Calif. sales tax exemption - occasional sale


M

Mark Bole

I find what looks to me like some possibly circular or undefined
language regarding this, just curious if I'm making a mountain out of a
molehill...

Scenario: California resident has a collection of items acquired for
personal use over many years -- for example, comic books, toys, records,
or video tapes. Now he begins to sell the items via a website, say E-Bay
or something similar. The website collects a listing commission from
the seller for each item sold. The seller invoices the buyer directly
and ships the item directly.

For the seller, this is a hobby, he doesn't particularly care if he ever
sells everything, it's just an alternative to way to clear out his
garage without just tossing or giving away the items. In fact, it's
basically a virtual, on-line garage sale.

Suppose he sells anywhere from 10-40 items in the first year, at an
average of $5/item plus shipping costs. Is he required to collect sales
tax from residents of California? Would the answer change if he sold
100 items at an average of $10/item (sales tax if all sold in California
would be $92)? In other words, what is the cutoff, especially when he
doesn't really know in advance how many items he will sell, or when?
Would the answer be any different if he set up his own web site to list
the items?

Finally, assuming the owner paid CA sales tax himself when most of these
items were originally purchased, but many years ago at a much lower rate
than the current one, how would that affect the ultimate result, if at all?

"OCCASIONAL SALES — A sale by (and purchase from) a person who is not
engaged in a business requiring a seller’s permit is exempt from sales
and use taxes. These types of sales are “occasional” sales (some states
have similar exemptions for “casual” sales). Generally, a person who
makes three or more sales for substantial amounts in any period of 12
months is required to hold a seller’s permit. A person who makes a
substantial number of sales for relatively small amounts is also
required to hold a seller’s permit. [...] A person holding two garage
sales with no other sales in any 12 month period in which the garage
sales are held are regarded as making exempt occasional sales."

"6006.5. "Occasional sale" includes all of the following:
(a) A sale of property not held or used by a seller in the course
of activities for which he or she is required to hold a seller's
permit or permits or would be required to hold a seller's permit or
permits if the activities were conducted in this state, provided that
the sale is not one of a series of sales sufficient in number,
scope, and character to constitute an activity for which he or she is
required to hold a seller's permit or would be required to hold a
seller's permit if the activity were conducted in this state."

(this sounds like a circular definition of who is required to have a
seller's permit to me...)

-Mark Bole
 
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D

D. Stussy

Mark Bole said:
I find what looks to me like some possibly circular or undefined
language regarding this, just curious if I'm making a mountain out of a
molehill...

Scenario: California resident has a collection of items acquired for
personal use over many years -- for example, comic books, toys, records,
or video tapes. Now he begins to sell the items via a website, say E-Bay
or something similar. The website collects a listing commission from
the seller for each item sold. The seller invoices the buyer directly
and ships the item directly.

For the seller, this is a hobby, he doesn't particularly care if he ever
sells everything, it's just an alternative to way to clear out his
garage without just tossing or giving away the items. In fact, it's
basically a virtual, on-line garage sale.

Suppose he sells anywhere from 10-40 items in the first year, at an
average of $5/item plus shipping costs. Is he required to collect sales
tax from residents of California? Would the answer change if he sold
100 items at an average of $10/item (sales tax if all sold in California
would be $92)? In other words, what is the cutoff, especially when he
doesn't really know in advance how many items he will sell, or when?
Would the answer be any different if he set up his own web site to list
the items?

Finally, assuming the owner paid CA sales tax himself when most of these
items were originally purchased, but many years ago at a much lower rate
than the current one, how would that affect the ultimate result, if at all?
"OCCASIONAL SALES — A sale by (and purchase from) a person who is not
engaged in a business requiring a seller’s permit is exempt from sales
and use taxes. These types of sales are “occasional” sales (some states
have similar exemptions for “casual” sales). Generally, a person who
makes three or more sales for substantial amounts in any period of 12
months is required to hold a seller’s permit. A person who makes a
substantial number of sales for relatively small amounts is also
required to hold a seller’s permit. [...] A person holding two garage
sales with no other sales in any 12 month period in which the garage
sales are held are regarded as making exempt occasional sales."

