Did a shoemaker make a taxable sale by trading inventory shoes for $100 of merchandise for personal use?

Plain-English summary

California explained that transferring tangible personal property in exchange for goods or services is a sale. The value received by the transferor becomes taxable gross receipts under the applicable sales-tax rules.

Its example involved a shoemaker who removed shoes from business inventory and traded them for merchandise worth $100 for personal use. The Board treated the shoemaker as selling the shoes and receiving $100 of value, so $100 belonged in taxable gross receipts.

The source was responding only generally on sales tax. Because the underlying article focused on income-tax savings, the Board sent that part of the inquiry to the Franchise Tax Board.

Common questions

Does barter avoid sales-tax treatment because no cash changes hands?

No. Goods or services received in exchange can supply taxable value.

What was the taxable amount in the example?

$100, the stated value of the merchandise received for the shoes.

Did the letter decide the income-tax treatment?

No. It referred that issue to the Franchise Tax Board.

Citations and references

• No numbered statute, regulation, or case citation appears in the official source

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/495-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0020.pdf

Original ruling text

495.0020

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 29, 1964

A--- R--- and B--- Services
XXXX --- Boulevard
--- ---, California

Attention:

Mr. L--- L. S---

Gentlemen:
This is in reply to your letter of December 1, in which you request our opinion about the tax saving advice promulgated by the E--- E--- Incorporated. Since the article you enclosed appears to be directed to a savings on an individual’s or businesses’ income tax, we are directing a copy of your letter to the Franchise Tax Board, the agency which administers California’s income tax laws. The Board of Equalization administers the sales tax, and we will attempt to comment generally on that aspect of the situation. A transfer of title or possession by exchange or barter is a sale as that term is used in the Sales and Use Tax Law. The value of the goods or services received in exchange for the transfer of tangible personal property is included in the gross receipts of the transferor and is taxable under the applicable rules of the Sales and Use Tax Law. Your comment on the article discusses the situation of a shoemaker who withdraws shoes from his business and trades the shoes for an item (value: $100) which the shoemaker will use personally, rather than in his business. Without exploring the situation precisely or in detail, we can say that the shoemaker has sold a pair of shoes and received merchandise worth a $100. Therefore, the $100 should be included in taxable gross receipts. For sales tax purposes, the essential point is that the shoemaker has sold a pair of shoes and received $100 in value.

Mr. L--- L. S---

-2-

December 29, 1964
495.0020

We do not have any printed material that is particularly applicable to the efforts of the E--E---. If you have any further questions, however, please do not hesitate to write to us again. Very truly yours,

E. H. Stetson
Tax Counsel
By ______
Philip R. Dougherty

PRD:md
cc:

Inglewood – Subdistrict Administrator
West Los Angeles – Subdistrict Administrator