27, 1952 supporting opinion. That earlier opinion required a permit for a corporation selling containers and labels even if all such sales were exempt because of their use. The 1971 source does not reproduce the earlier opinion or explain beyond its short cross-reference how the packaging facts map to medicines.

A later January 11, 1991 supplemental recommendation supporting Annotation 395.0275 quoted Annotation 410.0250 and treated it as applying even to a manufacturer that sold only human prescription drugs. The recommendation said annotations were not formal regulations but were evidence of Board interpretation entitled to great weight unless clearly erroneous; it found 410.0250 correct. That source also said the 1971 opinion involved a pharmacy selling taxable and nontaxable items. It remained a recommendation with a Board hearing request pending, so this page does not present it as a final Board adjudication.

Two other later official opinions use 410.0250 more briefly. An October 5, 1995 HMO-pharmacy memorandum cited it for the statement that pharmacies are retailers required to obtain permits. A July 16, 1993 calligrapher opinion cited 410.0250, 410.0280 and 410.0300 for needing a permit despite exempt public-display art sales, while distinguishing all-interstate sales. Those opinions address different facts and do not supply the missing records or outcome here.

CDTFA's Annotated Legal Opinions collection says the opinion letters are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official two-page 410.0250 PDF has a clean native text layer and one small page-1 stencil, so no OCR was required. Two fresh direct downloads of both the PDF and live annotation were byte-identical, and duplicate default PDF text extractions matched. The original-text section below remains byte-identical to its committed version and matches the fresh official extraction after removal of only the extractor's terminal newline and form feed.

What this means for you

Pharmacies, asset buyers, and tax professionals

Do not equate all current sales are exempt with no permit is required. This historical opinion looked at whether medicines could be sold under taxable circumstances, then used the permit-requiring activity to decide the asset-transfer treatment. Confirm the current product, transaction, permit, occasional-sale and asset-transfer rules and preserve the seller's sales and use records.

Common questions

Q: Did the pharmacy seller actually make only exempt sales?

A: No. The source says it held a permit because it retailed taxable items. The opinion separately answered the premise that someone selling medicines exclusively could still need a permit even if every medicine sale was exempt.

Q: Why did an all-medicine-sales-exempt seller still need a permit?

A: Because the exemption depended on the circumstances of sale. Medicines included more than prescription-only property and could include baby powder or lubricating jelly sold under nonexempt conditions.

Q: What did counsel decide about the $5,000 asset transfer?

A: The fixtures and other personal property were held or used in an activity requiring a seller's permit, so counsel said tax properly applied. The opinion does not calculate the tax or supply later collection records.

Q: Did counsel separately analyze every exemption the purchaser cited?

A: No. The request invoked sections 6367 and 6006.5(a), but the opinion did not separately explain section 6367 or quote the occasional-sale provision before reaching its permit-based conclusion.

Q: Was the permit rationale used again later?

A: Yes. The 1991 supplemental recommendation supporting Annotation 395.0275 expressly quoted and approved 410.0250 for a prescription-drug manufacturer, though that later source was still a recommendation awaiting a Board hearing. The 1993 calligrapher opinion and 1995 HMO-pharmacy memorandum also cited it in different settings.

Q: Does the annotation control if current statutory law differs?

A: No. CDTFA's collection page expressly says statutory law controls whenever it conflicts with an annotation.

Citations and references

• California Revenue and Taxation Code sections 6367 and 6006.5(a) — purchaser's asserted exemption; the opinion does not separately analyze section 6367 or quote section 6006.5(a)
• California Revenue and Taxation Code sections 6014, 6066 and 6369 — quoted or described in the 1971 opinion
• Sales and Use Tax Annotation 410.0280 and its May 27, 1952 supporting opinion — cited by the 1971 opinion
• Annotation 395.0275 supporting recommendation (January 11, 1991) — later quotes, analyzes and approves 410.0250 but supplies no final Board action
• Annotation 425.0142.010 supporting memorandum (October 5, 1995) and Annotation 515.0002.820 supporting opinion (July 16, 1993) — later citations in different factual settings
• October 12, 1971 request; purchase agreement; pharmacy and asset records; seller's permit; taxable and exempt sales records; prescriptions; return; assessment; payment; and later outcome — described or implicated but not included

Verbatim support

From the official November 9, 1971 Tax Counsel opinion:

As part of the purchase, your client acquired $5,000 of trade fixtures and other personal property which were and will be used exclusively in the pharmacy for the dispensing of prescription drugs.

Accordingly, we are of the opinion that a person selling “medicines” exclusively is required to hold a seller’s permit even though all sales of the “medicines” may be exempt under section 6369.

Thus we must conclude that the transfer in question was a transfer of property held or used in the course of an activity requiring the holding of a seller’s permit, and that the tax is properly applicable.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0250
• Original supporting opinion: 410.0250 PDF
• Cited earlier opinion: 410.0280 PDF
• Later applications and citations: 395.0275 PDF, 425.0142.010 PDF, and 515.0002.820 PDF

Original ruling text

STATE OF CALIFORNIA

410.0250

STATE BOARD OF EQUALIZATION
November 9, 1971

Attention: X---------------Dear Mr. X------------------ : Your letter of October 12, 1971, addressed to Mr. Walter Shaffer of our San Diego office has been referred to this office for reply. We understand that your client, X----------- Inc., a California corporation, recently purchased X---------------. As part of the purchase, your client acquired $5,000 of trade fixtures and other personal property which were and will be used exclusively in the pharmacy for the dispensing of prescription drugs. It is your position that the transfer of these assets is exempt from tax, under sections 6367 and 6006.5(a) of the Revenue and Taxation Code. You point out that X------------ held a seller’s permit, at the time the sale in question took place, because it retailed “items of personal property not exempt under the provisions of the Revenue and Taxation Code.” You find nothing in the code which would require a seller to hold a seller’s permit “if he were exclusively engaged in the sale of exempt items.” Section 6066 of the code provides that, “Every person desiring to engage in or conduct business as a seller within this state shall file….for a permit…” Section 6014 defines “seller” to include “every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are included in the measure of the sales tax.” [Emphasis added.] Section 6369 of the code provides an exemption from the tax for the gross receipts from the retail sale of “medicines” sold under certain specified conditions. In our opinion “medicines” is not a “kind” of property the retail sale of which is not subject to tax. This is especially so since the definition of medicines is not coextensive with the class of property which can be sold on prescription only. Rather, “medicines” is a broader class and can include, for example, baby powder and lubricating jelly, items which may be purchased at retail under other than exempt conditions. Accordingly, we are of the opinion that a person selling “medicines” exclusively is required to hold a seller’s permit even though all sales of the “medicines” may be exempt under section 6369. [Cf. Cal. Tax Ser. Anno. 410.0280, May 27, 1952.] Thus we must conclude that

the transfer in question was a transfer of property held or used in the course of an activity requiring the holding of a seller’s permit, and that the tax is properly applicable. Very truly yours,

Gary J. Jugum
Tax Counsel
GJJ/ab
bc.:

San Diego – District Administrator