"6006.5. "Occasional sale" includes all of the following:
(a) A sale of property not held or used by a seller in the course
of activities for which he or she is required to hold a seller's
permit or permits or would be required to hold a seller's permit or
permits if the activities were conducted in this state, provided that
the sale is not one of a series of sales sufficient in number,
scope, and character to constitute an activity for which he or she is
required to hold a seller's permit or would be required to hold a
seller's permit if the activity were conducted in this state."

(this sounds like a circular definition of who is required to have a
seller's permit to me...)
A literal reading is that sales via eBay are not exempt under the "garage
sale" rule, and his frequency of sales exceeds the "occasional sale" rule.
Even though these are used items where sales tax has already been paid
once, they may not be exempt from sales tax again.

Maybe he should hold a real garage sale instead of online sales.
 
A

Alan

Mark said:
I find what looks to me like some possibly circular or undefined
language regarding this, just curious if I'm making a mountain out of a
molehill...

Scenario: California resident has a collection of items acquired for
personal use over many years -- for example, comic books, toys, records,
or video tapes. Now he begins to sell the items via a website, say E-Bay
or something similar. The website collects a listing commission from
the seller for each item sold. The seller invoices the buyer directly
and ships the item directly.

For the seller, this is a hobby, he doesn't particularly care if he ever
sells everything, it's just an alternative to way to clear out his
garage without just tossing or giving away the items. In fact, it's
basically a virtual, on-line garage sale.

Suppose he sells anywhere from 10-40 items in the first year, at an
average of $5/item plus shipping costs. Is he required to collect sales
tax from residents of California? Would the answer change if he sold
100 items at an average of $10/item (sales tax if all sold in California
would be $92)? In other words, what is the cutoff, especially when he
doesn't really know in advance how many items he will sell, or when?
Would the answer be any different if he set up his own web site to list
the items?

Finally, assuming the owner paid CA sales tax himself when most of these
items were originally purchased, but many years ago at a much lower rate
than the current one, how would that affect the ultimate result, if at all?

"OCCASIONAL SALES — A sale by (and purchase from) a person who is not
engaged in a business requiring a seller’s permit is exempt from sales
and use taxes. These types of sales are “occasional” sales (some states
have similar exemptions for “casual” sales). Generally, a person who
makes three or more sales for substantial amounts in any period of 12
months is required to hold a seller’s permit. A person who makes a
substantial number of sales for relatively small amounts is also
required to hold a seller’s permit. [...] A person holding two garage
sales with no other sales in any 12 month period in which the garage
sales are held are regarded as making exempt occasional sales."

"6006.5. "Occasional sale" includes all of the following:
(a) A sale of property not held or used by a seller in the course
of activities for which he or she is required to hold a seller's
permit or permits or would be required to hold a seller's permit or
permits if the activities were conducted in this state, provided that
the sale is not one of a series of sales sufficient in number,
scope, and character to constitute an activity for which he or she is
required to hold a seller's permit or would be required to hold a
seller's permit if the activity were conducted in this state."

(this sounds like a circular definition of who is required to have a
seller's permit to me...)

-Mark Bole
I think the only people who can answer your primary question are
the people who know how the CA BOE defines the word "substantial."

As to the secondary question, the fact that sales tax had been
paid when the item was purchased has no relevancy. The same item
can be taxed every time it gets resold.
 
W

Wallace

As to the secondary question, the fact that sales tax had been paid when
the item was purchased has no relevancy. The same item can be taxed every
time it gets resold.
Goods purchased for resale, and for which sales tax is paid, results in a
credit of some sort on the sales tax return. Perhaps that doesn't apply
here, where the goods were bought for personal use, then resold.
 
