California Sales and Use Taxes examines the fundamental principles applicable to California sales and use taxes. This Portfolio, written by Roy E. Crawford, Esq., McDermott Will & Emery, and Russell D. Uzes, Esq., PricewaterhouseCoopers LLP, provides an in-depth discussion of the application of California's sales and use taxes and focuses on the differences between these complementary taxes.

This Portfolio examines the basic concepts and definitions that arise in the state sales and use tax area. The analysis identifies when a sale occurs, who qualifies as a retailer, and which gross receipts are used to measure the tax. The Portfolio also considers local sales and use taxes as well as transactions and use taxes.

The California sales and use tax system has special rules for particular entities and types of property. For example, different sales and use tax laws apply to service enterprises, contractors, and leases of tangible personal property. Common to most sales tax structures, exemptions from taxation are also available.  California Sales and Use Taxes explains those exemptions and considers the application of exemptions such as the occasional sale exemption, the exemption for transfers to and from business entities, and exemptions for nonprofit organizations.

This Portfolio also provides information for people or entities doing business as retailers. It explains when a seller's permit is required and how to file sales and use tax returns. The Portfolio also examines state collection procedures.

California Sales and Use Taxes concludes with a practical guide for dealing with government agencies. Because California has a complex administrative system, taxpayers should consider issues ranging from audit adjustments to claims for refunds.

California Sales and Use Taxes allows you to benefit from: 

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Plain-English guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

