California sales tax


S

Seth

I live in Minnesota. Last week, I purchased some items (DVDs, digital
downloads, and admission to a seminar) from someone in California.
The seminar will take place in California.

Payment was made when I phoned him (from Minnesota) and provided a
credit card number.

He said his accountant said that the full sale is taxable, including
both the stuff mailed to MN and the digital downloads, based on a
recent (last few years) change in California's sales tax.

I was under the impression that interstate sales were taxed at the
purchaser's end, and he doesn't have nexus with Minnesota to be
required to collect Minnesota Sales Tax. (I know that I have to pay
Use Tax.)

Who is correct?

Seth
 
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K

Katie in San Diego

I live in Minnesota.  Last week, I purchased some items (DVDs, digital
downloads, and admission to a seminar) from someone in California.
The seminar will take place in California.

Payment was made when I phoned him (from Minnesota) and provided a
credit card number.

He said his accountant said that the full sale is taxable, including
both the stuff mailed to MN and the digital downloads, based on a
recent (last few years) change in California's sales tax.

I was under the impression that interstate sales were taxed at the
purchaser's end, and he doesn't have nexus with Minnesota to be
required to collect Minnesota Sales Tax.  (I know that I have to pay
Use Tax.)

Who is correct?

Seth

I'm not aware of any such change. I can see how the hard copy
materials could be subject to California use tax because they are
purchased, presumably, for first functional use at the seminar in
California (see Reg. Sec. 1620(b)(3)). However, it seems to me that
the true object of the contract here (see Reg. Sec. 1501) is the
service to be provided at the seminar, and the tangible and intangible
(downloaded) materials are incidental to providing that service.

I'd love it if you'd ask the guy to cite chapter and verse. There may
be something I'm not aware of here.

Katie in San Diego
 
S

Stuart A. Bronstein

Katie in San Diego said:
(e-mail address removed) (Seth) wrote:

I'm not aware of any such change. I can see how the hard copy
materials could be subject to California use tax because they
are purchased, presumably, for first functional use at the
seminar in California (see Reg. Sec. 1620(b)(3)). However, it
seems to me that the true object of the contract here (see Reg.
Sec. 1501) is the service to be provided at the seminar, and the
tangible and intangible (downloaded) materials are incidental to
providing that service.
First of all, it's not that the transaction isn't subject to sales
tax. It is (at least the law claims it is). It's just that it's
normally thought that a state has no jurisdiction over someone out
of state, and can't demand tax from him because of that.

It looks like this issue would be governed by 18 CCR §1620. It's
fairly long, but it appears to say that sales tax is applies on
every sale unless the US Constitution prohibits it, or the sale is
to a foreign country, or there is some other explicit exemption.

Or it might be that internet downloads aren't "shipped" out of
state, so it's not clear where they will be used or delivered, and
they tax it on that basis because it might be used in California.

I agree with you that in many cases program material might be
incidental to a class, and as a result might not be taxable,
similar to how a document drafted by a lawyer is considered
primarily services and the document itself is incidental and not
taxable.

But if the material isn't a product of the seminar but something
that can be used independently from the seminar, it seems to me
that the material might be subject to tax if purchased or received
separately from the seminar.

I don't know why they would try to tax both, though. There is the
general rule that when you purchase goods and also services to make
or improve those goods, the entire sale is taxable. Perhaps it's
some incorrect application of that.

___
Stu
http://DownToEarthLawyer.com
 
S

Seth

I'm not aware of any such change. I can see how the hard copy
materials could be subject to California use tax because they are
purchased, presumably, for first functional use at the seminar in
California (see Reg. Sec. 1620(b)(3)).
I wasn't clear. The DVDs were snail-mailed to me (they're a recording
of a different seminar that took place several years ago). Similarly,
the downloads are recordings of still other past seminars.
However, it seems to me that
the true object of the contract here (see Reg. Sec. 1501) is the
service to be provided at the seminar, and the tangible and intangible
(downloaded) materials are incidental to providing that service.
The items are all reasonably independent; I could have purchased any
combination of them I chose (or other such items, which I chose not
to).

Seth
 
K

Katie in San Diego

I wasn't clear.  The DVDs were snail-mailed to me (they're a recording
of a different seminar that took place several years ago).  Similarly,
the downloads are recordings of still other past seminars.


The items are all reasonably independent; I could have purchased any
combination of them I chose (or other such items, which I chose not
to).

