Which focus-group coordinator charges were taxable when it supplied sponsors with food, videotapes, facilities, and participant solicitation?

Plain-English summary

A coordinator recruited participants, supplied a facility, food, beverages, and videotapes, while sponsor representatives ran focus-group sessions. The opinion assumed the sponsor gave significant educational instruction, charged participants one lump sum, and provided the food and tape only incidentally to that service. The sponsor was therefore the consumer, not a retailer, of those items.

The coordinator made taxable retail sales of the food, beverages, and videotapes to the sponsor. Grouping them under a general "Focus Group Session" charge did not change their taxability.

Facility charges were outside taxable food receipts on the assumption that the coordinator neither served the food nor hired someone to serve it. Optional participant-solicitation charges were also nontaxable because the sponsor did not have to buy that service to obtain the facility, food, and videotapes.

Separately stating each charge made the taxable measure clearer. A lump-sum invoice still required the coordinator to report the portion attributable to taxable property and invited closer audit scrutiny of the allocation.

What this means for you

Focus-group and research coordinators

Separate food, beverages, and physical recordings from optional recruiting and qualifying facility services.

Sponsors

The source treated the sponsor as consuming incidental property while providing significant educational services to participants.

Accountants and tax professionals

Document who serves the food, whether recruiting is optional, how participants are billed, and how a lump sum is allocated.

Common questions

Q: Were food, beverages, and videotapes taxable?

A: Yes. The coordinator sold them at retail to the sponsor.

Q: Was the facility charge taxable?

A: Not under the stated assumptions, including that the coordinator was not responsible for serving the food.

Q: Was participant solicitation taxable?

A: No, because it was an optional service independent of the property sales.

Q: Did a lump-sum invoice make everything nontaxable?

A: No. Tax still had to be reported on the property portion, and the allocation could receive closer scrutiny.

Q: Could an unidentified sponsor rely on the letter?

A: No. The opinion expressly denied section 6596 reliance to unnamed sponsors.

Citations and references

• California Revenue and Taxation Code §§ 6007, 6012(a)(2), 6051, and 6596
• California Sales and Use Tax Regulation 1603

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0011.260
• Original supporting opinion: 515.0011.260 PDF

Original ruling text

515.0011.260

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-2641
FAX 323-3387

MEMBER
First District
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

November 7, 1994
BURTON W. OLIVER
Executive Director

Mr. S--- R--Certified Public Accountant
XX --- Street
---, NJ XXXXX
Dear Mr. R---:
I am responding to your letter of August 16, 1994 in which you ask how sales tax applies to your sales to sponsors of focus group sessions and whether the application of tax would differ if various charges were separately stated on the sales invoices issued by your company or grouped together under the heading "Focus Group Session." Your business involves coordinating activities connected with these sessions. Although the sessions are run by the sponsor's representatives, you solicit the individuals to participate, provide the facility, food and beverages, and videotapes of the sessions. Retail sales of tangible personal property in California are subject to sales tax measured by the gross receipts from the retail sale, unless the sale is specifically exempt by statute. (Rev.
& Tax. Code § 6051.) A retail sale is a sale for any other purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) The taxable gross receipts from retail sales of tangible personal property include the total amount of the sale, without any deduction for labor and service costs and any other expenses. (Rev. & Tax. Code § 6012(a)(2).) The series of transactions you describe involve three discrete steps: from a vendor to you, from you to the sponsor, and from the sponsor to the participants. The two steps we must examine to determine whether you are making taxable sales are your transaction with the sponsor and the sponsor's transaction with the session participants. That is, we need to determine whether the sponsor is selling to the participants and thus purchasing from you for resale or whether the sponsor is consuming the property in the course of providing service. If the sponsor is regarded as selling tangible personal property to the participants, then your sale of such property to the sponsor is a nontaxable sale for resale and the sponsor's sale to the participants is a taxable retail sale. In other words, you are making a taxable retail sale to the sponsor of any property which the sponsor is regarded as consuming and not reselling to the

Mr. S--- R---

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November 7, 1994
515.0011.260

participants. I assume that you understand that you may purchase property for resale from your vendors when you resell the property without using it. I therefore will not discuss the transactions between you and your vendors. 1.