S

Stuart A. Bronstein

Mark Bole said:
"6006.5. "Occasional sale" includes all of the following:
(a) A sale of property not held or used by a seller in the
course
of activities for which he or she is required to hold a seller's
permit or permits or would be required to hold a seller's permit
or permits if the activities were conducted in this state,
provided that the sale is not one of a series of sales
sufficient in number, scope, and character to constitute an
activity for which he or she is required to hold a seller's
permit or would be required to hold a seller's permit if the
activity were conducted in this state."

(this sounds like a circular definition of who is required to
have a seller's permit to me...)
It's a bit circular. The point is that if things are sold in large
lots at a time or all in the same day, it can be an occasional sale.
But if there is a series of transactions (apparently more than three
qualifies) then sales tax is supposed to be collected.
 
M

Mark Bole

Wallace said:
Goods purchased for resale, and for which sales tax is paid, results in a
credit of some sort on the sales tax return. Perhaps that doesn't apply
here, where the goods were bought for personal use, then resold.

FWIW, the answer I found is: it depends on whether there was personal
use after the prior sales tax was paid. Seems to agree with the above.

Scenario 1: items are purchased, sales tax paid, items are immediately
wrapped and put into storage as inventory for future sale. This sales
tax offsets the sales tax to be collected upon sale (not sure how
changes in rates between purchase and sale are handled).

Scenario 2: items are purchased, sales tax paid, items are used
personally. Over time, items are stored and then sold. Because there
was personal use, the prior sales tax paid has no effect upon future
sales tax.

-Mark Bole
 
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S

Salmon Egg

Mark Bole said:
Scenario 2: items are purchased, sales tax paid, items are used
personally. Over time, items are stored and then sold. Because there
was personal use, the prior sales tax paid has no effect upon future
sales tax.
If this is correct, does that mean that sales tax should be paid on
personal items sold at a garage sale?

I doubt that happens. I also doubt that there is any serious
enforcement. I do know that there are some retail operations that
masquerade as garage sales. When I have gone to a swap meet, I have
never been asked to pay a separate sales tax on items I purchased.

Bill
 
T

Tom Russ

If this is correct, does that mean that sales tax should be paid on
personal items sold at a garage sale?
In general, yes. Although at least in California, there is a specific
exemption in the sales tax code for garage sales that are conducted on
a casual basis. IIRC, that means you can't have more than one such
garage sale in any 6-month period. Otherwise you are deemed to be
running a business and are responsible for collecting sales tax.

There may also be a monetary limit as well on the value of items that
are sold.

I doubt that happens. I also doubt that there is any serious
enforcement. I do know that there are some retail operations that
masquerade as garage sales. When I have gone to a swap meet, I have
never been asked to pay a separate sales tax on items I purchased.
Undoubtedly. I suppose the sales tax authorities could step in, if
they decided it was worth their time. Given the tight state budgets,
that may end up happening.
 
R

removeps-groups

In general, yes. Although at least in California, there is a specific
exemption in the sales tax code for garage sales that are conducted on
a casual basis. IIRC, that means you can't have more than one such
garage sale in any 6-month period. Otherwise you are deemed to be
running a business and are responsible for collecting sales tax.

There may also be a monetary limit as well on the value of items that
are sold.
You may still have to pay sales tax, but under a different name -- the
"use tax". See http://www.boe.ca.gov/sutax/faqusetax.htm#1

If you buy a car from a private party, the private party probably
won't collect sales tax because they're not in the business of selling
cars. However, when register your car, which is required within 10
days of purchasing the car, you will write down how much you paid for
the car. The DMV will happily calculate use tax or sales tax on the
car. I heard that if you put an amount too low, the DMV will use
their own FMV.

On your personal tax return form 540, page 2, line 49 you write the
amount of Use Tax. This is for items purchased out of state and for
which no sales tax was charged, and here's your chance to redeem
yourself and pay CA sales on them. So I guess the stuff you bought at
the garage sale would be reported here.
 
