(a)
Seller's Permit In General -- Number of Permits Required. Every person engaged
in the business of selling (or leasing under a lease defined as a sale in
Revenue and Taxation Code section 6006(g)) tangible personal property of a kind
the gross receipts from the retail sale of which are required to be included in
the measure of the sales tax, and only a person actively so engaged, is
required to hold a seller's permit for each place of business in this state at
which transactions relating to sales are customarily negotiated with their
customers. For example, a seller's permit is required for a branch sales office
at which orders are customarily taken or contracts negotiated, whether or not
merchandise is stocked there.
No additional permits are required for warehouses or other
places at which merchandise is merely stored and which customers do not
customarily visit for the purpose of making purchases and which are maintained
in conjunction with a place of business for which a permit is held; but at
least one permit must be held by every person maintaining stocks of merchandise
in this state for sale. However, permits are required for warehouses or other
places at which merchandise is stored and from which retail sales of such
merchandise negotiated out-of-state are delivered or fulfilled.
If two or more activities are conducted by the same person
on the same premises, even though in different buildings, only one seller's
permit is required. For example, a service station operator having a restaurant
in addition to the station on the same premises requires only one seller's
permit for both activities.
(b) Persons Selling in Interstate Commerce or
to United States Government. A seller's permit is not required to be held by
persons all of whose sales are made exclusively in interstate or foreign
commerce but a seller's permit is required of persons notwithstanding all their
sales (or leases under a lease defined as a sale in Revenue and Taxation Code
section 6006(g)) are made to the United States or instrumentalities
thereof.
(c) Persons Selling Feed.
Effective April 1, 1996, a seller's permit is not required to be held by
persons whose sales consist entirely of sales of feed for any form of animal
life of a kind the products of which ordinarily constitute food for human
consumption (food animals), or for any form of animal life not of such a kind
(nonfood animals) which are being held for sale in the regular course of
business, provided no other retail sales of tangible personal property are
made.
If a seller of hay is also the grower of the hay, this
exemption shall apply only if either:
1. The hay is produced for sale only to beef
cattle feedlots or dairies, or
2.
The hay is sold exclusively through a farmer-owned cooperative.
(d) Concessionaires. For the
purposes of this regulation, the term concessionaire is defined as an
independent retailer who is authorized, through contract with, or permission
of, another retail business enterprise (the prime retailer), to operate within
the perimeter of the prime retailer's own retail business premises, which to
all intents and purposes appear to be wholly under the control of that prime
retailer, and to make retail sales that to the general public might reasonably
be believed to be the transactions of the prime retailer. Some indicators that
a retailer is
not operating as a concessionaire are that the
retailer:
* Appears to the public to be a business separate and
autonomous from the prime retailer. Examples of businesses that may appear to
be separate and autonomous, while operating within the prime retailer's
premises, are those with signs posted on the premises naming each of such
businesses, those with separate cash registers, and those with their own
receipts or invoices printed with their business name.
* Maintains separate business records, particularly with
respect to sales.
* Establishes their own selling prices.
* Makes business decisions independently, such as hiring
employees or purchasing inventory and supplies.
* Registers as a separate business with other regulatory
agencies, such as an agency issuing business licenses, the Employment
Development Department, and/or the Secretary of State.
* Deposits funds into a separate account.
In cases where a retailer is not operating as a
concessionaire, the prime retailer is not liable for any tax
liabilities of the retailer operating on the prime retailer's premises.
However, if a retailer is deemed to be operating as a concessionaire, the prime
retailer may be held jointly and severally liable for any sales and use taxes
imposed on unreported retail sales made by the concessionaire while operating
as a concessionaire. Such a prime retailer will be relieved of their obligation
for sales and use tax liabilities incurred by such a concessionaire for the
period in which the concessionaire holds a seller's permit for the location of
the prime retailer or in cases where the prime retailer obtains and retains a
written statement that is taken in good faith in which the concessionaire
affirms that they hold a seller's permit for that location with the Department.
