Could a business avoid California retailer status because it made no more than two retail sales during a twelve-month period?

Plain-English summary

The taxpayer argued that section 6019's more-than-two-retail-sales rule limited section 6015. The Board disagreed and treated the provisions as separate ways to qualify as a retailer.

Under sections 6014 and 6015, a person engaged in the business of selling property of a taxable kind was a seller, and any retail sale made that seller a retailer. Section 6019 independently covered a person making more than two retail sales in any twelve-month period without requiring proof that the person was engaged in a selling business.

The company sold animal yeast and its containers. Most sales were exempt because they were for resale or qualified animal feed, but those use-based exemptions did not change the taxable kind of property being sold. The company was therefore a seller, and any nonexempt retail sale made it a retailer even if it did not cross section 6019's sales-count threshold.

Because it was a seller, the company needed a seller's permit. A sale of property used in the activity requiring that permit would not qualify as an occasional sale under section 6006.5.

What this means for you

Businesses with mostly exempt sales, occasional disposals, and tax advisers

Do not treat the numerical test as a universal safe harbor. A person already engaged in the business of selling taxable kinds of property can become a retailer with one nonexempt retail sale, even when most ordinary transactions are exempt because of resale or customer use.

Common questions

Q: Did section 6019 cap retailer status at more than two sales?

A: No. It supplied a separate retailer definition rather than limiting sections 6014 and 6015.

Q: Why did mostly exempt animal-feed sales still matter?

A: The exemptions depended on how the products were used, not on the products being an inherently nontaxable kind of property.

Q: Could one nonexempt retail sale make this company a retailer?

A: Yes, because it was already a seller engaged in the business of selling tangible personal property.

Q: Was a business-property disposal an occasional sale?

A: Not when the property was used in the activity for which the seller's permit was required.

Citations and references

• California Revenue and Taxation Code §§ 6006.5, 6014, 6015, 6019, and 6368(b)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 480.0160
• Original supporting opinion: 480.0160 PDF

Original ruling text

480.0160

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 4, 1953
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Re:

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Gentlemen:
We have examined your argument that Section 6019 "limits and further defines" Section 6015 which defines "retailer". We think that the two sections actually set up separate definitions. You will note that Section 60l5(a) defines "retailer" as including every seller who makes any retail sale or sales of tangible personal property. "Seller" is defined in Section 6014 as including every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax. Thus, a retailer is one who is engaged in the business of selling certain tangible personal property and makes any retail sale or sales. On the other hand, Section 6019 defines retailer as including every person who makes more than two retail sales of tangible personal property in any twelve-month period. Here, the necessary element of engaging in business, present in Sections 6015 and 6014, is absent. This section, therefore, is another definition of retailer and not a limitation on Section 6015. If we assume that the sales by Begin deleted text REDACTED TEXT End deleted text were not sufficient to bring it within the definition of "retailer" in Section 6019, we still have the problem of determining whether that company was a retailer under Section 6015. We think that Begin deleted text REDACTED TEXT End deleted text Company was engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are-required to be included in the measure of the sales tax. Hence, Begin deleted text REDACTED TEXT End deleted text was a seller and any retail sale (unless otherwise exempt) is subject to tax. Begin deleted text REDACTED TEXT End deleted text business was selling animal yeast and containers for that yeast. Its sales were exempt fro~ tax because either made for resale or for animal feed exempt under Section 6368(b) (except for one sale made to an out-of-state chinchilla ranch). The exemption from tax was due to the use to which the product was put, not to the kind of product sold. Begin deleted text REDACTED TEXT End deleted text therefore, was engaged in the business of selling tangible

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personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax, and any retail sale of tangible personal property would make Begin deleted text REDACTED TEXT End deleted text a "retailer" under Section 6015. Since Begin deleted text REDACTED TEXT End deleted text Company was a seller, it was required to hold a seller's permit and the sale of the property used in the activity requiring the seller's permit would not qualify as an occasional sale under Section 6006.5. We regret our failure to reply to your letter more promptly. If you desire to present any further arguments on this matter, we will be happy to consider them. If you do not wish to present any further arguments, will you please advise us if your client still desires a Board hearing. Very truly yours,

John H. Murray
Associate Tax Counsel
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San Diego - Auditing