How did Nebraska sales tax apply when a carpet dealer bought samples for display and later sold the obsolete samples?

Plain-English summary

A carpet dealer had to pay sales or use tax when buying samples used to promote full-size carpet sales. The samples were not purchased for resale in the ordinary course of business.

If the dealer later sold obsolete samples at retail for use as throw rugs or other purposes, it also had to collect sales tax from the customer. The dealer received no credit for the tax previously paid on its original purchase.

Why the resale treatment did not apply initially

The samples ranged from larger pieces to small swatches in sample books. The dealer used them until the pattern was discontinued.

Because the dealer acquired the samples for promotional use rather than normal resale, the purchase was taxable to the dealer at cost. A later sale did not change the purpose of the original purchase.

Common questions

Q: Could the dealer buy the samples tax-free for resale?

A: No. The ruling treated the dealer as the user of samples acquired to promote room-size carpet sales.

Q: Was the later sale of an obsolete sample taxable?

A: Yes. The dealer had to collect sales tax on the retail sale.

Q: Did the earlier tax payment offset the tax on the later sale?

A: No. The ruling allowed no credit for tax previously paid by the dealer.

Q: Why could tax apply at both stages?

A: The first tax applied to the dealer's purchase for business use; the second applied to a later retail sale to a customer.

Citations and references

• Nebraska sales and use tax rules for property purchased for use rather than resale — no section number stated in the ruling
• Nebraska Revenue Ruling 01-76-3 — carpet samples used for promotion and later sold

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr017603_carpet_samples.pdf

Source-quality note: The source required OCR and the text below includes recognition errors. The facts and both tax holdings are legible and are the basis for this summary.

Original ruling text

department

[osvarinc Revenue Ruling 1-76-3
of revenue

Sales and Use Tax - Carpet Samples. A DEALER PURCHASING
CARPET SAMPLES IS REQUIRED TO PAY SALES OR USE TAX ON THEIR
COST AND IF HE SUBSEQUENTLY SELLS SUCH SAMPLES HE MUST ALSO
COLLECT SALES TAX FROM HIS CUSTOMER.

Advice has been requested as to the taxability of carpet
samples purchased by a dealer from a manufacturer or jobber.
The samples normally range in size from 27" x 54" down to 6"
x 6" in swatch books and are used by the dealer until the
particular pattern is discontinued. When the samples become
obsolete they may be sold to enable the dealer to recover at
least a part of his cost for them.

Carpet samples may not be purchased for resale by the dealer
since he is not purchasing them for resale in the normal
course of business. He is purchasing them for use in promo-
ting sales of room size carpeting and therefore, either
sales or use tax must be paid by the dealer on his cost at
the time of their purchase.

When the carpet samples become obsolete and are sold at
retail by the dealer to customers for throw rugs and other
miscellaneous uses, sales tax must be collected. No credit
may be allowed for the tax which the dealer has previously
been required to pay.

APPROVED:

liliam E. Peters
State Tax Commissioner

June PX, 1976