S

Salmon Egg

If you buy a car from a private party, the private party probably
won't collect sales tax because they're not in the business of selling
cars. However, when register your car, which is required within 10
days of purchasing the car, you will write down how much you paid for
the car. The DMV will happily calculate use tax or sales tax on the
car. I heard that if you put an amount too low, the DMV will use
their own FMV.
It so happens that I recently transferred a vehicle to my
daughter-in-law. It was a gift because I no longer can drive. In
principle, does she have to pay a use tax? What if a parent transfers
the old family car to an adult son or daughter?

Bill
 
S

Stuart A. Bronstein

Salmon Egg said:
It so happens that I recently transferred a vehicle to my
daughter-in-law. It was a gift because I no longer can drive. In
principle, does she have to pay a use tax? What if a parent
transfers the old family car to an adult son or daughter?
There's no exemption in California law (that's what we're talking
about, I believe) for an exemption from sales or use tax for gifts.
I don't know how the DMV handles these in practice, though.
 
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R

removeps-groups

It so happens that I recently transferred a vehicle to my
daughter-in-law. It was a gift because I no longer can drive. In
principle, does she have to pay a use tax? What if a parent transfers
the old family car to an adult son or daughter?
The law allows for an exemption from the use tax when there is a
gift. See http://boe.ca.gov/pdf/pub52.pdf :

Received as a gift
If you received a vehicle or vessel as a gift, you are not required to
pay California use tax on that gift and can apply
for a use tax clearance.
However, the vehicle or vessel is not considered a gift if:
- You paid cash, traded property, provided services, or assumed a
liability in exchange for the vehicle or vessel; or
- Your employer gave you the vehicle or vessel as a form of
compensation (for example, a vehicle given to an employee as a bonus).

The law is here: http://www.leginfo.ca.gov/.html/rtc_table_of_contents.html
around section 6400. I wonder which part of the law supports the BOE
position mentioned above.

As an aside, one way to cheat is to gift the car to the person you
want to sell it to, then accept cash from them without declaring it
(like selling drugs). Illegal, and I don't recommend it. When people
request an exemption from the use tax, the DMV probably checks to see
if the parties are related.
 
S

Stuart A. Bronstein

The law allows for an exemption from the use tax when there is a
gift. See http://boe.ca.gov/pdf/pub52.pdf :
Thanks. I hadn't been aware of that.
The law is here:
http://www.leginfo.ca.gov/.html/rtc_table_of_contents.html
around section 6400. I wonder which part of the law supports
the BOE position mentioned above.
There's nothing I can find in the statute. There is a regulation
that appears to give an exemption from use tax for some gifts.
 
B

Bob Sandler

You may still have to pay sales tax, but under a different name -- the
"use tax". See http://www.boe.ca.gov/sutax/faqusetax.htm#1

On your personal tax return form 540, page 2, line 49 you write the
amount of Use Tax. This is for items purchased out of state and for
which no sales tax was charged, and here's your chance to redeem
yourself and pay CA sales on them. So I guess the stuff you bought at
the garage sale would be reported here.
No, it would not be reported there, or anywhere. Look at the
rule that Mark Bole quoted from BOE Publication 61 in the
first post in this thread.

"OCCASIONAL SALES - A sale by (and purchase from) a person
who is not engaged in a business requiring a seller's permit
is exempt from sales and use taxes. These types of sales are
'occasional' sales. . . . A person holding two garage sales
with no other sales in any 12 month period in which the
garage sales are held are regarded as making exempt
occasional sales."

Your purchase at a garage sale "is exempt from sales AND USE
taxes."

Bob Sandler
 
S

Stuart A. Bronstein

Bob Sandler said:
No, it would not be reported there, or anywhere. Look at the
rule that Mark Bole quoted from BOE Publication 61 in the
first post in this thread.

"OCCASIONAL SALES - A sale by (and purchase from) a person
who is not engaged in a business requiring a seller's permit
is exempt from sales and use taxes. These types of sales are
'occasional' sales. . . . A person holding two garage sales
with no other sales in any 12 month period in which the
garage sales are held are regarded as making exempt
occasional sales."

