Was a California issuer's $2 acquisition of serially numbered international driving-permit forms a taxable purchase of blank forms?

Plain-English summary

A California organization acquired blank, serially numbered international and inter-American driving permits from an out-of-state automobile association for $2 each. The association supplied the only authorized treaty-format forms and maintained continuing records linking permit serial numbers to individual applications for government inquiries.

California treated the relationship as predominantly a service agreement rather than a taxable sale of blank forms. The issuing and recordkeeping functions provided substantial value; if the California organization merely wanted ordinary forms, it could have bought them from a local printer.

The California organization's authorized $5 issuance of a completed permit to a motorist was also accepted as a nontaxable service.

The recommendation granted the petition under California's service-enterprise rule but expressly rejected the petitioner's federal-preemption argument.

What this means for you

Authorized credential issuers

Unique serialized forms tied to government-delegated issuance and ongoing records differed from ordinary printed blanks.

Accountants and tax professionals

Review authorization, source exclusivity, serial-number tracking, government reporting, form value, service obligations, and issuer charges.

Common questions

Q: Was the $2 permit acquisition taxable?

A: No.

Q: Why was it treated as a service?

A: The supplier issued authorized serially numbered forms and maintained continuing distribution records.

Q: Did the Board accept federal preemption?

A: No.

Citations and references

• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.1167
• Original supporting opinion: 515.1167 PDF

Original ruling text

515.1167

(916) 445-3723

June 23, 1988
REDACTED TEXT
Re: REDACTED TEXT
Dear REDACTED TEXT:
This is to advise you of our position with respect to the petition for redetermination of California sales and use tax filed by you on behalf of your client, REDACTED TEXT, on May 7, 1987. We have had the opportunity to review the REDACTED TEXT file in the course of scheduling this matter for preliminary hearing. Based upon our review, we are prepared to make a recommendation to the Board that your petition be granted. REDACTED TEXT has acquired blank international driving permits and inter-American driving permits from the Virginia office of the REDACTED TEXT. The REDACTED TEXT, pursuant to the agreement with the United States Department of State and in accordance with international conventions, furnishes regional REDACTED TEXT affiliates blank serially numbered permits in a format established by international treaty. Petitioner pays $2 for each permit. REDACTED TEXT is required to keep records of the serial numbers of the permits issued. When the United States or a foreign government requests information about an individual to whom a permit was issued, REDACTED TEXT complies with the request by linking the serial number to a specific application. The Department of State is empowered to either issue the permits itself or delegate the function to another party. The function has been delegated to REDACTED TEXT, and REDACTED TEXT is the only source of the permit forms. Tax has been assessed on the grounds that the permits are blank forms and are tangible personal property subject to tax. The recordkeeping service has been viewed as merely a service in connection with the sale of the printed forms.

515.1167

2

June 23, 1988

Under our Regulation 1501, “Service Enterprises Generally,” persons who perform services are consumers of tangible personal property used in performing the service. See copy of the regulation enclosed. Everyone agrees that REDACTED TEXT is performing a nontaxable service when it issues a permit to an individual motorist for the authorized $5 fee. As to REDACTED TEXT’s acquisition of the permits, we believe that the relationship between REDACTED TEXT and REDACTED TEXT is also predominantly a service agreement and not a sale agreement. REDACTED TEXT performs a substantial service of benefit to petitioner in issuing the numbered permits and maintaining a continuing record of their distribution. The essence of the agreement is the acquisition of the serially numbered blank permits. If the object of the contract were the tangible personal property itself, REDACTED TEXT would buy blank forms from a local vendor. While we reject your federal preemption analysis, it is our conclusion that the transactions in question are nevertheless nontaxable under this Board’s own regulations. It will thus be our recommendation to the Board that your client’s petition for redetermination be granted. You will be advised of the Board’s action in due course. Very truly yours, Gary J. Jugum Assistant Chief Counsel

GJJ:sr
bc:

San Francisco District Administrator
Petition Unit (Please process this matter for action by the Board. This letter serves as the preliminary hearing recommendation in this case. Herewith the petition file.)