Did a beauty college owe more California sales tax when lump-sum cosmetology tuition included a textbook and supply kit bought tax-paid?

Plain-English summary

A beauty college charged $1,600 in lump-sum tuition for a cosmetology course. The complete supporting memorandum says the course included 1,600 hours of training plus a textbook, printed materials, and a made-to-order kit containing a curling iron, blow dryer, brushes, scissors, and a hair razor. The college paid tax when buying the materials, whose total cost was about $75.

The Board's tax counsel concluded that paying tax at source extinguished the college's liability. Extensive classroom instruction predominated, the materials cost less than 5% of tuition, the college bought them already fabricated, and students were not charged separately for them.

The memorandum said the Board had not yet adopted a regulation allocating tax when lump-sum tuition includes course materials. On these facts, the college could be treated as the consumer. Even if treated as a retailer, counsel saw no basis to calculate an imputed markup.

The current annotation summary and the supporting memorandum differ on training hours: the annotation says 1,699, while the complete memorandum says 1,600. The dollar amounts and holding are otherwise stated here from the memorandum.

What this means for you

Trade schools, vocational programs, controllers, and tax advisers

This opinion treated low-cost, tax-paid course materials as incidental to a substantial instructional program. The result rested on the particular bundle: no separate materials price, minimal material cost, and no untaxed fabrication by the school.

Common questions

Q: How much did the course and materials cost?

A: Tuition was $1,600, while the textbook, printed material, and kit cost the college about $75 in total.

Q: Why was tax paid to vendors enough?

A: Instruction predominated, materials were under 5% of tuition, arrived fabricated, and had no separate charge.

Q: Did the Board apply a course-material regulation?

A: No. The memorandum said the Board had not yet enacted one.

Q: Did counsel impute a retail markup?

A: No. Counsel said there was no justification for doing so even if the college were viewed as a retailer.

Citations and references

• The memorandum cited no specific statute or regulation.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 480.0022
• Original supporting opinion: 480.0022 PDF

Original ruling text

State of California

Memorandum

To:

Modesto – Auditing

From:

Tax Counsel (GJJ) – Headquarters

Subject:

N--- A--- Beauty College

Board of Equalization

480.0022
January 31, 1980

SR -- XX-XXXXXX

This is in response to your memorandum of November 26, 1979. We understand that taxpayer charges $1600 tuition for a prescribed course in cosmetology. This lump-sum charge includes 1600 hours of training and a textbook, printed material, and a supply kit consisting of a curling iron, blow dryer, brushes, scissors, and hair razor. These kits are made to order by W--- C--- B--- S---. The taxpayer purchases the textbook and supplies taxpaid at source. Total cost to the beauty college for all of the above is approximately $75. You inquire as to whether taxpayer’s liability is extinguished in this case by paying tax at source. We are of the opinion that taxpayer’s liability is extinguished by paying tax at source under the circumstances of this case. Taxpayer provides extensive classroom instruction. The cost of the materials is less than five percent of the tuition charge. Taxpayer purchases the materials in fabricated form, thus there is no fabrication labor which escapes taxation. Finally, taxpayer does not make a separate charge for the materials. As you may be aware, we have had under study for some time the question as to the proper allocation of tax in situations where course materials are furnished to students in situations where lump-sum tuitions are charged. As yet the Board has enacted no regulation on this subject. It would appear that in the instant case the taxpayer may be regarded as the consumer of the items. Even if taxpayer were to be regarded as the retailer, there would be no justification for the Board’s calculating an imputed markup.

J:alicetilton