Generally, a person who makes three or more sales for substantial amounts in a period of 12 months is required to hold a seller's permit regardless of whether the sales are at retail or are for resale. Each sale of the person during the 12 month period is included in determining whether that person is required to hold a permit, or would be required to hold a permit if the activities were conducted entirely inside this state. Thus, a sale occurring outside California, whether at retail or for resale, is included, even though it would not be subject to California sales tax. A person who makes a substantial number of sales for relatively small amounts is also required to hold a seller's permit.
Tax does not apply to a sale of property held or used in the course of an activity not requiring the holding of a seller's permit unless the sale is one of a series of sales sufficient in number, scope and character to constitute an activity for which the seller 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. If tangible personal property is leased under a lease which is a "sale" as defined in Revenue and Taxation Code Section 6006 or a "purchase" as defined in Revenue and Taxation Code Section 6010, tax applies to the lease as provided in Regulation 1660 (18 CCR 1660), and the lessor must hold a seller's permit as provided in Regulation 1699 (18 CCR 1699). The lessor is not making an occasional sale since the lessor is making a "continuing sale" and is thereby holding the leased property in an activity requiring the holding of a seller's permit. As such, the lessor's sale of the leased property at the end of the lease term is likewise not an occasional sale.
Acquisition includes the obtaining of the property in any manner whatsoever. For example, raw materials may be purchased or may be obtained by extraction from the earth, air or waters of the earth. These may be sold in raw form or processed or manufactured into other raw materials, component parts or finished items which are sold. Each of these activities is an activity which is so related to the sale of tangible personal property, that it is part of the activity requiring the holding of a seller's permit.
If any of these businesses were sold, tax would apply only to the gross receipts from the tangible personal property held or used in the selling activity.
a. | February 23, 1996 | Occasional sale | |
b. | August 16, 1996 | Occasional sale | |
c. | January 8, 1997 | Not occasional sale | |
d. | February 8, 1997 | Not occasional sale | |
e. | January 27, 1998 | Occasional sale | |
f. | February 3, 1998 | Not occasional sale | |
g. | August 11, 1999 | Occasional sale | |
h. | December 12, 1999 | Occasional sale | |
i. | September 8, 2000 | Occasional sale | |
j. | December 9, 2000 | Not occasional sale |
Sales a. and b. are occasional sales since they were the first two sales made by the service enterprise.
Sales c. and d. are not occasional sales since they were the third and fourth sales in the series of sales commencing on February 23, 1996, which was less than 12 months prior to these sales.
Sale e. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on February 8, 1997. The January 8, 1997 sale is not relevant since it occurred more than 12 months prior to sale e.
Sale f. is not an occasional sale since it was the third sale in the series of sales commencing on February 8, 1997, which was less than 12 months prior to this sale.
Sale g. is an occasional sale since the service enterprise made no other sales in the prior 12 months.
Sale h. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on August 11, 1999.
Sale i. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on December 12, 1999.
Sale j. is not an occasional sale since it was the third sale in the series of sales commencing within the prior 12 months, on December 12, 1999.
The real or ultimate ownership is "substantially similar" to that which existed before a transfer if 80 percent or more of that ownership of the tangible personal property is unchanged after the transfer. In the following example, the ownership is "substantially similar" to that which existed before the transfer:
Stockholders | Interest in Transferor Corporation | Interest in Transferee Corporation | Interests Common Before and After Transfer | ||
A.......................... | 40% | 33 1/3% | 33 1/3% | ||
B.......................... | 40% | 33 1/3% | 33 1/3% | ||
C.......................... | 20% | 33 1/3% | 20% | ||
100% | 100% | 86 2/3% |
When the transferor is a consumer under the previous paragraph, no tax applies with respect to the transfer provided the transferor's use of the property in California would not otherwise be subject to tax. For example, in the case of property purchased by the transferor for resale without payment of the tax, the transferor is the consumer of such property which the transferee will not sell. Since the transferor's use of such resale inventory is subject to tax, the transferor owes tax measured by its purchase price. However, no tax applies with respect to the transfer of such resale inventory provided the transferee will sell such property without any use other than retention, demonstration, and display while holding the property for sale. If the transferee thereafter makes any other use of such property, it must report use tax measured by the transferor's purchase price.
Under Corporations Code Section 15026, a partner's interest in the partnership is the partner's share of the profits and surplus, and is personal property. Under Corporations Code Section 15027(1), a conveyance by a partner of that partner's interest in the partnership does not in itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with the partnership contract the profits to which the assigning partner would otherwise be entitled. The assignment of a partnership interest in this technical sense is not a sale of tangible personal property and is not subject to tax.
