An occupational hazard of working in the sales tax world is that we can start to view everything through the lens of sales taxes. So, while everyone else was ogling the dresses, the shoes, the hair styles and the delightful goodies celebrities received in their extravagant gift bags at this past Sunday’s Golden Globe Awards ceremony, a few of us were wondering (ok, maybe it was just me), “Hey, who paid sales and use tax on that fancy swag?”
Apparently, the gift bags given away at the Golden Globes, or the Oscars or Emmys, are “curated” and distributed by third-party companies (unrelated to the awards sponsors) that specialize in celebrity gifting. It seems the swag in those bags is collected from vendors located across the country (or the globe). The gifts given away to nominees at the 2016 Oscars were valued at $232,000; last year’s Emmy gift bag was valued at mere $55,000+. At this year’s Golden Globes, separate bags were available for women and for men, and I understand the women’s swag (including lots of cosmetics and a fitness tracker) was valued at a comparatively modest $593. For sales tax purposes (because that’s what we talk about here), the gift recipients—not only the awards winners and nominees, but the presenters and attendees, too—probably will not have to pay tax on their bounty. The Hollywood stars were given the bags as gifts. No sale transaction has taken place because there’s been no transfer of title or possession for a consideration. Hence, no sales tax. Celebrities get all the breaks.[i]
In contrast, those lucky artisans and vendors who gain a coveted place for their products in a celebrity swag bag might not feel quite as fortunate when the sales tax bill comes around. In most states, including California where the awards ceremonies typically are held, donors are required to pay sales or use tax on the products they purchase to give away as gifts. That’s also the rule in South Carolina, where at least one privileged Golden Globe swag bag donor is located. Some states, like Colorado and Indiana, specifically provide that purchases of goods to be used as gifts, premiums or prizes are taxable to the purchaser, who is deemed to be the ultimate consumer.
Sellers who make the swag bag cut may decide to donate items they already have in stock. If so, the seller will likely have to pay use tax on the withdrawn property. Presumably, the seller originally purchased the items tax-free as a sale for resale, and since the items pulled from inventory will not be sold but rather used as a gift, the seller owes use tax on the withdrawn goods. Indeed, just about every state imposes use tax on withdrawals from inventory.
These are just a few of the potential sales and use tax issues to ponder beyond the winners, losers and the political controversy du jour brought to us by the 74th annual Golden Globe Awards. There are other questions, like which states impose the sales and use tax on gift bag items, and do the third parties who create and distribute these swag bags have any sales tax liability. I imagine, however, that for a merchant or entrepreneur who manages to get a product into a high-profile swag bag, the prospect of paying sales or use tax is a small price for the chance at a celebrity endorsement.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should sellers have to pay use tax on items withdrawn from inventory for inclusion in gift bags?
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By René Y. Blocker
[i] Before you become too green with envy, consider that those who choose to keep the gift bags likely will have to pay federal (and state) income tax on the value of those exclusive treats.
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