Transaction between Sponsor and Participants

The participants contract with the sponsor to provide focus group sessions. The participants are served food and beverages during the session and receive a videotape of the session to take home. We assume that the sponsor is providing "significant educational services," including classroom instruction, and that the property provided to the participants (videotape and food) is merely incidental to those educational services. We further assume that the sponsor is billing the participants in lump sum, with no separate itemization of charges. Sales and Use Tax Annotation 515.0015 (3/31/80) is applicable to these circumstances: "Schools. Schools which provide significant educational services, including classroom instruction, are consumers of printed instructional matter and special instructional sound recordings furnished to students where tuition charges made to students do not separately state charges for such teaching aids. If a separate charge is made for such teaching aids, tax applies to that charge. "...." Therefore, based on the assumptions set forth above, we conclude that the sponsor is providing a service, and is not selling tangible personal property. 2.

Transaction between You and Sponsor

You contract with the sponsor to solicit the participants for the sessions, and to provide the facility, food and beverages, and videotapes of the sessions. Since the sponsor is the consumer of all items related to the sponsor's performance of the service of significant educational instruction, you are the retailer of any tangible personal property which you sell to the sponsor. You indicate that you are selling videotapes and food and beverages to the sponsor. Such sales are subject to sales tax whether the charges for such property are separately stated or grouped together under the heading "Focus Group Session." The measure of tax is the gross receipts from the sales. For purposes of this opinion, we assume that you do not serve the food and beverages you provide, nor are you responsible for such service (e.g., by hiring someone else to do so). Your charge for food and beverages is subject to sales tax since you are selling food for consumption at facilities you provide. (Reg. 1603.) However, based on the assumption that you are not responsible for service of that food and the assumption set forth in the previous section, we conclude that your charge for the facilities is not part of the taxable gross receipts from the

Mr. S--- R---

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November 7, 1994
515.0011.260

sale of the food and beverages.1/
We assume that you perform the solicitation of participants as an option to the sponsor, and that the sponsor is not required to hire you for that purpose in order for you to arrange, and sell, the food and videotapes. As such, we do not regard the solicitation as part of the sale of the tangible personal property, and we conclude that your charge for the solicitation is not subject to sales tax. In summary, we conclude that you are making taxable retail sales of food, beverages, and videotapes. The gross receipts from such sales are subject to sales tax. We conclude that your charges for facilities and for solicitation of participants are not part of your taxable gross receipts from the sale of the food, beverages, and videotapes. If you separately state the charges for food and beverages, videotapes, solicitation, and facilities, only your separately stated charges for the food and beverages and videotapes will taxable gross receipts. If you bill in a lump sum, you will nevertheless be required to report tax on your gross receipts from sales of food and beverages and videotapes. In this regard, upon audit, reporting an allocated portion of the lump sum price to the sponsor as taxable gross receipts is likely to receive closer scrutiny than reporting based on a separate statement of charges to the sponsor. That is, if you do not separately itemize your charges, we are likely to more closely review your records to determine if the allocation you report is justified. We would encourage you to separately state your charges to the sponsor. We hope this answers your questions; however, if you need further information, feel free to write again. Since you have not identified any sponsor, this information is provided to you for general information only, and none of your sponsors may rely on the information for purposes of Revenue and Taxation Code section 6596. Sincerely,

Victor G. Matl
Tax Counsel
VGM:cl
cc:

1/

Out-of-State District Administrator

If you served the food, further analysis would be necessary to determine if the gross receipts from the sale of the food include some or all of the charges for the facilities. (See, e.g., BTLG Annot. 550.0260 (6/28/65).)