The following essential elements must be included in the statement in order to
relieve the prime retailer of their liability for any unreported tax
liabilities incurred by the concessionaire:
* The seller's permit number of the concessionaire
* The location for which the permit is issued (must show
the concessionaire's location within the perimeter of the prime retailer's
location).
* Signature of the concessionaire
* Date
While any statement, taken timely, in good faith and
containing all of these essential elements will relieve a prime retailer of
their liability for the unreported sales or use taxes of a concessionaire, a
suggested format of an acceptable statement is provided as Appendix A to this
regulation. While not required, it is suggested that the statement from the
concessionaire contain language to clarify which party will be responsible for
reporting and remitting the sales and/or use tax due on their retail
sales.
In instances where the lessor, or grantor of permission to
occupy space, is not a retailer, they are not liable for any sales or use taxes
owed by their lessee or grantee. In instances where an independent retailer
leases space from another retailer, or occupies space by virtue of the granting
of permission by another retailer, but does not operate their business within
the perimeter of the lessor's or grantor's own retail business, such an
independent retailer is not a concessionaire within the meaning of this
regulation. In this case, the lessor or grantor is not liable for any sales or
use taxes owned by the lessee or grantee.
(e) Agents. If agents make sales on behalf of
a principal and do not have a fixed place of business, but travel from house to
house or from town to town, it is unnecessary that a seller's permit be
obtained for each agent if the principal obtains a permit for each place of
business located in California. If, however, the principal does not obtain a
permit for each place of business located in California, it is necessary for
each agent to obtain a seller's permit.
(f) Inactive Permits. A seller's permit may
only be held by a person actively engaged in business as a seller of tangible
personal property. The Department may revoke a seller's permit where it finds
that the person holding the permit is not actively engaged in business as a
seller of tangible personal property.
(1) Any
person who holds a seller's permit but is not actively engaged in business as a
seller of tangible personal property shall promptly surrender the permit by
notifying the Department to cancel it.
(2) Except as explained in paragraph (3) of
this subdivision, a person holding a seller's permit will be held liable for
any taxes, interest, and penalties incurred, through the date on which the
Department is notified to cancel the permit, by any other person who, with the
permit holder's actual or constructive knowledge, uses the permit in any way.
For example, a permit holder may be held liable for tax, interest, and penalty
actually incurred by their transferee where the transferee displays the permit
in their place of business, or uses the permit number on a resale certificate,
or files sales and use tax returns under the permit number. The permit holder
has the burden of establishing that the Department received notice to cancel
the permit.
(A) The seller's permit holder
may notify the Department by delivering the actual seller's permit to the
Department with the clear request that the permit be canceled. Where the reason
for cancellation is that the permit holder transferred the business, the permit
holder should identify the name and address of the transferee at the time the
permit is surrendered to the Department. The permit holder may also notify the
Department by delivering a written statement or email to the Department that
the permit holder has transferred or otherwise ceased the business, or will do
so at a specified time, and requesting that the permit be canceled. The
statement should identify the name and address of the transferee, if any. The
permit holder may also provide this notice to the Department orally, but it
will be presumed that such notice was not provided unless the
Department's records reflect that the permit holder clearly notified the
Department of the cessation or transfer of the business for which the permit
was held.
(B) The Department will
also be regarded as having received notice of cancellation of the seller's
permit, and the permit holder will be excused from liability for the tax,
interest, and penalty incurred by another person using the permit, as of the
date the Department receives actual notice of transfer of the business for
which the permit was issued. It will be presumed such notice was
not received by the Department unless the Department's records
reflect that the Department received a clear notice of the cessation or
transfer of the business for which the permit was held. For example, the
Department's receipt of an application for a seller's permit from the
transferee constitutes sufficient notice if it contains adequate information to
show that the application pertains to the same business for which the permit
was held. Notice to another state agency of a transfer or cessation of a
business does not constitute notice to the Department. Rather,
the Department must itself receive actual notice of the transfer or cessation
of business.