Seth

Well, that does change the facts. Are you sure you were charged
California sales or use tax, and not Minnesota use tax? If the seller
has nexus with Minnesota, the tangible property would be subject to MN
use tax, and the seller would be obligated to collect and pay it over
to Minnesota. Whether the fee for the seminar, which I presume was
separately stated, would be subject to MN tax seems a stretch to me,
but I haven't looked at the Minnesota statutes.

Katie in San Diego
 
S

Stuart A. Bronstein

Katie in San Diego said:
Well, that does change the facts. Are you sure you were charged
California sales or use tax, and not Minnesota use tax? If the
seller has nexus with Minnesota, the tangible property would be
subject to MN use tax, and the seller would be obligated to
collect and pay it over to Minnesota. Whether the fee for the
seminar, which I presume was separately stated, would be subject
to MN tax seems a stretch to me, but I haven't looked at the
Minnesota statutes.
Do California and Minnesota have a sales tax compact?

___
Stu
http://DownToEarthLawyer.com
 
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S

Seth

Katie in San Diego said:
Well, that does change the facts. Are you sure you were charged
California sales or use tax, and not Minnesota use tax?
Yes.

If the seller has nexus with Minnesota,
He doesn't.
the tangible property would be subject to MN
use tax, and the seller would be obligated to collect and pay it over
to Minnesota. Whether the fee for the seminar, which I presume was
separately stated, would be subject to MN tax seems a stretch to me,
but I haven't looked at the Minnesota statutes.
I would expect the seminar to be subject to California taxes (if they
tax such services), since that's where it will take place. I don't
see why the physical (snailmail) delivered items, or the digital
downloads, should be subject to California tax.

Would the answer change if the sale took place in California? (I know
there are stores in New York that advertise that they'll ship your
purchase to you out-of-state and thereby avoid collecting Sales Tax.)

Seth
 
S

Stuart A. Bronstein

I would expect the seminar to be subject to California taxes (if
they tax such services), since that's where it will take place.
I don't see why the physical (snailmail) delivered items, or the
digital downloads, should be subject to California tax.
There is no sales tax on services in California, so there should be
no tax on the workshop per se.

As far as the materials are concerned, the only thing I can think of
is what Katie already mentioned - that since the materials go along
with the workshop, they will be "used" in CA, and the use tax (if not
the sales tax) will apply.

___
Stu
http://DownToEarthLawyer.com
 
K

Katie in San Diego

He doesn't.


I would expect the seminar to be subject to California taxes (if they
tax such services), since that's where it will take place.  I don't
see why the physical (snailmail) delivered items, or the digital
downloads, should be subject to California tax.

Would the answer change if the sale took place in California?  (I know
there are stores in New York that advertise that they'll ship your
purchase to you out-of-state and thereby avoid collecting Sales Tax.)

Seth

As Stu says, California wouldn't tax the seminar as such, and would
include it in the measure of the tax only if it was part of a bundled
transaction that included the tangible personal property, with the
latter being the true object of the transaction.

Of course if you had purchased the tangible items in California,
California sales tax would have applied. Neither California sales nor
use tax would apply to property shipped out of California for use
outside California. And digital downloads are still not subject to
tax in California as far as I know!

I wish you would go back to the vendor and ask him for a citation.
Tell him it's just out of curiosity <G>.

Katie in San Diego

PS - some of those NY stores have gotten into serious trouble by
shipping empty boxes to the out-of-state customer's home, while the
customer walked out of the store with the jewelry or whatever.
 
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S

Seth

On Feb 10, 12:32 pm, (e-mail address removed) (Seth) wrote:

As Stu says, California wouldn't tax the seminar as such, and would
include it in the measure of the tax only if it was part of a bundled
transaction that included the tangible personal property, with the
latter being the true object of the transaction.
Nope, they were all independent purchases.
Of course if you had purchased the tangible items in California,
California sales tax would have applied. Neither California sales nor
use tax would apply to property shipped out of California for use
outside California.
In fact, they came from a fulfillment house in another state (I don't
recall which, but not California or Minnesota).
And digital downloads are still not subject to
tax in California as far as I know!

I wish you would go back to the vendor and ask him for a citation.
Tell him it's just out of curiosity <G>.
I'll do that.
PS - some of those NY stores have gotten into serious trouble by
shipping empty boxes to the out-of-state customer's home, while the
customer walked out of the store with the jewelry or whatever.
I know. The only time I did that, I was buying clothing that needed
alteration, so it had to be shipped.

Seth
 

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