Were retail sales of postage stamps and stamped envelopes taxable in California?

Plain-English summary

An unidentified retailer planned to sell postage stamps and stamped envelopes over the counter and through vending machines.

California treated stamps bought for mailing as evidence that postal service had been paid for, not as taxable property sold for its own sake. The sale of those stamps was not taxable, and neither was a nonreturnable folder or wrapper containing only the stamps.

Stamped envelopes were different. The envelope was taxable tangible personal property, although the retailer could deduct the face value of the postage from taxable gross receipts. The same treatment applied to vending-machine sales. The letter also explained that the Postal Service's own retail sales were exempt as sales by an unincorporated federal instrumentality, even when a private retailer's sale of the same item was taxable.

Common questions

Was the full selling price of a stamped envelope taxable?

No. The letter allowed a deduction for the face value of the attached or imprinted postage.

Did vending-machine sales change the classification?

No. Stamps and stamped envelopes kept the same tax treatment, although vending-machine reporting and tax-included signage rules also applied.

Citations and references

• California Revenue and Taxation Code sections 6012, 6051, 6364, 6381, and 6596
• California Civil Code section 1651.1
• California Sales and Use Tax Regulations 1501, 1574, 1589(a), and 1668
• Business Taxes Law Guide Annotation 505.0305

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/430-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/430-0228-200.pdf

Original ruling text

STATE OF CALIFORNIA

430.0228.200

STATE BOARD OF EQUALIZATION
916-445-5550

March 12, 1987

Dear X-------------------:
This is in response to your letter dated January 8, 1987 regarding the application of sales tax to sales of stamps and stamped envelopes. This is not an opinion upon which your client may rely pursuant to Revenue and Taxation Code section 6596 because you have not identified your client. If you want such an opinion, please write us again, identifying your client and providing us with any other relevant information. Your client will be selling at retail stamps and stamped envelopes over the counter and through vending machines. The stamps may be contained in folders or wrappers. The stamped envelopes will be either postage imprinted envelopes your client purchases from the United States Postal Service or envelopes purchased from private vendors upon which stamps are attached. I assume that all stamps and stamped envelopes are sold for purposes of postage and not for purposes of stamp collection. Stamps Sales tax is imposed on a retailer's gross receipts from the retail sale in this state of all tangible personal property unless the sale is specifically excluded or exempted from taxation by statute. (Rev. & Tax. Code § 6051.) On the other hand, no tax is imposed on the charge for performance of a service, even if some tangible personal property is incidentally transferred. (Reg. 1501.) When a person purchases stamps for purposes of postage and not for purposes of collecting those stamps, that person's true object is to obtain the performance of postal service. The tangible personal property transferred, stamps, serve as indicia to the Postal Service that the postal fee has been paid. Therefore, charges received for the sale of U. S. Postal Service stamps purchased for purposes of postage are not subject to sales tax. (Id.) The folders or wrappers containing the stamps are “containers” under Revenue and Taxation Code section 6364. (Reg. 1589(a).) When containers holding only contents whose sales price is not subject to tax are sold with those contents, the charge for the container is also not subject to tax. (Rev. & Tax. Code § 6364(b).) Since the sale at

postage stamps for postage 1s not subject to tax, neither is the sale of containers holding only those stamps. Envelopes Envelopes are tangible personal property the retail sales of which are subject to sales tax. Except as provided below, the total amounts your client receives for his sale of stamped envelopes at retail are subject to sales tax. (Rev. & Tax. Code §§ 6012, 6051.) Since the envelopes will be purchased for resale, your client may purchase them ex tax by issuing a resale certificate to his vendor. (Reg. 1668).) As mentioned above, postage stamps are indicia of payment for postal service. The face value of these postal charges, whether in the form of stamps attached to envelopes or postage imprinted on envelopes by the postal Service, may De subtracted from your client's taxable gross receipts. Since your client may compare the tax treatment of his sales of stamped envelopes to the tax treatment of sales by the Postal Service, to avoid any confusion I will also discuss taxation of sales by the Postal Service. Sales made by the United States or its unincorporated instrumentalities are exempt from sales tax. (Rev. & Tax. Code § 6381(a).) The United States Postal Service is an unincorporated instrumentality of the United States. (Business Taxes Law Guide Anno. 505.0305 (4/23/71).) Therefore, retail sales made by the postal Service are not subject to sales tax. This means that even if your client sells the same taxable item as the Postal Service (e.g., stamped envelopes) at the same price, the sale by the Postal Service is not subject to sales tax despite the fact that the sale by your client is subject to sales tax. Vending Machines Sales tax applies to sales through vending machines of stamps and stamped envelopes in the same manner as discussed above. The proper manner in which sales tax liability for sales through vending machines must be reported is explained in Regulation 1574, a copy of which is enclosed. One requirement is that a statement including the name, address, and seller's permit number of the machine's operator be affixed on each machine dispensing tangible personal property of a kind the gross receipts from retail sales are subject to tax, such as stamped envelopes. (Reg. l574(a)(1).) Please note that sales of stamped envelopes will be regarded as having been made on a tax-included basis only if a statement in substantially the following form is affixed to the machine: “All prices of taxable items include sales tax reimbursement computed to the nearest mill.” (Reg. 1574(8)(1).) So, for example, if a machine on which the foregoing statement is affixed takes in $100.00 in taxable receipts, the sales tax liability at the rate of 6.5% would be $6.10. If the statement 18 not affixed on the machine, the sales tax liability would be $6.50. Conclusion

The sale of stamps for purposes of postage is not subject to tax. This Includes any nonreturnable container holding those stamps. The sale of stamped envelopes is SUbject to sales tax, with a deduction from taxable gross receipts only ~or the face value of the postage. Since some of your client's sales will be subject to tax, you ask why two companies making similar sales are not collecting tax. X---------------- holds seller's permit number X------------------ and is subject to the California Sales and Use Tax Law, including the rules and regulations discussed above. We do not have a record of a X----------- having applied for a seller's permit. If you will send us its address (and please check to make sure the name you have provided us is correct), we will be happy to investigate further. I note that you ask why these two companies are not collecting tax. The sales tax is imposed on the retailer. (Rev. , Tax. Code § 6051.) Whether the retailer collects sales tax reimbursement from his customer is solely a matter of contract between the retailer and customer. (Civil Code § 1651.1.) If your client's competitors sell through vending machines, the measure of their tax is determined, in part, by whether they have attached to their machines the statement referred to above. You may wish to look at their machines to determine whether they are collecting sales tax reimbursement from their customers (if the statement is not attached, they are not collecting reimbursement). If you have further questions, feel free to write again. Sincerely,

David R. Levine
Tax Counsel
DHL:sr
Enc.