(3) Where
the seller's permit holder does not establish that the Department received
actual notice of the transfer of the business for which the permit was held and
is thus liable for the taxes, interest, and penalties incurred by another
person using that permit, that liability is limited to the quarter in which the
business was transferred and the three subsequent quarters, and shall not
include any penalties imposed on the other person for fraud or intent to evade
the tax. However, these limitations (liability only for the quarter in which
the business was transferred and the three subsequent quarters and no fraud or
intent to evade penalty) do not apply where, after the
transfer of the business, 80 percent or more of the real or ultimate ownership
of that business is held by the permit holder. For these purposes,
stockholders, bondholders, partners, or other persons holding an ownership
interest in an entity are regarded as having the "real or ultimate ownership"
of that entity.
(g)
Non-issuance or Revocation of a Seller's Permit.
(1) The Department may refuse to issue a
seller's permit to any person submitting an application for a seller's permit
if the person has an outstanding final liability with the Department for any
amount under the Sales and Use Tax Law. The Department may also refuse to issue
a seller's permit if the person applying for it is not a natural person and is
being controlled by a person with an outstanding final liability for any amount
under the Sales and Use Tax Law.
(2) Natural Person -- A "natural person" is a
living human.
(3) Control and
Controlling -- For the purposes of this section and as defined in Section 22971
of the Business and Professions Code, the Department defines the words
"control" and "controlling" to mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person. Evidence that a person controls or is controlling another person may
include, but is not limited to, the ownership of voting securities, by
contract, other than a commercial contract for goods or nonmanagement services,
or as otherwise provided below; however, no individual shall be deemed to
control a person solely on account of being a director, officer, or employee of
that person. It shall be a rebuttable presumption that a person has the power
to control another person if any of the following apply:
(A) A person holds 25 percent or more of any
class of the voting securities issued by a person; or
(B) A person is a general partner in a
partnership, a managing member of a limited liability company, or president or
director of a closely held corporation; or
(C) A person with an outstanding final
liability as described in paragraph (g)(1) transfers the business to a
non-natural person in a sale that was not at arm's length. A sale is presumed
to be not at arm's length if it is between and among relatives (by blood or
marriage, which relationships include, but are not limited to, spouses,
parents, children and siblings). A transfer is among relatives if the person
with the outstanding final liability is either a natural person who is a
relative of the person or persons controlling the non-natural person acquiring
the business, or is a non-natural person controlled by a relative or relatives
of the person or persons controlling the non-natural person acquiring the
business.
(4) A final
liability will not be deemed to be outstanding for the purposes of this part if
the person with the outstanding liability as described in paragraph (g)(1) has
entered into a payment plan pursuant to Revenue and Taxation Code section 6832
and remains in full compliance with it. If the person submitting an application
for a seller's permit has entered into a payment plan as provided in this
paragraph and fails to comply with the terms of the payment plan, the
Department may seek revocation of the seller's permit obtained by the person
pursuant to this section.
(5) The
Department shall consider offers in compromise when determining whether to
issue a seller's permit. If a seller's permit is conditioned on an offer in
compromise being entered into, then a final liability will not be deemed
outstanding for the purposes of this part, if the offer in compromise has been
accepted by the Department and the person has paid the amount in full or
remains in full compliance with the compromise plan. If the person submitting
an application for a seller's permit has entered into an offer in compromise as
provided in this paragraph and fails to comply with the terms of the offer in
compromise, the Department may seek revocation of the seller's permit obtained
by the person pursuant to this section.
(6) Whenever any person is denied a permit
pursuant to this section, the Department shall give the person written notice
of the denial. Any person denied a permit pursuant to this section may make a
request for reconsideration by the Department, if submitted in writing within
30 days of the denial. A timely submitted written request for reconsideration
shall afford the person a hearing in a manner that is consistent with a hearing
provided for by Revenue and Taxation Code section 6070. If a request for
reconsideration is not filed within the 30-day period, the denial becomes
final.
