State California Regulations TITLE 18. PUBLIC REVENUES DIVISION 2. STATE BOARD OF EQUALIZATION -BUSINESS TAXES database is current through 09/29/06, Register 2006, No. 39 s 1100. Foreword. Note: ss 1100 to 1177, inclusive, issued under the authority of Section 8251, Revenue and Taxation Code. s 1101. Motor Vehicle Fuel. (a) "Motor vehicle fuel" includes aviation gasoline, gasohol, finished gasoline, gasoline, gasoline blendstocks, and blended motor vehicle fuel. "Motor vehicle fuel" does not include diesel fuel, jet fuel, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, or racing fuel. "Motor vehicle fuel" does not include ethanol (ethyl alcohol), methanol (methyl alcohol), or blends of gasoline and alcohol (including any denaturant) containing 15 percent, or less, gasoline. (b) "Aviation gasoline" means all special grades of gasoline that are suitable for use in aviation reciprocating engines and covered by ASTM specification D 910 or military specification MIL-G-5572. (c) "Finished gasoline" means all products (including gasohol) that are commonly or commercially known or sold as gasoline and are suitable for use as a motor fuel, other than products that have an ASTM octane number of less than 75 as determined by the motor method. (d) "Gasohol" means all blends of gasoline and alcohol (including any denaturant) containing more than 15 percent gasoline. (e) "Gasoline" means finished gasoline and gasoline blendstocks. (f) "Gasoline Blendstocks" (1) "Gasoline blendstocks" includes: (A) Alkylate; (B) Butane; (C) Butene; (D) Catalytically cracked gasoline; (E) Coker gasoline; (F) Ethyl tertiary butyl ether (ETBE); (G) Hexane; (H) Hydrocrackate; (I) Isomerate; (J) Light naphtha; (K) Methyl tertiary butyl ether (MTBE); (L) Mixed xylene (not including any separated isomer of xylene); (M) Naphtha; (N) Natural gasoline; (O) Pentane; (P) Pentane mixture; (Q) Polymer gasoline; (R) Raffinate; (S) Reformate; (T) Straight-run gasoline; (U) Straight-run naphtha; (V) Tertiary amyl methyl ether (TAME); (W) Tertiary butyl alcohol (gasoline grade) (TBA); (X) Thermally cracked gasoline; (Y) Toluene; and (Z) Transmix containing gasoline. (2) "Gasoline blendstocks" does not include any product that cannot, without further processing, be used in the production of finished gasoline. For example, a mixed hydrocarbon stream that is produced in a natural gas processing plant is not a gasoline blendstock if the stream cannot be used to produce finished gasoline without further processing. (g) "Blended motor vehicle fuel" means any mixture of motor vehicle fuel with respect to which tax has been imposed and any other liquid on which tax has not been imposed. "Blended motor vehicle fuel" also means any conversion of a liquid into motor vehicle fuel. "Conversion of a liquid into motor vehicle fuel" occurs when any liquid that is not included in the definition of motor vehicle fuel and that is outside the bulk transfer/terminal system is sold as motor vehicle fuel, delivered as motor vehicle fuel, or represented to be motor vehicle fuel. "Blended motor vehicle fuel" does not include racing fuel. (h) "Racing fuel" means a fuel that meets all of the criteria for leaded racing fuel set forth in subdivision (1) or all of the criteria for unleaded racing fuel set forth in subdivision (2). (1) Leaded Racing Fuel (A) Generally is used in vehicles not eligible to be registered for highway use in any state; (B) Is not diesel fuel, kerosene, or gasoline blendstock; (C) Has an octane rating of 100 or higher; (D) Contains 1.0 gram of lead per gallon or more; (E) Does not meet the ASTM specification (D 4814) for gasoline. (2) Unleaded Racing Fuel (A) Is not diesel fuel, kerosene, or gasoline blendstock; (B) Has an octane rating of 100 or higher; (C) Does not meet the California Air Resources Board specification for gasoline. Note: Authority cited: Section 8251 Revenue and Taxation Code Reference: Sections 7304, 7306, 7307, 7313, 7316, 7317, 7318 and 7326, Revenue and Taxation Code Regulation 1103. s 1102. Liquefied Petroleum Gases. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Chapter 438, Stats, 1963, and Sections 7355 and 7356, Revenue and Taxation Code. s 1103. Blending or Compounding. s 1104. Consignment for Sale. Note: Additional authority cited: Section 7305, Revenue and Taxation Code. s 1105. Tax-Paid Fuel and Ex-Tax Fuel. (a) "Tax-paid fuel" is the gallonage of motor vehicle fuel acquired with the California motor vehicle fuel tax paid. An acquisition of motor vehicle fuel will be considered tax-paid only if it can be supported by one of the following: (1) A sales invoice or a contract which clearly states that the motor vehicle fuel tax is included in the invoice or contract and proof that the amount representing motor vehicle fuel tax has been paid, or (2) A motor vehicle fuel purchase receipt showing that the amount paid for the fuel included the motor vehicle fuel tax, or (3) Other documentation showing that the motor vehicle fuel tax has been paid to the state. (b) "Ex-tax fuel" is the gallonage of motor vehicle fuel acquired without the California motor vehicle fuel tax paid. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7345, 7401, 7653, 8101 and 8106.8, Revenue and Taxation Code. s 1106. Tax-Paid Fuel Distributed. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7305, 7354, 7356, 7356.5, 7401, 7651, 8106, 8126, 8128 and 8129, Revenue and Taxation code. s 1107. Drip Gasoline Producer. s 1108. Qualified Distributor. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7306, 7401, 7451, 7486, 7487, 7671 and 7872, Revenue and Taxation Code. s 1109. Status of Limited Distributor's License. s 1110. Issuance of a Limited Distributor's License. Note: Additional authority cited: Chapters 1180, 1859 and 1968, Stats. 1959. s 1111. Highway. A highway includes a way or place, of whatever nature, within the exterior boundaries of the State including a way or place within a federal area, publicly maintained an open to the use of the public for purposes of vehicular travel, notwithstanding private participation in the maintenance of the way or place. A way or place within a national or state forest which is entirely privately maintained, or a road over which forest products are transported in a national or state forest privately constructed or maintained pursuant to an existing agreement with the public authority having jurisdiction thereof will not be considered a highway notwithstanding the fact that it may be declared by the public authority to be a part of its road system. A way or place under the jurisdiction of the United States Department of Agriculture within a national forest including private property within or adjacent thereto, which way or place is open to public use, is a highway but the tax is refundable on the fuel used in the operation of a motor vehicle thereon by any person who for the use of such highway pays, or contributes to, the cost of construction or maintenance of the way or place pursuant to an agreement with, or permission of, the United States Department of Agriculture. (See Section 8101.1, Revenue and Taxation Code.) A way or place is not a highway within the meaning of Section 7319 of the Revenue and Taxation code, during such times as it is closed by the governmental authority to the use of the public regardless of the purpose for which it is closed. A highway is open to the use of the public if vehicular travel is permitted although subject to traffic controls. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Section 7319, Revenue and Taxation Code. s 1112. Off-Highway Use of Fuel. Note: Authority cited: Section 8251, Revenue and Taxation Code. s 1113. Confines and Limits of a Construction Project. s 1114. Book Transfers, In-Tank Transfers, Physical Exchanges and Settlements. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7305, 7651, 7652, 8301 and 8304, Revenue and Taxation Code. s 1115. Pipeline Overages and Shortages. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7352, 7354, 7356, 7356.5, 7651, 7652, 8126, 8128, 8129, 8301 and 8304, Revenue and Taxation Code. s 1116. Losses Prior to Distribution Note: Additional authority cited: Section 7352, Revenue and Taxation Code. s 1117. Allowable Losses of Commission Agents. Note: Additional authority cited: Section 7352, Revenue and Taxation Code. s 1118. Distribution of Commingled Fuel. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7304, 7354, 7401, 7651, 8301 and 8305, Revenue and Taxation code. s 1119. Tax-Paid Motor Vehicle Fuel Blended, Compounded or Redistilled. Note: Additional authority cited: Section 7354, Revenue and Taxation Code. s 1120. Returned Sales. (a) When motor vehicle fuel included in a supplier's taxable removals, entries or sales is returned to the supplier by the customer to whom it was sold and is delivered into a refinery or an approved terminal's storage tank, the supplier may either file a claim for refund with the State Controller or in lieu of the refund take a credit on its tax return. The credit memorandum covering the return of the motor vehicle fuel shall identify the gallonage returned as either volumetric gallons or temperature corrected gallons based upon how the tax was originally invoiced to the customer and shall separately state the motor vehicle fuel tax. (b) It shall be presumed that the supplier purchased the motor vehicle fuel that was returned as tax-paid motor vehicle fuel if the credit memorandum includes motor vehicle fuel tax. For purposes of a refund or credit, it also shall be presumed that the subsequent removal of the motor vehicle fuel from a terminal rack by the supplier that received the returned motor vehicle fuel is made in the month that the motor vehicle fuel was returned. (c) Conditions to Allow a Credit on a Tax Returns. The credit will be allowed only if: (1) The returned motor vehicle fuel was delivered into a refinery or an approved terminal storage tank. (2) The credit is taken on a tax return filed within three months after the close of the calendar month in which the motor vehicle fuel is returned. (3) The supplier prepares a first taxpayer's report (as identified in Regulation 1161) when the motor vehicle fuel is returned. (4) A copy of the first taxpayer's report and the credit memorandum must be retained for inspection by the Board with the tax return on which the credit is claimed. (d) If the supplier fails to take credit on a tax return filed within three months after the close of the calendar month in which the motor vehicle fuel was returned, the supplier may only file a claim for refund with the State Controller to recover the tax. The claim for refund must be filed with the State Controller within three years from the date of return of the fuel. Each claim for a refund must contain the following information with respect to the motor vehicle fuel covered by the claim: (1) The information required in Revenue and Taxation Code Section 8102. (2) Volume and type of motor vehicle fuel. (3) Date on which the claimant received the returned motor vehicle fuel. (4) A copy of the first taxpayer's report that relates to the motor vehicle fuel covered by the claim. (5) A copy of the credit memorandum that returned the motor vehicle fuel. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7315, 8101, 8102, 8105 and 8106.8, Revenue and Taxation Code. s 1121. Temperature-Corrected Distributions. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7354, 7355, 7356 and 7356.5, Revenue and Taxation Code. s 1122. Conversion Factor. For reporting purposes, all measurements must be in terms of gallons. To convert liters to gallons, the quantity of liters shall be multiplied by .26417 to determine the equivalent quantity in gallons. The resulting figure shall be rounded to the nearest tenth of a gallon. Note: Authority cited: Section 8251, Revenue and Taxation Code. References: Sections 7315, 7360, 7392, 7651, 7652.5 and 7652.7, Revenue and Taxation Code. s 1123. Supplier. (a) Returns. All suppliers must prepare and file returns with the Board to report tax on motor vehicle fuel. Returns are due at the end of the month following the calendar month in which the motor vehicle fuel was removed, entered, or sold, unless the Board requires that a return be filed for a different period. A terminal operator who also is a position holder in motor vehicle fuel within the terminal or is jointly and severally liable for the tax is required to file both the terminal operator report and the supplier return. (b) Imposition of Tax. Tax applies to each supplier as follows: (1) Blender. A blender is required to pay the tax on the removal or sale of motor vehicle fuel blended outside the bulk transfer/terminal system. The number of gallons of blended motor vehicle fuel subject to the tax is the difference between the total number of gallons of blended motor vehicle fuel removed or sold and the number of gallons of tax-paid motor vehicle fuel used to produce the blended motor vehicle fuel. (2) Enterer. (A) An enterer is required to pay the tax when the enterer imports motor vehicle fuel into the state by means outside of the bulk transfer/terminal system (B) An enterer is required to pay the tax when the enterer removes or sells motor vehicle fuel within a pipeline or terminal to an unlicensed person. (C) An enterer is required to pay the tax when the entry is by bulk transfer and the enterer is not a licensed supplier. (D) For purposes of proper imposition of tax, entry occurs when fuel is brought into the state, provided, however, that when entry is by bulk transfer, entry occurs as follows: 1. When fuel is received at a marine terminal, entry occurs at the landside of the flange. 2. When fuel is removed from a vessel in this state to a lighter for the purpose of lightering, entry occurs at the vessel side of the flange upon the removal of fuel from a vessel in this state to the lighter; provided, however, that if the lighter unloads or discharges the fuel at a marine terminal, then entry occurs at the land side of the flange as to the fuel received at the marine terminal. As used herein, "lightering" is the use of small, shallow-draft boats in transshipment to shore of oil or other fuel from a large, deep-draft vessel unable to dock at shore facilities because of shallow water. The small boats are called lighters. 3. When fuel is removed from a vessel in this state to another vessel in this state, and the fuel is not unloaded or discharged at a marine terminal, then entry occurs when the fuel is brought into the state. (3) Position Holder. (A) A position holder that holds an inventory position in the motor vehicle fuel as reflected on the records of the terminal operator is required to pay the tax when the motor vehicle fuel is removed from the terminal rack. (B) A position holder is required to pay the tax when the position holder removes or sells motor vehicle fuel within or without the bulk transfer/terminal system to an unlicensed person. (C) For reporting periods commencing on or after January 1, 2007, a position holder that delivers motor vehicle fuel to a receiving supplier under a two-party exchange contract shall remain liable for the tax due on the removal of motor vehicle fuel from the terminal rack unless all Regulation 1125 requirements are met. (4) Refiner. (A) A refiner is required to pay the tax when the motor vehicle fuel is removed at a terminal rack located at a refinery. (B) A refiner is also required to pay the tax when the removal of motor vehicle fuel is by bulk transfer (e.g., transfer by pipeline or vessel) and the refiner or the owner of the motor vehicle fuel immediately before the removal is not a licensed supplier. (C) A refiner is required to pay the tax when the refiner removes or sells motor vehicle fuel within or without the bulk transfer/terminal system to an unlicensed person. (D) For reporting periods commencing on or after January 1, 2007, a refiner that delivers motor vehicle fuel to a receiving supplier under a two-party exchange contract shall remain liable for the tax due on the removal of motor vehicle fuel from the terminal rack located at a refinery unless all Regulation 1125 requirements are met. (5) Terminal Operator. A terminal operator is jointly and severally liable for and may be required to pay the tax when the motor vehicle fuel is removed at the rack if both subsections (A) and (B) below apply: (A) The position holder with respect to the motor vehicle fuel is a person other than the terminal operator and is not a licensed supplier. (B) The terminal operator is not a licensed supplier and either (i) does not have an unexpired notification certificate from the position holder as required by the Internal Revenue Service or (ii) has an unexpired notification certificate from the position holder, but has reason to believe or knows that any information in the certificate is false. (6) Throughputter. A throughputter is required to pay the tax when the throughputter removes or sells motor vehicle fuel within or without the bulk transfer/terminal system to a person who is not a licensed supplier. Note: Authority cited: Sections 7372 and 8251, Revenue and Taxation Code. Reference: Sections 7307, 7308, 7309, 7310, 7311, 7312, 7324, 7326, 7329, 7332, 7333, 7334, 7335, 7336, 7338, 7339, 7340, 7341, 7360, 7362, 7363, 7365, 7366, 7368, 7369, 7370, 7371, 7372, 7451, 7651 and 7652.5, Revenue and Taxation Code. s 1124. Relief from Liability. A person may be relieved from the liability for the payment of the motor vehicle fuel tax and aircraft jet fuel tax, including any penalties and interest added to those taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Section 7657.1, Revenue and Taxation Code. s 1125. Two-Party Exchange. (a) General. In a typical two-party exchange, two suppliers who own motor vehicle fuel in terminals, i.e., who are position holders (pursuant to Section 7332 of the Revenue and Taxation Code), agree to give each other access to the motor vehicle fuel each owns. Both suppliers have customers in the same terminal areas. One supplier (the delivering supplier) owns fuel in one terminal, and the other supplier (the receiving supplier) owns fuel, usually in a different terminal. Each supplier agrees to exchange fuel it owns for fuel the other supplier owns. A two-party exchange contract allows each supplier to have rack removal capability at a terminal where the other supplier is a position holder, in order to supply fuel to its customers in that terminal area. The receiving supplier takes the place of the delivering supplier when the motor vehicle fuel is removed from the terminal at the rack. A two-party exchange may involve fuel held in terminals located in one or more states and may involve one or more types of fuel. For purposes of this regulation, however, at least one of the terminals involved in a two-party exchange must be located in this state, and the requirements for reporting transactions to the Board pursuant to this regulation pertain only to transactions involving terminals located in this state. (b) Definitions. (1) Notwithstanding Section 7337 of the Revenue and Taxation Code, "two-party exchange" means a transaction, other than a sale, that occurs at the time of removal of motor vehicle fuel across the rack and that meets all the following conditions: (A) The terminal operator, delivering supplier, and the receiving supplier are each registered with the Board to file electronically and have filed electronically with respect to the subject two-party exchange; and (B) The terminal operator treats the receiving supplier in its books and records as the person that removes the motor vehicle fuel across a terminal rack for purposes of reporting the two-party exchange to the Board; and (C) The two-party exchange is the subject of a written contract between the delivering supplier and the receiving supplier, acceptable evidence of which includes, but is not limited to, exchange statements, exchange differential invoices, exchange reconciliations, or any other similar writing between the parties; and (D) All of the reporting requirements set forth in subdivisions (d) and (e) of this section are met. (2) "Delivering supplier" means a supplier, licensed pursuant to Section 7451 of the Revenue and Taxation Code, who is the position holder of the motor vehicle fuel in the terminal on whom the motor vehicle fuel tax is imposed on removal of motor vehicle fuel from the rack for all purposes other than for a two-party exchange. (3) "Receiving supplier" means a supplier, licensed pursuant to Section 7451 of the Revenue and Taxation Code, on whom the motor vehicle fuel tax is imposed only on removal of motor vehicle fuel from the rack as the receiving supplier under a two-party exchange. (4) "Terminal," as defined in Section 7339 of the Revenue and Taxation Code, includes, for purposes of this regulation, a terminal located at a refinery. (c) Liability for Tax. (1) The delivering supplier is primarily liable for taxes imposed under Section 7362 or Section 7363(a) of the Revenue and Taxation Code, except, when a transaction satisfies the conditions and requirements for a two-party exchange, the delivering supplier shall be relieved of motor vehicle fuel tax liability and the receiving supplier shall become primarily liable for payment of motor vehicle fuel taxes on the motor vehicle fuel removed pursuant to the two-party exchange. (2) The receiving supplier must report the two-party exchange and remit any tax due on a tax return filed within three months after the close of the calendar month in which the motor vehicle fuel was received. The receiving supplier may claim a refund for any amounts applied by the Board to the account of the receiving supplier under a two-party exchange contract. When all parties report a transaction as a two-party exchange, the receiving supplier may not file a claim for refund of the tax on the grounds that the transaction was not a two-party exchange. (3) If the receiving supplier fails to report or remit taxes in conformity with this regulation, then the delivering supplier shall remain primarily liable for taxes due on the removal of the motor vehicle fuel from the rack. (d) Reporting Requirements - Generally. (1) The terminal operator must report to the Board the two-party exchange of motor vehicle fuel between the delivering supplier and the receiving supplier. (2) The terminal operator, the delivering supplier, and the receiving supplier must each use the same identifying information (e.g., bill of lading number) to refer to or otherwise report the subject two-party exchange. (3) The terminal operator, the delivering supplier, and the receiving supplier must each enter the same fuel type on any report that includes a two-party exchange. (e) Reporting Requirements - Delivering and Receiving Suppliers. The following reporting requirements must be met in order for an exchange of motor vehicle fuel to qualify as a two-party exchange and to shift imposition of the motor vehicle fuel tax liability from the delivering supplier to the receiving supplier. (1) The delivering supplier must report the two-party exchange and identify the receiving supplier to the terminal operator; and (2) The delivering supplier must report to the Board a tax-free delivery of motor vehicle fuel to the receiving supplier; and (3) The receiving supplier must report to the Board a tax-free receipt of motor vehicle fuel from the delivering supplier; and (4) The receiving supplier must report to the Board the rack removal of motor vehicle fuel to its customers and the amount of tax due. (f) Operative Date. The provisions of this regulation are operative January 1, 2007. Note: Authority cited: Sections 7372 and 8251, Revenue and Taxation Code. Reference: Sections 7362, 7363, 7368, 7369, 7372, 7451, 7651, 7652.5, 8301 and 8302, Revenue and Taxation Code. s 1131. Natural Gasoline Sales to Licensed Distributors. Note: Additional authority cited: Chapters 1180, 1859 and 1968, Stats. 1959. s 1132. Shipments out of the State. (a) Definitions. (1) Export. An export of motor vehicle fuel is the delivery or shipment of fuel by the supplier from a point in this state to a point outside of this state. The fuel is not exported if it is diverted in transit or for any reason is not actually delivered out of this state, regardless of documentary evidence held by the supplier respecting delivery of the fuel to a carrier for out-of-state shipment or to a vessel clearing for an out-of-state port. (2) Carrier. A carrier means a person or firm who is regularly engaged in the business of transporting for compensation property owned by other persons and includes both common and contract carriers. The carrier may be hired by either the purchaser or the supplier. (b) Requirements. A supplier may not claim an export exemption from motor vehicle fuel tax under Revenue and Taxation Code Section 7401(a)(3) unless the motor vehicle fuel is in fact exported and the export is accomplished in the manner specified in either (1) or (2) below: (1) The supplier claiming the exemption from tax shows that it delivered the motor vehicle fuel to any vessel clearing from a port of this state for a port outside of this state and the fuel was actually exported from this state in the vessel; or (2) The supplier claiming the exemption from tax shows that it exported the motor vehicle fuel from this state pursuant to a written contract requiring delivery by the supplier of the fuel to: (A) the out-of-state point by facilities operated by the supplier, (B) a carrier for shipment to a consignee at the out-of-state point, or (C) a customs broker or forwarding agent for shipment to a location outside of this state. (c) Exports of Ex-tax Fuel. The tax does not apply to the export of ex-tax motor vehicle fuel actually exported. A supplier must claim the exemption for the export of ex-tax fuel on the return filed for the period in which the export was made. If a supplier fails to claim the exemption on the return and tax is erroneously paid on ex-tax export of fuel, a timely claim for refund must be filed with the Board pursuant to Section 8128 of the Motor Vehicle Fuel Tax Law in order to obtain a refund of the amount of taxes so overpaid. (d) Exports of Tax-paid Fuel. In lieu of claiming a refund of tax for exports of tax-paid fuel with the State Controller as provided by section 8101(b) of the Revenue and Taxation Code, a supplier may take a credit on its return for tax-paid fuel when the fuel is exported to a point outside the state. The credit must be claimed on a return filed within three months after the close of the calendar month in which the tax-paid fuel is exported. If the credit exceeds the taxable gallons of motor vehicle fuel for the period in which the credit may be taken, refund of the tax on the excess gallonage can only be obtained by filing a claim for refund with the State Controller. Failure to take credit on a return filed within three months after the close of the calendar month in which the tax-paid fuel is exported does not give rise to a right to file a claim for refund with the Board pursuant to section 8126 of the Revenue and Taxation Code. Instead, claims for refund for tax-paid fuel exported must be filed with the State Controller within three years from the date of purchase of the fuel. (e) Documentation required for support. All shipments of motor vehicle fuel to points outside of the state for which tax exemption is claimed on a tax return shall be reported on a schedule accompanying the return for the period for which the exemption or credit is claimed. The supplier must retain documentation to support the delivery of the fuel by the supplier at an out-of-state location for all exemptions or credits. Documentation may include, but is not limited to, contracts, bills of lading, delivery tickets, or meter readings. The supplier has the burden of providing the proper substantiation and documentation to support the exemption or credit. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7338, 7401, 7651, 8101, 8102, 8105, 8106.5, 8126, 8128, 8129, 8301 and 8303, Revenue and Taxation Code. s 1133. Exempt Distributions to Qualified Distributor. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7305 and 7401, Revenue and Taxation Code. s 1134. Sales to the United States. Sales of motor vehicle fuel to the United States, its agencies and instrumentalities are taxable, except when the motor vehicle fuel is sold to the United States armed forces for use in ships or aircraft, or for use outside this State. "Armed forces" include the Army, Navy, Air Force, Marines, and Coast Guard. To establish that a sale to the armed forces is exempt the seller must obtain a certificate from the agency of the armed forces purchasing the fuel that it is acquired for use (a) in ships, (b) in aircraft or (c) outside the state. This certificate may be incorporated in the purchase order or contract relating to the acquisition of the fuel by the governmental agency. All such certificates should be retained by the seller for audit purposes. (b) Sales of Ex-Tax Motor Vehicle Fuel. A supplier licensed under the Motor Vehicle Fuel Tax Law that makes sales of ex-tax motor vehicle fuel to the United States armed forces for use in ships or aircraft, or for use outside this State, may claim an exemption on its motor vehicle fuel tax return. (c) Sales of Tax-Paid Motor Vehicle Fuel. Any person who makes sales of tax-paid motor vehicle fuel to the United States armed forces for use in ships or aircraft, or for use outside this State, may file a claim for refund of the tax with the State Controller. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7401 and 8101, Revenue and Taxation Code. s 1135. Distributions to Representatives of Foreign Governments. s 1136. Distributions to the State and Its Political Subdivisions. s 1137. Exempt Sales of Jet Fuel. (a) In General. Sales of aircraft jet fuel for propulsion of aircraft are subject to tax except sales to the following: (1) A common carrier by air engaged in the business of transporting persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the authority of the laws of this state, of the United States or of any foreign government. (2) A person engaged in the business of constructing or reconstructing by manufacture or assembly of completed aircraft or modifying, overhauling, repairing, maintaining or servicing of aircraft. (3) The armed forces of the United States. (b) Evidence to Support Exemption. (1) Exempt sales to common carriers and aircraft manufacturers must be supported by an exemption certificate as prescribed below. __________ Name of Aircraft Jet Fuel Purchaser __________ Address of Aircraft Jet Fuel Purchaser This is to certify that all aircraft jet fuel purchased from __________ is exempt from aircraft jet fuel tax as a sale to: Check one (a) A common carrier by air engaged in the business of transporting persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the authority of the laws of this state, of the United States or of any foreign Government. Certificate of public convenience and necessity number ________. (b) A person engaged in the business of constructing or reconstructing by manufacture or assembly of completed aircraft or modifying, over-hauling, repairing, maintaining or servicing of aircraft. This certificate is valid until revoked in writing. Purchaser __________ By __________ Date __________ (2) Exempt sales to the armed forces must be supported by a government purchase order or other evidence of sale to the armed forces of the United States. (3) It is necessary to obtain only one certificate to cover all sales. The certificate is valid until revoked in writing. (c) Liability of Person Giving Certificate. Any person who certifies in writing to a jet fuel dealer that the sale or use of the aircraft jet fuel purchased by him is not subject to the jet fuel tax and who uses such fuel as an aircraft jet fuel user is liable for the tax with respect to such fuel at the time of such use. Such person shall report and pay the tax to the board as though he were an aircraft jet fuel dealer who made a taxable sale of the fuel at the time of the use. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7385-7398, Revenue and Taxation Code. s 1146. Deposits in Lieu of Security Bonds. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Section 7489, Revenue and Taxation Code. s 1151. Monthly Return of Distributor. Note: Reference cited: Sections 7651 and 7702, Revenue and Taxation Code. s 1152. Weekly Return of Distributor. Note: Reference cited: Section 7701, Revenue and Taxation Code. s 1153. Processor's Return of Distribution. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Section 7651, Revenue and Taxation Code. s 1154. Owner's Return of Processing Transactions. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7305, 7354 and 7401, Revenue and Taxation Code. s 1155. Recipient's Return of Processing Transactions. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7305, 7354 and 7401, Revenue and Taxation Code. s 1156. Monthly Report of Producer. s 1157. Monthly Report of Broker. s 1160. