Was premium merchandise exempt when out-of-state customers mailed trading stamps to a California redemption center and the center mailed merchandise back out of state?
Apply this to your situation
This page answers the general question as of 1967. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A California trading-stamp company planned to close its redemption centers in Nevada, Arizona, Texas, and New Mexico. Customers in those states would mail accumulated stamps to the remaining California center, which would mail premium merchandise back to them.
The Board treated delivery of merchandise for the prescribed number of trading stamps as a retail sale by the redemption center.
Even so, sales tax did not apply because the retailer delivered the property to a carrier—the mail—for shipment to consignees outside California under the contract of sale. The transfer therefore qualified as an exempt interstate-commerce sale.
What this means for you
Loyalty-program operators, redemption centers, retailers, and tax professionals
Treat redemption as a sale first, then document the separate interstate-shipment requirements. Preserve the out-of-state recipient address, redemption contract, and retailer-controlled carrier delivery from California.
Common questions
Q: Was exchanging stamps for merchandise a sale?
A: Yes. The opinion treated the redemption center as making a retail sale.
Q: Why was the sale exempt?
A: The California center mailed the merchandise directly to consignees outside the state under the sale contract.
Q: Did the customers have to redeem at a physical out-of-state center?
A: No. The approved facts involved mail-in redemption through the California center followed by direct out-of-state shipment.
Citations and references
- Former California Sales Tax Ruling 72.5
- Former California Sales Tax Ruling 55A(1)(c)
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 555.0080
- Original supporting opinion: 555.0080 PDF
Original ruling text
STATE OF CALIFORNIA
555.0080
STATE BOARD OF EQUALIZATION
August 18, 1967
Gentlemen:
Your letter of July 25, 1967 concerning the application of sales tax with respect to redemption of trading stamps for premium merchandise, has been referred to the undersigned for reply. It is our understanding that your client is a trading stamp company, incorporated in California, with stamp redemption centers in California, Nevada, Arizona, Texas, and New Mexico. It intends to close its redemption centers in all states except California. Thus, persons in other states who have accumulated your client's trading stamps will be required to redeem the stamps by mailing them to the redemption center in California. The redemption center will mail the merchandise to the out-ofstate recipients. As indicated in sales tax Ruling 72.5, the delivery of premium merchandise in exchange for a prescribed number of units of indicia (trading stamps) constitutes a retail sale by the person delivering the merchandise. As further indicated in sales tax Ruling 55A(1) (c), sales tax does not apply to sales of property shipped to a point outside this state, pursuant to the contract of sale, by delivery by the retailer to a carrier for shipment to a consignee at such point. Thus, in reply to your inquiry the transfer of premium merchandise by the redemption center in exchange for trading stamps with shipment being made by mail to the out-of-state recipient constitutes an exempt sale in interstate commerce. Very truly yours, George A. Trigueros Tax Counsel GAT :mh [lb]
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