(h) Due Date of
Returns -- Closeout of Account on Yearly Reporting Basis. Where a person
authorized to file tax returns on a yearly basis transfers the business to
another person or discontinues it before the end of the yearly period, a
closing return shall be filed with the Department on or before the last day of
the month following the close of the calendar quarter in which the business was
transferred or discontinued.
(i)
Buying Companies--General
(1) Definition. For
the purpose of this regulation, a buying company is a legal entity that is
separate from another legal entity that owns, controls, or is otherwise related
to, the buying company and which has been created for the purpose of performing
administrative functions, including acquiring goods and services, for the other
entity. It is presumed that the buying company is formed for the operational
reasons of the entity which owns or controls it or to which it is otherwise
related. A buying company formed, however, for the sole purpose of purchasing
tangible personal property ex-tax for resale to the entity which owns or
controls it or to which it is otherwise related in order to re-direct local
sales tax from the location(s) of the vendor(s) to the location of the buying
company shall not be recognized as a separate legal entity from the related
company on whose behalf it acts for purposes of issuing it a seller's permit.
Such a buying company shall not be issued a seller's permit. Sales of tangible
personal property to third parties will be regarded as having been made by the
entity owning, controlling, or otherwise related to the buying company. A
buying company that is not formed for the sole purpose of so re-directing local
sales tax shall be recognized as a separate legal entity from the related
company on whose behalf it acts for purposes of issuing it a seller's permit.
Such a buying company shall be issued a seller's permit and shall be regarded
as the seller of tangible personal property it sells or leases.
(2) Elements. A buying company is not formed
for the sole purpose of re-directing local sales tax if it has one or more of
the following elements:
(A) Adds a markup to
its cost of goods sold in an amount sufficient to cover its operating and
overhead expenses.
(B) Issues an
invoice or otherwise accounts for the transaction. The absence of any of these
elements is not indicative of a sole purpose to redirect local sales
tax.
(j) Web
Sites. The location of a computer server on which a web site resides may not be
issued a seller's permit for sales tax purposes except when the retailer has a
proprietary interest in the server and the activities at that location
otherwise qualify for a seller's permit under this regulation.
(k) Use Tax Permit -- Qualified Purchasers.
Except for the purchase of a vehicle, vessel, or aircraft, a person who meets
all of the following conditions is required to register and report and pay use
tax directly to the Department:
(1) The person
is not required to hold a seller's permit.
(2) The person is not required to be
registered pursuant to Revenue and Taxation Code section 6226.
(3) The person is not a holder of a use tax
direct payment permit as described in Revenue and Taxation Code section
7051.3.
(4) Prior to January 1,
2024, and on and after January 1, 2029, the person receives at least one
hundred thousand dollars ($100,000) in gross receipts from business operations
per calendar year.
From January 1, 2024, through December 31, 2028, the person
makes more than ten thousand dollars ($10,000) in purchases subject to use tax
per calendar year and that tax has not otherwise been paid on those purchases
to a retailer engaged in business in this state or authorized by the Department
to collect the tax.
(5) The
person is not otherwise registered with the Department to report use tax.
The return must show the total sales price of the tangible
personal property purchased by the qualified purchaser, the storage, use, or
other consumption of which became subject to the use tax during the preceding
calendar year, for which the qualified purchaser did not pay tax to a retailer
required to collect the tax or a retailer the qualified purchaser reasonably
believed was required to collect the tax. Notwithstanding Revenue and Taxation
Code sections 6451, 6452, 6452.1, and 6455, the returns for the 2009 calendar
year and subsequent years shall be filed with the Department, together with a
remittance of the amount of the tax due, on or before April 15 of the
succeeding calendar year.