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 7659.9, Revenue and Taxation Code. Reference: Sections 7659.9 and 7659.92, Revenue and Taxation Code. s 1161. Tax Paid Twice on Motor Vehicle Fuel. (a) A supplier who removes motor vehicle fuel from a terminal rack on which a prior tax was paid to the state may either file a claim for refund with the State Controller or in lieu of a refund take a credit on its tax return. (b) Conditions to Allow a Credit on a Tax Return. The credit will be allowed only if: (1) A tax imposed on the motor vehicle fuel by Revenue and Taxation Code Sections 7362 and 7363 was paid to the state by reporting the gallons on a tax return and was not credited or refunded (the "first tax" or "first taxpayer"); (2) After imposition of the first tax, another tax was imposed on the motor vehicle fuel by Revenue and Taxation Code Sections 7362 and 7363 and was paid to the state by reporting the gallons on a tax return (the "second tax" or "second taxpayer"); (3) The person that paid the second tax to the state claims a credit on a tax return filed within three months after the close of the calendar month in which the second tax was reported to the state; (4) The person that paid the first tax to the State has met the reporting requirements of paragraph (c) of this section; and (5) A copy of the first taxpayer's report and any copies of statements of subsequent seller must be retained for inspection by the Board with the tax return on which the credit is claimed. (c) Reporting Requirements. (1) Reporting by persons paying the first tax. Except as provided in paragraph (c)(2) of this section, the person that paid the first tax under Revenue and Taxation Code Section 7362 and 7363 (the first taxpayer) must file a report that is in substantially the same form as the model report provided in Exhibit A and contains all information necessary to complete such model report (the first taxpayer's report). A first taxpayer's report must be retained for inspection by the Board with the tax return on which the first tax was paid or reported. (2) Optional reporting for certain taxable events. Paragraph (c)(1) does not apply with respect to a tax imposed under Revenue and Taxation Code Section 7362 (removal at a terminal rack), Revenue and Taxation Code Section 7363(b)(2) (nonbulk entries into the state), or Revenue and Taxation Code Section 7363(d) (removals or sales by blenders). However, if the person liable for the tax expects that another tax will be imposed under Sections 7362 and 7363 with respect to the fuel, that person should file a first taxpayer's report. (3) Information provided to subsequent owners, etc. (A) By Person Required to File First Taxpayer's Report. A first taxpayer required to file a first taxpayer's report under paragraph (c)(1) of this section must give a copy of the report to: 1. The person to whom the first taxpayer sells the motor vehicle fuel within the bulk transfer/terminal system; or 2. The owner of the motor vehicle fuel immediately before the imposition of the first tax, if the first taxpayer is not the owner at that time. (B) By Person Filing Optional First Taxpayer's Report. A first taxpayer filing a first taxpayer's report under paragraph (c)(2) of this section should give a copy of the report to: 1. The person to whom the first taxpayer sells the motor vehicle fuel; or 2. The owner of the motor vehicle fuel immediately before the imposition of the first tax, if the first taxpayer is not the owner at that time. (C) By Person Receiving First Taxpayer's Report. 1. Bulk Transfer/Terminal System Transaction A person that receives a copy of the first taxpayer's report and subsequently sells the motor vehicle fuel within the bulk transfer/terminal system must give the copy and a statement that satisfies the requirements of paragraph (c)(3)(D) of this section to the buyer. 2. Rack and Below Rack Transaction A person that receives a copy of the first taxpayer's report and subsequently sells the motor vehicle fuel outside the bulk transfer/terminal system should give the copy and a statement that satisfies the requirements of paragraph (c)(3)(D) of this section to the buyer, if that person expects that another tax will be imposed under Revenue and Taxation Code Sections 7362 and 7363 with respect to the motor vehicle fuel. (D) Form of Statement. A statement satisfies the requirements of this paragraph (c)(3)(D) if it is provided at the bottom or on the back of the copy of the first taxpayer' s report (or in an attached document). This statement must contain all information necessary to complete the model statement provided in Exhibit B but need not be in the same format. (E) Sale to Multiple Buyers. If the first taxpayer's report relates to motor vehicle fuel divided among more than one buyer, multiple copies of the first taxpayer's report must be made at the stage that the motor vehicle fuel is divided and each buyer must be given a copy of the report. (d) Claim For Refund. If the supplier fails to take a credit on a tax return filed within three months after the close of the calendar month in which the second tax was imposed, the supplier may only file a claim for refund with the State Controller to recover the tax. The claim for refund must be filed with the State Controller within three years from the date of purchase of the motor vehicle fuel. Each claim for a refund must contain the following information with respect to the fuel covered by the claim: (1) The information required in Revenue and Taxation Code Section 8102. (2) Volume and type of motor vehicle fuel. (3) Date on which the claimant incurred the tax liability to which this claim relates (the second tax). (4) Amount of second tax that claimant paid or reported to the state and the tax return on which it was paid or reported. (5) A statement that claimant has not separately stated on the sales invoice reimbursement for both the first tax and the second tax or has not included in the sales price of the motor vehicle fuel reimbursement for both the first tax and the second tax. The second taxpayer can only receive reimbursement for one tax from the customer. (6) A copy of the first taxpayer's report that relates to the motor vehicle fuel covered by the claim. (7) If the motor vehicle fuel covered by the claim was bought other than from the first taxpayer, a copy of the statement of subsequent seller that the claimant received with respect to that motor vehicle fuel. EXHIBIT A First Taxpayer's Report 1. First Taxpayer's Board of Equalization supplier account number __________ __________ 2. __________ __________ First Taxpayer's name, address, and employer identification number 3. __________ __________ Name, address, and employer identification number of the buyer of the motor vehicle fuel subject to tax 4. __________ __________ Date and location of removal, entry, or sale and document number 5. Volume and type of motor vehicle fuel removed, entered, or sold __________ __________ 6. Check type of taxable event: ___ Removal from refinery ___ Entry into United States or state ___ Bulk transfer from terminal by unregistered position holder ___ Bulk transfer not received at an approved terminal ___ Sale within the bulk transfer/terminal system ___ Removal at the terminal rack ___ Removal or sale by the blender 7. __________ __________ Amount of Federal excise tax paid and State motor vehicle fuel tax paid on account of the removal, entry, or sale 8. Location of IRS service center where this report is filed __________ __________and State reporting period of payment __________ __________ The undersigned taxpayer (the "Taxpayer") has not received, and will not claim, a credit with respect to, or a refund of, the tax on the motor vehicle fuel to which this form relates. Under penalties of perjury, the Taxpayer declares that Taxpayer has examined this statement, including any accompanying schedules and statements, and, to the best of Taxpayer's knowledge and belief, they are true, correct and complete. __________ Signature and date signed __________ Printed or typed name of person signing this report __________ Title EXHIBIT B Statement of Subsequent Seller 1. __________ __________ Board of Equalization supplier account number or prepaid sales tax account number 2. __________ __________ Name, address, and employer identification number of seller in subsequent sale 3. __________ __________ Name, address, and employer identification number of buyer in subsequent sale 4. __________ __________ Date and location of subsequent sale and document number 5. __________ __________ Volume and type of motor vehicle fuel sold The undersigned seller (the "Seller") has received the copy of the first taxpayer's report provided with this statement in connection with Seller's purchase of the motor vehicle fuel described in this statement. Under penalties of perjury, Seller declares that Seller has examined this statement, including any accompanying schedules and statements, and, to the best of Seller's knowledge and belief, they are true, correct and complete. __________ Signature and date signed __________ Printed or typed name of person signing this statement __________ Title Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7362, 7363, 8101, 8102, 8105, 8106.8 and 8127.5, Revenue and Taxation Code. s 1171. Distributor's Inventory and Stock Record. s 1172. Producer's Stock Record. s 1173. Producer's Purchase Record. s 1174. Producer's Sales Record. s 1175. Broker's Purchase Record. s 1176. Broker's Sales Record. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Section 8304, Revenue and Taxation Code. s 1177. Records of Aircraft Jet Fuel Dealer. (a) General. An aircraft jet fuel dealer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), aircraft jet fuel dealers shall comply with the following requirements. Aircraft jet fuel dealers shall maintain the following: (1) A complete record of all sales or other dispositions of jet fuel including fuel used by the aircraft jet fuel dealer. (2) A record of inventories, purchases, and tank gaugings or meter readings of jet fuel. (3) Sales Invoices. (A) The aircraft jet fuel dealer shall prepare a serially numbered paper or electronic invoice for each sale of jet fuel. A single invoice covering multiple deliveries of fuel to the same purchaser made during a period of time not to exceed a calendar month shall constitute an invoice for each sale. (B) If a multiple delivery invoice includes both taxable and nontaxable sales, the invoice must show a segregation of the taxable and nontaxable gallonage sold. (C) A copy of the invoice shall be delivered to the purchaser, and a copy retained by the aircraft jet fuel dealer. (D) A sales invoice shall contain the following information: 1. The name and address of the aircraft jet fuel dealer, 2. The name of the purchaser, 3. The date of the sale, 4. The number of gallons sold, the price per gallon and the total amount of the sale, and 5. The amount of jet fuel tax, in the case of a taxable delivery. The tax need not be separately stated if the invoice bears the notation that the price includes tax. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7385-7398 and 8301, Revenue and Taxation Code. s 1178. Records. (a) General. A taxpayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901 (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), suppliers shall comply with the following requirements. A supplier shall maintain complete records of all rack removals, sales, imports and exempt dispositions including exemption certificates, self-consumed fuel, inventories, purchases, receipts, and tank gaugings or meter readings, of motor vehicle and any other fuel that is required to be accounted for on the supplier's return or report. Such records include but are not limited to: (1) Refinery Reports related to the production of motor vehicle fuel. (2) Inventory reconciliation by location. (3) Storage inventory reports. (4) List of storage locations. (5) Tax returns from other states to support export claims. (6) Cardlock statements. (7) Calculations or formulas to support off-highway exempt usage. (8) First Taxpayer Reports. Note: Authority cited: Section 8251, Revenue and Taxation Code. Reference: Sections 7403.2, 7651, 7652.5, 7652.7, 8253, 8301, 8302 and 8303, Revenue and Taxation Code. s 1201. Definitions. (a) "Gallon" means the United States gallon of 231 cubic inches, without adjustment of the volumetric gallonage for temperature correction of the petroleum delivered into the underground storage tank, except that temperature corrected gallonage to 60 degrees Fahrenheit will be accepted as the gallonage delivered when all of the following conditions are met: (1) The quantity of petroleum delivered in a single delivery to a single location is 1,000 or more gallons; and (2) The delivery of the petroleum is invoiced to the purchaser, and settlement is made by the purchaser, based on the temperature corrected gallonage of the petroleum delivered; or, if the delivery is to a tank location operated by the manufacturer of the petroleum, the gallonage accounted for in the inventory records of the manufacturer for the delivery location is maintained on a temperature corrected basis; and (3) Temperature correction is consistently applied to all deliveries to the location over a period of 12 or more consecutive months. (b) "Operator" means any person who is in control of, or has responsibility for, the daily operation of an underground storage tank. The operator is not liable for the fee unless the operator is also the owner of the underground storage tank. (c) "Petroleum" means crude oil, or any fraction thereof, which is liquid at standard conditions of temperature and pressure, which means at 60 degrees Fahrenheit and 14.7 pounds per square inch absolute. Petroleum includes products that are blends of hydrocarbons derived from crude oil through processes such as separation, conversion, upgrading, or finishing. (d) "Underground Storage Tank" means a tank or combination of tanks, including any attached piping, that is used for the accumulation of petroleum, and the volume of which is 10 percent or more beneath the surface of the ground. The term "underground storage tank" does not include any of the following: (1) A tank of 1,100 gallons or less capacity which is located on a farm or on property used primarily for dwelling purposes and which is used for storing motor vehicle fuel for purposes other than for resale. (2) A tank used for storing heating oil for consumptive use on the premises where stored. (3) A tank which meets all of the following conditions: (A) All exterior surfaces of the tank, including connected piping, and the floor directly beneath the tank, can be monitored by direct viewing. (B) The structure in which the tank is located is constructed in such a manner that the structure provides for secondary containment of the contents of the tank, as determined by the local agency designated pursuant to Section 25283 of the Health and Safety Code. (C) The owner or operator of the underground storage tank conducts daily inspections of the tank and maintains a log of inspection results for review by the local agency designated pursuant to Section 25283 of the Health and Safety Code, as requested by the local agency. (D) The local agency designated pursuant to Section 25283 of the Health and Safety Code determines without objection from the State Water Resources Control Board that the underground storage tank meets requirements which are equal to or more stringent than those imposed by Division 20, Chapter 6.7 of the Health and Safety Code, commencing with Section 25280. Note: Authority cited: Section 50152, Revenue and Taxation Code; and Section 25299.42, Health and Safety Code. Reference: Sections 50107, 50108.1, 50109 and 7355, Revenue and Taxation Code; Sections 25281, 25283.5, 25299.20, 25299.22, 25299.24, 25299.41 and 25299.43, Health and Safety Code; Title 18, Section 1121, California Code of Regulations; and Section 280.12, 40 Code of Federal Regulations. s 1205. Fee Payer; Rebuttable Presumption. The fee is due from the owner of an underground storage tank for which a permit is required pursuant to Section 25284 of the Health and Safety Code. There is a rebuttable presumption that the owner of the real property is the owner of the underground storage tank located on the property, even if the property is leased to another person. This presumption may be overcome by showing that ownership of the tank rests with someone other than the real property owner. Evidence to rebut the presumption may include, but is not limited to, the following: (a) The lessee installed the underground storage tank at the location, and the lease agreement gives the lessee the right to remove the tank at the termination of the lease, regardless of whether the lessor's approval of the removal is required. (b) The lessee installed the underground storage tank at the location, and the lease agreement states that any improvements installed by the lessee are the property of the lessee during the term of the lease. (c) Documentation, such as a bill of sale, shows the transfer of ownership of the tank to a person other than the real property owner. (d) The underground storage tank is depreciated on the state or federal income tax returns of a person other than the real property owner. (e) The underground storage tank existed at the premises at the time the lease agreement was signed, and the lease agreement specifies that the underground storage tank is owned by and title thereto is vested in the lessee during the term of the lease. Note: Authority cited: Section 50152, Revenue and Taxation Code; and Section 25299.42, Health and Safety Code. Reference: Section 50107, Revenue and Taxation Code; and Sections 25299.21, 25299.41 and 25299.43, Health and Safety Code. s 1212. Liability for Fee. (a) The fee is imposed upon the owner of an underground storage tank for each gallon of petroleum placed into the tank. The owner of the tank is liable for payment of the fee regardless of whether the owner is the operator of the underground storage tank and is liable for the fee even if the owner and operator have entered into an agreement that requires the operator to pay the fee to the board. (b) The fee is due regardless of whether the fee has previously been paid for gallons of petroleum that were removed from an underground storage tank and placed into another underground storage tank or redeposited into the same tank in which they were previously stored. (c) An owner is liable for the fee on all gallons placed in the underground storage tank(s) he or she owns. Where the owner requires a certain brand of fuel to be placed in a tank and the operator also places a different brand of fuel in the tank, the owner is liable for the fee on the gallons of both brands of fuel, even if placing fuel of a different brand in the tank violates the lease between the operator and owner. (d) An owner is liable for the fee even though the owner claims he or she did not know the fee was due or was unable to obtain information from an operator as to the gallons placed into the underground storage tank(s). As provided by subdivision (c) of Section 50159 of the Revenue and Taxation Code, the board may provide to the fee payer otherwise confidential information obtained from the operator of an underground storage tank to the extent that this information is necessary for assessment, administration, and verification of the fee. Note: Authority cited: Section 50142, Revenue and Taxation Code; and Section 25299.42, Health and Safety Code. Reference: Sections 50107, 50109 and 50159, Revenue and Taxation Code; and Sections 25299.41 and 25299.43, Health and Safety Code. s 1213. Payment of Fee by Operator. (a) If the board discovers that the fee has been paid by the operator, but the notarized documents described in subdivisions (b)(1) and (b)(2) below have not been filed with the board, the owner and operator will be given an opportunity to request in writing that fee payments made by the operator be transferred to the owner's account. Until such request is made, the owner remains liable for payment of the fee, penalties, and interest without credit for fees paid by the operator, and the operator may request a refund of the amounts paid pursuant to Section 50140 of the Revenue and Taxation Code. (b) For the convenience of the owner and operator, and to facilitate payment of the fee by the operator on behalf of the owner, the board shall mail fee returns and any notices for the owner's account to the operator if both of the following conditions are met: (1) The owner executes a notarized document in the form shown below, requesting that the fee returns and all notices for the owner's account be mailed to the operator. The owner must acknowledge in the form that he or she is responsible for the fee if, for example, the operator fails to make payment, pays the fee late, or underreports the gallons on which the fee is based. The documents will remain in effect until the owner advises the board and operator in writing of any change. (2) The operator executes a notarized document in the form shown below, acknowledging that he or she will pay the fee and any related interest and penalty on behalf of the owner and will not file a claim for refund of the fee based on the grounds that he or she was the operator rather than the owner of the tank and, therefore, did not owe the fee. The document will remain in effect until the operator advises the board and owner in writing of any change. Exhibits A and B are samples of the documents described in (b)(1) and (b)(2) above. Exhibit A STATEMENT OF UNDERGROUND STORAGE TANK OWNER (Title 18, California Code of Regulations, Section 1213) Account No.: TK MT 44-________________________ I hereby authorize the Board of Equalization to send all notices and returns concerning the identified Underground Storage Tank Maintenance Fee (Part 26, Division 2 of the Revenue and Taxation Code, commencing with Section 50101) Account to the following: ________________________________________________________________ Location of tanks(s) STREET CITY COUNTY ________________________________________________________________ Name of Tank Operator Area Code and Phone Number ________________________________________________________________ Mailing Address of Tank Operator By executing this document, I/we understand that all returns and notices regarding the above Underground Storage Tank Maintenance Fee Account will be mailed to the tank operator identified above, but that I/we am/are responsible for payment of all Underground Storage Tank Maintenance Fees, penalties and interest due based on the gallons of petroleum placed in the underground storage tank(s). I/we also acknowledge receipt of a copy of the Board's Publication 88, Underground Storage Tank Fee. ________________________________________________________________ Name of Tank Operator (Please Print) Area Code and Telephone Number ________________________________________________________________ Mailing Address of Tank Owner ________________________________ ______________________________ Signature of Tank Owner Date ________________________________ Title (owner, partner, corporate officer) ________________________________ ______________________________ Signature of Tank Owner Date __________________________________________ Title (owner, partner, corporate officer) Attach Notary Statement Here Exhibit B STATEMENT OF UNDERGROUND STORAGE TANK OPERATOR (Title 18, California Code of Regulations, Section 1213) Account No.: TK MT 44-________________________ ________________________________________________________________ Location of tanks(s) STREET CITY COUNTY ________________________________________________________________ Name of Tank Owner Area Code and Telephone Number ________________________________________________________________ Mailing Address of Tank Owner By executing this document, I/we understand that all returns and notices regarding the above Underground Storage Tank Maintenance Fee Account will be mailed to me/us, as the tank operator identified below. As the operator of the underground storage tank, I/we acknowledge I/we am/are paying the Underground Storage Tank Maintenance Fee on behalf of the tank owner and will not apply for a refund of the fees on the basis that I/we am/are not the owner of the tank and, therefore, do not owe the fees. I/we will notify both the Board of Equalization and the tank owner of any changes affecting this account. I also acknowledge receipt of a copy of the Board's Publication 88, Underground Storage Tank Fee. ________________________________________________________________ Name of Tank Operator (Please Print) Area Code and Telephone Number ________________________________________________________________ Mailing Address of Tank Operator ___________________________ ___________________________________ Signature of Tank Operator Date _________________________________________ Title (owner, partner, corporate officer) ___________________________ ___________________________________ Signature of Tank Operator Date _________________________________________ Title (owner, partner, corporate officer) Attach Notary Statement Here Note: Authority cited: Section 50152, Revenue and Taxation Code; and Section 25299.42, Health and Safety Code. Reference: Sections 50107, 50109, 50139 and 50140, Revenue and Taxation Code; and Sections 25299.41 and 25299.43, Health and Safety Code. s 1214. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 50112.7, Revenue and Taxation Code. Reference: Sections 50112.7 and 50112.9, Revenue and Taxation Code. s 1220. Exemption from Fee. The fee does not apply to: (a) The State of California, or any agency or department thereof. (b) The United States, its unincorporated agencies and instrumentalities. (c) Any incorporated agency or instrumentality of the United States wholly owned by the United States or by a corporation wholly owned by the United States. (d) Banks and other financial institutions. (e) Insurance companies. (f) Any person of Indian descent who is entitled to receive services as an Indian from the United States Department of the Interior when the underground storage tank is located upon an Indian reservation, including rancherias, or any land held by the United States in trust for any Indian tribe or individual Indian. Note: Authority cited: Section 50152, Revenue and Taxation Code; and Section 25299.42, Health and Safety Code. Reference: Sections 50107 and 50108, Revenue and Taxation Code; and Sections 25299.20 and 25299.21, Health and Safety Code. s 1248. Relief from Liability. A person may be relieved from the liability for the payment of the fee, including any penalties and interest added to those fees, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 50152, Revenue and Taxation Code; and Section 25299.42, Health and Safety Code. Reference: Section 50112.5, Revenue and Taxation Code. s 1271. Records. (a) General. A fee payer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), owners of underground storage tanks shall comply with the following requirements. An owner of underground storage tanks shall maintain complete records of all tanks owned and all purchases of petroleum products placed into underground storage tanks. Such records include but are not limited to: (1) Federal Income Tax Return Depreciation Schedules or fixed asset and improvement listing. (2) Property Tax Statements. (3) Underground storage tank installation records. (4) Lease agreements. (5) Petroleum products purchase invoices. (6) Copy of local agency permit and application for permit filed with the local agency. Note: Authority cited: Section 50152, Revenue and Taxation Code. Reference: Sections 50109 and 50153, Revenue and Taxation Code. s 1300. Foreword. Note: 1300 to 1335, inclusive, issued under authority of Section 9251, Revenue and Taxation Code. s 1301. Fuel. Fuel includes any combustible gas or liquid, by whatever name the gas or liquid may be known or sold, of a kind used in an internal combustion engine for the generation of power to propel a motor vehicle on the highways, except fuel that is subject to the tax imposed by the Motor Vehicle Fuel License Tax Law and the Diesel Fuel Tax Law. For example, fuel includes, but is not limited to, liquefied petroleum gases, kerosene, distillate, stove oil, natural gas in liquid or gaseous form, and alcohol fuels. "Alcohol fuel" includes: ethanol (ethyl alcohol), methanol (methyl alcohol), or blends of gasoline and alcohol (including any denaturant) containing 15 percent, or less, gasoline by volume measured at 60 degrees Fahrenheit. "Natural gas" means naturally occurring mixtures of hydrocarbon gases and vapors consisting principally of methane whether in gaseous or liquid form. The taxable unit for compressed natural gas (gaseous form) is 100 cubic feet of gas measured at 14.73 pounds of pressure per square inch at 60 degrees Fahrenheit. The taxable unit for liquid natural gas and other liquid fuels is the United States gallon, which is 231 cubic inches. To convert liters to gallons, the quantity of liters shall be multiplied by .26417 to determine the equivalent quantity in gallons. The resulting figure should be rounded to the nearest tenth of a gallon. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 7304, 8604, 8607, 8613, 8615 and 8651.6, Revenue and Taxation Code. s 1302. Motor Vehicle. Motor vehicle includes every self-propelled vehicle operated or suitable for operation on the highways, including an overweight or oversize vehicle operated on the highway under permit and a vehicle exempt from vehicle registration under the Vehicle Code, except vehicles used exclusively upon stationary rails or tracks. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Section 8603, Revenue and Taxation Code. s 1303. Highway. A highway includes a way or place, of whatever nature, within the exterior boundaries of the state including a way or place within a federal area, publicly maintained and open to the use of the public for purposes of vehicular travel, notwithstanding private participation in the maintenance of the way or place. It shall be presumed that a way or place is dedicated and accepted as a highway when it is recognized as a part of its maintained highway system by a proper public authority. A way or place within a national or state forest which is entirely privately maintained, or a road over which forest products are transported in a national or state forest privately constructed or maintained pursuant to an existing agreement with the public authority having jurisdiction thereof will not be considered a highway notwithstanding the fact that it may be declared by the public authority to be a part of its road system. (See regulation 1316-Exempt Uses of Fuel in Motor Vehicles.) A way or place is not a highway within the meaning of section 8605 of the Revenue and Taxation Code, during such times as it is closed by the governmental authority to the use of the public regardless of the purpose for which it is closed. A highway is open to the use of the public if vehicular travel is permitted although subject to traffic controls. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: 8605, Revenue and Taxation Code. s 1304. User. The term "user" includes: (a) a subhaul operator who uses his vehicle in the performance of subcontract services for another contract operator, (b) the lessee of a vehicle who purchases and supplies fuel used in the operation of the vehicle, (c) the lessee of a vehicle who is qualified in writing by the board as a user of fuel which is purchased and supplied by the lessor of the vehicle, or (d) the lessor of a vehicle who purchases and supplies the fuel used in the operation of that vehicle by the lessee unless the lessee is qualified as the user under (c) above. The term "user" does not include the Government of the United States or an instrumentality thereof Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Section 8608, Revenue and Taxation Code. s 1305. Fuel Tank. A fuel tank includes a separate compartment of a cargo tank used as a fuel tank and any auxiliary tank or receptacle of any kind from which fuel is supplied for the propulsion of the vehicle whether or not such tank or receptacle is directly connected to the fuel supply line of the vehicle. Note: Authority cited: Sections 9251 and 8612, Revenue and Taxation Code. s 1306. Vendor. "Vendor" includes a service station dealer, a broker or distributor as defined under the Motor Vehicle Fuel License Tax Law, and a user who sells fuel to others. "Vendor" also includes any person who sells fuel delivered into the fuel tank of a motor vehicle through a pump equipped with a key-lock meter which he supplies when he retains ownership of the fuel until it is withdrawn and placed in the fuel tank, notwithstanding that the fuel is placed in the fuel tank by the user. "Vendor" does not include a commission agent who makes no sales of fuel to users on his own account, who sells fuel title to which remains in the agent's principal until the fuel is delivered to the user, and who bills the user in the name, and on the invoice, of the principal for whom the agent sells the fuel. In such instances the agent's principal is the vendor. Note: Authority cited for Sections 1306 and 1307: Section 9251, Revenue and Taxation Code, and Chapters 1180, 1859 and 1968, Stats. 