Did a contest winner owe tax when the promoter had already paid sales tax on the automobile before awarding it as the grand prize?

Plain-English summary

A contest promoter bought an automobile in April and reimbursed the dealer for sales tax. The promoter used the car as the contest's primary premium to generate interest, then awarded it to the winner in July.

Counsel said the award was not a taxable sale because the winner acquired the automobile through chance or skill. The winner also had no use-tax liability because the car was received as a gift or premium rather than through a purchase.

If tax had not yet been paid on the prize transfer, the winner could file the identified exemption form. If tax had already been paid, the winner could file a refund claim.

What this means for you

Businesses running promotional contests

The historical result depended on the promoter paying tax when acquiring the prize and the winner receiving it as a true award rather than buying it.

Accountants and tax professionals

Document the promoter's purchase tax, contest rules, promotional use, award date, winner selection, registration, and any refund or clearance filing.

Common questions

Q: When did the promoter buy the car?

A: April.

Q: When was it awarded?

A: July.

Q: Why was the winner's receipt not a sale?

A: The winner acquired the car by chance or skill, not for consideration.

Q: Did the winner owe use tax?

A: No. The car was received as a gift or premium.

Citations and references

• The letter does not cite a specific statute; it applies the historical definitions of sale, purchase, gift, and premium.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0260
• Original supporting opinion: 585.0260 PDF

Original ruling text

585.0260

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 1, 1967

--- --- ----- --- ----- --- --Gentlemen:
In your letter of July 10, 1967, you ask whether tax was properly assessed on the transfer of an automobile to the winner of a contest when there had been sales tax paid on the prior transfer of the automobile to your organization. As we understand the facts, the “C” purchased the automobile and reimbursed the automobile dealer for the sales tax levied on this transaction. A contest was then held during which time “C” used the automobile as a primary premium to engender interest in the contest. Upon the conclusion of the contest, the automobile was awarded to the winner. The original purchase by “C” took place in April, and the transfer to the contest winner took place in July. Under this fact situation, the second transfer to the contest winner is not a taxable sale since she acquired it by chance or skill. There is no use tax liability because she received the car as a gift or premium and not through a purchase. Therefore, if “O” has not yet paid the tax, she should file form BT-111. If she has paid the tax, she should file a claim for refund. Either of these forms can be obtained form 983 Sonoma Avenue, P.O. Box 730, Santa Rosa 95402, phone 542-2377. If you have further questions, please feel free to write. Very truly yours,

T. P. Putnam
Tax Counsel
By

A. Wells Petersen

AWP:smk

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