Did a color-analysis consultant act as the consumer or retailer of the personalized color book included with the consultation?

Plain-English summary

Color consultants analyzed a client's advantageous colors for clothing, skin care, make-up, and wardrobe planning. At the end, the consultant generally gave the client a physical color book showing the selected colors. The book usually was included in a consultation fee rather than separately priced.

California treated the consultant as providing both services and a retail sale. Although the consultant communicated ideas, knowledge, and expertise, the color book was tangible property of significant value.

The consultant was therefore the retailer of the color book. If the invoice separately stated a book charge, tax was measured by that amount. If the fee was bundled, the consultant had to allocate the fair retail selling price of the book and pay tax on that amount.

What this means for you

Personal consultants

A physical client deliverable with significant independent value can remain taxable even when it accompanies a nontaxable consultation.

Accountants and tax professionals

Separate service fees from books, kits, swatches, samples, or other property and support any bundled allocation with a defensible retail value.

Common questions

Q: Was the color consultation itself a service?

A: Yes, but the transaction also included a retail sale of the color book.

Q: Was the consultant the consumer of the book?

A: No. The consultant was its retailer.

Q: What amount was taxable when the book was not separately priced?

A: Its fair retail selling price.

Citations and references

• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0002.900
• Original supporting opinion: 515.0002.900 PDF

Original ruling text

515.0002.900

State of California

Memorandum
To:

San Jose - Auditing (RDC)

From:

E. Leslie Sorensen, Jr.
Tax Counsel

Reg. 1501.
Color analysis consultants
are retailers of the color
books delivered to clients

Date: April 23, 1986

Subject: REDACTED TEXT
This is in response to your memorandum of March 12, 1986. Your letter stated: “A question has risen regarding the tax implications of color analysis consultants. The consultants, usually female, in this growth industry spend time with the client, usually female. The time spent with the client varies depending on whether just a color analysis is involved, or whether skin care, make-up, wardrobe planning, etc. is also involved. At the conclusion of the color analysis, a packet (color book) is usually delivered to the client which displays the client’s colors as determined by the consultant. The client uses the color book when shopping for wardrobe. In most instances, the color book provided is included in the consultant’s fees and not separately priced. The consultant’s fees for the color analysis can range from $25 to $95 with most fees being in the $45 range. There are numerous suppliers of these color books to the consultants. The suppliers may also train the consultants. Prices of the color books to the consultants varies depending somewhat on volume, but is probably in the $7 - $15 range. Many of the suppliers are located out of state. Please give us your opinion as to whether the consultant is the consumer or retailer of the color books. If the consultant is the retailer of the color books, included in the fee, what is the taxable amount?”

San Jose - Auditing (RDC)

-2-

April 23, 1986
515.0002.900

Opinion
In our view, color consultants are in the business of providing services as well as making retail sales of tangible personal property. While it is true that the consultant is apparently providing services through communication of her ideas, knowledge, and expertise to customers it is equally apparent that she is also transferring tangible personal property of significant value. Under such circumstances, the consultant is deemed to be the retailer of the color books. (For similar treatment of other business see BTLG annos. 515.0060, 515.0820, 515.1240.) If a separate charge for the color books is stated on the customer’s invoice, tax is due based upon this amount. If no separate statement is made, an allocation must be made and tax must be measured based upon the fair retail selling price of the color books (see BTLG annos. 330.2310, 295.0140).

ELS:rar