1959. Reference: Section 8610, Revenue and Taxation Code. s 1307. Vendor's Permit. (a) General. A vendor who wishes to conduct business separately at different locations will be issued a permit for each place of business upon the filing of an application for a permit for each location. The permit shall be conspicuously displayed at the place of business of the vendor where fuel is sold and delivered to users. If a vendor is the holder of a single permit and has more than one such place of business but does not wish to conduct business separately at each location, duplicate copies of the permit will be supplied by the board so that the vendor may display the permit as required. (b) Inactive Permits. Any person operating as a vendor of fuel in this State under the Use Fuel Tax Law must hold a valid vendor use fuel tax permit. Any person who is not operating as a vendor of fuel but who is holding a vendor use fuel tax permit must surrender the permit to the board for cancellation. The board may revoke the permit of any person found not to be operating as a vendor of fuel. Upon either the discontinuance of operations as a vendor or the sale of the business, a permit holder shall notify the board of such discontinuance or sale and physically deliver the permit to the board for cancellation. To be acceptable, the notice of the discontinuance or sale of the business must be received by the board in one of the following ways: (1) Either an oral or a written statement given to a board representative accompanied by delivery of the permit. If the permit is lost, destroyed, or otherwise unavailable for delivery to the board, the notice of discontinuance or sale must be in writing. (2) Receipt by the board of the application for a vendor's permit from the successor of the business. Such application will serve to put the board on notice of the discontinuance of operations as a vendor by the predecessor. Notice to another state agency of the discontinuance of operations or the sale of a business does not constitute notice to the board. (c) Predecessor Liability. Unless the permit holder who sells, donates, trades or otherwise transfers a business notifies the board of such transfer and delivers the permit to the board for cancellation as provided in paragraph (b) above, he or she will be liable for taxes, interest, and penalties (excluding penalties for fraud or intent to evade the tax) incurred by the successor who, with the transferor's actual or constructive knowledge, uses the permit in any way, e.g., displays the permit in the successor's place of business or files returns with the board in the name of the predecessor. The amount of the liability of the predecessor shall include all taxes, interest, and penalties incurred by the successor up to the time the board receives notice of the sale as provided herein. However, at its discretion, the board may relieve the predecessor from liability for penalties incurred by the successor. A successor may, under certain conditions, be liable for tax, interest, and penalties incurred by a predecessor as explained in Regulation 1334, Successor's Liability (18 CCR 1334). Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8711, 8712, 8713, and 8716, Revenue and Taxation Code. s 1308. Wholesaler. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Section 8616, Revenue and Taxation Code. s 1316. Exempt Uses of Fuel in Motor Vehicle. The tax does not apply with respect to that fuel which the user establishes to the satisfaction of the Board is used: (a) In the operation of a motor vehicle off the highway. "Off the highway" includes private property, a way or place permanently or temporarily closed to public use for the purpose of vehicular travel, or any way or place used for vehicular travel which is not a highway as defined in Regulation 1303. A vehicle is operated upon a highway if it moves any distance in the general direction of the highway, whether upon the paved or unpaved portion thereof. An operation is not conducted upon a highway when a vehicle is operated thereon only for the purpose of crossing the highway from private property on one side to private property directly on the other and the vehicle is not operated for any distance in the general direction of the highway in making the crossing. (b) In the operation of a motor vehicle on any highway which is under the jurisdiction of the United States Department of Agriculture and with respect to the use of such highway the user pays, or contributes to, the cost of construction or maintenance thereof pursuant to an agreement with, or permission of, that agency. "Highway which is under the jurisdiction of the United States Department of Agriculture" (hereafter referred to as U.S.D.A.) includes a way or place in the Forest Service road system with-in a National Forest, or partly within the National Forest and partly on private property, but does not include a state or county highway traversing the National Forest.A user who "pays, or contributes to the cost of construction or maintenance" includes any user who shares in the cost of construction or maintenance of a highway with respect to the use of which the exemption is claimed, either directly as a party to a joint construction or maintenance agreement with U.S.D.A., or indirectly through any person who is a party to such an agreement. "Pays or contributes," in addition to monetary payments or contributions, includes: (1) the bearing in whole or in part of the cost of construction or maintenance by the user who performs the work himself or by his employment of others to perform the work; or (2) the sharing of the cost of construction or maintenance indirectly by any person who contracts with a party to such an agreement to perform transportation by motor vehicle upon such U.S.D.A. highway, or any subcontractor of such contractor who makes a like use of the highway, when the share amount of the contribution is specified in the contract between the respective contracting parties, notwithstanding that such amount may be reflected in a lump sum rate of compensation for the transportation service or transportation and logging or other services. Any user claiming exemption from tax with respect to fuel used on a highway which is under the jurisdiction of the U.S.D.A. shall also keep records to show a description of the highway and route traveled thereon, and the amounts paid or contributed directly or indirectly for the cost of construction or maintenance of the highway pursuant to an agreement with the U.S.D.A. When a motor vehicle is operated partly on such highway and partly on a highway of this state or any political subdivision thereof, the gallonage of fuel used in operations on the U.S.D.A. highway for which exemption is claimed may be determined: (1) in the proportion that the miles operated on such highway bears to the sum of the miles operated thereon and the miles operated upon any other highway; or (2) by computing the gallonage of fuel used on the U.S.D.A. highway by dividing a miles per gallon rate into the total miles operated on the U.S.D.A. highway. The miles per gallon rate shall be determined by a fuel consumption test made under typical operating conditions and subject to approval of the Board. (c) In the operation of an implement of husbandry, truck or farm tractor which is used in agricultural operations off the highway and only incidentally operated upon a highway in moving between farms or parts of farms which are in close proximity and which vehicles are exempt from registration under the Vehicle Code. (d) In the operation of any construction equipment while operated within the confines or limits of a construction project and only incidentally operated on the highway within such confines or limits and which equipment is exempt from registration under the Vehicle Code. As used in this subsection and in subsection (c), above, "incidentally operated" does not include the use of agricultural vehicles or special construction equipment for the transportation of persons or property upon the highways in an operation which would require registration of the vehicle under the Vehicle Code. (e) For a purpose other than the generation of power to propel a motor vehicle on a highway, including fuel used to drive power take-off equipment to turn a rotary cement mixer, or to operate an air conditioner or garbage compressor. (f) Any user claiming exemption from tax under this regulation shall accurately maintain adequate records to show the operations claimed to be exempt including the miles traveled and fuel used in order to establish to the satisfaction of the Board that the user is entitled to the exemption. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8605, 8651, 8652, 8653 and 8653.1, Revenue and Taxation Code. s 1316.5. Exemption Certificates. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8740, 8741 and 9354.5, Revenue and Taxation Code. s 1317. Allowance of Credit or Refund of Tax Paid to Vendor. The tax paid to a vendor in this State may be applied by the purchaser as a credit against the tax due from the purchaser on all fuel used in this State in the reporting period in which the fuel, with respect to which the tax was paid to the vendor, was used. The amount of credit allowable is the amount of tax separately stated or included in the selling price on the receipts (invoices) issued by the vendor to the purchaser for purchases of fuel delivered into vehicle fuel tanks. No tax credit may be taken for unauthorized payments of the tax on fuel delivered into a storage facility other than a vehicle fuel tank. To be entitled to the credit, a purchaser shall retain for inspection by the Board all receipts (invoices) given by vendors showing the amount of tax paid or included in the selling price, together with evidence of payment. If within a reasonable period of time the purchaser has accumulated surplus credits which have not been applied to payment of tax liability under Section 8651 of the Revenue and Taxation Code, or if the purchaser ceases to be a user in this State, a claim for refund as provided in Sections 9152 and 9153 of said code should be filed. All claims for refund of overpayments shall be accompanied by the receipts (invoices) obtained by the purchaser from the vendor and evidence of payment. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8651, 8751.5, 9151, 9152 and 9153, Revenue and Taxation Code. s 1318. Vendor's Liability for the Tax. (a) General. The vendor is required to collect and is liable for the amount of the tax on fuel sold and delivered into fuel tanks of motor vehicles, except any vehicle (a) operated by the Government of the United States or any instrumentality thereof, (b) operated interstate as authorized by regulation 1319, (c) operated by a user who qualifies for the exemption provided in Revenue and Taxation Code section 8655 as authorized by regulation 1319, or (d) operated exclusively on private property as authorized by regulation 1320. A vendor is not authorized to collect the tax on fuel delivered into a storage container other than a vehicle fuel tank. The amount of tax required to be collected constitutes a debt owed by the vendor to the state. Except as may otherwise be provided by the board, a vendor who sells and delivers fuel into the fuel tank of a motor vehicle shall collect the tax notwithstanding that the user may claim exemption from the tax in his returns to the board for any nontaxable use of the fuel. As respects a vendor's tax reporting, the tax is deemed to have been collected at the time of the sale irrespective of when payment for the amount of the invoice, including the tax, is received by the vendor. Failure to collect the tax from the purchaser (user) does not relieve the vendor from his liability to pay to the state the amount of the tax required to be collected, except that bad debt losses are deductible under circumstances described in section 8732.5 of the Revenue and Taxation Code and regulation 1331.6. (b) Fuel Sold Through Keylock or Other Unattended Mechanisms. When fuel is sold through a keylock mechanism or other unattended mechanism it shall be presumed that the vendor delivered the fuel into the fuel tank of a motor vehicle and the vendor must collect the tax from the user. Farm and construction equipment are motor vehicles if they are suitable for operation on the highway. This includes most equipment running on rubber tires. Section 8652 of the Revenue and Taxation Code provides an exemption to farm and construction equipment users, but not to vendors delivering fuel into the fuel tanks of such vehicles. Customers fueling such equipment as rubber-tired backhoes, road graders, or farm tractors must pay the use fuel tax to the vendor when delivery is made through keylock pumps even if the equipment is hauled into the station on a trailer and the ultimate use of the fuel is exempt. The presumption that fuel sold through a keylock or other unattended mechanism is delivered into the fuel tank of a motor vehicle shall be rebutted and the vendor shall not collect the tax if the user certifies in writing to the vendor that all fuel delivered to him through a specific mechanism will be delivered into bulk containers. If a customer puts fuel into the fuel tank of a motor vehicle and places fuel into drums or other bulk containers at the same keylock station, the vendor should assign the customer two meter registers. The customer then may furnish the vendor with a certificate that all fuel delivered through a specified meter register will be delivered into bulk containers. Regulation 1320 may not be applied to fuel deliveries through keylock or other unattended mechanisms unless the mechanism is located where the vehicle is operated exclusively off the highway. Regulation 1319 is applicable to keylock deliveries only in situations specified in that regulation and to the same extent as if the vendor made the delivery into the fuel tank of the vehicle personally. (c) Sales to Persons Who Paid the Annual Flat Rate Tax. Any vendor who sells and delivers liquefied petroleum gas, liquid natural gas or compressed natural gas into the fuel tank of a vehicle with respect to which the owner or operator has paid the annual flat rate fuel tax and which bears the current year's identification emblem provided for in regulation 1325 is not required to collect the tax with respect to such fuel. The vendor must retain for each sale or delivery claimed to be exempt records showing (a) the type and quantity of fuel sold or delivered, (b) the date of the sale or delivery, (c) the serial number of the identification emblem affixed to the vehicle pursuant to regulation 1325 and (d) and license number of the vehicle. (d) Overcollections by Vendor. If with respect to fuel tank deliveries the vendor collects from any user a greater amount of tax than that which is required to be collected, he shall remit the full amount collected to the board, since the user is entitled to a credit or a refund from the state. If the vendor improperly collects the tax on deliveries of fuel into storage facilities other than vehicle fuel tanks, the amount of tax so collected shall be refunded by the vendor to the user purchasing the fuel. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8651, 8652, 8732, 8732.5, 8733, Revenue and Taxation Code. s 1319. Vehicle Fuel Tank Deliveries Without Payment of Tax. A user who: (a) holds a valid use fuel tax permit, (b) operates a motor vehicle within and without the state, or qualifies for the exemption provided in Revenue and Taxation Code section 8655, and (c) purchases in the state for such operation fuel delivered into the fuel tank of such vehicle in quantities that would result consistently in payment of substantially more tax to vendors than the tax that would be imposed with respect to fuel used in the operation of the vehicle within this state may secure from the board an authorization which will permit the vendor of the fuel so purchased to sell and deliver such fuel into the fuel tank of the vehicle without collecting the tax from the user. To secure the authorization the user shall apply to the board therefore, furnishing a description of his operations sufficiently detailed to demonstrate to the board that, in the absence of such authorization, the amount of tax which would be paid by the user to vendors would exceed that measured by the fuel consumed in the operation of the vehicle in this state so that an overpayment of fuel tax by the user may be expected to occur consistently. Each user purchasing fuel in pursuance of this rule without payment of the tax to his vendor shall certify to the vendor that the user has complied with this rule and has secured authorization from the board so to purchase the fuel. The certificate shall contain the use fuel tax permit number of the user, together with his name and address. A single certificate may cover transactions occurring after it has been furnished to the vendor so long as the authorization remains in full force and effect. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8607 and 8732, Revenue and Taxation Code. s 1320. Vehicle Fuel Tank Deliveries for Off-Highway Use. A user whose use of fuel is exempt from the tax under Section 8653 because of the operation of his vehicle exclusively off the highway, may be authorized by the board to purchase fuel without payment of the tax to the vendor when the vendor delivers the fuel into the fuel tank of the user's vehicle at the location where the vehicle is operated exclusively off the highway. The user shall submit evidence satisfactory to the board that he is eligible for the exemption and the authorization. The user shall execute and furnish to each vendor from whom fuel is purchased a certificate for all fuel purchased without payment of the tax to the vendor pursuant to the authorization of the board. The certificate shall be in form substantially as follows: "The purchaser hereby certifies that he is the holder of valid California Use Fuel Tax Permit Number ________; that he has been issued authorization by the State Board of Equalization permitting the purchase of fuel delivered into the fuel tanks of vehicles operated by him exclusively off the highway without paying the tax to the vendor; that the use of the fuel so purchased is exempt from the Use Fuel Tax under Section 8607 of the Revenue and Taxation Code . Name of Vendor_____________________________ Purchaser__________________________________ Address____________________________________ Date________." Note: Authority cited: Sections 8651, 8732.5 and 9251, Revenue and Taxation Code, and Chapters 1180, 1859 and 1968, Stats. 1959. s 1321. Allowances for Pumping Liquefied Petroleum Gas. Liquefied petroleum gas dealers who operate motor vehicles propelled by liquefied petroleum gas subject to the use fuel tax shall be allowed exemption from the tax under the provisions of Sections 8607 or 8652 of the Revenue and Taxation Code for the gallons of fuel used in pumping operations involved in unloading liquefied petroleum gas from the cargo tanks of the vehicles. If a pump is operated by power take-off from the engine of a motor vehicle which is propelled by liquefied petroleum gas and the cargo tank of the vehicle has a water capacity of not greater than 2,500 gallons, the allowance for the fuel used in pumping shall be at the rate of 1 1/2 gallons per 1,000 gallons of fuel pumped. If the user establishes to the satisfaction of the Board by test checks of fuel used in pumping made under typical operating conditions that rates of fuel consumption for the operation of his pumps are greater per 1,000 gallons of fuel pumped than the rate herein provided, the Board may allow deductions for pumping at the greater rates so determined. If the pump is operated by power take-off from the engine of the motor vehicle propelled by liquefied petroleum gas and the cargo tank of the vehicle has a water capacity greater than 2,500 gallons, the user shall establish the pumping allowance by test checks made under typical operating conditions. All tests made by the user will be subject to review by the Board. All detail and test data should be retained for inspection by the Board. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8607 and 8652, Revenue and Taxation Code. s 1322. Consumption of Liquefied Petroleum Gas in Vehicles Fueled from Cargo Tanks. Users who operate motor vehicles powered by liquefied petroleum gas supplied directly to the engine from the cargo tank of the motor vehicle are authorized for the purpose of making tax returns to compute the gallons used on a mile-per-gallon basis. The mile-per-gallon basis will be determined by tests. The tests will be made by the user and will be subject to review by the board. All detail and test data should be retained for inspection by the board. This method of computing use is authorized only for the purpose of making tax returns. Determinations may be imposed or refunds granted, if the board upon audit of the user's accounts and records, or upon the basis of tests made or other information determines that the return did not disclose the proper amount of tax due. See regulation 1332 with respect to records on those motor vehicles powered by fuel not supplied directly to the engine from the cargo tank. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Section 8607, Revenue and Taxation Code. s 1323. Passenger Carriers -Transit Partial Exemption. (a) Definitions. Except where the context otherwise requires, the following definitions govern the construction of this regulation: (1) "Transit service" means and is limited to: (A) The common carriage of passengers by motor vehicle for compensation on an individual fare basis between fixed termini, or over a regular route on any line or lines in urban and suburban areas, or between cities in close proximity, or on any line or lines owned and operated by a transit district, transit authority, or city. (B) The carriage of passengers by motor vehicle by a transit district, transit authority, or city in conformance with a demand-responsive transportation service. (C) The carriage of persons by motor vehicle by any private entity providing transportation services as a transit operator as defined in subdivision (a)(2)(B) or (a)(2)(F) of this regulation. (2) "Transit operator" includes the following: (A) Any transit district, transit authority, or city owning and operating a transit system and engaging in transit services itself or through a wholly-owned nonprofit corporation. (B) Any private entity providing transportation service under a contract or agreement, other than a general franchise agreement, entered into after September 26, 1978, with a public agency authorized to provide public transportation services. The provisions of subdivision (b) of this regulation shall apply only with respect to fuels consumed by that private entity while providing service under such contract or agreement. (C) Any passenger stage corporation as defined in Section 226 of the Public Utilities Code, engaging in transit service subject to the jurisdiction of the Public Utilities Commission, when the motor vehicles of such passenger stage corporation are exclusively operated in urban or suburban areas or between cities in close proximity for the transportation of persons for hire, compensation, or profit; provided, however, that the exemption is not extended to any line or lines operated by such passenger stage corporation which shall exceed 50 miles of one-way route mileage. As defined in Section 226 of the Public Utilities Code, "passenger stage corporation" includes every person engaged as a common carrier for compensation, in the ownership, control, operation or management of a passenger stage over any public highway in this state between fixed termini or over a regular route except: 1. those whose operations are 98 percent or more exclusively within the limits of a city; or 2. those whose operations consist solely in the transportation of bona fide pupils attending an institution of learning between their homes and such institutions; or 3. that part of the passenger stage operations of any person, whether between fixed termini or over a regular route or otherwise, engaged in the transportation of any pupils or students to or from a public or private school, college or university, or to or from activities of a public or private school, college or university, where the rate, charge or fare for such transportation is not computed, collected or demanded on an individual fare basis. (D) Any common carrier of passengers operating exclusively on any line or lines within the limits of a single city between fixed termini or over a regular route, 98 percent or more of whose operations, as measured by total route mileage operated, are exclusively within the limits of a single city, and who by reason thereof is not a passenger stage corporation subject to the jurisdiction of the Public Utilities Commission. (E) Any school district, community college district, or county superintendent of schools owning, leasing, or operating buses for the purpose of transporting pupils to and from school and for other school or college activities involving pupils, including, but not limited to, field trips and athletic contests. (F) Any private entity providing transportation services for the purposes specified in (a)(2)(E) under contract or agreement entered into after October 1, 1984, with a school district, community college district, or county superintendent of schools. The provisions of subdivision (b) of this regulation shall apply only with respect to fuels consumed by that private entity while providing service under such contract or agreement. (3) "City" includes and is limited to a chartered city, or a general law city incorporated or organized under laws of this state. (4) "Urban area" means any area which lies within a city, or within an unincorporated residential, commercial, or industrial area, and which does not fall within the definition of a suburban area as herein defined. (5) "Suburban area" means any unincorporated residential commercial, or industrial area contiguous to, adjacent to, or adjoining a city. (6) "Close proximity" as applied to cities means that they, or their suburban areas, are contiguous to, adjacent to, in the immediate vicinity of, or adjoining each other. It is unnecessary that the city boundaries or their suburban areas touch in order for the cities to be in close proximity. (7) "Public agency" includes any transit district, transit authority, county, city, city and county, this state and any agency of this state. (b) Application of Tax. A transit operator is exempt from use fuel tax with respect to fuel used for the propulsion of motor vehicles when operated in transit service. The operator must pay one cent for each gallon of such exempt fuel used. These payments shall be treated as a tax imposed under the use fuel tax law. The full rate of tax applies to the use of such fuels for the propulsion of motor vehicles in operations other than in transit service. The exemption does not apply to fuel used by a passenger stage corporation in passenger stage operations over any line or lines: (1) The one-way mileage of which exceeds fifty miles, or (2) The one-way mileage of which is less than fifty miles, if the operations are not exclusively within urban or suburban areas or between cities in close proximity. (c) Records. A transit operator claiming the partial exemption from the use fuel tax under (a)(2)(B) or (a)(2)(F) above, must retain all relevant contracts and other documentary evidence to support the claimed exemption. The operator shall maintain records of fuel consumed in contract operations. If the same vehicles are used for charter or any other purpose when not required for contract runs, the operator shall maintain records sufficiently detailed to support the exempt portion of the fuel consumed. For example, if the operator computes the exemption based upon mileage driven, the operator shall maintain records of each trip, total mileage, and the mileage the vehicle is operated while providing services under such contracts or agreements. If an overpayment of use fuel tax is expected to occur consistently, a transit operator may apply for authorization from the Board to purchase fuel without payment of tax to vendors as specified in Regulation 1319. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Section 8655, Revenue and Taxation Code. s 1324. Fuel Used with Systems Approved by the Air Resources Board. Note: Authority cited: Section 9251, Revenue and Taxation Code. References: Sections 8604, 8613, 8615, 8651.6, 8657, Revenue and Taxation Code. s 1325. Annual Flat Rate Fuel Tax. (a) In General. In lieu of paying the use fuel tax on the basis of the number of gallons used, the owner or operator, except an interstate user, of a motor vehicle propelled by a system using liquefied petroleum gas, liquid natural gas, or compressed natural gas, who operates the motor vehicle exclusively within the State, may elect to pay the fuel tax for the use of such fuels on an annual flat rate basis according to the following fee schedule: Unladen weight Annual Fee All passenger cars and other vehicles 4,000 lbs. or less..... $36 More than 4,000 lbs. but less than 8,001 lbs.................. 72 More than 8,000 lbs. but less than 12,001 lbs................. 120 12,001 lbs. or more........................................... 168 The flat rate fee is an annual tax. The annual period shall be that period from the end of the month in which the tax was paid to the end of the month prior in the following calendar year. When an owner or operator elects to pay the annual flat rate fuel tax on more than one vehicle, the owner or operator may request that the board prorate the tax due on a vehicle added during the annual period, so that all vehicles have the same annual period. In the year a vehicle is added, the annual flat rate fuel tax for that vehicle shall be calculated by dividing the fee by 12 and multiplying the resulting amount by the number of months remaining before the beginning of the next annual period. (b) Identification Decal. Any person who desires to pay the annual flat rate tax under this regulation must secure a use fuel tax permit, pay the required tax to the board, and obtain from the board an identification decal for each vehicle with respect to which the annual flat rate tax has been paid. The decal shall be affixed to the vehicle by an agency or person authorized by the board. The decal shall not be transferred to another vehicle. (c) Annual Returns. Any person may file annual use fuel tax returns if the only use of fuel of a kind taxable under the Use Fuel Tax Law is in vehicles with respect to which the annual flat rate fuel tax fee has been paid for the period during which the vehicle is operated. Any person authorized under this regulation to file returns on an annual basis and who uses fuel subject to the tax (other than fuel purchased tax paid and used in a private passenger automobile) shall advise the board of such use prior to the last day of the month following the month in which the taxable use occurred. The board may require such person to file returns on other than an annual basis. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8604, 8613, 8619, 8651, 8651.5 and 8651.7, Revenue and Taxation Code. s 1331. Return of User. Each user of fuel except a user whose sole use of fuel is for the propulsion of a privately operated passenger automobile as provided in regulation 1331.1 is required to file a return for each calendar quarter (or each reporting period if required by the board to make a return and payment of tax for other than quarterly periods) on a form prescribed by the Board. A return shall be filed with the board for each quarter (or reporting period) even though no fuel was used during, or tax is due for, the quarter (or reporting period). Failure to receive a return form does not relieve the user from the obligation of making a return to the board on or before the due date. If a return form is not received, a user may make a written return to the board setting forth the name, address, permit number, number of gallons of fuel used, and quarter for which the return is due. The return together with a remittance payable to "State Board of Equalization" for the amount of tax due shall be filed with the board on or before the due date and will be accepted in lieu of a return on the prescribed form. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8751, 8752, 8753 and 8755, Revenue and Taxation Code. s 1331.1. Privately Operated Passenger Automobile and Small Commercial Vehicles -When User's Permit and Tax Returns Are Not Required. (a) General. Any person whose sole use of fuel is for the propulsion of a privately operated passenger automobile, a commercial vehicle with unladen weight of less than 7,000 pounds, a privately operated two-axle truck which the user has leased for a period of 30-days or less or a motor vehicle that is not a qualified motor vehicle operated by an interstate user in this State, in connection with an interstate trip is not required to secure a use fuel tax permit and is excused from the filing of a use fuel tax return with the board when either of the following conditions is met: (1) all fuel used in this state, except fuel brought in to the state in the fuel tank of the vehicle, is purchased from a vendor in California who collects the tax from the user when delivering the fuel into the fuel tank of the user's vehicle, or (2) that the flat rate fuel tax described in Regulation 1325 has been paid. (b) Definitions. (1) "Privately operated passenger automobile" includes a station wagon, but does not include a motor vehicle used for the transportation of persons for hire or compensation or designed, used, or maintained primarily for the transportation of property. A pickup truck used as an automobile for the private transportation of persons without the owner receiving compensation or profit for the transportation, is deemed to be a privately operated passenger automobile within the meaning of Section 8608 and Section 8752 of the Revenue and Taxation Code. (2) "Commercial vehicle with unladen weight of less than 7,000 pounds" includes pickup trucks and other vehicles with an unladen weight of less than 7,000 pounds licensed as commercial vehicles. (3) "Privately operated two-axle truck" means a two-axle truck in which the user does not transport persons or property for hire or compensation. In determining whether a two-axle truck is leased for 30-days or less, the total number of consecutive days for which the same or a comparable vehicle is leased to the same lessee shall be counted. If the total number of such days exceeds 30, the truck, or trucks, shall be deemed leased for more than 30-days. (c) Use of Fuel in More Than One Privately Operated Vehicle. If the conditions set forth in subdivision (a) of this regulation are met the user is not required to secure a use fuel tax permit and is relieved of filing of the use fuel tax returns even though the user operates more than one such vehicle using fuel subject to the use fuel tax. This is true whether or not the vehicle is, or the vehicles are, used for pleasure or in a business or profession, providing that the user is not also using such fuel in other motor vehicles which are not of the kind described in subdivision (a) of this regulation. (d) Permit and Returns Required if Fuel from Bulk Storage is Used. Notwithstanding that a user's sole use of such fuel is in a vehicle of the kind described in subdivision (a) of this regulation or in a vehicle for which the flat rate fuel tax has been paid, the user must secure a permit and file use fuel tax returns if he is using such fuels from bulk storage acquired exempt from the use fuel tax. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8603, 8608, 8619, 8620 and 8752, Revenue and Taxation Code. s 1331.2. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 8760, Revenue and Taxation Code. Reference: Sections 8760 and 8762, Revenue and Taxation Code. s 1331.5. Weekly Returns and Payments of Vendor. If a vendor is required to make returns and pay weekly the tax required to be collected, he shall make his weekly return on Form BT-401-V5, Vendor Use Fuel Tax Weekly Return. The return for each calendar week shall be filed with the Board on or before Wednesday of the following week and shall be accompanied by a remittance for the amount of tax due. The making of weekly returns and payments does not relieve the vendor of the obligation to make a monthly return of all tax which he has been required to collect during the month. To the extent that the tax liability shown by the monthly return has been prepaid by payments accompanying weekly returns, no further payment need accompany the monthly return. Whenever a week falls in two calendar months the amount of the tax collected during the portion of the week falling in each calendar month shall be stated separately in the return, but the return may be accompanied by a single remittance for the total tax collected during the week. Note: Authority cited: Sections 9251 and 8755 Revenue and Taxation Code. Reference: Chapter 556, Stats. 1963. s 1331.6. Credit for Bad Debt Losses of Vendors. The amount of tax reported and paid by a vendor which is included in an account found to be worthless and charged off for income tax purposes, may be taken as a credit against the tax due on the use fuel tax return of the vendor. Allowance of this credit is subject to the limitation period prescribed in Section 8782 of the Revenue and Taxation Code and the other provisions of this regulation. The right to the tax credit arises in the month in which the account is found to be worthless and charged off for income tax purposes. The credit should be taken on the return for the period in which the right to the credit arose. Failure to take this credit in the proper period will not prevent the allowance of a credit of the amount of tax for which the vendor was entitled to credit under this section. A vendor using the reserve method to account for bad debts for income tax purposes should take the credit on the return for the period in which the account is found to be worthless and charged against the reserve. No tax credit is allowable for any portion of a debt recovered that is retained by or paid to any person as compensation for his or her services or expenses in collecting the account. If any account with respect to which credit has been taken is subsequently collected, in whole or in part, the vendor shall apply the amount collected ratably to the charges for the fuel and the tax thereon. If the purchaser is indebted to the vendor with respect to other items also charged off as bad debts, payments made on account thereof shall first be credited to the charges for the fuel and the tax thereon unless the purchaser shall specify otherwise. The tax thus collected shall be included in the return due for the period in which the collection is made and must be remitted to the Board within the time prescribed for payment of the tax due for that period. Whenever any charge arising from the sale of fuel remains unpaid for a period of 90 days after the close of the calendar month in which the sale is made, or the account is found to be uncollectible prior to 90 days after the close of the calendar month in which the sale is made, that indebtedness is a delinquent account as to which the vendor shall report to the Board as herein specified. For the purpose hereof the date of the delivery invoice is deemed the date of sale. The vendor shall file with each use fuel tax return a schedule listing the names and addresses of all purchasers whose accounts became delinquent within the meaning of the preceding paragraph as of the close of the reporting period for which the return is filed and remain unpaid at the time of such filing. The listing shall be accompanied by a notice of delinquent account on a form prescribed by the Board. When the account of the purchaser is no longer delinquent or amounts remaining unpaid for over 60 days have been cleared and the vendor is satisfied that the remainder of the account will be paid, the vendor should complete the triplicate and quadruplicate of the Notice of Worthless Account (Bad Debts) form (BOE-120 Rev. 1 (7-98)) (incorporated by reference) by indicating the payments received. The triplicate (pink) of the Notice of Worthless Account (Bad Debts) form should be forwarded promptly to the Board. Failure to list a delinquent account as herein required shall constitute a waiver of the credit that might otherwise be allowable for the amount of the delinquency under Section 8732.5 of the Revenue and Taxation Code in the event that the account is later found to be worthless. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8732.5, 8737 and 8782, Revenue and Taxation Code. s 1332. Records. (a) General. A taxpayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), vendors and users of use fuel shall comply with the following requirements. (1) Vendor's Records. A vendor shall maintain complete records of all sales or other dispositions including self-consumed fuel, inventories, purchases, receipts, and tank gaugings or meter readings, of liquefied petroleum gas, and any other fuel the use of which is subject to the use fuel tax. (2) Vendor's Sales Invoices. The vendor shall prepare a serially numbered invoice for each sale of fuel whether the fuel is sold for use in motor vehicles or for other uses. A single invoice covering multiple deliveries of fuel made during a period of time not to exceed a calendar month shall constitute an invoice for each sale. If the multiple delivery invoice includes tax-exempt deliveries either into a bulk storage facility or into fuel tanks of motor vehicles with respect to which the vendor is excused from collecting the tax as provided in Regulations 1319 and 1320, and deliveries into fuel tanks of motor vehicles upon which the tax is required to be collected, the invoice shall contain or be accompanied by a statement showing separately the deliveries and gallonage upon which the tax is collected and the tax-exempt deliveries and gallonage. The invoice shall be delivered to the purchaser, and a copy thereof shall be retained by the vendor. A sales invoice shall contain the following information: (A) The name and address of the vendor. (B) The date of sale. (C) The number of gallons or units of fuel sold, the price per gallon or unit and the total amount of the sale. (D) The amount of the use fuel tax collected, if delivery is into a fuel tank of a motor vehicle; however, the amount of the tax collected need not be separately stated if the invoice bears the notation that the price includes the tax. (E) For single deliveries of less than 250 gallons or units, the type of receptacle, other than a fuel tank of a motor vehicle, into which the vendor delivered fuel without collecting the use fuel tax (e.g., storage tank, crawler tractor, drum, stationary generator). On machine-prepared invoices, reasonable code designations will be acceptable in lieu of such description. The sales invoice shall upon payment by the purchaser constitute a receipt for the amount of use fuel tax included therein collected by the vendor. (3) User's Records. Users of fuel subject to the tax shall obtain from the vendor of the fuel and retain in their files an invoice for each delivery of such fuel into the fuel tank or tanks of each vehicle operated by them and for each delivery into their bulk storage tank or tanks. These invoices shall set forth the information specified in subsection (b)(2) of this regulation and shall be filed or identified in a systematic manner so that they may readily be traced into their purchase or expense records and into their returns to the board. Users should keep as part of their records a detail of figures upon which are based the totals set forth on their returns to the board. When fuel is placed into the fuel tank of a qualified motor vehicle, either the user or the vendor should indentify on the invoice the qualified motor vehicle into which the fuel was placed. All individual invoices supporting charge accounts which include purchases of fuel shall be retained by the user in such manner as to enable the representatives of the board to establish the identity of all the merchandise or service included in the total charge and the specific gallonage of fuel purchased. In addition to the records prescribed above, a lessor of a vehicle who is a user as defined under regulation 1304(d) (18 CCR 1304(d) shall maintain records of each trip or the mileage the vehicle is operated by the lessee. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8732, 8752, 9253 and 9254, Revenue and Taxation Code. s 1333. Records of Vendors, Invoices and Receipts. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 8732 and 9253, Revenue and Taxation Code. s 1334. Successor's Liability. (a) When Duty to Withhold Purchase Price Arises. The requirement that a successor or purchaser of a business or stock of goods withhold a sufficient amount of the purchase price to cover the tax liability of the seller arises only in the case of the purchase and sale of a business or stock of goods under a contract which provides for the payment to be made to the seller or to a person designated by the seller of a purchase price consisting of money, property or the assumption of liabilities or a combination of forms of consideration. The liability of the successor can be no more than the amount of the purchase price. This requirement does not arise in connection with other transfers of a business such as assignments for the benefit of creditors, foreclosures of mortgages, or sales by trustees in bankruptcy. (b) Amounts to Which Liability Extends. The liability of the successor or purchaser of a business or stock of goods extends to taxes incurred with reference to the operation of the business by the predecessor or any former owner, including the sale thereof, even though not then determined against the former owner, to interest thereon to the date of payment of the taxes, to penalties for nonpayment of taxes, and to penalties for negligence or intentional disregard of the Use Fuel Tax Law or authorized rules and regulations, or for fraud or an intent to evade the tax determined and unpaid at the time of sale. (c) Release from Obligation. The purchaser of the business or stock of goods will be released from further obligation to withhold the purchase price if the purchaser obtains a certificate from the board stating that no taxes, interest, or penalties are due from a predecessor. The purchaser will also be released if he or she makes a written request to the board for a certificate and if the board does not issue the certificate or mails to the purchaser a notice of the amount of the tax, interest, and penalties that must be paid as a condition of issuing the certificate within 60 days after the latest of the following dates: (1) The date the board receives a written request from the purchaser for a certificate. (2) The date of the sale of the business or stock of goods. (3) The date the former owner's records are made available for audit. The certificate may be issued after the payment of all amounts due under the Use Fuel Tax Law, according to the records of the board as of the date of the certificate, or after the payment of the amounts, including amounts not yet ascertained, is secured to the satisfaction of the board. (d) Enforcement of Obligation. The liability is enforced by service of a notice of successor liability not later than three years after the date the board receives written notice of the purchase of the business or stock of goods. The successor may petition the Board for reconsideration of the liability within 30 days after service. The liability becomes final, and the amount due and payable, in the same manner as determinations and redeterminations of other use fuel tax liability. (e) Separate Business Locations. Where one person operates several business establishments, each at a separate location, each establishment is a separate "business" and has a separate "stock of goods" for purposes of determining the liability of a successor. A purchaser of the business or stock of goods of any such establishment is subject to liability as a successor with respect to that establishment even if he or she does not purchase the business or stock of goods of all the establishments. (f) Purchase of a Portion of a Business. A person who purchases a portion of a business or stock of goods may become liable as successor. For example, the purchaser may be liable where he or she purchases substantially all of the business or stock of goods or where the business or stock of goods is purchased by two or more persons. In cases of doubt as to possible liability, the purchaser should obtain a certificate as provided in (c) above. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Sections 9021, 9022, 9023 and 9024, Revenue and Taxation Code. s 1335. Relief of Liability. A person may be relieved from the liability for the payment of the use fuel tax, including any penalties and interest added to those use fuel taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 9251, Revenue and Taxation Code. Reference: Section 8879, Revenue and Taxation Code. s 1411. Highway. (a) "Highway" means a way or place, of whatever nature, within the exterior boundaries of the State including a way or place within a Federal area, publicly maintained and open to the use of the public for purposes of vehicular travel, including, but not limited to, the shoulder and rest stops, notwithstanding private participation in the maintenance of the way or place. It shall be presumed that a way or place is dedicated and accepted as a highway when it is recognized as a part of a maintained highway system by a public authority. (b) A way or place within a national or state forest which is entirely privately maintained, or a road over which forest products are transported in a national or state forest privately constructed or maintained pursuant to an existing agreement with the public authority having jurisdiction thereof, shall not be considered a highway notwithstanding the fact that it may be declared by the public authority to be a part of its road system. (c) A way or place is not a highway within the meaning of Revenue and Taxation Code Section 60016, during such times as it is closed by the governmental authority to the use of the public regardless of the purpose for which it is closed. A highway is open to the use of the public if vehicular travel is permitted although subject to traffic controls. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Section 60016, Revenue and Taxation Code. s 1413. Tax-Paid Diesel Fuel and Ex-Tax Diesel Fuel. (a) "Tax-paid diesel fuel" is the gallonage of diesel fuel acquired with the California diesel fuel tax paid. An acquisition of diesel fuel will be considered tax-paid only if it can be supported by one of the following: (1) A sales invoice or contract which clearly states that the diesel fuel tax is included in the invoice or contract and proof that the amount representing diesel fuel tax has been paid, or (2) A diesel fuel purchase receipt showing that the amount paid for the fuel included the diesel fuel tax, or (3) Other documentation showing that the diesel fuel tax has been paid to the state. (b) "Ex-tax diesel fuel" is the gallonage of diesel fuel acquired which is not tax-paid diesel fuel. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60048.1, 60050, 60050.1, 60051, 60052, 60053, 60054, 60055, 60056, 60057, 60058, 60059, 60060, 60061, 60062, 60100 and 60106, Revenue and Taxation Code. s 1420. Supplier. (a) Returns. All suppliers must prepare and file returns with the Board to report tax on diesel fuel. Returns are due at the end of the month following the calendar month in which the diesel fuel was removed, entered, or sold, unless the Board requires that a return be filed for a different period. A terminal operator who also is a position holder in diesel fuel within the terminal or is jointly and severally liable for the tax is required to file both the terminal operator return and the supplier return. (b) Imposition of Tax. Tax applies to each supplier as follows: (1) Blender. A blender is required to pay the tax on the removal or sale of diesel fuel blended outside the bulk transfer/terminal system. The number of gallons of blended diesel fuel subject to the tax is the difference between the total number of gallons of blended diesel fuel removed or sold and the number of gallons of tax-paid diesel fuel used to produce the blended fuel. (2) Enterer. (A) An enterer is required to pay the tax when the enterer imports diesel fuel into the state by means outside of the bulk transfer/terminal system. (B) An enterer is required to pay the tax when the enterer removes or sells diesel fuel within a pipeline or terminal to an unlicensed person. (C) An enterer is required to pay the tax when the entry is by bulk transfer and the enterer is not a licensed supplier. (D) For purposes of proper imposition of tax, entry occurs when fuel is brought into the state, provided, however, that when entry is by bulk transfer, entry occurs as follows: (1) When fuel is received at a marine terminal, entry occurs at the landslide of the flange. (2) When fuel is removed from a vessel in this state to a lighter for the purpose of lightering, entry occurs at the vessel side of the flange upon the removal of fuel from a vessel in this state to the lighter; provided, however, that if the lighter unloads or discharges the fuel at a marine terminal, then entry occurs at the land side of the flange as to the fuel received at the marine terminal. As used herein, "lightering" is the use of small, shallow-draft boats in transshipment to shore of oil or other fuel from a large, deep-draft vessel unable to dock at shore facilities because of shallow water. The small boats are called lighters. (3) When fuel is removed from a vessel in this state to another vessel in this state, and the fuel is not unloaded or discharged at a marine terminal, then entry occurs when the fuel is brought into the state. (3) Position Holder. (A) A position holder that holds an inventory position in the diesel fuel as reflected on the records of the terminal operator is required to pay the tax when the diesel fuel is removed from the terminal rack. (B) A position holder is required to pay the tax when the position holder removes or sells diesel fuel within or without the bulk transfer/terminal system to an unlicensed person. (C) For reporting periods commencing on or after January 1, 2007, a position holder that delivers diesel fuel to a receiving supplier under a two-party exchange contract shall remain liable for the tax due on the removal of diesel fuel from the terminal rack unless all Regulation 1423 requirements are met. (4) Refiner. (A) A refiner is required to pay the tax when the diesel fuel is removed at a terminal rack located at a refinery. (B) A refiner is required to pay the tax when the removal of diesel fuel is by bulk transfer (e.g., transfer by pipeline or vessel) and the refiner or the owner of the diesel fuel immediately before the removal is not a licensed supplier. (C) A refiner is required to pay the tax when the refiner removes or sells diesel fuel within or without the bulk transfer/terminal system to an unlicensed person. (D) For reporting periods commencing on or after January 1, 2007, a refiner that delivers diesel fuel to a receiving supplier under a two-party exchange contract shall remain liable for the tax due on the removal of diesel fuel from the terminal rack located at a refinery unless all Regulation 1423 requirements are met. (5) Terminal Operator. A terminal operator is jointly and severally liable for and may be required to pay the tax when the diesel fuel is removed at the rack if both subsections (A) and (B) below apply, or if subsection (C) applies: (A) The position holder with respect to the diesel fuel is a person other than the terminal operator and is not a licensed supplier. (B) The terminal operator is not a licensed supplier and either (i) does not have an unexpired notification certificate from the position holder as required by the Internal Revenue Service or (ii) has an unexpired notification certificate from the position holder, but has reason to believe or knows that any information in the certificate is false. (C) The terminal operator provides any person with a bill of lading, shipping paper, or similar document which falsely indicates that the undyed or unmarked diesel fuel which is removed from the terminal is dyed or marked in accordance with the United States Environmental Protection Agency or the Internal Revenue Service requirements. (6) Throughputter. A throughputter is required to pay the tax when the throughputter removes or sells diesel fuel within or without the bulk transfer/terminal system to a person who is not a licensed supplier. Note: Authority cited: Sections 60063 and 60601, Revenue and Taxation Code. Reference: Sections 60003, 60004, 60006, 60007, 60008, 60009, 60010, 60011, 60012, 60013, 60015, 60021, 60022, 60023, 60029, 60030, 60031, 60032, 60033, 60035, 60050, 60051, 60052, 60053, 60054, 60055, 60059, 60060, 60061, 60062, 60063, 60131 and 60201, Revenue and Taxation Code. s 1421. Successor's Liability. (a) Duty to Withhold from the Purchase Price. The requirement that a successor or purchaser of a business or stock of goods withhold a sufficient amount of the purchase price to cover the tax liability of the seller, arises only in the case of the purchase and sale of a business or stock of goods under a contract, which provides for the payment to be made to the seller or to a person designated by the seller of a purchase price consisting of money or property or the assumption of liabilities and only to the extent thereof, and does not arise in connection with other transfers of a business such as assignments for the benefit of creditors, foreclosures of mortgages, or sales by trustees in bankruptcy. (b) Amounts to Which Liability Extends. The liability of the successor or purchaser of a business or stock of goods extends to amounts incurred with reference to the operation of the business by the predecessor or any former owner, including the sale thereof, even though not then determined against the former owner, which include taxes, interest thereon to the date of payment of the taxes, and penalties, including penalties for nonpayment of taxes, negligence, intentional disregard, fraud, or intent to evade the tax. (c) Release From Obligation. The purchaser of the business or stock of goods will be released from further obligation to withhold from the purchase price if the purchaser obtains a certificate from the Board stating that no taxes, interest, or penalties are due from a predecessor. The purchaser will also be released if he or she makes a written request to the Board for a certificate and if the Board does not issue the certificate or mail to the purchaser a notice of the amount of the tax, interest, and penalties that must be paid as a condition of issuing the certificate within 60 days after the later of the following dates: (1) The date the Board receives a written request from the purchaser for a certificate. (2) The date the former owner's records are made available for audit. The certificate may be issued after the payment of all amounts due, including taxes, interest, and penalties, according to the records of the Board as of the date of the certificate, or after the payment of the amounts, including amounts not yet ascertained, is secured to the satisfaction of the Board. (d) Enforcement of Obligation. (1) The obligation is enforced by service of a notice of successor liability not later than three years after the date the Board receives written notice of the purchase of the business or stock of goods. The successor may petition the Board for reconsideration of the liability within 30 days after service. The liability becomes final, and the amount is due and payable, in the same manner as determinations and redeterminations of other diesel fuel tax liability. (2) A successor may be relieved of any penalty included in the notice of successor liability regardless of when the notice was issued, if it is determined by the Board that failure by the successor to withhold a sufficient amount of the purchase price to cover the liability of the former owner was due to reasonable causes and circumstances beyond the control of the successor and occurred even though the successor exercised ordinary care and was not willfully negligent. A successor seeking relief of a penalty must file a written statement with the Board under penalty of perjury stating the facts upon which he or she bases the claim for relief. (e) Separate Business Locations. Where one person operates several business establishments, each at a separate location, each establishment is a separate "business" and has a separate "stock of goods" for purposes of determining the liability of a successor. A purchaser of the business or stock of goods of any such establishment is subject to liability as a successor with respect to that establishment even if he or she does not purchase the business or stock of goods of all the establishments. (f) Purchase of a Portion of a Business. A person who purchases a portion of a business or stock of goods may become liable as a successor as, for example, where the purchaser purchases substantially all of the business or stock of goods or where the business or stock of goods is purchased by two or more persons. In cases of doubt as to possible liability, the purchaser should obtain a certificate as provided in (c) above. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60471, 60472, 60473 and 60474, Revenue and Taxation Code. s 1422. Relief from Liability. A person may be relieved from the liability for the payment of the diesel fuel tax, including any penalties and interest added to those taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Section 60210, Revenue and Taxation Code. s 1423. Two-Party Exchange. (a) General. In a typical two-party exchange, two suppliers who own diesel fuel in terminals, i.e., who are position holders (pursuant to Section 60010 of the Revenue and Taxation Code), agree to give each other access to the diesel fuel each owns. Both suppliers have customers in the same terminal areas. One supplier (the delivering supplier) owns fuel in one terminal, and the other supplier (the receiving supplier) owns fuel, usually in a different terminal. Each supplier agrees to exchange fuel it owns for fuel the other supplier owns. A two-party exchange contract allows each supplier to have rack removal capability at a terminal where the other supplier is a position holder, in order to supply fuel to its customers in that terminal area. The receiving supplier takes the place of the delivering supplier when the diesel fuel is removed from the terminal at the rack. A two-party exchange may involve fuel held in terminals located in one or more states and may involve one or more types of fuel. For purposes of this regulation, however, at least one of the terminals involved in a two-party exchange must be located in this state, and the requirements for reporting transactions to the Board pursuant to this regulation pertain only to transactions involving terminals located in this state. (b) Definitions. (1) Notwithstanding Section 60048 of the Revenue and Taxation Code, "two-party exchange" means a transaction, other than a sale, that occurs at the time of removal of diesel fuel across the rack and that meets all the following conditions: (A) The terminal operator, delivering supplier, and the receiving supplier are each registered with the Board to file electronically and have filed electronically with respect to the subject two-party exchange; and (B) The terminal operator treats the receiving supplier in its books and records as the person that removes the diesel fuel across a terminal rack for purposes of reporting the two-party exchange to the Board: and (C) The two-party exchange is the subject of a written contract between the delivering supplier and the receiving supplier, acceptable evidence of which includes, but is not limited to, exchange statements, exchange differential invoices, exchange reconciliations, or any other similar writing between the parties; and (D) All of the reporting requirements set forth in subdivisions (d) and (e) of this section are met. (2) "Delivering supplier" means a supplier licensed pursuant to Section 60131 of the Revenue and Taxation Code, who is the position holder of the diesel fuel in the terminal on whom the diesel fuel tax is imposed on removal of diesel fuel from the rack for all purposes other than for a two-party exchange. (3) "Receiving supplier" means a supplier licensed pursuant to Section 60131 of the Revenue and Taxation Code, on whom the diesel fuel tax is imposed only on removal of diesel fuel from the rack as the receiving supplier under a two-party exchange. (4) "Terminal" as defined in Section 60033 of the Revenue and Taxation Code, includes, for purposes of this regulation, a terminal located at a refinery. (c) Liability for Tax. (1) The delivering supplier is primarily liable for taxes imposed under Section 60051 or Section 60052(a) of the Revenue and Taxation Code, except, when a transaction satisfies the conditions and requirements for a two-party exchange, the delivering supplier shall be relieved of diesel fuel tax liability and the receiving supplier shall be liable for payment of diesel fuel taxes on the diesel fuel removed pursuant to the two-party exchange. (2) The receiving supplier must report the two-party exchange and remit any tax due on a tax return filed within three months after the close of the calendar month in which the diesel fuel was received. The receiving supplier may claim a refund for any amounts applied by the Board to the account of the receiving supplier under a two-party exchange contract. When all parties report a transaction as a two-party exchange, the receiving supplier may not file a claim for refund of the tax on the grounds that the transaction was not a two-party exchange. (3) If the receiving supplier fails to report or remit taxes in conformity with this regulation, then the delivering supplier shall remain primarily liable for taxes due on the removal of the diesel fuel from the rack. (d) Reporting Requirements - Generally. (1) The terminal operator must report to the Board the two-party exchange of diesel fuel between the delivering supplier and the receiving supplier. (2) The terminal operator, the delivering supplier, and the receiving supplier must each use the same identifying information (e.g., bill of lading number) to refer to or otherwise report the subject two-party exchange. (3) The terminal operator, the delivering supplier, and the receiving supplier must each enter the same fuel type on any report that includes a two-party exchange. (e) Reporting Requirements - Delivering and Receiving Suppliers. The following reporting requirements must be met in order for an exchange of diesel fuel to qualify as a two-party exchange and to shift the diesel fuel tax liability from the delivering supplier to the receiving supplier. (1) The delivering supplier must report the two-party exchange and identify the receiving supplier to the terminal operator; and (2) The delivering supplier must report to the Board a tax-free delivery of diesel fuel to the receiving supplier; and (3) The receiving supplier must report to the Board a tax-free receipt of diesel fuel from the delivering supplier; and (4) The receiving supplier must report to the Board the rack removal of diesel fuel to its customers and the amount of tax due. (f) Operative Date. The provisions of this regulation are operative January 1, 2007. Note: Authority cited: Sections 60063 and 60601, Revenue and Taxation Code. Reference: Section 60051, 60052, 60053, 60054, 60063, 60131, 60201, 60204, 60604 and 60605, Revenue and Taxation Code. s 1425. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 60250, Revenue and Taxation Code. Reference: Sections 60250 and 60252, Revenue and Taxation Code. s 1430. Shipments out of State. (a) Exports of Ex-Tax Diesel Fuel. The diesel fuel tax does not apply to the export of ex-tax diesel fuel. To qualify for an exemption from diesel fuel tax on the export of ex-tax diesel fuel, the supplier must claim the exemption on the return filed for the period in which the export occurred. Suppliers who erroneously pay tax on exports of ex-tax diesel fuel may file a claim for refund with the Board pursuant to Revenue and Taxation Code Sections 60521 through 60524 in order to obtain a refund of or credit for the amount of tax so paid. (1) For purposes of this subdivision, "export" means the delivery or shipment from a point in this state to a point outside of the state when pursuant to the contract of sale the diesel fuel is shipped by a supplier by any of the following means: (A) Facilities operated by the supplier. (B) Delivery by the supplier to a carrier, customs broker, or forwarding agent, whether hired by the purchaser or not, for shipment to the out-of-state point. (C) Delivery by the supplier to any vessel clearing from a port of this state for a port outside of this state and actually exported from this state in the vessel. (2) For purposes of this subdivision, "carrier" means a person who is regularly engaged in the business of transporting for compensation property owned by other persons and includes both common and contract carriers. An individual or firm does not become a "carrier" simply by being designated by a purchaser to receive and ship goods to a point outside this state. (3) For purposes of this subdivision, "forwarding agent" means a person or firm regularly engaged in the business of preparing property for shipment or arranging for its shipment. An individual or firm does not become a "forwarding agent" simply by being designated by a purchaser to receive and ship goods to a point outside this state. (b) Exports of Tax-Paid Diesel Fuel. A person who exports diesel fuel on which tax has been paid may file a claim for refund with the Board pursuant to Revenue and Taxation Code Sections 60501 through 60512 in order to obtain a refund of the amount of tax so paid. For purposes of this subdivision, the seller is deemed to be the exporter of diesel fuel when the diesel fuel is delivered to an out-of-state location by facilities of the seller or by common carrier on behalf of the seller, and the purchaser is deemed to be the exporter of diesel fuel when the diesel fuel is delivered to an out-of-state location by facilities of the purchaser or by common carrier on behalf of the purchaser. (1) All claims for refund of tax paid on exported diesel fuel must be supported by, and the claim for refund covering the export must contain the following: (A) The name, address, telephone number, and permit number of the person that sold the diesel fuel to the claimant. (B) The date the diesel fuel was purchased. (C) A statement by the claimant that the diesel fuel covered by the claim did not contain visible evidence of dye. (D) A statement, which may appear on the invoice or similar document, by the person that sold the diesel fuel to the claimant that the diesel fuel sold did not contain visible evidence of dye. (E) The total amount of diesel fuel covered by the claim. (F) A properly executed bill of lading or similar document furnishing proof of exportation by the claimant. (2) In lieu of claiming a refund of tax for export of tax-paid diesel fuel, if the claimant is a supplier, the claimant may take a credit on its diesel fuel tax return for tax-paid diesel fuel when, pursuant to the contract of sale, the diesel fuel is required to be shipped and is shipped to a point outside of this state by the supplier claiming the credit by any of the means described in subdivision (a)(1) above. The credit must be claimed on a return filed within three months after the close of the calendar month in which the export occurred. If the credit is not claimed on a return filed within three months after the close of the calendar month in which the export occurred, the supplier must file a claim for refund pursuant to Revenue and Taxation Code Sections 60501 through 60512 and this subdivision in order to obtain a refund of the amount of taxes paid. (c) Documentation. Any person claiming an exemption, refund or credit under this regulation must retain documentation to support the obligation to deliver diesel fuel out of state and to support the actual delivery of diesel fuel at an out of state location. Documentation may include, but is not limited to, contracts, bills of lading, delivery tickets, invoices and rack meter readings. The person claiming the exemption, refund or credit has the burden of proving that the diesel fuel was exported. (d) Diversion of Diesel Fuel. Diesel fuel is not exported if it is diverted in transit or for any reason it is not actually delivered outside of the state, regardless of documentary evidence held by the person exporting the diesel fuel respecting delivery of the diesel fuel to a carrier for out-of-state shipment or to a vessel clearing for an out-of- state port. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60033, 60100, 60201, 60501- 60512, 60521-60524 and 60604, Revenue and Taxation Code. s 1431. Diesel Fuel Used on a Farm for Farming Purposes. The following provisions and definitions apply for purposes of the exemption from the backup tax pursuant to Revenue and Taxation Code Section 60100(a)(5)(A), and the refund of tax to the ultimate vendor pursuant to Revenue and Taxation Code Section 60502. (a) The term "used on a farm for farming purposes" applies only to diesel fuel which is used (i) in carrying on a trade or business of farming, (ii) on a farm in California, and (iii) for farming purposes. (b) A person will be considered to be engaged in the "trade or business of farming" if the person cultivates, operates, or manages a farm for gain or profit, either as an owner or a tenant. A person engaged in forestry or the growing of timber is not thereby engaged in the trade or business of farming. A person who operates a garden plot, orchard, or farm for the primary purpose of growing produce for the person's own use is not considered to be engaged in the trade or business of farming. Generally, the operation of a farm does not constitute the carrying on of a trade or business if the farm is occupied by a person primarily for residential purposes or is used primarily for pleasure, such as for the entertainment of guests or as a hobby. (c) The term "farm" is used in its ordinary and accepted sense, and generally means land used for the production of crops, fruits, or other agricultural products or for the sustenance of livestock or poultry. The term "livestock" includes cattle, hogs, horses, mules, donkeys, sheep, goats, and captive fur-bearing animals. The term "poultry" includes chickens, turkeys, geese, ducks, and pigeons. Thus, a farm includes livestock, dairy, poultry, fish, fruit, fur-bearing animals, and truck farms, plantations, ranches, nurseries, ranges, orchards, feed yards for fattening cattle, and greenhouses and other similar structures used primarily for the raising of agricultural or horticultural commodities. Greenhouses and other similar structures that are used primarily for purposes other than the raising of agricultural or horticultural commodities do not constitute farms, as for example, structures that are used primarily for the display, storage, fabrication, or sale of wreaths, corsages, and bouquets. A fish farm is an area where fish are grown or raised, as opposed to merely caught or harvested. (d) Diesel fuel will be considered to be used for "farming purposes" when it is used on a farm by the owner, tenant, or operator of the farm in connection with the activities described in this subdivision. Diesel fuel will be considered to be used for "farming purposes" when it is used on a farm by a person other than the owner, tenant, or operator of the farm for any of the purposes described in subdivision (d)(1). (1) Cultivating the soil, raising or harvesting any agricultural or horticultural commodity, or raising, shearing, feeding, caring for, training, or managing livestock, poultry, bees, or wildlife. Examples of operations which are considered to be operations for "farming purposes" within the meaning of this paragraph include plowing, seeding, fertilizing, weed killing, corn or cotton picking, threshing, combining, baling, silo filling, and chopping silage. (2) Handling, drying, packing, grading, or storing any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator produced more than one-half of the commodity which was so treated during the year covered by the exemption certificate described in Revenue and Taxation Code Section 60503 which supports the claim for refund. (3) Planting, cultivating, caring for, or cutting of trees that is incidental to the farming operations of the farm on which it is performed or incidental to the farming operations of the owner, tenant, or operator of the farm, or in connection with the preparation (other than milling) of trees for market that is incidental to these farming operations. These operations include the felling of trees and cutting them into logs or firewood but do not include sawing logs into lumber, chipping, or other milling operations. Operations of the prescribed character will be considered incidental to farming operations only if they are of a minor nature in comparison with the total farming operations involved. Therefore, a tree farmer or timber grower may not claim a refund under Revenue and Taxation Code Section 60502 with respect to diesel fuel used in connection with the trade or business of tree farming or timber growing. (4) Operation, management, conservation, improvement, or maintenance of the farm and its tools and equipment. The activities included are those which contribute in any way to the conduct of the farm as such, as distinguished from any other enterprise in which the owner, tenant, or operator may be engaged. Examples of included operations are clearing land, repairing fences and farm buildings, building terraces or irrigation ditches, cleaning tools or farm machinery, and painting farm buildings. Since the diesel fuel must be used by the owner, tenant, or operator of the farm to which the operations relate, diesel fuel used by an organization which contracts with a farmer to renovate his farm properties is not used for farming purposes. Diesel fuel used in a lawn mower for maintaining a lawn is not used for farming purposes. (e) Diesel fuel used in connection with the following operations which may occur on a farm will not be considered to be used for farming purposes: (1) Canning, freezing, packaging, or processing operations. Thus, for example, although diesel fuel used on a farm in connection with the production or harvesting of maple sap or oleoresin from a living tree is considered to be used for farming purposes under paragraph (d)(1) above, diesel fuel used in the processing of maple sap into maple syrup or maple sugar or used in the processing of oleoresin into gum spirits of turpentine or gum resin is not used for farming purposes, even though these processing operations are conducted on a farm. (2) Processing operations which change a commodity from its raw or natural state, or operations performed with respect to a commodity after its character has been changed from its raw or natural state by a processing operation. For example, diesel fuel used for the extraction of juices from fruits or vegetables is used in a processing operation which changes the character of the fruits or vegetables from their raw or natural state and will not be considered to be used for "farming purposes." (f) The diesel fuel tax does not apply to diesel fuel used in the operation of an implement of husbandry, truck or farm tractor which does not require registration under the Vehicle Code, which is used on a farm for farming purposes and which only incidentally is operated upon a highway in moving between farms or parts of farms which are in close proximity. For purposes of this subdivision, "incidentally operated" does not include the use of agricultural vehicles for the transportation of persons or property upon the highways in an operation which requires registration of the vehicle under the Vehicle Code. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60036, 60037, 60038, 60058, 60100, 60151, 60501, 60502 and 60512, Revenue and Taxation Code. s 1432. Other Nontaxable Uses of Diesel Fuel in a Motor Vehicle. (a) Power Take-Off Equipment. (1) A person may claim a refund for tax paid on diesel fuel used to operate power take-off equipment. Power take-off equipment is generally defined to be an accessory which is mounted onto a transmission allowing power to be transferred outside the transmission to a shaft or driveline. The accessory is usually either a small gearbox with an external shaft, or a short shaft with a driveline yoke assembly for attaching an external driveline. The vehicle's transmission must be specially designed for a power take-off. (2) Power take-off equipment may be found, for example, on boom trucks (block boom), bulk feed trucks, car carriers or trucks with hydraulic winches, carpet cleaning vans, cement mixers, distribution trucks (hot asphalt), dump trailers, dump trucks, fire trucks, leaf trucks, lime spreaders, line trucks (digger/derrick), aerial lift trucks, milk tank trucks, mobile cranes, pneumatic tank trucks, refrigeration trucks, salt spreaders (dump with spreader), sanitation trucks, seeder trucks, semi-wreckers, service trucks with jackhammers, pneumatic drills, sewer cleaning trucks (sewer jet, sewer vactor), snow plows, spray trucks, sweeper trucks, tank trucks, tank transports and wreckers. (b) Off-Highway Use. (1) A person may claim a refund for tax paid on diesel fuel used off the highway. "Off the highway" includes private property, a way or place permanently or temporarily closed to public use for the purpose of vehicular travel, or any way or place used for vehicular travel which is not a highway as defined in Regulation 1411. (2) If the diesel fuel is used in the operation of construction equipment which is exempt from registration under the Vehicle Code, the user must establish to the satisfaction of the Board that the diesel fuel is used in the operation of the construction equipment while operated within the confines or limits of a construction project and only incidentally operated on the highway within such confines or limits. (3) As used in subdivision (2), "incidentally operated" does not include the use of special construction equipment for the transportation of persons or property upon the highways in an operation which requires registration of the vehicle under the Vehicle Code. (c) Refunds. Persons who acquire diesel fuel tax paid and subsequently use the diesel fuel in power take-off equipment or off the highway are entitled to a refund of the diesel fuel tax paid for that fuel. Persons claiming a refund may use any method to calculate the amount of refund, including computing a percentage of the fuel used for nontaxable purposes. It is the responsibility of the person claiming the refund to document and support the amount claimed. (d) Idle Time. Diesel fuel consumed in motor vehicles on the highway is subject to the diesel fuel tax whether the motor vehicle is moving or idling, and no refunds will be allowed for diesel fuel tax paid on diesel fuel which is used to idle a vehicle on the highway. If the vehicle is idling on the highway while power take-off equipment is in use, a refund will be allowed for the diesel fuel tax paid on that portion of the diesel fuel which is used to operate the power take-off equipment; however, no refund will be allowed for the diesel fuel tax paid on that portion of the diesel fuel which is used for idling. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60016, 60019, 60026, 60501 and 60502, Revenue and Taxation Code. s 1433. Refund of Tax on Diesel Fuel Lost in the Course of Handling, Transportation, or Storage. (a) The Board will refund the tax paid on diesel fuel which is lost in the course of handling, transportation or storage provided that: (1) The tax-paid diesel fuel was lost under circumstances beyond the claimant's control such as fire, flood, accidental spillage or leakage, or natural catastrophe; or (2) The tax-paid diesel fuel was lost through the accidental conversion of undyed diesel fuel to dyed diesel fuel; or (3) The tax-paid diesel fuel was lost through the intentional conversion of undyed diesel fuel to dyed diesel fuel in the ordinary course of handling (such as purging hoses). (b) Tax-paid diesel fuel will qualify as lost under subsections (a)(2) or (3) above only if the fuel that was converted from undyed fuel to dyed fuel is sold as dyed diesel fuel. (c) No refund will be made based on losses of diesel fuel which occur due to evaporation or shrinkage. (d) A person who loses fuel in the course of handling, transportation or storage may file a claim for refund with the Board pursuant to Revenue and Taxation Code Sections 60501 through 60512 in order to obtain a refund of the diesel fuel tax paid on the lost fuel. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60501-60512, Revenue and Taxation Code. s 1434. Sales of Diesel Fuel to the United States and its Agencies and Instrumentalities. (a) In General. The diesel fuel tax does not apply to the sale of diesel fuel to the United States and its agencies and instrumentalities. Examples of the United States and its agencies and instrumentalities include, but are not limited to, the American Red Cross, U.S. Postal Service, branches of the armed services, military exchanges, and agencies such as the USDA Forest Service and the Department of Housing and Urban Development. (b) Sales of Ex-Tax Diesel Fuel. A supplier licensed under the Diesel Fuel Tax Law that makes sales of ex-tax diesel fuel to the United States and its agencies and instrumentalities, may claim an exemption on its diesel fuel tax return. (c) Sales of Tax-Paid Diesel Fuel. (1) A supplier licensed under the Diesel Fuel Tax Law that makes sales of tax-paid diesel fuel to the United States and its agencies and instrumentalities may claim a credit on its diesel fuel tax return. The tax-paid fuel may be sold in bulk or through any company-owned retail service station. (2) A person licensed as an ultimate vendor under the Diesel Fuel Tax Law who makes a sale of tax-paid fuel to the United States and its agencies and instrumentalities may claim a refund on its diesel fuel tax claim for refund referenced in subdivision (d). (3) A diesel fuel seller not required to be licensed under the Diesel Fuel Tax Law, including, but not limited to, a wholesaler, access card issuer or service station operator may file a claim for refund of tax on its sales of tax-paid diesel fuel to the United States and its agencies and instrumentalities as to those gallons of diesel fuel it sells ex-tax to the United States and its agencies and instrumentalities. The claim for refund may only be filed by the person that owned the tax-paid diesel fuel and directly sold the tax-paid diesel fuel to the United States and its agencies and instrumentalities. "Access card issuer" means a person that issues to a customer an access card or code or similar access device which entitles the customer to obtain fuel owned by the access card issuer at participating fuel dispensing sites. As used in this regulation "fuel owned by the access card issuer" means fuel owned by the access card issuer at its own fuel dispensing site or fuel purchased by the access card issuer from an operator of a fuel dispensing site at the time that the fuel is dispensed to the United States and its agencies and instrumentalities. (d) Contents of Claim for Refund. A claim for refund filed by a diesel fuel seller who is not an ultimate vendor shall contain the information required by Revenue and Taxation Code s 60501(b). A claim for refund filed by an ultimate vendor shall contain the information required by Revenue and Taxation Code s 60502(c). (e) Documentation for Bulk Transactions. Any person claiming an exemption, credit, or refund for bulk sales of diesel fuel to the United States and its agencies and instrumentalities, must retain supporting documentation. Documentation may include, but is not limited to: (1) A copy of the United States government purchase order or order documentation authorizing the purchase of the diesel fuel. (2) A copy of the billing invoice or other documents identifying the United States and its agencies and instrumentalities as the purchaser of the diesel fuel, the invoice billing date, the invoice billing number, the number of diesel fuel gallons sold to the United States and its agencies and instrumentalities and a clear indication that no diesel fuel tax reimbursement was collected from the United States and its agencies and instrumentalities. (3) Documentation showing that the diesel fuel in question was acquired ex-tax by a licensed supplier claiming the exemption. (4) Documentation showing that the diesel fuel in question was acquired tax-paid by a person claiming the credit or refund. (f) Documentation for Non-Bulk Transactions. Any person claiming a credit or filing a claim for refund on retail sales of tax-paid fuel sold in non-bulk quantities, including credit card sales to the United States and its agencies and instrumentalities, must retain supporting documentation. Documentation may include, but is not limited to: (1) A copy of the billing invoice or other documentation identifying the United States and its agencies and instrumentalities as the purchaser of the diesel fuel, the invoice billing date, the invoice billing number, the number of diesel fuel gallons sold to the United States and its agencies and instrumentalities and a clear indication that no diesel fuel tax reimbursement was collected from the United States and its agencies and instrumentalities. (2) Documentation showing that the diesel fuel in question was acquired tax-paid by a person claiming the credit or refund. (3) A copy of the credit card receipt or listing of credit card transactions provided by the card processor, identifying the United States and its agencies and instrumentalities as the purchaser of the diesel fuel, the date of the transaction, the record number of the receipt, and the number of diesel fuel gallons sold to the purchaser. (4) A copy of the charge back of the tax to the retailer by the credit card processor. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60100, 60501, 60502 and 60508, Revenue and Taxation Code. s 1435. Tax Paid Twice on Diesel Fuel. (a) A supplier who removes diesel fuel from a terminal rack on which a prior tax was paid to the state may either file a claim for refund with the Board or in lieu of a refund take a credit on its tax return. (b) Conditions to Allow a Credit on a Tax Return. The credit will be allowed only if: (1) A tax imposed on the diesel fuel by Revenue and Taxation Code Sections 60051 and 60052 was paid to the state by reporting the gallons on a tax return and was not credited or refunded (the "first tax" or "first taxpayer"); (2) After imposition of the first tax, another tax was imposed on the diesel fuel by Revenue and Taxation Code Sections 60051 and 60052 and was paid to the state by reporting the gallons on a tax return (the "second tax" or "second taxpayer"); (3) The person that paid the second tax to the state claims a credit on a tax return filed within three months after the close of the calendar month in which the second tax was reported to the state; (4) The person that paid the first tax to the State has met the reporting requirements of paragraph (c) of this section; and (5) A copy of the first taxpayer's report and any copies of statements of subsequent seller must be retained for inspection by the Board with the tax return on which the credit is claimed. (c) Reporting Requirements. (1) Reporting by persons paying the first tax. Except as provided in paragraph (c)(2) of this section, the person that paid the first tax under Revenue and Taxation Code Section 60051 and 60052 (the first taxpayer) must file a report that is in substantially the same form as the model report provided in Exhibit A and contains all information necessary to complete such model report (the first taxpayer's report). A first taxpayer's report must be retained for inspection by the Board with the tax return on which the first tax was paid or reported. (2) Optional reporting for certain taxable events. Paragraph (c)(1) does not apply with respect to a tax imposed under Revenue and Taxation Code Section 60051 (removal at a terminal rack), Revenue and Taxation Code Section 60052(b)(2) (nonbulk entries into the state), or Revenue and Taxation Code Section 60052(d) (removals or sales by blenders). However, if the person liable for the tax expects that another tax will be imposed under Revenue and Taxation Code Sections 60051 and 60052 with respect to the fuel, that person should file a first taxpayer's report. (3) Information provided to subsequent owners, etc. (A) By Person Required to File First Taxpayer's Report. A first taxpayer required to file a first taxpayer's report under paragraph (c)(1) of this section must give a copy of the report to: 1. The person to whom the first taxpayer sells the diesel fuel within the bulk transfer/terminal system; or 2. The owner of the diesel fuel immediately before the imposition of the first tax, if the first taxpayer is not the owner at that time. (B) By Person Filing Optional First Taxpayer's Report. A first taxpayer filing a first taxpayer's report under paragraph (c)(2) of this section should give a copy of the report to: 1. The person to whom the first taxpayer sells the diesel fuel; or 2. The owner of the diesel fuel immediately before the imposition of the first tax, if the first taxpayer is not the owner at that time. (C) By Person Receiving First Taxpayer's Report. 1. Bulk Transfer/Terminal System Transaction A person that receives a copy of the first taxpayer's report and subsequently sells the diesel fuel within the bulk transfer/terminal system must give the copy and a statement that satisfies the requirements of paragraph (c)(3)(D) of this section to the buyer. 2. Rack and Below Rack Transaction A person that receives a copy of the first taxpayer's report and subsequently sells the diesel fuel outside the bulk transfer/terminal system should give the copy and a statement that satisfies the requirements of paragraph (c)(3)(D) of this section to the buyer, if that person expects that another tax will be imposed under Revenue and Taxation Code Sections 60051 and 60052 with respect to the diesel fuel. (D) Form of Statement. A statement satisfies the requirements of this paragraph (c)(3)(D) if it is provided at the bottom or on the back of the copy of the first taxpayer' s report (or in an attached document). This statement must contain all information necessary to complete the model statement provided in Exhibit B but need not be in the same format. (E) Sale to Multiple Buyers. If the first taxpayer's report relates to diesel fuel divided among more than one buyer, multiple copies of the first taxpayer's report must be made at the stage that the diesel fuel is divided and each buyer must be given a copy of the report. (d) Claim for Refund. If the supplier fails to take a credit on a tax return filed within three months after the close of the calendar month in which the second tax was imposed, the supplier may only file a claim for refund with the Board to recover the tax. Each claim for a refund must contain the following information with respect to the fuel covered by the claim: (1) The information required in Revenue and Taxation Code Section 60501. (2) Volume and type of diesel fuel. (3) Date on which the claimant incurred the tax liability to which this claim relates (the second tax). (4) Amount of second tax that claimant paid or reported to the state and the tax return on which it was paid or reported. (5) A statement that claimant has not separately stated on the sales invoice reimbursement for both the first tax and the second tax or has not included in the sales price of the diesel fuel reimbursement for both the first tax and the second tax. The second taxpayer can only receive reimbursement for one tax from the customer. (6) A copy of the first taxpayer's report that relates to the diesel fuel covered by the claim. (7) If the diesel fuel covered by the claim was bought other than from the first taxpayer, a copy of the statement of subsequent seller that the claimant received with respect to that diesel fuel. EXHIBIT A First Taxpayer's Report 1. First Taxpayer's Board of Equalization supplier account number __________ __________ 2. __________ __________ First Taxpayer's name, address, and employer identification number 3. __________ __________ Name, address, and employer identification number of the buyer of the diesel fuel subject to tax 4. __________ __________ Date and location of removal, entry, or sale and document number 5. Volume and type of diesel fuel removed, entered, or sold __________ __________ 6. Check type of taxable event: ___ Removal from refinery ___ Entry into United States or state ___ Bulk transfer from terminal by unregistered position holder ___ Bulk transfer not received at an approved terminal ___ Sale within the bulk transfer/terminal system ___ Removal at the terminal rack ___ Removal or sale by the blender 7. __________ __________ Amount of Federal excise tax paid and State motor vehicle fuel tax paid on account of the removal, entry, or sale 8. Location of IRS service center where this report is filed __________ __________and State reporting period of payment __________ __________ The undersigned taxpayer (the "Taxpayer") has not received, and will not claim, a credit with respect to, or a refund of, the tax on the diesel fuel to which this form relates. Under penalties of perjury, the Taxpayer declares that Taxpayer has examined this statement, including any accompanying schedules and statements, and, to the best of Taxpayer's knowledge and belief, they are true, correct and complete. __________ Signature and date signed __________ Printed or typed name of person signing this report __________ Title EXHIBIT B Statement of Subsequent Seller 1. __________ __________ Board of Equalization supplier account number or prepaid sales tax account number 2. __________ __________ Name, address, and employer identification number of seller in subsequent sale 3. __________ __________ Name, address, and employer identification number of buyer in subsequent sale 4. __________ __________ Date and location of subsequent sale and document number 5. __________ __________ Volume and type of diesel fuel sold The undersigned seller (the "Seller") has received the copy of the first taxpayer's report provided with this statement in connection with Seller's purchase of the diesel fuel described in this statement. Under penalties of perjury, Seller declares that Seller has examined this statement, including any accompanying schedules and statements, and, to the best of Seller's knowledge and belief, they are true, correct and complete. __________ Signature and date signed __________ Printed or typed name of person signing this statement __________ Title Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60051, 60052, 60501, 60507, 60508.4 and 60521.5, Revenue and Taxation Code. s 1436. Returned Sales. (a) When diesel fuel included in a supplier's taxable removals, entries or sales is returned to the supplier by the customer to whom it was sold and is delivered into a refinery or an approved terminal's storage tank, the supplier may either file a claim for refund with the Board or in lieu of the refund take a credit on its tax return. The credit memorandum covering the return of the diesel fuel shall identify the gallonage returned as either volumetric gallons or temperature corrected gallons based upon how the tax was originally invoiced to the customer and shall separately state the diesel fuel tax. (b) It shall be presumed that the supplier purchased the diesel fuel that was returned as tax-paid diesel fuel if the credit memorandum includes diesel fuel tax. For the purpose of a refund or credit, it also shall be presumed that the subsequent removal of the diesel fuel from a terminal rack by the supplier that received the returned diesel fuel is made in the month that the diesel fuel was returned. (c) Conditions to Allow a Credit on a Tax Return. The credit will be allowed only if: (1) The returned diesel fuel was delivered into a refinery or an approved terminal storage tank. (2) The credit is taken on a tax return filed within three months after the close of the calendar month in which the diesel fuel is returned. (3) The supplier prepares a first taxpayer's report (as identified in Regulation 1435) when the diesel fuel is returned. (4) A copy of the first taxpayer's report and the credit memorandum must be retained for inspection by the Board with the tax return on which the credit is claimed. (d) If the supplier fails to take a credit on a tax return filed within three months after the close of the calendar month in which the diesel fuel was returned, the supplier may only file a claim for refund with the Board to recover the tax. Each claim for a refund must contain the following information with respect to the diesel fuel covered by the claim: (1) The information required in Revenue and Taxation Code Section 60501. (2) Volume and type of diesel fuel. (3) Date on which the claimant received the returned diesel fuel. (4) A copy of the first taxpayer's report that relates to the diesel fuel covered by the claim. (5) A copy of the credit memorandum that returned the diesel fuel. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60025, 60501 and 60508.4, Revenue and Taxation Code. s 1470. Records. (a) General. A taxpayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), suppliers, ultimate vendors, retail vendors, and users shall comply with the following requirements. (1) Supplier's Records. A supplier shall maintain complete records of all rack removals, sales, imports, and exempt dispositions including exemption certificates, self-consumed diesel fuel, inventories, purchases, receipts, and tank gaugings or meter readings, of diesel and any other fuel that is required to be accounted for on the supplier's return or report. Such records include but are not limited to: (A) Refinery Reports related to the production of diesel fuel. (B) Inventory reconciliation by location. (C) Storage inventory reports. (D) List of storage locations. (E) Tax returns from other states to support export claims. (F) Cardlock statements. (G) Calculations or formulas to support off-highway exempt usage. (H) First Taxpayer Reports. (I) Support for claimed Supplier bad debts. (2) Ultimate Vendor's Records. An ultimate vendor shall maintain complete records of all sales, exports, or other dispositions of tax-paid diesel fuel for which a claim for refund is being made, including exemption certificates, self-consumed fuel, inventories, purchases, receipts, and tank gaugings or meter readings, of diesel fuel and any other fuel the use of which is accounted for on the ultimate vendor's claim for refund. Such records may include but are not limited to: (A) Purchase invoices for undyed tax-paid diesel fuel. (B) Purchase invoices for dyed ex-tax diesel fuel. (C) Delivery tickets for diesel fuel exported. (D) Tax returns from other states to support diesel fuel export claims. (E) Copies of United States Government purchase orders or United States Government credit card receipts. (F) Cardlock statements. (G) Calculations or formulas to support off-highway exempt usage of diesel fuel. (3) Ultimate Vendor's Sales Invoices. The ultimate vendor shall prepare a serially numbered invoice for each sale of diesel fuel. A single invoice or a single cardlock statement covering multiple deliveries of diesel fuel made during a period of time not to exceed a calendar month shall constitute an invoice for each sale. If the multiple delivery invoice or cardlock statement includes both tax-exempt deliveries with respect to which the ultimate vendor is excused from collecting the tax and deliveries upon which the tax is required to be collected, the invoice or cardlock statement shall contain or be accompanied by a statement showing separately the deliveries and gallonage upon which the tax is collected and the tax-exempt deliveries and gallonage. The invoice or cardlock statement shall be delivered to the purchaser, and a copy thereof shall be retained by the ultimate vendor. A sales invoice or cardlock statement shall contain the following information: (A) The name and address of the ultimate vendor. (B) The name of the purchaser. (C) The date of sale. (D) The number of gallons of diesel fuel sold, the price per gallon and the total amount of the sale. (E) The amount of the diesel fuel tax collected, however, the amount of the tax collected need not be separately stated if the invoice bears the notation that the price includes the tax. (F) A statement that there is no evidence of dye in the undyed diesel fuel included in the invoice or cardlock statement. (G) The dyed diesel fuel notice for dyed diesel fuel included in the invoice or cardlock statement. (4) Receipt for Tax Paid to a Retail Vendor. The sales invoice shall upon payment by the purchaser constitute a receipt for the amount of diesel fuel tax included therein collected by the retail vendor. The sales invoice shall contain the information in (A), (B), (C) and (D). The sales invoice or similar document shall also include the information in (E) and (F). (A) The name and address of the retail vendor. (B) The date of sale. (C) The number of gallons of diesel fuel sold, the price per gallon and the total amount of the sale. (D) The amount of the diesel fuel tax collected, however, the amount of the tax collected need not be separately stated if the invoice bears the notation that the price includes the tax. (E) A statement that there is no evidence of dye in the undyed diesel fuel included in the invoice. (F) The dyed diesel fuel notice for dyed diesel fuel included in the invoice. (5) User's Records. The user shall maintain complete records of self-consumed diesel fuel, inventories, purchases, receipts, and tank gaugings or meter readings, of diesel fuel and any other fuel the use of which is subject to the diesel fuel tax. Records shall also support any calculations or formulas used to claim exempt percentages of exempt usage of diesel fuel. (6) User's Invoices. Users of diesel fuel subject to the tax shall obtain from the retail vendor of the diesel fuel and retain in their files an invoice for each delivery of such diesel fuel into the fuel tank or tanks of each vehicle operated by them and for each delivery into their bulk storage tank or tanks. These invoices shall set forth the information specified in subsection (b)(4) of this regulation and shall be filed or identified in a systematic manner so that they may readily be traced into their purchase or expense records and into their tax returns or claims for refund to the board. Users should keep as part of their records a detail of figures upon which are based the totals set forth on their tax returns or claims for refund to the board. When diesel fuel is placed into the fuel tank of a qualified motor vehicle, either the user or the retail vendor should indentify on the invoice the qualified motor vehicle into which the diesel fuel was placed. All individual invoices supporting charge accounts which include purchases of diesel fuel shall be retained by the user in such manner as to enable the representatives of the board to establish the identity of all the merchandise or service included in the total charge and the specific gallonage of diesel fuel purchased. Note: Authority cited: Section 60601, Revenue and Taxation Code. Reference: Sections 60044, 60107, 60201, 60202, 60204, 60204.5, 60205, 60205.5, 60206, 60604, 60605 and 60606, Revenue and Taxation Code. s 1500. Foreword. (a) General. These regulations are issued by the State Board of Equalization pursuant to section 7051 of the Revenue and Taxation Code, to implement, interpret or make specific provisions of the California Sales and Use Tax Law and to aid in the administration and enforcement of that law, which is contained in Part 1 of Division 2 of the Revenue and Taxation Code. Also included in Subchapter 4 are regulations pertaining to the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 of Division 2 of the Revenue and Taxation Code) and to local transit district transactions (sales) and use taxes (Part 1.6 of Division 2 of the Revenue and Taxation Code). The local sales and use taxes are collected by the board with state sales and use taxes but are imposed under uniform local ordinances authorized by state law. (b) Revision. The State Board of Equalization beginning in 1969, undertook a complete revision and restructuring of the sales and use tax regulations. The series numbered as sections 1900 through 2206 have been replaced by a new series of sections numbered between 1500 and 1899. The provisions of the new codification insofar as they are substantially the same as previous rulings (regulations) relating to the same subject matter shall be construed as restatements and continuations and not a new interpretations. (c) Use of Terms. (1) The term "tax applies" as used in these regulations in reference to a sale or to an amount included in a sale, means, unless otherwise indicated, that either: (A) The sales tax applies, measured by the gross receipts from the sale, or (B) The use tax applies to the storage, use, or other consumption of the property sold, measured by the sales price. (2) When it is stated that certain persons are "retailers" of tangible personal property, it should be understood that they must comply with all requirements imposed upon retailers, including: (A) Obtaining a seller's permit for each place of business in this state. (B) Filing returns and paying tax. (C) Collecting use tax when applicable and remitting the tax with returns. (D) Keeping records and giving resale certificates. (3) When it is stated that certain persons are "consumers" of tangible personal property under stated conditions, it should be understood that the sales to such persons are retail sales in respect to which either the sales or use tax applies and that resale certificates should not be given by such consumers in purchasing the property. (d) Violations. Violation of any of the rules and regulations issued by the board may subject a violator to the revocation or suspension of his seller's permit. A person who engages as a seller without a permit or after a permit has been suspended is guilty of a misdemeanor. Note: Authority cited for Sections 1500-2206: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-7176, Revenue and Taxation Code. (Also See Article 21) s 1501. Service Enterprises Generally. Persons engaged in the business of rendering service are consumers, not retailers, of the tangible personal property which they use incidentally in rendering the service. Tax, accordingly, applies to the sale of the property to them. If in addition to rendering service they regularly sell tangible personal property to consumers, they are retailers with respect to such sales and they must obtain permits, file returns and remit tax measured by such sales. If their purchases of tangible personal property are predominantly for consumption rather than for resale, they should not give resale certificates covering such purchases but should follow the procedure prescribed in the regulation governing "Tax-Paid Purchases Resold." The basic distinction in determining whether a particular transaction involves a sale of tangible personal property or the transfer of tangible personal property incidental to the performance of a service is one of the true objects of the contract; that is, is the real object sought by the buyer the service per se or the property produced by the service. If the true object of the contract is the service per se, the transaction is not subject to tax even though some tangible personal property is transferred. For example, a firm which performs business advisory, record keeping, payroll and tax services for small businesses and furnishes forms, binders, and other property to its clients as an incident to the rendition of its services is the consumer and not the retailer of such tangible personal property. The true object of the contract between the firm and its client is the performance of a service and not the furnishing of tangible personal property. Similarly, an idea may be expressed in the form of tangible personal property and that property may be transferred for a consideration from one person to another; however, the person transferring the property may still be regarded as the consumer of the property. Thus, the transfer to a publisher of an original manuscript by the author thereof for the purpose of publication is not subject to taxation. The author is the consumer of the paper on which he has recorded the text of his creation. However, the tax would apply to the sale of mere copies of an author's works or the sale of manuscripts written by other authors where the manuscript itself is of particular value as an item of tangible personal property and the purchaser's primary interest is in the physical property. Tax would also apply to the sale of artistic expressions in the form of paintings and sculptures even though the work of art may express an original idea since the purchaser desires the tangible object itself; that is, since the true object of the contract is the work of art in its physical form. When a transaction is regarded as a sale of tangible personal property, tax applies to the gross receipts from the furnishing thereof, without any deduction on account of the work, labor, skill, thought, time spent, or other expense of producing the property. Examples of service enterprises and regulations pertaining thereto will be found in regulations which follow. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006 and 6015, Revenue and Taxation Code. Advertising Agencies, Commercial Artists and Designers, see regulation 1540 (unrevised series 1902). Installers, Repairers and Reconditioners, see regulation 1546, et seq. Occasional Sale exemption, application to Service Enterprises, see regulation 1595. Tax-Paid Purchases Resold, see regulation 1701. X-ray Laboratories, see regulation 1528 (unrevised series 1933). s 1501.1. Research and Development Contracts. (a) Definitions. (1) Qualified Research and Development Contract. A qualified research and development contract is a contract for a service where: a. the service provided under the contract is undertaken for the purpose of discovering information which is technological in nature, the results of which are intended to be useful in the development of a new or improved product, process, technique, or invention, and b. the contract calls for the delivery of a report detailing information developed by the contractor or other tangible personal property incidental to the true object of the contract, as defined in Regulation 1501 (18 CCR 1501). A qualified research and development contract shall not include a contract for research for the purpose of improving a commercial product if the improvements relate to style, taste, cosmetic or seasonal design factors. A qualified research and development contract shall also not include a contract for the design and production of a custom-made item as defined in subdivision (a)(5). (2) Research. A planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (product) or a new process or technique (process) or in bringing about a significant improvement to an existing product or process. (3) Development. The translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. "Development" includes the conceptual formulation, design, and testing of product alternatives, and construction of prototypes but does not include: a. routine or periodic alterations to existing products, production lines, manufacturing processes, and other on-going operations even though those alterations may represent improvements, and b. market research or market testing activities. (4) Tangible Personal Property. Tangible personal property transferred in a qualified research and development contract includes, but is not limited to the following: a. Appearance model - a non-operating model of a design that is a physical representation of the design which is used to convey the image, texture and appearance of the design. b. Prototype model - an operating model of a design the purpose of which includes: 1. validating design concepts, 2. validating design specifications, 3. demonstrating design integrity, or 4. demonstrating manufacturability of the design. c. Prototype or temporary tooling - tooling produced and used in the development of prototypes. (5) Custom-Made Items. A custom-made item includes, but is not limited to the following: a. Property the purchaser wants for its intrinsic value as an item, and for which the purchaser is not interested in the data developed in the course of the manufacture of the custom-made item. b. Property the purchaser will use for purposes other than informational and testing purposes as defined in subdivision (a)(7). c. Property purchased for use by the purchaser or for resale. d. Production tooling - tooling produced and used for the manufacture of final production units. (6) Functional Use - Use for which the property was designed which occurs after completion of the research and development. Custom-made items normally are intended for functional use and not for informational and testing use. Informational and testing use of a prototype by the contractor or its customer does not qualify as a functional use. Examples of functional use include: 1. Use as test fixtures in manufacturing equipment. 2. Use in production tooling. (7) Informational and Testing Use - Use by either the contractor or its customers including, but not limited to: 1. Testing for verification of a design to specifications. 2. Developing data, algorithms, ideas and/or knowledge to improve or perfect a design. 3. Determining alternative design features and implementations. 4. Validating testing of software and firmware embodied within a design. 5. Demonstrating operation of a design for approval by a customer. 6. Quality assurance and performance testing to determine limitations and failure modes of the design. 7. Determining or improving interfaces to other equipment during the design process. 8. Determining or improving the processes for manufacture of the design. 9. Testing to design failure. 10. Evaluating numerous prototypes for the acceptability of the design and the manufacturability of such design. Qualifying evaluation does not include any functional use of the property in a normal business operations capacity. 11. Testing prototypes to assure that the design works to the specifications desired. (8) Phased Contracts. A phased contract is a contract which provides for separate phases wherein the purchaser has the specific right to terminate the contract prior to commencement of the next phase without the delivery of tangible personal property required to be delivered in any subsequent phase specified in the contract and without further obligation except for compensation for work completed or cancellation fees. A contract for the design and manufacture of a custom-made item shall be considered a "phased contract" when: 1. the purchaser has the specific right to terminate the contract prior to or upon completion of the design phase, or 2. there are two separate contracts: one for the design service and the other for the manufacture of the custom-made item. (b) Application of Tax. (1) General. Persons engaged in the business of rendering services pursuant to a qualified research and development contract are consumers of tangible personal property which they use incidentally in rendering the service. Tax applies to the sale of the property to them. Tax does not apply to receipts derived from qualified research and development contracts except as provided below. (2) Prototypes. Prototypes transferred in a qualified research and development contract for informational and testing purposes, as defined in subdivision (a)(7), are not subject to tax regardless of the fact the research contract may place a value on the prototype. Prototypes transferred are for verification that a design meets the required technical specifications of the contract. No functional use, as defined in subdivision (a)(6), of the prototypes is made. Either the sales tax or the use tax applies with respect to sales of such tangible personal property to the contractor. Sales of additional prototypes transferred in a qualified research and development contract for purposes other than informational and testing use, where a functional use occurs, are subject to tax. This includes prototypes transferred for the purpose of testing the aesthetic features of the product by independent third parties for marketing purposes, or used for the purpose for which the property was designed. The measure of tax is the stated value for such property in the contract, or if none is stated, at the computed fair market value as determined by applying a factor of three to the cost of direct materials used in the production of the prototype. Tax applies to the transfer of title or possession of prototype tooling, in a qualified research and development contract, for functional use as defined in subdivision (a)(6), regardless of the form of the media, even if a separate charge is not made for these properties. The measure of tax is the amount provided for in the contract for duplicate or replacement sets of the property, or if no such amount is provided, the measure of tax will be equal to fair market value as determined by applying a factor of three to the cost of direct materials used in the production of the prototype tooling. (3) Custom-Made Items. A contract to design, develop, and manufacture a custom-made item is a contract to sell tangible personal property. Generally, custom-made items are intended for functional use and not for informational and testing use. Unless the sale of the property is a sale for resale, tax applies to the gross receipts from the sale of the property. Gross receipts includes the entire amount of the contract price, including charges related to research, design, and development activities. Tax applies to the entire contract price without regard to the fact that the research, design, and development charges may be separately stated. See subdivision (b)(4) if the contract qualifies as a phased contract. (4) Phased Contracts. The research and development phase and the production phase of a phased contract shall remain as two separate contracts and shall be taxed as such. Items produced for functional use in the production phase of the contract shall be subject to tax unless the purchaser provides the contractor with a resale certificate or the transfer is otherwise exempt. (5) Application to Semiconductor Industry. Production tooling, including a mask to be used in production, is a custom-made item and tax applies as outlined in subdivision (b)(3) or (b)(4) as applicable. Pattern generation tapes, wafer probe test tapes, final test tapes, schematic diagrams for the probe board, and schematic diagrams for the final test load board are informational items, if transferred for archival or other informational purposes not involving a functional use. The contractor is the consumer of the direct materials. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6009, 6010, 6011, and 6012, Revenue and Taxation Code. s 1502. Computers, Programs, and Data Processing. (a) In General. "Automatic data processing services" are those rendered in performing all or part of a series of data processing operations through an interacting assembly of procedures, processes, methods, personnel, and computers. Automatic data processing services may be provided by manufacturers of computers, data processing centers, systems designers, consultants, software companies, etc. In addition, there are banks and other businesses which own or lease computers and use them primarily for their own purposes but occasionally provide services to others. Businesses rendering automatic data processing services will be referred to herein as "data processing firms." (b) Definition of Terms. (1) Application. The specific job performance by an automatic data processing installation. For example, data processing for a payroll may be referred to as a payroll application. (2) Coding. The list, in computer code, of the successive computer instructions representing successive computer operations for solving a specific problem. (3) Computer. A computer is an electronic device (including word processing equipment and testing equipment) or combination of components, which is programmable and which includes a processor (central processing unit or microprocessor), internal memory, and input and output connections. Manufacturing equipment which incorporates a computer is a computer for purposes of this regulation. However, the term does not include manufacturing equipment which operates under the control of mechanical or electronic accessories, the attachment to the equipment of which is required for the machine to operate. An electronic device otherwise qualifying as a computer remains a computer even though it may be used for information processing, data acquisition, process control or for the control of manufacturing machinery or equipment. (4) Custom Computer Program and Programming. A computer program prepared to the special order of the customer. A program prepared to the special order of the customer qualifies as a custom program even though it may incorporate preexisting routines, utilities or similar program components. It includes those services represented by separately stated charges for modifications to an existing prewritten program which are prepared to the special order of the customer. (5) Data Entry (including Encoding). Recording information in or on storage media by punching the holes or inserting magnetic bits to represent letters, digits, and special characters. (6) Digital Pre-Press Instruction. The creation of original information in electronic form by combining more than one computer program into specific instructions or information necessary to prepare and link files for electronic transmission for output, within the printing industry, to film, plate, or direct to press, which is then transferred on electronic media such as tape or compact disc. (7) Input. The information or data transferred, or to be transferred, from storage media into the internal storage of the computer. (8) Output. The information transferred from the internal storage of the computer to storage media or tabulated listing. (9) Prewritten Program. A program held or existing for general or repeated sale or lease. The term also includes a program developed for in-house use which is subsequently offered for sale or lease as a product. (10) Program. The complete plan for the solution of a problem, i.e., the complete sequence of automatic data processing equipment instructions necessary to solve a problem; includes both systems an application programs and subdivisions such as assemblers, compilers, routines, generators, and utility programs. (11) Proof Listing. A tabulated listing of input. (12) Source Documents. A document supplied by a customer of a data processing firm from which basic data are extracted (e.g., sales invoice). (13) Storage Media. Includes hard disks, floppy disks, diskettes, magnetic tape, cards, paper tape, drums and other devices upon which information is recorded. (c) Basic Applications of Tax. (1) The transfer of title, for a consideration, of tangible personal property, including property on which or into which information has been recorded or incorporated, is a sale subject to tax. (2) Charges for producing, fabricating, processing, printing, imprinting or otherwise physically altering, modifying or treating consumer-furnished tangible personal property (cards, tapes, disks, etc.), including charges for recording or otherwise incorporating information on or into such tangible personal property, are generally subject to tax. (3) A transfer for a consideration of the title or possession of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, including property on which or into which information has been recorded or incorporated, is generally a sale subject to tax. However, if the contract is for the service of researching and developing original information for a customer, tax does not apply to the charges for the service. The tangible personal property used to transmit the original information is merely incidental to the service. (4) Charges for the transfer of computer-generated output are subject to tax where the true object of the contract is the output and not the services rendered in producing the output. Examples include artwork, graphics, and designs. However, the transfer by the seller of the original information created by digital pre-press instruction is not subject to tax if the original information is a custom computer program as explained in subdivision (f)(2)(F). (5) Charges for processing customer-furnished information (sales data, payroll data, etc.) are generally not subject to tax. (For explanation and specific application of tax, see subdivision (d).) (6) Leases of tangible personal property may be subject to tax under certain conditions. (See Regulation 1660 for application of tax to leases.) (7) Charges made for the use of a computer, on a time-sharing basis, where access to the computer is by means of remote telecommunication, are not subject to tax (See subdivision (i).) (8) Generally, data processing firms are consumers of all tangible personal property, including cards and forms, which they use in providing nontaxable services unless a separate charge is made to customers for the materials, in which case tax applies to the charge made for the materials. (d) Manipulation of Customer-Furnished Information as Sale or Service. (1) General. Generally tax applies to the conversion of customer-furnished data from one physical form of recordation to another physical form of recordation. However, if the contract is for the service of developing original information from customer-furnished data, tax does not apply to the charges for the service. The tangible personal property used to transmit the original information is merely incidental to the service. (2) Data Entry and Verification. This covers situations where a data processing firm's agreement provides only for data entry, data verification, and proof listing of data, or any combination of these operations. It does not include contracts under which these services are performed as steps in processing of customer-furnished information as discussed under subdivision (d)(5). Agreements providing solely for date entry and verification, or data entry providing a proof list and/or verifying of data are regarded as contracts for the fabrication of storage media and sale of proof lists. Charges therefor are taxable, whether the storage media are furnished by the customer or by the data processing firm. Tax also applies to charges for the imprinting of characters on a document to be used as the input medium in an optical character recognition system. The tax application is the same regardless of which type of storage media is used in the operation. (3) Addressing (Including Labels) for Mailing. Where the data processing firm addresses, through the use of its computer or otherwise, material to be mailed, with names and addresses furnished by the customer or maintained by the data processing firm for the customer, tax does not apply to the charge for addressing. Similarly, where the data processing firm prepares, through the use of its computer or otherwise, labels to be affixed to material to be mailed, with names and addresses furnished by the customer or maintained by the data processing firm for the customer, tax does not apply to the charge for producing the labels, whether or not the data processing firm itself affixes the labels to the material to be mailed. (For the sale of mailing list by the proprietor or such list as a sale of tangible personal property or as a nontaxable addressing, see Regulation 1504 "Mailing-Services.") (4) Microfilming and Photorecording. Tax applies to charges for microfilming or photorecording except, as provided in subdivision (d)(5), where the microfilming or photorecording is done under a contract for the processing of customer-furnished information. Tax applies to a contract where data on magnetic tape are converted into combinations of alphanumeric printing, curve plotting and/or line drawings, and put on microfilm or photorecording paper. (5) Processing of Customer-Furnished Information. (A) "Processing of customer-furnished information" means the developing of original information from data furnished by the customer. Examples of automatic data processing processes which result in original information are summarizing, computing, extracting, sorting and sequencing. Such processes also include the updating of a continuous file of information maintained by the customer with the data processing firm. (B) "Processing of customer-furnished information" does not include: (1) an agreement providing solely for the reformatting of data or for the preparation of a proof listing or the performance