Did a furniture retailer violate section 6205 by advertising no sales tax, and could it still report the sales as tax-included?

Plain-English summary

A furniture retailer advertised no sales tax. California concluded that section 6205 did not prohibit the advertisement because that section appeared in the use-tax chapter and governed use tax, while the ad concerned transactions assumed to be subject to sales tax.

The distinction mattered because sales tax is imposed on the retailer. The retailer may contract to collect reimbursement from the customer, but it is not required to do so and remains liable for sales tax either way. By contrast, a retailer responsible for use tax collection must collect it from the purchaser.

The advertisement did not, however, establish tax-included pricing. It lacked a footnote or other statement saying tax was included in the regular price. Unless the retailer provided notice meeting Regulation 1700(a)(2)—for example, on the price tag—it could not report the sales on a tax-included basis and back reimbursement out of the advertised price.

Common questions

Did the no-sales-tax advertisement eliminate the retailer's sales-tax liability?

No. The retailer owed sales tax whether or not it collected reimbursement from customers.

Why was section 6205 not violated?

The memorandum interpreted it as applying to use-tax absorption or noncollection, not sales-tax advertising.

Could the retailer treat the advertised price as tax included?

Not without a notice satisfying Regulation 1700(a)(2).

Citations and references

• California Revenue and Taxation Code §§ 6051, 6201, 6203, 6205, and 6401
• California Civil Code § 1656.1
• California Code of Regulations, title 18, Regulation 1700(a)(2)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/460-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/460-0005.pdf

Original ruling text

State of California

Board of Equalization
Telephone: 324-2608
Legal Division MIC: 85

Memorandum
To

Mr. Bruce Barkley (KH)

:

From :

Rachel M. Aragon
Staff Counsel

Subject:

“No Sales Tax” Advertisement

460.0005
Date:

December 15, 1993

This is in response to your memorandum dated November 15, 1993. You attached an advertisement in which J--- H--- F--- is advertising “no sales tax” on all furniture, and you ask if the advertisement is in violation of Section 6205 which makes it unlawful for a retailer to advertise to the public, directly or indirectly, that the tax or any part of it will be absorbed by the retailer or that it will not be added to the sales price. The sales tax is imposed on the retailer, but the retailer may collect sales tax reimbursement (usually itemized on the invoice as “sales tax”) from the purchaser if the contract of sale so provides. (Rev. & Tax. Code § 6051, Civ. Code § 1656.1.) When sales tax does not apply, use tax applies to the use of property purchased from a retailer for use in California. The retailer must collect the tax from the purchaser. (Rev. & Tax. Code §§ 6201, 6203, 6401.) Although the retailer may collect sales tax reimbursement from its customer, it is not obligated to do so. That is, the retailer remains liable for the sales tax without regard to whether it collects sales tax reimbursement from the customer. On the other hand, the retailer is obligated to collect the use tax from the purchaser. Section 6205 is part of Article 1 of Chapter 3 of the Sales and Use Tax Law. Chapter 3 is entitled “The Use Tax,” and section 6205 applies to the use tax, not to the sales tax. Since the advertisement refers to sales tax and presumably relates to sales subject to sales tax, the retailer has not violated section 6205. I note that in these types of advertisements, the retailer often has a footnote stating that the sale will actually be tax-included at the usual selling price. The advertisement you provided does not have such a statement. Unless the seller does have a statement meeting the requirements of Regulation 1700(a)(2), (for example, including on the price tag information that tax is included) it would not be entitled to report on a tax-included basis. If you have any other questions, please feel free to write again.

RMA:ljt