Was an auction consignee legally required to give consignors resale certificates?

Plain-English summary

The auction company had no legal duty to give a resale certificate to a consignor merely because it accepted property on consignment.

Still, a certificate could protect a consignor that had purchased inventory tax-free. It relieved the consignor from having to prove that the property was only retained, demonstrated, or displayed while held for sale and was not put to a taxable use during consignment.

The suggested certificate wording could replace “purchase” with “taken on consignment” to accurately describe the transaction.

Common questions

Was a resale certificate mandatory for consigned goods?

No.

Why might a consignor request one?

To document continued resale holding and reduce its proof burden.

Could the wording reflect a consignment rather than purchase?

Yes.

Citations and references

• Cal. Code Regs. tit. 18, § 1668(c) — proof of resale or continued holding without disqualifying use discussed in the letter

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/475-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/475-0025.pdf

Original ruling text

475.0025

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6496

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

May 4, 1993

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

Mr. R--- Y--M--- Auction Company, Inc.
XXXX --- Way
---, CA XXXXX

BURTON W. OLIVER
Executive Director

Re: SR -- XX-XXXXXX
Dear Mr. Y---:
This office has received your recent letter in which you requested a written opinion on any requirement that M--- Auction Company supply consignors with resale certificates. You state in your letter that your company is a consignment auction. The company seldom purchases items for resale. When an item is purchased for resale, a signed resale certificate is supplied to the seller. Over 96 percent of the company sales are items that have been consigned. Resale certificates issued for consigned articles state that "the tangible personal property described herein which I shall purchase from:" You state that you are uncomfortable signing a document given for consigned goods stating that you are purchasing the items when you are not. Consignors who have purchased inventory items for resale without the payment of tax will be liable for the payment of tax if there is any storage or use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business. Sales and Use Tax Regulation 1668(c) provides, in part, "If the seller does not timely obtain a resale certificate, the seller will be relieved of liability for the tax only if the seller presents satisfactory evidence that the specific property sold: "(1) Was in fact resold by the purchaser and was not used by the purchaser for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business, or

Mr. R--- Y---

-2-

May 4, 1993
475.0025

"(2) Is being held for resale by the purchaser and has not been used by the purchaser for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business . . ." In the situation where a consignor has purchased items for resale without the payment of tax, a resale certificate given by your company will ensure that the consignee will not be held liable for tax in consigning the property. The resale certificate also is accepted by the Board as assurance that the consigned property will not be used for any purpose during the consignment period that will subject the property to tax. The resale certificate provided by your company relieves the consignor of the burden of proving that the consigned property was used only for "retention, demonstration, or display while holding it for sale in the regular course of business." Without receiving a resale certificate, the consignor may not consign the property because it may expect that it would be responsible for any tax on the property assessed by the Board in addition to the tax applicable when the property is sold by McCoy Auction. In answer to your question, there is no legal requirement that your company provide resale certificates to consignors of property. However, if you are concerned with the wording of the resale certificates given to consignors, the local office of the Board of Equalization has suggested you modify the language used in the certificates changing "purchase" to "taken on consignment." Very truly yours,

Thomas Cooke
Tax Counsel
TC:cl