Detailed Analysis

1920.01. NATURE OF SALES AND USE TAXES

1920.02. SALES TAX

A. Imposition of Sales Tax

B. What Transactions Are Taxed; Definitions of Sales Tax Terms

1. Sale

a. Transfer of Title for Consideration

b. Sale versus Service

c. Fabrication as Sale

d. Lease as Sale

2. Definition of “Retail”; Retail Sale versus Resale

a. Containers, Labels, and Wrappings

b. Manufacturers and Processors

c. Marketing Aids

3. Definition of “Tangible Personal Property”

a. Tangible Personal Property versus Intangible Property

b. Tangible Personal Property versus Tangible Real Property

4. Retailer

a. Basic Definition of Retailer: Cal. Rev. & Tax Code 6015

(1) Persons

(2) Auctioneers

(3) Employers of Salesmen and Agents

b. Persons Making More Than Two Retail Sales: Cal. Rev. & Tax. Code 6019

5. In This State

6. Gross Receipts

a. Allocation of Purchase Price

b. Services That Are Part of the Sale

c. Exclusions From Gross Receipts

(1) Cash Discounts

(2) Trading Stamps

(3) Refunds on Returned Merchandise

(4) Installation Labor Charges

(5) United States Taxes

(6) Local Sales Tax

(7) Separately Stated Transportation Charges

(8) Motor Vehicle Fees

(9) Bad Debts

(10) No Deduction for Trade-Ins

(11) Technology Transfer Agreements

(12) Tax on Diesel Fuel

C. Who Is Taxed?

1. Retailer

2. Reimbursement of Retailers by Customer

1920.03. USE TAX

A. Imposition of Use Tax

B. What Is Taxed?

1. Storage, Use, or Other Consumption

2. Property Purchased for Use in California

a. First Use

b. Principal Use

C. Who Is Taxed?

D. Collection of Use Tax

1. Retailer Engaged in Business in California

a. Maintains Place of Business in California

b. Does Not Maintain Place of Business in California

2. By Retailer Exempt From Sales Tax

E. Measure of Tax

F. Payment of Tax; Receipt

G. Credit for Tax Paid to Another Jurisdiction

1920.04. LOCAL SALES AND USE TAXES

1920.05. TRANSACTIONS AND USE TAXES (TRANSIT DISTRICT TAX)

1920.06. SPECIAL APPLICATIONS

A. Service Enterprises

1. Mailing Lists and Services

2. Government and Legal Documents

B. Contractors

1. Materials

2. Fixtures

3. Machinery and Equipment

4. Supplies and Tools

5. United States Contractors

6. Factory Built Housing

7. Factory Built School Buildings

C. Manufacturers

1. Property Used in Manufacturing

2. Property Used by Manufacturers Before Sale

3. Processing as Service or Sale

D. Graphic Arts

E. Repairmen

F. Technology and Intellectual Property

1. Research and Development

2. Regulation 1502 (Computers, Programs, and Data Processing)

a. Manipulation of Customer–Furnished Information as Sale or Service

b. Computer Programs

c. Service Charges

G. Leases of Tangible Personal Property

1. Comparison of Tax Treatment: Leases and Sales

a. Credit for Foreign Tax

b. Right to Tax Reimbursement

2. Definition of Lease

3. Lease Transactions That Are Not Treated as Sales

4. Lessor's Option

5. Assignment of Leasehold Interest

6. Measure of Tax on Rentals

H. Vessels; Vehicles; Aircraft

1. Exemptions

2. Leases of Vehicles

I. Mobile Transportation Equipment

J. Sales by Vending Machine Operators

K. Sales by Trustees in Bankruptcy

1920.07. EXEMPTIONS FROM TAX

A. Occasional Sale Exemption

1. Isolated or Occasional Sale

2. Sale of Business

a. Sale by Person Holding Seller's Permit

b. Sale by Person Not Holding Seller's Permit

c. Sale to Related Person

B. Transfers to and From Business Entity

1. Formation of Corporation

2. Transfer to Existing Corporation

3. Transfer to Partnership

4. Distributions in Dissolution of Business

5. Corporate Reorganizations

6. Manufacturing, Construction, and Research

C. Interstate and Foreign Commerce

1. Interstate Commerce

a. Sales Tax

(1) Sale After Movement of Property Into California

(2) Sale Preceding Movement of Property Out of California

(3) Sale to Common Carrier

b. Use Tax

c. Exclusive Use in Interstate and Foreign Commerce

d. Exclusion From “Storage” and “Use”

2. Foreign Commerce

a. Imports

b. Exports

3. Space Flight

D. Sales to Government Agencies

E. Nonprofit Organizations

1. Children's Clothing; Religious Organization Meals

2. Meals Served to Patients, Students, Inmates of Health Facilities, and Delivered to the Elderly

3. Flags Sold by Nonprofit Veterans' Organizations

4. Art Work

5. Prisoner of War Bracelets and Lapel Pins

6. Medical Identification Tags

7. Friends of the Library and PTAs

8. Sales by Youth Organizations

9. Sales by Charitable Organizations

10. Property Loaned to Educational Institutions; School Yearbooks

11. Property Donated to Schools, Churches, Hospitals, and Museums

12. Handcrafted Items From Organizations Serving Developmentally Disabled Individuals

F. Banks and Insurance Companies

G. Food and Food Products

1. Complimentary Food and Food Sold as Part of a Plan

2. Unprepared Food Products and Agricultural Items

H. Medicine and Medical Supplies

I. Demonstration and Display

J. Electronic Commerce

K. Rural Investment Tax Exemption

L. Other Statutory Exemptions

1. Exemptions From Both Sales and Use Taxes

2. Exemptions From Sales Tax Only

3. Exemptions From Use Tax Only

1920.08. DOING BUSINESS AS RETAILER

A. Obtaining Permit

1. When Required

a. Seller's Permit

b. Use Tax Registration

2. Security

B. Resale and Other Exemption Certificates

1. Resale Certificate

2. Exemption Certificate

C. Successor's Liability; Tax Clearances

D. Predecessor's Liability

E. Tax Returns and Payment

1. Time for Filing; Interest and Penalties

2. Information Return

F. Records

G. State Collection Procedures

1. Revocation or Suspension of Permit

2. Jeopardy Determination

3. Suit for Tax and Certificate of Delinquency

4. Request for Judgment From County Clerk

5. Warrant for Collection of Tax or Enforcement of Lien

6. Seizure and Sale

7. Notice of Delinquency to Taxpayer's Debtors

8. Use of Private Services for Out–of–State Collections

9. Tax Amnesty Programs

H. Terminating Business as Retailer

1920.09. DEALING WITH GOVERNMENT AGENCIES

A. Obtaining Information and Advice

B. Local State Board of Equalization Offices

C. Board Rulings

D. Audit Adjustment

1. Audit and Informal Conferences With Field Personnel

2. Notice of Determination

3. Jeopardy Determination

4. Petition for Redetermination

5. Request for Relief From Penalty

a. Use of Request

b. Request for Relief From Interest

6. Informal Hearing Before Board Hearing

7. Review by State Board of Equalization

a. Hearing Procedure

b. Notice of Redetermination

8. Managed Audit Program

E. Claim for Refund

1. Time for Filing Claim

2. Requirements for Claim

F. Suit for Refund

G. Taxpayers' Bill of Rights

Working Papers

Item Description Sheet

Worksheet 1 Major Features of Sales and Use Taxes

Worksheet 2 Interest Rates on Deficiencies and Overpayments:

Worksheet 3 Sample Petition for Redetermination

Worksheet 4 Sample Request for Relief From Penalty

Worksheet 5 Sample Claim for Refund or Credit

Worksheet 6 [Reserved.]

Worksheet 7 State Board of Equalization Addresses

Worksheet 8 BNA 2008 Survey of State Tax Departments: California Sales and Use Tax Questionnaire

Bibliography

Bibliography