Were printed forms and copies transferred between two closely connected corporations taxable when one billed the other for their cost?

Plain-English summary

An insurance carrier operated a small print shop and billed an affiliated automobile association $282,598 for letterheads, interoffice forms, and Xerox copies. The billed amount included $127,800 of tax-paid purchases. The companies were extremely close, and the carrier reimbursed the association for 65 percent of its expenses, but they were separate corporations.

California treated the carrier as the retailer of the printed materials and copies. The close relationship and expense-sharing arrangement did not prevent the billed transfers from being retail sales under section 6006.

The Board agreed with the auditor's recommendation to impose additional tax on the billed amount above the tax-paid cost. The source enclosed former Rulings 23 and 24 but does not reproduce their text.

Common questions

Did the corporations' close connection prevent a sale?

No. Separate corporate status controlled the analysis of the billed transfers.

What amounts did the letter identify?

$282,598 billed for printing and copying, of which $127,800 represented tax-paid purchases.

Did the source reproduce the enclosed printing rulings?

No. It only says copies of former Rulings 23 and 24 were enclosed.

Citations and references

• California Revenue and Taxation Code section 6006
• Former California Sales and Use Tax Rulings 23 and 24, identified but not reproduced in the 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/495-0720.pdf

Original ruling text

STATE OF CALIFORNIA

495.0720

STATE BOARD OF EQUALIZATION
February 24, 1967
Gentlemen:
Your verbal request for a ruling directed to Mr. B. H. Trice, of our San Francisco office, concerning the taxability of certain printed material and Xerox copies your firm transferred to "C" has been referred to this office for reply. It is our understanding that your firm, hereafter referred to as taxpayer, is the insurance carrier part of the "C" complex. Although the taxpayer is a separate corporation, the connection with "C" is extremely close. In fact, the taxpayer reimburses "C" for 65 percent of its expenses. The taxpayer has a small print shop where it does some printing for "C". The printing in question consists of such items as letterheads and inter-office memorandum forms. During the audit period, the taxpayer billed "C" $282,598, representing the cost of printing and Xeroxing the materials. Included in this billed amount was $127,800, which represented tax-paid purchases. No tax was billed or paid to the state on the transfer of these items to "C". The auditor regarded the taxpayer as the retailer of the printing and Xerox copies invoiced to "C" and recommended additional tax with respect to the excess of the amounts billed over the tax-paid cost. You ask whether these sales are taxable in view of the special circumstances of the case. Although we recognize that the connection between the taxpayer and "C" is extremely close and the taxpayer reimburses "C" for 65 percent of its expenses, we are of the opinion that, since the taxpayer and "C" are two separate corporate entities, the transfer of the printing and Xerox copies to "C" is a taxable retail sale within the meaning of Section 6006 of the Sales and Use Tax Law. Accordingly, we agree with the auditor's recommendation as to the imposition of the additional tax as evidenced in the notice of determination. We are enclosing copies of Rulings 23 and 24 for your convenience. Very truly yours, E. H. Stetson/ by Glenn L. Rigby GLR:mm [lb]