Can one California retail sale make a person a seller and retailer, or does seller status depend on whether the person entered the business of selling?

Plain-English summary

The Board distinguished an isolated sale from entering the business of selling tangible personal property. An individual who sold a used hammer and made no other sales during the relevant twelve-month periods was not a seller. A person who opened a hardware store, made one consumer sale, and closed was still a seller because the person had entered the selling business.

The same distinction controlled a prototype contract. The buyer could purchase four more units if the prototype succeeded, so the contract showed that the developer was engaged in the business of selling property. The problem with former Annotation 515.0620 was that it could be read as treating any contract for one item as enough, without explaining the business-intent basis.

The letter also corrected the annotation's retailer analysis. Since 1949, section 6015 had defined a retailer as every seller making any retail sale. Assuming the prototype sale was at retail, the developer became liable as a retailer when it sold the prototype—not at some later point.

This October 23 letter and the October 16 memorandum supporting Annotation 480.0400 address the same former annotation. Both explain that the contemplated additional machines supported seller status and that a seller becomes a retailer upon making a retail sale.

What this means for you

Businesses, occasional sellers, manufacturers, and tax professionals

Do not decide seller status merely by counting completed sales. Evidence that a person opened a selling business or contracted with an expectation of additional sales can establish seller status even when only one retail sale occurs. Conversely, the opinion's used-hammer example treats a genuinely isolated disposition differently.

Common questions

Q: Did one used-hammer sale automatically make the owner a seller?

A: No. The example assumed the owner made no other tangible-personal-property sales during any twelve-month period in which the hammer sale occurred.

Q: Why was the prototype developer a seller?

A: The contract contemplated four additional machines if the prototype succeeded, showing that the developer was engaged in selling tangible personal property.

Q: When did the developer become a retailer?

A: Assuming the prototype sale was at retail, the developer became a retailer when it made that sale because it was already a seller.

Q: Why was the older annotation being deleted?

A: Its seller reasoning omitted the business-intent basis, and its retailer discussion could be mistaken for the pre-1949 definition.

Citations and references

• California Revenue and Taxation Code § 6015
• California Sales and Use Tax Regulation 1595(a)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 480.0251
• Original supporting opinion: 480.0251 PDF

Original ruling text

480.0251
STATE BOARD OF EQUALIZATION

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

WILLIAM M. BENNETT
First District, Kentfield
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

October 23, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. Begin deleted text REDACTED TEXT End deleted text
San Francisco, California 94111-3580
Re: Business Taxes Law Guide Annotation 515.0620
Dear Ms. Begin deleted text REDACTED TEXT End deleted text
Last week you asked for a copy of the backup memorandum to Business Taxes Law Guide Annotation 515.0620. We apparently advised you that it was not in our files. In a facsimile transmission of October 20, 1992, you note that someone in your office discussed the annotation with an attorney on our staff, and during that discussion he pulled the backup memorandum. You therefore ask that we check our files again. We should have advised you that the backup memorandum is unavailable, not that it is not in our files. We apologize for the miscommunication. The annotation is in the process of being deleted, and we are therefore not releasing the backup. For the benefit of your research, below I explain the problem with the annotation. The first part of the annotation relates to when a person is regarded as a seller. The person in the annotation had contracted to develop tangible personal property and, if a successful prototype were developed, the purchaser would have the option of purchasing four more. That contract showed that the developer was engaged in the business of selling tangible personal property, as opposed to contracting for a single sale during any twelve month period, and the developer was therefore a seller under the Sales and Use Tax Law. (See, generally, Reg. 1595(a).) However, the annotation (and the backup) does not explicitly set forth this basis, but rather could be misinterpreted to mean that simply contracting to sell a single item of tangible personal property is sufficient to make that person a seller.

Ms. B

-2-

October 23, 1992
480.0251

A real life example of this distinction is the sale of a hammer. If an individual sells her used hammer, and makes no other sales of tangible personal property during any twelve month period in which the sale of the hammer occurred, then she is not a seller. On the other hand, if she had opened a hardware store, made a single sale of a hammer, and then closed down, notwithstanding that she made but one sale, she would nevertheless be regarded as a seller since she was, in fact, in the business of selling tangible personal property (just not a very successful business). The annotation's analysis of "retailer" is also not sufficiently clear. Prior to 1949, Revenue and Taxation Code section 6015 defined retailer as every person engaged in the business of making sales at retail. The section was then amended to define retailer as every seller who makes any retail sale of tangible personal property. The language in the annotation is unclear, and could be misinterpreted as applying the pre-1949 definition of retailer. A sale of a prototype is generally at retail. Assuming that such was the case in the annotation, since the developer was a seller, the developer was liable for tax under the contract as soon as it sold the prototype since it was a retailer at that time, and not at some later time. That is, a person who is a seller is also a retailer whenever it makes any sale at retail. I hope the information provided above is helpful.

Sincerely,

David H. Levine
Senior Tax Counsel
DHL:wk
515-0620.ltr

bc:

Ms. Shirley Johnson
Mr. Donald Fillman