Were office-supply sales solicited through independent jobbers taxable to the jobbers or to the corporation whose contracts controlled the transactions?

Plain-English summary

An office-supply corporation used independent jobbers' sales organizations and argued that some California sales belonged to the jobbers. The Board concluded that all sales made through them were taxable to the corporation.

The contracts required solicitation in the corporation's name on its approved forms. The corporation alone could accept or reject orders, accept returns, and adjust customer accounts. It issued every invoice, owned the receivables, retained title to merchandise, controlled the names and billing addresses used, and owned any customer money collected by a jobber. The corporation then paid the jobber the amount due.

Those controls showed that the jobbers did not sell on their own behalf when soliciting the corporation's orders, even if they were independent firms selling other manufacturers' products. Tax treatment by federal and New York authorities carried little persuasive weight against the actual contract terms.

What this means for you

Manufacturers, sales organizations, controllers, and tax advisers

An independent label does not decide whose retail sale occurred. Review the contract and transaction flow: order approval, title, invoicing, receivables, customer funds, returns, and commissions can show that the principal remains the seller.

Common questions

Q: Could the jobbers be independent businesses generally?

A: Yes, but they still acted for the corporation when soliciting these particular orders.

Q: Who owned title and customer receivables?

A: The corporation retained title and owned the invoices and accounts receivable.

Q: Did another tax agency's treatment control California's answer?

A: No. The memorandum gave that treatment little weight compared with the contract facts.

Citations and references

• The memorandum cited no specific California statute or regulation.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 480.0120
• Original supporting opinion: 480.0120 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-State – Auditing

From:

Tax Counsel (RHO)

Subject:

X-------------------------------

480.0120

Date:

April 19, 1967

This is in reply to your memo of November 30, 1966 concerning objections raised by the taxpayer to our audit on the ground that certain California sales were made by its jobbers, selling for their own account, rather than by the taxpayer. The facts applied indicate that taxpayer has entered into contracts with certain independent jobbers for the purpose of utilizing the jobbers' sales organizations for the sale of its products. The contracts provide in part: 1.

That the jobber shall not use taxpayer's name except as authorized by taxpayer.

2.

All sales solicited shall be in taxpayer's name and on order forms approved by taxpayer.

3.

Taxpayer reserves the sole right to accept or decline orders and to accept returns or make other adjustments with customers.

4.

All bills and invoices shall be by taxpayer and in its name. All invoices and accounts receivable are the property of taxpayer.

5.

"Title to merchandise sold by the Company through the Jobber shall remain with the Company."

6.

The jobber is to receive no money in payment of sales unless authorized by taxpayer. All money received by the jobber from customers in payment is the sole property of taxpayer and shall be turned over to it immediately.

7.

Taxpayer will remit to the jobber the amounts due him.

It appears that the jobbers are authorized to use any of several names, all of which are controlled by taxpayer. The address for each billhead name is taxpayer's address. Our New York office has taken the position that all of the sales made by the jobbers are taxable to taxpayer

Taxpayer contends that only sales where billing was returned in its name should be attributed to it, as the other sales are the liability of its jobbers. In support of its contention that the jobbers sell in their own right and not as the agents of taxpayer, the taxpayer has submitted a number of documents relating to its federal income tax and the New York City sales tax. Taxpayer argues that the treatment accorded by the federal and New York tax authorities supports its position. It appears that the contracts between taxpayer and its jobbers fully support the position taken by our New York office. While the jobbers may be independent firms, handling the products of other manufacturers, it seems clear that when they are soliciting orders for taxpayer, they are not selling on their own behalf. The contract provisions set out above amply support this conclusion. The taxpayer's arguments seem to be based primarily on the treatment accorded it by other taxing agencies rather than on the facts. While such treatment may be entitled to some weight in an appropriate case, it is of little persuasive value here. Accordingly, the sales made through the jobbers are properly taxable to taxpayer.

RHO:kc [lb]