Could a taxpayer deduct tax-paid property resold without use when that resale itself was not taxable?

Plain-English summary

California said a taxpayer could take a tax-paid purchases resold deduction for property resold without use even when that particular resale was not a taxable retail sale. The taxpayer needed some taxable measure—sales tax, self-accrued use tax, or another taxable amount—against which to apply the deduction.

The deduction could not produce a net refund. If it could not be used, recovery depended on how acquisition tax was paid: the vendor could claim refund when it treated the original sale as a sales-tax transaction, while the taxpayer could claim refund when it self-reported use tax.

Common questions

Did the resale itself have to be taxable?

No, so long as the property was resold without use and the deduction otherwise qualified.

Could the deduction exceed the taxpayer's taxable measure and create a refund?

No.

Who could pursue a refund if the deduction was unavailable?

The vendor for sales tax it reported, or the taxpayer for self-reported use tax.

Do the source identifiers match?

No. The official URL uses 545.0019.775, while the memorandum header prints 545.0019.778.

Citations and references

• California Revenue and Taxation Code section 6012 — tax-paid purchases resold deduction authority discussed
• California Sales and Use Tax Regulation 1701 — tax-paid purchases resold mechanism referenced

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/545-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/545-0019-775.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)
Telephone: 445-3723

Memorandum
545.0019.778
To:

Mr. Glenn A. Bystrom
Deputy Director
Sales and Use Tax Department
MIC:43

From:

Gary J. Jugum
Assistant Chief Counsel

Subject:

Tax-Paid Purchases Resold Deductions

Date:

June 24, 1996

By memorandum dated November 15, 1993, a member of our staff advised the San Jose District audit staff that certain limitations applied with respect to the tax-paid purchases resold deduction authorized by Revenue and Taxation Code section 6012, and our Regualtion 1701, “Tax-Paid Purchases Resold.” The tax-paid purchases resold deduction is one of two mechanisms recognized in the Sales and Use Tax Law for taxpayer self help. The other is the returned merchandise deduction. In both cases, the taxpayer may recover a tax-related expense by a self-help deduction. While our analysis of November 1993 tracked the express language of Revenue and Taxation Code secton 6012, in fact, we have permitted the taxpayer to take a tax-paid purchases resold deduction, if otherwise appropriate, notwithstanding the fact that the specific property as to which sales tax reimbursement or use tax was paid, was not sold in a taxable retail sale, so long as it was resold without use. The sole criterion we have applied is that taxpayer must have some taxable measure whether sales tax, or self-accrued use tax, or otherwise, against which the deduction may be taken. We do not permit a net refund. If the taxpayer is unable to take the tax-paid purchases resold deduction, the amount is subject to refund to the taxpayer’s vendor by way of claim of refund by the vendor, if the sale to the taxpayer was treated as a sales tax transaction by the vendor, or by way of claim for refund by the taxpayer, if the taxpayer self reported use tax on the acquisition to the property.

GJJ:sr