of an edit routine or other pre-processing, (2) the using of a computer as a mere printing instrument, as in the preparation of personalized computer-printed letters, (3) the mere converting of data from one medium to another, or (4) an agreement under which a person undertakes to prepare artwork, drawings illustrations, or other graphic material unless the provisions of subdivision (f)(2)(F) apply regarding digital pre-press instruction and custom computer programs. Additionally, graphic material furnished incidentally to the performance of a service is not subject to tax. For example, graphics furnished in connection with the performance of architectural, engineering, accounting, or similar professional services are not subject to tax. With respect to typography, clip art combined with text on the same page is considered composed type as explained in Regulation 1541. (C) Contracts for the processing of customer-furnished information usually provide that the data processing firm will receive the customer's source documents, record data on storage media, make necessary corrections, process the information, and then record and transfer the output to the customer. Where a data processing firm enters into a contract for the processing of customer-furnished information, the transfer of the original information to the customer is considered to be the rendering of a service. Except as described in subdivisions (c)(8) and (d)(5)(E), tax does not apply to the charges made under contracts providing for the transfer of the original information whether the original information is transferred on storage media, microfilm, microfiche, photorecording paper, input media for an optical character recognition system, punched cards, preprinted forms, or tabulated listing. The breakdown of the total charge into separate charges for each operation involved in processing the customer-furnished information will not change the application of tax. (D) The furnishing of computer programs and data by the customer for processing under direction and control of the data processing firm will not alter the application of tax, notwithstanding that charges are based on computer time. (E) Taxable Items. Where a data processing firm has entered into a contract which is regarded as a service contract under subdivision (d)(5)(C) and the data processing firm, pursuant to the contract, transfers to its customer tangible property other than property containing the original information, such as duplicate copies of storage media: inventory control cards for use by the customer; membership cards for distribution by the customer; labels (other than address labels); microfiche duplicates; or similar items for use, tax applies to the charges made for such items. If no separate charge is made, tax applies to that portion of the charge made by the data processing firm which the cost of the additional computer time (if and), cost of materials, and labor cost to produce the items bear to the total job cost. (F) Additional Copies. When additional copies of records, reports, tabulation, etc., are provided, tax applies to the charges made for the additional copies. "Additional copies" are all copies (other than carbon copies), whether the copies are prepared by rerunning the same program, by using multiple simultaneous printers, by looping a program such that the program is run continuously, by using different programs to produce the same output product, or by other means. Where additional copies are prepared, the tax will be measured by the charge made by the data processing firm to the customer. If no separate charge is made for the additional copies, tax applies to that portion of the gross receipts which the cost of the additional computer time (if any), the cost of materials and labor cost to produce the additional copies bear to the total job cost. Charges for copies produced by means of photocopying, multilithing, or by other means are subject to tax. (e) Training Services and Materials. Data processing firms provide a number of training services, such as data entry and verification, programming, and specialized training in systems design. (1) Charges for training services are nontaxable, except as provided in subdivision (g) where the training services are provided as part of the sale of tangible personal property. The data processing firm is the consumer of tangible personal property which is used in training others, or provided to trainees without a separate charge as a part of the training services. (2) Tax applies to charges for training materials, including books, furnished to trainees for a charge separate from the charge for training services. (3) Where a person sells tangible personal property, such as computers or programs, and provides training materials to the customer without making an additional charge for the training materials, this is a sale of the training materials. The selling price of the training materials is considered to be included in the sales price of the tangible personal property. (f) Computer Programs. (1) Prewritten (Canned) Programs. Prewritten programs may be transferred to the customer in the form of storage media, or by listing the program instructions on coding sheets. In some cases they are usable as written; however, in other cases it is necessary that the program be modified, adapted, and tested to meet the customer's particular needs. Tax applies to the sale or lease of the storage media or coding sheets on which or into which such prewritten (canned) programs have been recorded, coded, or punched. (A) Tax applies whether title to the storage media on which the program is recorded, coded, or punched, passes to the customer, or the program is recorded, coded, or punched on storage media furnished by the customer. The temporary transfer of possession of a program, for a consideration, for the purpose of direct use or to be recorded or punched by the customer, or by the lessor on the customer's premises, is a lease of tangible personal property. The tax applies unless the property is leased in substantially the same form as acquired by the lessor and the lessor has paid sales tax reimbursement or use tax with respect to the property. (B) Tax applies to the entire amount charged to the customer. Where the consideration consists of license fees, all license fees, including site licensing and other end users fees, are includable in the measure of tax. Tax does not apply, however, to license fees or royalty payments that are made for the right to reproduce or copy a program to which a federal copyright attaches in order for the program to be published and distributed for a consideration to third parties, even if a tangible copy of the program is transferred concurrently with the granting of such right. Any storage media used to transmit the program is merely incidental. (C) Maintenance contracts sold in connection with the sale or lease of prewritten computer programs generally provide that the purchaser will be entitled to receive, during the contract period, storage media on which the prewritten program improvements or error corrections have been recorded. The maintenance contract also may provide that the purchaser will be entitled to receive, during the contract period, telephone or on-site consultation services. If the purchase of the maintenance contract is not optional with the purchaser, that is, if the purchaser must purchase the maintenance contract in order to purchase or lease a prewritten computer program, then the charges for the maintenance contract are taxable as part of the sale or lease of the prewritten program. Tax applies to any charge for consultation services provided in connection with a maintenance contract except as provided below. For reporting periods commencing on or after January 1, 2003, if the purchase of the maintenance contract is optional with the purchaser, that is, if the purchaser may purchase the prewritten software without also purchasing the maintenance contract, and there is a single lump sum charge for the maintenance contract, 50 percent of the lump sum charge for the maintenance contract is for the sale of tangible personal property and tax applies to that amount; the remaining 50 percent of the lump sum charge is nontaxable charges for repair. If no tangible personal property whatsoever is transferred to the customer during the period of the maintenance contract, tax does not apply to any portion of the charge. Tax does not apply to a separately stated charge for consultation services if the purchaser is not required to purchase those services in order to purchase or lease any tangible personal property, such as a prewritten computer program or a maintenance contract. (D) The sale or lease of a prewritten program is not a taxable transaction if the program is transferred by remote telecommunications from the seller's place of business, to or through the purchaser's computer, and the purchaser does not obtain possession of any tangible personal property, such as storage media, in the transaction. Likewise, the sale of a prewritten program is not a taxable transaction if the program is installed by the seller on the customer's computer except when the seller transfers title to or possession of storage media or the installation of the program is a part of the sale of the computer. If the transfer of a prewritten program is a nontaxable transaction, then the seller is the consumer of tangible personal property used to produce written documentation or manuals (including documentation or manuals in machine-readable form) designed to facilitate the use of the program and transferred to the purchaser for no additional charge. If a separate charge is made for the documentation or manuals, then tax applies to the separate charge. (E) The transfer of a prewritten program on storage media is not a sale for resale when the storage media, or an exact copy, will be used to produce additional copies of the program. Charges for testing a prewritten program on the purchaser's computer to insure that such a program operates as required are installation charges and are nontaxable (2) Custom Programs. (A) Tax does not apply to the sale or lease of a custom computer program, other than a basic operational program, regardless of the form in which the program is transferred. Nor does the tax apply to the transfer of a custom program, or custom programming services performed, in connection with the sale or lease of computer equipment, whether or not the charges for the custom program or programming are separately stated. (B) However, charges for custom modifications to prewritten program are nontaxable only if the charges for the modifications are separately stated. Otherwise, the charges are taxable as part of the sale of the prewritten program. When the charges for modification of a prewritten program are not separately stated, tax applies to the entire charge made to the customer for the modified program unless the modification is so significant that the new program qualifies as a custom program. If the prewritten program was previously marketed, the new program will qualify as a custom program, if the price of the prewritten program was 50 percent or less of the price of the new program. If the prewritten program was not previously marketed, the new program will qualify as a custom program if the charge made to the customer for custom programming services, as evidenced in the records of the seller, is more than 50 percent of the contract price to the customer. (C) Charges for any written documentation or manuals designed to facilitate the use of a custom computer program by the customer are nontaxable, whether separately stated or not. The vendor of the custom computer program is the consumer of the written documentation or manuals, or of any tangible personal property used by the vendor in producing the written documentation or manuals. (D) A custom computer program includes a program prepared to the special order of a customer who will use the program to produce and sell or lease copies of the program, and the charge for such custom computer program is not subject to tax. Sales or leases of the copies, however, are taxable as sales of prewritten computer programs. (E) A computer program prepared to the special order of a customer to operate for the first time in connection with a particular basic operating system is a custom computer program even though a different version currently operates in connection with an incompatible basic operating system. (F) Digital pre-press instruction is a custom computer program under section 6010.9 of the Revenue and Taxation Code, the sale of which is not subject to tax, provided the digital pre-press instruction is prepared to the special order of the purchaser. Digital pre-press instruction shall not, however, be regarded as a custom computer program if it is a "canned" or prewritten computer program which is held or existing for general or repeated sale or lease, even if the digital pre-press instruction was initially developed on a custom basis or for in-house use. The sale of such canned or prewritten digital pre-press instruction in tangible form is a sale of tangible personal property, the retail sale of which is subject to tax. (g) Service Charges. The following activities are service activities. Charges for the performance of such services are nontaxable unless the services are performed as a part of the sale of tangible personal property. (1) Designing and implementing computer systems (e.g., determining equipment and personnel required and how they will be utilized). (2) Designing storage and data retrieval systems (e.g., determining what data communications and high-speed input-output terminals are required). (3) Consulting services (e.g., study of all or part of a data processing system). (4) Feasibility studies (e.g., studies to determine what benefits would be derived if procedures were automated). (5) Evaluation of bids (e.g., studies to determine which manufacturer's proposal for computer equipment would be most beneficial). (6) Providing technical help, analysts, and programmers, usually on an hourly basis. (7) Training Services. (8) Maintenance of equipment. (See Regulation 1546 for application of tax to maintenance contracts.) (9) Consultation as to use of equipment. (h) Pick-up and Delivery Charges. If the data processing firm's billing is for nontaxable processing of customer-furnished information, the tax will not apply to pick-up and delivery charges. If pick-up and delivery charges are made in conjunction with the sale of tangible personal property or the processing of customer-furnished tangible personal property, the tax will apply to the pick-up charges. Tax will apply to the delivery charges to the extent specified in regulation 1628, "Transportation Charges." (i) Rental of Computers. A lease includes a contract by which a person secures for a consideration the use of a computer which is not on his or her premises, if the person or his or her employees, while on the premises where the computer is located operate the computer, or direct and control its operation. A lease does not include a contract whereby a person secures access by means of remote telecommunication to a computer which is not on his or her premises, if the person or his or her employees operate the computer or direct and control its operation by means of remote telecommunication. (See Regulation 1660 for application of tax to leases.) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 995.2, 6006, 6007, 6010, 6010.9, 6011, 6012, 6015 and 6016, Revenue and Taxation Code. s 1502.1. Word Processing. (a) General. Tax does not apply to charges for furnishing original letters or documents, or carbon copies produced simultaneously with the original, prepared by using a typewriter or word processing equipment. Where the word processing company provides only an original letter or document, or carbon copies produced simultaneously with the original, the true object of the contract is the performance of a service and not the furnishing of tangible personal property. The word processing company is the consumer of tangible personal property used in providing the service. Tax applies to charges for producing multiple copies of letters, manuscripts, or other documents using word processing equipment. Multiple copies include form letters produced with a slight variation which personalizes essentially the same letter. Tax applies to the entire charge without deduction for charges for setting up the machine, keyboarding, or assembling the material. Charges for providing additional copies are subject to tax regardless of whether the original was prepared using a typewriter or word processing equipment and regardless of whether the copies are produced by computers, word processors, copying machines, or other methods. Tax does not apply to charges made by a word processing company for keyboarding original names and address, setting up and sorting, and for printing the names and addresses onto mailing labels. (See Regulation 1504 for an explanation of how tax applies to mailing services.) Tax does not apply to charges made when a word processor is used to produce copy which is acquired and used exclusively for reproduction purposes since Revenue and Taxation Code Section 6010.3 excludes typography from the definition of sale or purchase. (b) Examples of the Application of Tax under Specific Circumstances. (1) Preparation of Standard Letters and Envelopes for Mailing. A word processing operator keyboards and records an address list and standard letter on magnetic media. The letter is then automatically typed to each person on the address list. The prerecorded address list is then used to address envelopes inserted into the machine. The charges made for setting up the machine, keyboarding the material and typing out the letters are taxable. The charges made for addressing the envelopes are nontaxable if separately stated (See Regulation 1504.) (2) Manuscripts. An author brings a manuscript to a word processing company. The operator keyboards the material and records it on magnetic media. A draft copy of each page of the recorded material is printed out (typed automatically) and given to the author to proofread. The author makes corrections and changes on the draft and returns it to the operator. The operator makes the necessary changes using a word processor. A final copy is then printed out for the author to submit to a publisher. The charges made for the original keyboarding of the manuscript, printing out the draft copy, editing, and printing out a final copy are nontaxable. Tax does not apply to charges for carbon copies prepared at the same time as the original copy; however charges for photocopies are taxable. (3) Assembling Final Product From a Paragraph Library. An attorney brings several paragraphs to a word processing company which uses word processing equipment to keyboard and record the paragraphs on magnetic media to form a "paragraph library." The attorney then notifies the company to select certain stock paragraphs, for example paragraphs 1, 8, 11, 29, 16, 12, 87, 100, 56, and 57 in that order, to create a will for his client. The attorney provides variable information to be inserted into proper position in the paragraphs, such as: maker of the will, maker's spouse, maker's children and their date of birth, city and county of residence. The operator instructs the machine (with keyboard commands) to assemble those specified paragraphs with the necessary variable client information and to print out (automatically type) a will. All of the charges made for keyboarding original paragraphs, printing out a draft of all paragraphs for the attorney's use, assembling the paragraphs as requested, and printing out individual wills (and any carbon copies of the original) are nontaxable. Charges for photocopies are taxable. (4) Addressing Mailing Labels. A client has a list of 2,000 names that he is going to use monthly for a mailing. Every month the list has to be sorted into ZIP code sequence, typed on labels to be applied to envelopes which are then mailed. The word processing company keyboards the names and addresses and records them on magnetic media. The machine is instructed (using keyboard commands) to sort the names into correct ZIP code sequence before the list is finally stored on the magnetic media. Each month the equipment is set up and, with an operator in attendance (giving keyboard commands), the names are printed (automatically typed) onto continuous form labels. The charges made by the word processing company for keyboarding original names and addresses, for setting up and sorting, and for the monthly setting up and printing of names onto labels are all nontaxable charges for addressing. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6011, 6012, 6015 and 6016, Revenue and Taxation Code. s 1503. Hospitals and Other Medical Service Facilities, Institutions and Homes for the Care of Persons. (a) Meals. (1) There are exempt from sales and use tax the sale of meals and food products to and the use of meals and food products by the following institutions when furnished or served to and consumed by their residents or patients: (A) A health facility as defined in section 1250 of the Health and Safety Code, which holds the license required pursuant to section 1253, or is exempt from the license requirement pursuant to subdivision (a) of section 1270, or is operated by the United States. (B) A community care facility as defined in section 1502 of the Health and Safety Code, which holds the license required by section 1508, or is a residential facility selected by a licensee pursuant to section 1506 and exclusively used for the reception and care of persons placed by such licensee, or is exempt from the license requirement pursuant to subdivision (f) of section 1505, or is operated by the United States. (C) A residential care facility for the elderly, as defined in Section 1569.2 of the Health and Safety Code, that holds the license required by Section 1569.10 of the Health and Safety Code or is exempt from the license requirements pursuant to Section 1569.145 of the Health and Safety Code, or is operated by the United States. (D) Any house, retirement home or similar establishment supplying board and room for a flat monthly rate and serving as a principal residence exclusively for persons 62 years of age or older, and any housing that primarily serves older persons and that is financed by state or federal programs. For purposes of this regulation, the term "exclusively" is defined to mean that no more than four persons under 62 years of age are in residence during any calendar quarter. (E) An alcoholism or drug abuse recovery or treatment facility, as defined in section 11834.02 of the Health and Safety Code, which holds the license required by section 11834.30 of the Health and Safety Code. (2) "Meals," for purpose of this subdivision, include any of the following: (A) Carbonated beverages furnished or served as part of the meals. (B) Food provided to the patient or resident by way of enteral feeding, Total Parenteral Nutrition (also called TPN), and Intradialytic Parenteral Nutrition (also called IDPN), as each is defined in Regulation 1591, provided these forms of nutrition are furnished or served to and consumed by a resident or patient of an institution specified in this subdivision (a). (C) Nonreusable items that become components of the meals. These include straws, paper napkins, and plastic eating utensils. These also include bags and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense enteral feeding as meals to the patient or resident including: gastrostomy tubes (also called G tubes) which are used to deliver the nutrition directly into the stomach; jejunostomy tubes (also called J tubes) which are used to deliver the nutrition directly into the intestinal tract; and nasogastric tubes (also called NG tubes) which are used to deliver the nutrition directly through the nasal passage to the stomach. Needles, syringes, cannulas, bags, and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, used to dispense TPN or IDPN as meals to the patient or resident are also regarded as components of those meals provided each of these items is used primarily to dispense the TPN or IDPN. (b) General. (1) Sales to Medical Service Facilities. "Medical service facilities" for purposes of this subdivision are those institutions specified in subdivision (a) of this regulation as well as surgery centers and similar medical service facilities whether patients are accepted for periods of less than or more than twenty-four hours. For example, dialysis centers, AIDS centers, and cancer centers are medical service facilities. [Operative April 1, 2001, e]xcept as provided in subdivisions (b)(2) of this regulation, medical service facilities are service providers to their patients and residents and are the consumers of tangible personal property furnished in connection with those services, whether separately itemizing charges for the services and for the tangible personal property or billing in lump sum, and sales of that tangible personal property to the medical service facilities are taxable retail sales unless specifically exempted. (2) Sales by Medical Service Facilities. When a medical service facility is the retailer of property furnished, tax applies to its charge for that property unless the sale is exempt from tax. A medical service facility is the retailer of property furnished for a charge to persons other than residents and patients. A medical service facility is the retailer of tangible personal property for which it makes a separately itemized charge if the property is furnished to a patient or resident with the intent that the patient or resident remove the property from the premises of the medical service facility for use by the patient or resident. Examples of such items include crutches or a wheelchair provided upon release from the medical service facility and discharge kits for new mothers (which might include formula, diapers, etc.). Notwithstanding subdivision (b)(1) of this regulation, a medical service facility is the retailer of any property furnished in connection with its medical services if its contract with the medical service facility's resident or patient or other customer specifically provides that title to the subject tangible personal property passes to the resident or patient or other customer. When the contract has a provision passing title to the subject tangible personal property to the resident or patient or other customer, the medical services facility may purchase such property for resale, and tax applies to the charge by the medical services facility unless its sale is otherwise exempt from tax. (3) Laboratory Charges. Laboratory charges, such as charges for blood-counts, are not taxable. Tax does not apply with respect to purchases, sales or donations of whole blood or blood plasma for use in transfusions. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6007, 6015, 6016, 6051, 6359 and 6363.6, Revenue and Taxation Code. s 1504. Mailing Lists and Services. (a) Transactions in Mailing Lists. (1) Definition. A "mailing list" as used herein means a written or printed list, series, set, group, aggregation, etc., of names and addresses of, and occasionally, other information concerning persons, such as potential customers or donors, which is intended for use in circulating material by mail. Such a list may be in the form of a manuscript list, directory, Cheshire tape, Dick tape, gummed labels, index cards, or other similar means of communication. Operative January 1, 1994, "mailing list" includes a magnetic tape or similar device used to produce written or printed names and addresses by electronic or mechanical means. (2) Application of Tax Generally. Except as otherwise provided in (a)(3) below, tax applies to receipts from the transfer of title or possession, rental or granting of a license for use of mailing lists, to the same extent as to receipts from sales or rentals of tangible personal property generally. (3) Limited Use. Tax does not apply to charges for the transfer or use of mailing lists, where a contract restricts the transferee or user to use of the mailing list one time only. The charges in such cases are considered to be for information or addressing services. (4) Magnetic Tapes. Where the names and addresses are recorded on magnetic tapes or similar devices used to produce written or printed names and addresses by electronic or mechanical means, charges for the transfer or use of the tape or similar device are subject to tax to the same extent as receipts from sales or rentals of tangible personal property generally regardless of any contractual restrictions on the frequency of use. Operative January 1, 1994, such magnetic tapes or similar devices are considered a mailing list and charges for their transfer and use under (a)(3) above are exempt from tax. (5) Application of Tax to Materials Used, Persons engaged in the business of selling, renting or licensing mailing lists are consumers of tangible personal property used in producing lists the transfer of which is not subject to tax, and tax applies to the sale to them of such property. Tangible personal property which becomes a component part of lists, the transfer of which is taxable may be purchased for resale. (b) Mailing Services. (1) General. Tax does not apply to charges for services rendered in preparing material for mailing, such as addressing, enclosing, sealing, collating, affixing labels, blocking out, tucking or clasping envelope flaps, metering, affixing stamps, edging seal or edging with stamp, addressing permit indicia, and sorting, typing and sacking in compliance with postal rules and regulations, nor to charges for the handling or wrapping of material left over after preparation of material for mailing, which is to be returned to the customer. (2) Addressing Defined. "Addressing" means the actual writing, typewriting, printing, imprinting or affixing of names and addresses or addresses only on property to be mailed. The mailing may be done by the person doing the addressing or by another person. The process may include the preparation of Cheshire tapes, Dick tapes, cards, gummed labels, etc., to be affixed to, or enclosed in, the property so as to serve as addresses for that property and not to be used for any other purpose such as reproduction or reference. (3) Consumers of Materials. Persons engaged in the business of providing mailing services are consumers of materials used in performing those services. (c) Printing Related to Mailing. (1) Sales of Printed Matter. Tax applies to charges for printed matter furnished to a customer by a person engaged in the business of providing mailing services to the same extent as to charges for printing matter generally, even though the printed matter is to be mailed. If such matter is printed by another person, it may be purchased for resale by giving a resale certificate. If the mailing service has reimbursed its vendor for tax which the vendor is required to pay to the state or has paid use tax with respect to the purchase of such matter, a "tax-paid purchases resold" deduction will be allowed. (2) Separate Statement of Printing Charges. Charges for printed matter should be separately stated on the invoice to the customer. If not separately stated, the amount subject to tax will be determined by the board based on information available to it. Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6006, 6006.3, 6009, 6012, 6015, 6016 and 6379.8, Revenue and Taxation Code. s 1505. Morticians. (a) In General. (1) Morticians as Retailers. Morticians are retailers of caskets, boxes, vaults, and clothing. They also are retailers of any other tangible personal property furnished in connection with rendering their services if a separate charge is made for such property. Unless otherwise exempt, tax applies to the sales price of all tangible personal property sold by morticians. [FNa1] (2) Morticians as Consumers. Morticians are consumers of acknowledgment cards, memorial folders, registration books, embalming fluid, cosmetics, eye caps, morgue supplies, car stickers, and prayer books which are furnished by them in connection with services they render unless a separate charge is made for such property. Tax applies to the sales price to the mortician of all tangible personal property consumed by him. (b) Application of Tax to Specific Types of Transactions. (1) Sales in Interstate or Foreign Commerce. The sale of a casket and other tangible personal property by a mortician, which he delivers or ships to an out-of-state point pursuant to the agreement of sale is regarded as a sale in interstate or foreign commerce and is exempt from the tax. The facts that the death of the deceased occurred in this state, that the contracting parties are residents of this state, and that services are held in this state prior to the shipment, are immaterial. (2) Sales to the United States. All or a portion of charges for funerals of veterans and other persons may be paid by the United States Veterans Administration or by the Social Security Administration. Effective August 1, 1973, the United States Veterans Administration will pay an interment allowance, up to $150, in addition to the regular funeral and burial allowance for veterans. Morticians may take a deduction for sales to the United States Government when claims filed by them with federal agencies are paid directly to the morticians regardless of method of billing. If funeral charges are paid by another person, there is no tax exemption even though such person may receive reimbursement from a federal agency and even though the amount received as reimbursement is assigned or endorsed over to the mortician as a credit against those charges. In computing the allowable exemption, the funeral allowance and the interment allowance must be treated separately. (A) Funeral allowance payments received directly from a federal agency are to be prorated between funeral charges for sales or tangible personal property and charges for exempt services. None are to be allocated to accommodation cash advances. The only exception will be when a portion of a payment is clearly identified as applying to something for which a mortician has made a specific charge. (B) Payments received directly from the United States Veterans Administration which are identified as interment allowances are to be prorated between sales of tangible personal property used in actual interment and charges or advances for services in connection with the interment. The only exception will be when a portion of the payment is clearly identified as applying to something pertaining to interment for which the mortician has made a specific charge. (3) Examples of Application of Amounts Received by Morticians Directly From a Federal Agency (Examples are at 6 percent rate). Mortician's invoice to client: Charges Services.............................. $400.00 Casket................................ 