Could a buying club that bought merchandise wholesale and resold it to members at a markup obtain a California seller's permit?

Plain-English summary

An internal requester asked whether a proposed buying club qualified as a person that could receive a seller's permit. The facts came from a redacted individual who initiated the inquiry, not from supplied bylaws, contracts or transaction records. A redacted federal agency would sponsor the club.

The club planned to buy taxable merchandise from wholesalers and resell it to members at a specified markup. Profits would support continued operation and items such as food-storage freezers or bins. Excess profits would be credited ratably to members in savings accounts or held for scholarships for needy community children. The club would have bylaws and officers.

Some wholesalers would ship directly to member buyers. Other merchandise would go to the club for pickup. When the club bought more than a member ordered, the surplus would remain at headquarters for sale to other members. In every route, the proposal said the membership as a group would take title and transfer it to the ultimate individual-member consumer.

Tax Counsel T. P. Putnam treated the proposed club as a section 6005 person because that definition included a joint venture, association, social club, fraternal organization or other group acting as a unit. Its activity was a section 6013 business because it pursued direct or indirect gain, benefit or advantage.

Title would pass from the membership as a group, or an officer holding for all members, to an individual member. The club therefore would be a seller under section 6014 and could receive a permit under section 6066.

On responsibility for group taxes, counsel opined that every member would be obligated as in a partnership. The memorandum assumed the federal sponsor would ensure that the organization designated an officer or governing body authorized to act for the group and deal with tax obligations. It cites no partnership, agency or member-liability authority for that conclusion, and supplies no sponsor commitment or governance document.

The entire analysis is prospective. The source does not show that the club formed, adopted bylaws, designated officers, bought or sold anything, applied for or received a permit, filed returns, paid tax or received a later ruling or audit outcome.

Source posture

The live 415.0020 annotation, in the 2026 revision of the Business Taxes Law Guide, preserves the planned bylaws and officers, wholesale purchases, marked-up member sales, club-use profits, ratable credits or scholarships, person classification and permit eligibility. It omits the federal sponsorship, secondhand inquiry, three delivery and inventory routes, group-to-member title passage, sections 6005, 6013, 6014 and 6066, partnership-like member liability, sponsor-governance assumption, missing records and wholly prospective posture.

CDTFA's Annotated Legal Opinions collection says the letters are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official one-page 415.0020 PDF has a clean native text layer and one small page-1 stencil, so no OCR was required. It prints the sponsor as 0; that redacted character remains verbatim below. Both fresh direct PDF downloads and both live-annotation downloads 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 removing only the extractor's terminal newline and form feed.

What this means for you

Buying clubs and tax professionals

Formalize who holds and transfers title, who orders and receives goods, how markups and surplus inventory are handled, how profits are allocated, and who may act for the group. Group purchasing can be a retail business even when benefits flow back to members or the community. Do not assume the 1967 memorandum's uncited partnership-like member liability or sponsor-oversight assumption is current law.

Common questions

Q: Did the club qualify as a statutory person?

A: Yes on the proposed facts. Section 6005 included an association, social club or other group acting as a unit.

Q: Was member benefit enough to make the activity a business?

A: Yes. Section 6013 covered direct or indirect gain, benefit or advantage, including the described member and community uses.

Q: Could the club obtain a seller's permit?

A: Yes on the proposal, because title would pass from the group or its officer to individual-member consumers, making the club a seller.

Q: Who did the memorandum treat as responsible for the tax?

A: Counsel said each member would be obligated as in a partnership and assumed a sponsor-approved officer or governing body would act for the group. The memorandum cited no authority and supplies no governance record.

Q: Did the source show that the club ever formed or received a permit?

A: No. Every operational fact was proposed, and no formation, transaction, application, permit, return, payment or audit record is included.

Citations and references

• California Revenue and Taxation Code sections 6005, 6013, 6014 and 6066
• Partnership-like liability for every member and sponsor-arranged tax representative — counsel's opinion and assumption without cited authority
• September 6 request and initiating information; sponsor, member, bylaw, officer, agency and title records; purchases, sales, markup, profit allocations, savings, scholarships and inventory; application; permit; returns; payments; audit; and outcome — described or implicated but not included

Verbatim support

From the official September 22, 1967 Tax Counsel memorandum:

In all events, the club membership will take title to the merchandise and pass the title to the ultimate consumer (individual club members).

The activity of the club will be a “business” under Section 6013, since it will be engaged in with the object of gain, benefit, or advantage, either direct or indirect.

The club, therefore, will be a “seller” under Section 6014, and a seller's permit may be issued to the club pursuant to Section 6066.

With respect to the problem of who to look to for fulfillment of the tax obligations of the group, it is our opinion that each member will be obligated as in the case of a partnership.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 415.0020
• Original supporting memorandum: 415.0020 PDF

Original ruling text

STATE OF CALIFORNIA

415.0020

STATE BOARD OF EQUALIZATION

Memorandum
To:

P. J. Margetts

From:

T. P. Putnam

Subject:

Buying Clubs

Date:

Sept. 22, 1967

This is in reply to your memo of September 6, 1967 concerning the question whether a buying club qualifies as a person to whom a seller's permit may be issued. Our understanding of the facts, based upon information from “B”, who initiated the inquiry, is as follows: The club in question will be sponsored by a federal agency, the “0”. The club will purchase from wholesalers and resell to its members at a specified markup, tangible personal property of a kind the retail sale of which would be taxable. The profits of the club will be used to insure the continued operation of the club and to purchase such items as freezers or bins for the storage of food. Excess profits will be credited ratably to the members in a savings account or held to provide scholarships for needy children in the community. The club will be organized with appropriate bylaws and officers. Some items purchased by the club will be shipped directly to the buyer from the wholesaler. Others will come to the club and be sold to the member when he picks it up. Still other items purchased by the club will be in greater quantity than that ordered by the club member, and the surplus will be kept at the club headquarters for sale to other members. In all events, the club membership will take title to the merchandise and pass the title to the ultimate consumer (individual club members). Upon these facts, the club will qualify as a “person” under Section 6005 of the Revenue and Taxation Code, which defines “person” as including a joint venture, association, social club, fraternal organization or any other group or combination acting as a unit. The activity of the club will be a “business” under Section 6013, since it will be engaged in with the object of gain, benefit, or advantage, either direct or indirect. Title to the merchandise will be transferred from the club members as a group or from an officer who will hold title on behalf of all the members, to the members as individuals. The club, therefore, will be a “seller” under Section 6014, and a seller's permit may be issued to the club pursuant to Section 6066. With respect to the problem of who to look to for fulfillment of the tax obligations of the group, it is our opinion that each member will be obligated as in the case of a partnership. Since the club is sponsored by the “0”, we assume that office would make certain the organization of the club provided for a designated officer or governing body authorized to act in behalf of the group and who can be dealt with in connection with tax obligations.

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