In common usage, however, the term "partnership interest" refers to all of the rights of a partner including (1) the person's rights in specific partnership property, (2) the person's interest (in the technical sense) in the partnership, and (3) the person's right to participate in the management. In a typical commercial transaction when a partner "sells the person's interest in a partnership" to another, it is intended that the person "selling the interest" will withdraw from the partnership and the person "purchasing the interest" will be admitted to the partnership. The legal effect of this transaction is to dissolve the first partnership and to create a new partnership, in the absence of a provision in the agreement providing for continued life of the partnership. The effect for sales and use tax purposes is that there is a dissolution of the partnership, a distribution of the assets on a pro rata basis, and a sale by the withdrawing partner of the person's ownership interest in the tangible personal property distributed to that person. Except as provided in subdivision (c), this sale of tangible personal property will qualify as an occasional sale under Revenue and Taxation Code Section 6006.5 and will be nontaxable under Section 6367, unless the withdrawing partner holds a seller's permit or the sale of tangible personal property is one of a series of sales sufficient in number, scope, and character to require the holding of a seller's permit.
A distribution of assets, including tangible property, by a partnership upon its dissolution to the partners in accordance with their ownership interest in the partnership is a liquidating dividend and is not a sale when no consideration is received by the partnership other than cancellation of the partners' interests. The partnership is the consumer of such property and no tax applies with respect to the transfer provided the partnership's use of the property in California would not otherwise be subject to tax. If consideration is given or received for the transfer, such as an assumption of liabilities by the partners, tax applies measured by that consideration.
Where a partnership distributes some of its assets in the form of a partial liquidation of the business, the transfer will be regarded as a liquidating dividend, subject to the rules set forth in the previous paragraph, if an entire segment of the business of the partnership is being liquidated. For example, a partnership operates a lumberyard and an automobile repair and parts business. If the partnership ceases operation of the lumberyard and distributes its assets to the partners in accordance with their interest in the partnership and the partnership receives no consideration from the partners such as an assumption of liabilities, the transfer is a liquidating dividend subject to the rules set forth in the previous paragraph. If, however, the partnership ceases operating the repair portion of the automobile repair and parts business and distributes the assets of that portion of the business, it is not liquidating an entire segment of its business and the transfer does not qualify as a nontaxable liquidating dividend.
However, an occasional sale includes a sale of property by a producer of hay, other than hay, provided that the sale is not one of a series of sales sufficient in number, scope, or character to constitute an activity for which the producer would be required to hold a seller's permit if the producer were not also selling hay.
The producer's sale of tangible personal property held or used in the course of an activity of producing the hay (such as farm equipment and machinery) is an occasional sale, provided all of the following conditions apply:
Cal. Code Regs. Tit. 18, § 1595
2. Amendment of subsection (c) filed 5-19-72; effective thirtieth day thereafter (Register 72, No. 21).
3. Amendment of subsections (a) and (b) filed 4-29-75; effective thirtieth day thereafter (Register 75, No. 18).
4. Amendment of subsections (a)(3)(K) and (b)(3) filed 6-13-79; effective thirtieth day thereafter (Register 79, No. 24).
5. Amendment of subsection (c) filed 6-7-83; effective thirtieth day thereafter (Register 83, No. 24).
6. Amendment filed 2-22-85; effective thirtieth day thereafter (Register 85, No. 8).
7. Amendment of subsections (a)(1), (b)(1) and new subsection (e) filed 7-21-86; effective thirtieth day thereafter (Register 86, No. 30). Amendment made in part pursuant to changes to Revenue and Taxation Code Section 6006.5(c), operative October 1, 1985.
8. Amendment of section and NOTE filed 2-4-97; operative 3-6-97 (Register 97, No. 5).
9. Amendment of subsections (a)(4) and (a)(5)(A)2. and new subsections (a)(5)(B)3.-4. filed 1-5-2001; operative 2-4-2001 (Register 2001, No. 1).
Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6006.5, 6014, 6015, 6019, 6066, 6075, 6281, 6282, 6283, 6292, 6358(b) and 6367, Revenue and Taxation Code.
2. Amendment of subsection (c) filed 5-19-72; effective thirtieth day thereafter (Register 72, No. 21).
3. Amendment of subsections (a) and (b) filed 4-29-75; effective thirtieth day thereafter (Register 75, No. 18).
4. Amendment of subsections (a)(3)(K) and (b)(3) filed 6-13-79; effective thirtieth day thereafter (Register 79, No. 24).
5. Amendment of subsection (c) filed 6-7-83; effective thirtieth day thereafter (Register 83, No. 24).
6. Amendment filed 2-22-85; effective thirtieth day thereafter (Register 85, No. 8).
7. Amendment of subsections (a)(1), (b)(1) and new subsection (e) filed 7-21-86; effective thirtieth day thereafter (Register 86, No. 30). Amendment made in part pursuant to changes to Revenue and Taxation Code Section 6006.5(c), operative October 1, 1985.
8. Amendment of section and Note filed 2-4-97; operative 3-6-97 (Register 97, No. 5).
9. Amendment of subsections (a)(4) and (a)(5)(A)2. and new subsections (a)(5)(B)3.-4. filed 1-5-2001; operative 2-4-2001 (Register 2001, No. 1).