California Code of Regulations › Title 18 - Public Revenues › Division 2 - California Department of Tax and Fee Administration- Business Taxes (State Board of Equalization- Business Taxes, See Ch. 6 and 9.9) › Chapter 4 - Sales and Use Tax › Article 7 - Specific Kinds of Property and Exemptions Generally › Section 1595 - Occasional Sales-Sale of a Business-Business Reorganization

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Activities
				  Requiring Seller's Permit.
(1) General. Tax
				  applies to all retail sales of tangible personal property including capital
				  assets whether sold in one transaction or in a series of sales, held or used by
				  the seller in the course of an activity or activities for which a seller's
				  permit or permits is required or would be required if the activity or
				  activities were conducted in this state. See subdivision (e) below for special
				  rules regarding sales of property by producers of hay.
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.
(2) Property Held or Used in an Activity, or
				  Activities Requiring the Holding of a Seller's Permit. A seller's permit is
				  required of a person engaged in the business of selling tangible personal
				  property. An activity requiring the holding of that permit includes, but is not
				  limited to, the acquisition and sale of tangible personal property, whether the
				  person's sales are all at retail, all for resale, or include both sales at
				  retail and sales for resale.
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.
(3) Separate
				  Businesses. A person engaged in an activity or activities requiring the holding
				  of a seller's permit or permits may also be engaged in entirely separate
				  endeavors which do not require the holding of a seller's permit or permits. Tax
				  applies to the sale of tangible personal property held or used in the course of
				  an activity requiring the holding of a seller's permit. Tax does not apply to
				  the sale of property held or used by the seller in the non-selling endeavors
				  which do not require the holding of a permit unless that sale is itself one of
				  a series of sales requiring the holding of a seller's permit. For example, a
				  person may own a hardware store at one location and a real estate brokerage
				  business at another location, with no relationship between the two activities
				  except that of common ownership. Under these circumstances, a sale of furniture
				  used in the brokerage business would not be a sale of property held or used in
				  an activity requiring the holding of a seller's permit unless it was one of a
				  series of sales of the property of the brokerage business. A sale of tangible
				  personal property held or used in the hardware business would be a sale of
				  property held or used in an activity requiring the holding of a seller's
				  permit.
(4) Series of Sales
				  Requiring the Holding of a Seller's Permit. A person not otherwise engaged in
				  an activity requiring the holding of a seller's permit may make a series of
				  sales sufficient in number, scope and character to require the holding of a
				  seller's permit. The sale in that series of sales, and subsequent sales, during
				  any 12 month period which resulted in the requirement to hold a permit are
				  subject to tax, unless otherwise exempt.
(A)
				  Number.
1. Generally the minimum number of
				  sales to require the holding of a seller's permit by a person not otherwise
				  engaged in a selling activity is three within any 12 month period.
2. When calculating the minimum number of
				  sales which requires a person to hold a seller's permit, the following types of
				  sales are excluded:
a. Sales made by an
				  auctioneer on behalf of the person. In such transactions, the auctioneer is the
				  retailer liable for tax.
b. Sales
				  through claiming races of horses owned by the person. In such transactions, the
				  racing association is the retailer liable for tax.
c. Sales of vehicles, mobilehomes, commercial
				  coaches, vessels, or aircraft which are exempted from sales tax by Revenue and
				  Taxation Code Sections
				  6282
				  and
				  6283.
d. A trade-in made by the person which is
				  incidental to a nonselling activity of the
				  person.
(B)
				  Scope. The extent of the sales measured by their frequency or dollar
				  volume.
(C) Character. This relates
				  to the similarity in type and value giving effect to the taxpayer's operations.
				  For example, a processor of food products for human consumption is not required
				  to hold a seller's permit for the processing and sale of food products. Sales
				  of used lug boxes, obsolete or used machinery, food handling and similar items
				  are of a character that three or more sales of sufficient scope will require
				  the processor to hold a seller's permit for this selling
				  activity.
(5) Examples
				  Applying the Above Principles.
(A) Service
				  enterprises which make some incidental sales.
1. Operators of service enterprises such as
				  hospitals, hotels, theaters, schools, laundromats, car washes, transportation
				  companies, and trucking companies may make some sales incidental to their
				  primary service business. A hospital may operate a pharmacy and cafeteria as an
				  adjunct to the hospital. A hotel may operate a restaurant and a bar. A theater
				  may sell popcorn to patrons. A school may operate a cafeteria and bookstore. A
				  laundromat may sell soap to its customers.
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.
2. If, in
				  any 12 month period, the operator of the service enterprise makes more than two
				  sales in substantial amounts of tangible personal property used in the service
				  enterprise, the first two sales are exempt occasional sales, but the operator
				  is required to hold a permit for the third and subsequent sales during any 12
				  month period. The gross receipts from the third and subsequent sales during any
				  such 12 month period are subject to tax, unless otherwise exempt. For example,
				  the only sales that a service enterprise made were the following sales (each of
				  which was "substantial" for purposes of this regulation) of tangible personal
				  property used in the service enterprise:
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.
(B)
				  Other businesses.
1. Tax applies to the sales
				  of assets of a business which is not essentially a service enterprise. Examples
				  of this are sales of grocery stores and liquor stores making both exempt sales
				  of food products for human consumption and taxable sales of other tangible
				  personal property, service stations which sell gasoline, oil and similar items
				  and which also perform automotive repairs and lubrication services, and
				  computer stores which also provide training in the use of computers and repairs
				  for computer products.
2. Where a
				  service enterprise and a sales business are operated together so as to
				  constitute one business, tax will apply to the sale of the assets of the
				  business. For example, if a car wash and gasoline station are operated at the
				  same premises and the car wash is available only to persons who buy gasoline or
				  if the price of the car wash is reduced if gasoline is purchased, tax applies
				  to the sale of the car wash.
3. A
				  person purchases a hardware store with the intent of selling tangible personal
				  property. The person must hold a seller's permit regardless of the number of
				  sales of tangible personal property actually made. For example, if the person
				  makes only two sales, a sale of a hammer and a sale of the business, neither
				  sale is an occasional sale.
4. A
				  person intends to create and sell custom furniture. The person must hold a
				  seller's permit for all his or her sales of furniture. This is true even if,
				  because of the time necessary to create each piece of furniture and the profit
				  resulting from each sale, the person averages one sale of furniture per
				  year.
(6)
				  Transfer of Shares in a Corporation. The sale of stock of a corporation is not
				  a sale of tangible personal property and is not subject to sales tax. A stock
				  purchase is not a purchase of tangible personal property and is not subject to
				  sales or use tax notwithstanding the fact that the stock purchase may be
				  treated as an asset acquisition for federal income tax purposes pursuant to
				  Internal Revenue Code Section
				  338.