Your purchase at a garage sale "is exempt from sales AND USE
taxes."
Then why is the individual sale of a car not exempt?
 
R

removeps-groups

Then why is the individual sale of a car not exempt?
The keyword seems to be substantial. The quote above has a "..." and
I think the magic is there. Here it is in full:

OCCASIONAL SALES — A sale by (and purchase from) a person who is not
engaged in a business requiring a seller’s permit is exempt from sales
and use taxes. These types of sales are “occasional” sales (some
states have similar exemptions for “casual” sales). Generally, a
person who makes three or more sales for substantial amounts in any
period of 12 months is required to hold a seller’s permit. A person
who makes a substantial number of sales for relatively small amounts
is also required to hold a seller’s permit. (The 12 month test period
can be the 12 months before the sale in question, the 12 months after
the sale in question, or any other 12 month period in which the sale
occurs.) A person holding two garage sales with no other sales in any
12 month period in which the garage sales are held are regarded as
making exempt occasional sales. A business that is not required to
hold a seller’s permit would be making an occasional sale when making
a single sale of its assets upon termination of its business. Such
persons should be aware that making two or three sales in anticipation
of final liquidation will generally result in all the sales being
subject to sales tax.


But the word "substantial" is so subjective. I could sell my old car
for $2,000 and it would be substantial, or I could have one garage
sale and sell lots of little stuff for $2,000 -- and the first would
be subject to the USE tax when the car is registered.
 
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R

removeps-groups

Then why is the individual sale of a car not exempt?
One more thing. The law is not necessary logical. A case in point in
cell phones. The regulation requires sales tax to be charged on the
full price of the cell phone, not the discounted price when you sign a
contract. However, regulation 6051 of the California tax code
requires sales tax to be charged only on the actual sales price
(including all discounts).

See http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/05/06/BUG5NCKUCQ1.DTL

Basically the BOE takes your money because they can, and no-one is
strong enough to stop them.
 
R

Robert Sandler

Then why is the individual sale of a car not exempt?
An individual sale of a car is not exempt because Section 6367 of the
CA Revenue and Taxation Code specifically says that the exemption for
occasional sales does not apply to the sale of a vehicle. Apparently
the BOE didn't think it was necessary to mention that in Publication
61 (other than be giving the reference to this section).

"6367. There are exempted from the taxes imposed by this part the
gross receipts from occasional sales of tangible personal property and
the storage, use, or other consumption in this state of tangible
personal property, the transfer of which to the purchaser is an
occasional sale. This exemption does not apply to the gross receipts
from the sale of, or to the storage, use, or other consumption in this
state of, a mobilehome or commercial coach required to be annually
registered under the Health and Safety Code, a vessel or aircraft, as
defined in Article 1 (commencing with Section 6271) of Chapter 3.5 of
this part, or a vehicle required to be registered under the Vehicle
Code or a vehicle required to be identified under Division 16.5
(commencing with Section 38000) of the Vehicle Code or a vehicle that
qualifies under the permanent trailer identification plate program
pursuant to subdivision (a) of Section 5014.1 of the Vehicle Code.
This section shall not preclude the exemption afforded under Section
6281."

Bob Sandler
 
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M

Mark Bole

Robert said:
An individual sale of a car is not exempt because Section 6367 of the
CA Revenue and Taxation Code specifically says that the exemption for
occasional sales does not apply to the sale of a vehicle. Apparently
the BOE didn't think it was necessary to mention that in Publication
61 (other than be giving the reference to this section).

"6367. There are exempted from the taxes imposed by this part the
gross receipts from occasional sales of tangible personal property and
the storage, use, or other consumption in this state of tangible
personal property, the transfer of which to the purchaser is an
occasional sale. This exemption does not apply
Good find! I confess I looked for a while and gave up.

Listing an exception to the exemption in the exemptions section...who'da
thought it?! Why not just make it not an exemption in the first place?

-Mark Bole
 
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