355.00 Vault................................. 200.00 Suit.................................. 45.00 _________ Subtotal......................... $1,000.00 Accommodation Cash Advances Cemetery Space and Opening............ $50.00 Clergy................................ 25.00 Music................................. 15.00 _________ Subtotal......................... $90.00 Total............................ $1,090.00 Sales Tax (6% of $355, $200 & $45).... 36.00 _________ Total................................. $1,126.00 Example 1. Funeral allowance only. Cash received by the mortician directly from a federal agency as a funeral allowance, and not allocated by the United States Government to any specific portion of the above charges, was $300. No interment allowance was received. Since $600 of the $1,000 charged the client (exclude the cash advances) was for tangible personal property, 60% of the amount received from the federal agency (60% of ____ equals ____) is considered a sale of such property to the United States Government and is exempt from sales tax. Computation of Tax: Total Charges....................... $1,090.00 Less: Accommodation Advances........ $90.00 Exempt Services........... 400.00 Sale to United States..... 180.00 670.00 ______ _________ Taxable Sale........................ $ 420.00 Tax at 6W4B 25.20 _________ Taxable Sale Including Tax.......... $ 445.20 _________ Example 2. Funeral allowance and interment allowance received by mortician. Cash received by the mortician directly from a federal agency, and not allocated by the United States Government to any specific portion of the above charges, was $300 as a funeral allowance and $150 as an interment allowance. Since the total charges by the mortician related to interment were $250 (vault $200 plus cemetery space and opening $50), and the charge for tangible personal property related to interment was $200 (vault), 80% of the amount received from the federal agency as an interment allowance (80% of $150 equals $120) is considered a sale of such property to the United States Government and is exempt from sales tax. Since $400 (casket $355 and suit $45) of the $800 charged the client for the funeral (exclude the cash advances and the vault) was for tangible personal property, 50% of the amount received from the federal agency as a funeral allowance (50% of $300 equals $150) is considered a sale of such property to the United States Government and is exempt from sales tax. Computation of Tax: Total Charges...... ................................ $1,090.00 Less: Accommodation Advances.......... $ 90.00 Exempt Services................. 400.00 Sale to United States Government ($120 plus $150)................ 270.00 760.00 ________________________________ _______ Taxable Sale......................................... $ 330.00 Tax at 6W4B 19.80 _________ Taxable Sale Including Tax........................... $ 349.80 _________ (4) Accommodation Cash Advances. Tax does not apply to accommodation cash advances for such items as cemetery charges, newspaper notices, railroad tickets, ministerial fees and flowers. (5) Tax-paid Purchases Resold. A mortician may claim a "tax-paid purchases resold" deduction if the mortician reimbursed the vendor for tax which the vendor is required to pay to the state or has paid use tax with respect to the property and has resold the property prior to making any use of it. (c) "Pre-Need" Agreements. Where a mortician, cemetery association or other person enters into an agreement with a customer to provide services upon the death of the customer, no sale occurs for sales and use tax purposes until the services are rendered. An amount designated as "sales tax" in the agreement will be considered an estimate of tax which may become due when the services are rendered. No sales tax should be paid to the board in connection with "pre-need" agreements until the services are rendered. ________ [FNa1] On October 25, 1972, the board adopted an amendment to the regulation by which the 50 percent standard service reporting procedure in effect until October 18, 1970, and the 45 percent standard service reporting procedure in effect thereafter, are no longer allowable. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6015 and 681, Revenue and Taxation Code. s 1506. Miscellaneous Service Enterprises. (a) Licensed Architects. (1) In General. Fees paid to licensed architects for their ability to design, conceive or communicate ideas, concepts, designs, and specifications are not subject to tax. Any plans, specifications, renderings or models or other instruments of service provided by a licensed architect under a licensed architect's contract or commission are integral to the licensed architect's services and are not subject to tax. The licensed architect is the consumer of any tangible personal property, including plans, specifications, renderings or models, used or transferred in the performance of professional services notwithstanding the fact that a fee may be added to the cost of the property and separately stated on a billing to the customer. If after the completion of the contract or commission the licensed architect provides additional copies of the original plans or specifications, or any models or renderings of an existing structure, the architect is regarded as making a sale of such copies, models or renderings. (2) Licensed Architect. A "licensed architect" is defined under the Business and Professions Code Chapter 3, Division 3, Section 5500 as follows: "As used in this chapter, architect means a person who is licensed to practice architecture in this state under the authority of this chapter." A licensed architect preparing or being in responsible control of plans, specifications, and instruments of service is required to affix to those plans, specifications, and instruments of service their stamp or seal which bears the licensee's name, his or her license number, the legend "Licensed Architect" and the legend "State of California," and which shall provide a means of indicating the renewal date of the license. (3) Architectural Perspectivists and Modelers. Architectural perspectivists do not act as "licensed architects." Architectural perspectivists are the retailers of renderings, prints and drawings they provide to architects or other consumers and tax applies to their entire charge for such items. Modelers do not act as "licensed architects." Modelers are the retailers of models they provide to architects or other consumers, and tax applies to their entire charge for such items. (4) Licensed architects who produce renderings, prints, drawings or models pursuant to a contract that includes professional architectural services are not retailers of the renderings, prints, drawings or models they provide pursuant to that contract for architectural services. Tax does not apply to their charge for such items. (b) Barbers, Beauty Shop Operators, Shoe Polishers, Launderers and Cleaners. (1) In General. Barbers, beauty shop operators, shoe polishers, launderers and cleaners are the consumers of the supplies and other property used in performing their services, and tax applies with respect to the sale to them of the supplies and other property. They are retailers, however, of any such supplies or of used articles or other tangible personal property which they sell to consumers in the regular course of business, and tax applies to the gross receipts from such sales. (2) Rentals. Launderers and cleaners are the consumers of linen supplies and similar articles, including towels, uniforms, coveralls, shop coats, dust cloths, and similar items, rented to others when an essential part of the rental contract is the furnishing of the recurring service of laundering or cleaning of the articles rented, and tax applies with respect to the sale to them of such articles. (c) Circulating Libraries. When circulating libraries, which are engaged in the business of renting books to others, pay tax measured by the purchase price of such books either to the person from whom the books are purchased or to the board, tax does not apply to the amount charged for the rental of such books. Such libraries are retailers of new or used books which they sell to consumers in the regular course of business, and tax applies to the gross receipts from such sales. (d) Dentists and Dental Laboratories. Dentists are consumers of the materials, supplies, dental laboratory products and other tangible personal property which they use in performing their services. Tax, accordingly, applies to the sale of the tangible personal property to them. Dental laboratories are the retailers of the plates, inlays and other products which they manufacture for dentists or other consumers. Tax applies to their entire charges for such products regardless of whether a separate charge or billing is made for materials and manufacturing services. (e) Gun Clubs. Gun clubs are consumers, not retailers, of clay pigeons or blue rocks furnished to members or patrons in connection with trapshooting or similar sports even though the charge for the service is measured by the number of clay pigeons or blue rocks used. The tax applies with respect to the sale of such property to the clubs. (f) Licensed Hearing Aid Dispensers. Persons licensed as hearing aid dispensers by the Department of Consumer Affairs, Hearing Aid Dispensers Examining Committee, are consumers of hearing aids furnished or sold by them. The term "hearing aid" includes any necessary accessory or component part of the hearing aid which is fully worn on the body of the user such as cords, connector tubing, ear molds, or batteries, whether the part is sold or furnished separately or in conjunction with the hearing aid. The term also includes replacement and repair parts. Tax applies with respect to the sale of such products to licensed hearing aid dispensers. Tax applies to the retail sale of such products by persons who are not licensed hearing aid dispensers. (g) Summer Camps. The tax applies to gross receipts from the sale of meals or other tangible personal property at summer camps, whether operated by municipal or private corporations, or other parties. When a camp qualifies as a school or educational institution, tax, with respect to meals, applies in the same manner as to schools and educational institutions. To qualify as a school or educational institution for purposes of this regulation, the camp must conduct regularly scheduled classes, with required attendance, in charge of qualified instructors. If a single charge is made for all of the privileges extended by the camp, a segregation must be made and the tax returned on that portion of the total charge representing taxable receipts from the sale of meals or other tangible personal property. In the absence of such a segregation, the taxable receipts from the sale of meals or other tangible personal property shall be determined by the board based on information available to it. (h) Taxidermists. Taxidermists are consumers of the materials used in repairing, stuffing and mounting skins, heads, etc., of animals, birds, fish, and the like furnished by their customers, and tax applies with respect to the sale of such property to them. If, however, a separate charge for such property is made on the invoices to the customers at the fair retail selling price, the taxidermist is the retailer of the property and tax applies to such separate charge. Tax applies to retail sales by taxidermists of skins, heads, mountings or other tangible personal property. (i) Licensed Veterinarians. (1) Definitions. As used herein: (A) The term "licensed veterinarian" means any person licensed as a veterinarian by the California Department of Consumer Affairs, Board of Examiners in Veterinary Medicine. (B) The term "drugs and medicines" includes substances or preparations intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in animals and which is commonly recognized as a substance or preparation intended for this use. The term includes legend drugs, pills and capsules (other than vitamins), liquid medications, injected drugs, ointments, vaccines, intravenous fluids, and medicated soaps if those soaps are available only to veterinarians. The term does not include vitamins, shampoos, pet foods, prescription diet foods, artificial diets, flea powders, and flea sprays. (C) The term "professional services" includes the diagnosis and treatment of disease or trauma in animal life. It also includes the administration of drugs and medicines by means of, for example, injection, intravenous solution, or oral or bodily application. (2) Application of Tax. (A) Licensed veterinarians are consumers of drugs and medicines which they use or furnish in the performance of their professional services. Accordingly, tax does not apply to a licensed veterinarian's charges to clients for such drugs and medicines, whether or not separately stated. Licensed veterinarians are also consumers of tangible personal property, other than drugs and medicines, which they use or which they furnish to clients without a separately stated charge. Tax applies to the sale of such drugs, medicines and other items to licensed veterinarians except: 1. Operative April 1, 1996, drugs or medicines which are purchased to be administered to animal life as an additive to feed or drinking water of food animals (as defined in Regulation 1587 (18 CCR 1587), "Animal Life, Feed, Drugs and Medicines") or of non-food animals which are being held for sale in the regular course of business, and the primary purpose of the drugs or medicines is the prevention and control of disease, or 2. Operative January 1, 1997, drugs or medicines which are purchased to be administered directly (e.g., orally, by injection, or by application to the body) to food animals and the primary purpose of the drugs or medicines is the prevention or control of disease of the food animals. Veterinarians remain consumers of drugs and medicines administered directly to non-food animals. (B) Licensed veterinarians are retailers of drugs and medicines which they furnish for a consideration without performing specific related professional services. Licensed veterinarians are also retailers of tangible personal property, other than drugs and medicines, which they furnish to clients for a separately stated charge. Unless otherwise exempt, tax applies to charges made by licensed veterinarians to clients for such drugs, medicines and other items. See Regulation 1587 (18 CCR 1587), "Animal Life, Feed, Drugs and Medicines" for exemption for sales of feed, drugs, or medicines for certain animals. Tax applies to separately stated charges made for X-rays if the X-rays are delivered to clients. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6007, 6015, 6018.1, 6018.7, 6358, 6358.4 and 6363, Revenue and Taxation Code. s 1507. Technology Transfer Agreements. (a) Definitions. (1) "Technology transfer agreement" means an agreement evidenced by a writing (e.g., invoice, purchase order, contract, etc.) that assigns or licenses a copyright interest in tangible personal property for the purpose of reproducing and selling other property subject to the copyright interest. A technology transfer agreement also means a written agreement that assigns or licenses a patent interest for the right to manufacture and sell property subject to the patent interest, or a written agreement that assigns or licenses the right to use a process subject to a patent interest. A technology transfer agreement does not mean an agreement for the transfer of any tangible personal property manufactured pursuant to a technology transfer agreement, nor an agreement for the transfer of any property derived, created, manufactured, or otherwise processed by property manufactured pursuant to technology transfer agreement. A technology transfer agreement also does not mean an agreement for the transfer of prewritten software as defined in subdivision (b) of Regulation 1502, Computers, Programs, and Data Processing . Example No. 1: Company X holds a copyright in certain tangible artwork. Company X transfers (temporarily or otherwise) its artwork to Company Y and, in writing, transfers (temporarily or otherwise) a copyright interest to Company Y authorizing it to reproduce and sell tangible personal property subject to Company X's copyright interest in the artwork. Company X's transfer of artwork and a copyright interest to Company Y constitutes a technology transfer agreement. Company Y's sales of tangible personal property containing reproductions of Company X's artwork do not constitute a technology transfer agreement. Example No. 2: Company X holds patents for widgets and the process for manufacturing such widgets. Company X, in writing, transfers (temporarily or otherwise) its patent interests to sell widgets and the process used to manufacture such widgets to Company Y. Company X's transfer of its patent interests to Company Y constitutes a technology transfer agreement. Company Y's sale or storage, use, or other consumption of any widgets that it manufactures does not constitute a technology transfer agreement. Company Y's sale or storage, use, or other consumption of any tangible personal property used to manufacture widgets also does not constitute a technology transfer agreement. Example No. 3: Company X manufactures and leases a patented medical device to Company Y. As part of the lease of the medical device, Company X also transfers to Company Y, in writing, a separate patent interest in a process external to the medical device that involves the use, application or manipulation of the medical device. Company X charges a monthly rentals payable for the equipment as well as a separate charge for each time the separate patented process external to the medical device is performed by Company Y. Company X's lease of the medical device to Company Y to perform the separately patented process is not a technology transfer agreement and tax applies to the entire rentals payable for the medical equipment. Company X's transfer of its separate patent interest for the right to perform the separate patented process external to the medical device is a technology transfer agreement. Company X's separate charges to Company Y for the right to perform the separate patented process external to the medical device are not subject to tax provided they relate to the right to perform the separate patented process, are not for the lease of the medical device, and represent a reasonable charge for the right to perform the separate patented process external to the medical device. Where the separate charges for the right to perform the separate patented process relate to the patented technology embedded in the internal design, assembly or operation of the medical device, Company X's separate charges for the right to perform the separate patented process are not pursuant to a technology transfer agreement and are instead part of the rentals payable from the lease of the medical device. (2) "Copyright interest" means the exclusive right held by the author of an original work of authorship fixed in any tangible medium to do and to authorize any of the following: to reproduce a work in copies or phonorecords; to prepare derivative works based upon a work; to distribute copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending; to perform a work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works; to display a copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work; and in the case of sound recordings, to perform the work publicly by means of a digital audio transmission. For purposes of this regulation, an "original work of authorship" includes any literary, musical, and dramatic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings, including phonograph and tape recordings; and architectural works represented or contained in tangible personal property. (3) "Patent interest" means the exclusive right held by the owner of a patent issued by the United States Patent and Trademark Office to make, use, offer to sell, or sell a patented process, machine, manufacture, composition of matter, or material. "Process" means one or more acts or steps that produce a concrete, tangible and useful result that is patented by the United States Patent and Trademark Office, such as the means of manufacturing tangible personal property. Process may include a patented process performed with an item of tangible personal property, but does not mean or include the mere use of tangible personal property subject to a patent interest. (4) "Assign or license" means to transfer in writing a patent or copyright interest to a person who is not the original holder of the patent or copyright interest where, absent the assignment or license, the assignee or licensee would be prohibited from making any use of the copyright or patent provided in the technology transfer agreement. (b) Application of Tax (1) Tax applies to amounts received for any tangible personal property transferred in a technology transfer agreement. Tax does not apply to amounts received for the assignment or licensing of a patent or copyright interest as part of a technology transfer agreement. The gross receipts or sales price attributable to any tangible personal property transferred as part of a technology transfer agreement shall be: (A) The separately stated sale price for the tangible personal property, provided the separately stated price represents a reasonable fair market value of the tangible personal property; (B) Where there is no such separately stated price, the separate price at which the tangible personal property or like (similar) tangible personal property was previously sold, leased, or offered for sale or lease, to an unrelated third party; or, (C) If there is no such separately stated price and the tangible personal property, or like (similar) tangible personal property, has not been previously sold or leased, or offered for sale or lease to an unrelated third party, 200 percent of the combined cost of materials and labor used to produce the tangible personal property. "Cost of materials" consists of those materials used or otherwise physically incorporated into any tangible personal property transferred as part of a technology transfer agreement. "Cost of labor" includes any charges or value of labor used to create the tangible personal property whether the transferor of the tangible personal property contributes such labor, a third party contributes the labor, or the labor is contributed through some combination thereof. The value of labor provided by the transferor of the tangible personal property shall equal the separately stated, reasonable charge for such labor. Where no separately stated charge for labor is made, the value of labor shall equal the lower of the taxpayer's normal and customary charges for labor made to third persons, or the fair market value of such labor performed. (2) Tax applies to all amounts received from the sale or storage, use, or other consumption of tangible personal property transferred with a patent or copyright interest, where the transfer is not pursuant to a technology transfer agreement. (3) Specific Applications. Tax applies to the sale or storage, use, or other consumption of artwork and commercial photography pursuant to a technology transfer agreement as set forth in Regulation 1540, Advertising Agencies, Commercial Artists and Designers . Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011 and 6012, Revenue and Taxation Code; Preston v. State Board of Equalization (2001) 25 Cal. 4th 197, 105 Cal. Rptr. 2d 407. s 1521. Construction Contractors. (a) Definitions. (1) Construction Contract. (A) "Construction contract" means and includes a contract, whether on a lump sum, time and material, cost plus, or other basis, to: 1. Erect, construct, alter, or repair any building or other structure, project, development, or other improvement on or to real property, or 2. Erect, construct, alter, or repair any fixed works such as waterways and hydroelectric plants, steam and atomic electric generating plants, electrical transmission and distribution lines, telephone and telegraph lines, railroads, highways, airports, sewers and sewage disposal plants and systems, waterworks and water distribution systems, gas transmission and distribution systems, pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances, refineries and chemical plants, or 3. Pave surfaces separately or in connection with any of the above works or projects, or 4. Furnish and install the property becoming a part of a central heating, air-conditioning, or electrical system of a building or other structure, and furnish and install wires, ducts, pipes, vents, and other conduit imbedded in or securely affixed to the land or a structure thereon. (B) "Construction contract" does not include: 1. A contract for the sale or for the sale and installation of tangible personal property such as machinery and equipment, or 2. The furnishing of tangible personal property under what is otherwise a construction contract if the person furnishing the property is not responsible under the construction contract for the final affixation or installation of the property furnished. (2) Construction Contractor. "Construction contractor" means any person who for himself or herself, in conjunction with, or by or through others, agrees to perform and does perform a construction contract. "Construction contractor" includes subcontractors and specialty contractors and those engaged in such building trades as carpentry, bricklaying, cement work, steel work, plastering, drywall installation, sheet metal work, roofing, tile and terrazzo work, electrical work, plumbing, heating, air-conditioning, elevator installation and construction, painting, and persons installing floor coverings, including linoleum, floor tile, and wall-to-wall carpeting, by permanently affixing such coverings to a floor. "Construction contractor" includes any person required to be licensed under the California Contractors' State License Law (Business & Professions Code Sections 7000 et seq.), and any person contracting with the United States to perform a construction contract, whether such persons are formed or organized under the laws of this state, or another state or country. (3) United States Construction Contractor. "United States construction contractor" means a construction contractor who for himself or herself, in conjunction with, or by or through others, agrees to perform and does perform a construction contract for the United States Government. (4) Materials. "Materials" means and includes construction materials and components, and other tangible personal property incorporated into, attached to, or affixed to, real property by contractors in the performance of a construction contract and which, when combined with other tangible personal property, loses its identity to become an integral and inseparable part of the real property. A list of typical items regarded as materials is set forth in Appendix A. (5) Fixtures. "Fixtures" means and includes items which are accessory to a building or other structure and do not lose their identity as accessories when installed. A list of typical items regarded as fixtures is set forth in Appendix B. (6) Machinery and Equipment. "Machinery and equipment" means and includes property intended to be used in the production, manufacturing or processing of tangible personal property, the performance of services or for other purposes (e.g., research, testing, experimentation) not essential to the fixed works, building, or structure itself, but which property incidentally may, on account of its nature, be attached to the realty without losing its identity as a particular piece of machinery or equipment and, if attached, is readily removable without damage to the unit or to the realty. "Machinery and equipment" does not include junction boxes, switches, conduit and wiring, or valves, pipes, and tubing incorporated into fixed works, buildings, or other structures, whether or not such items are used solely or partially in connection with the operation of machinery and equipment, nor does it include items of tangible personal property such as power shovels, cranes, trucks, and hand or power tools used to perform the construction contract. A list of typical items regarded as machinery and equipment together with a list of typical items not regarded as machinery and equipment is set forth in Appendix C. (7) Time and Material Contract. "Time and material contract" means a contract under which the contractor agrees to furnish and install materials or fixtures, or both, and which sets forth separately a charge for the materials or fixtures and a charge for their installation or fabrication. (8) Lump Sum Contract. "Lump sum contract" means a contract under which the contractor for a stated lump sum agrees to furnish and install materials or fixtures, or both. A lump sum contract does not become a time and material contract when the amounts attributable to materials, fixtures, labor, or tax are separately stated in the invoice. (b) Application of Tax. (1) United States Construction Contractors. (A) Materials and Fixtures. United States construction contractors are consumers of materials and fixtures which they furnish and install in the performance of contracts with the United States Government. Either the sales tax or the use tax applies with respect to sales of tangible personal property (including materials, fixtures, supplies, and equipment) to contractors for use in the performance of such contracts with the United States for the construction of improvements on or to real property in this state. The fact that the contract may provide principally for the manufacture or acquisition of tangible personal property is immaterial. The sales tax, but not the use tax, applies even though the contractor purchases the property as the agent of the United States. (B) Machinery and Equipment. United States contractors are retailers of machinery and equipment furnished in connection with the performance of a construction contract with the United States Government. Tax does not apply to sales of machinery and equipment to United States contractors or subcontractors, provided title to the property passes to the United States before the contractor makes any use of it. Such sales are sales for resale, and the purchasing contractor may issue a resale certificate. A contractor who uses the machinery or equipment before title passes to the United States is the consumer of that machinery or equipment and either sales tax or use tax applies with respect to the sale to or the use by the contractor. (2) Construction Contractors Other than United States Construction Contractors. (A) Materials. 1. In General. Construction contractors are consumers of materials which they furnish and install in the performance of construction contracts. Either sales tax or use tax applies with respect to the sale of the materials to or the use of the materials by the construction contractor. 2. When Contractor is Seller. A construction contractor may contract to sell materials and also to install the materials sold. If the contract explicitly provides for the transfer of title to the materials prior to the time the materials are installed, and separately states the sale price of the materials, exclusive of the charge for installation, the contractor will be deemed to be the retailer of the materials. In the case of a time and material contract, if the contractor bills his or her customer an amount for "sales tax" computed upon his or her marked up billing for materials, it will be assumed, in the absence of convincing evidence to the contrary, that he or she is the retailer of the materials. If the sale occurs in this state, the sales tax applies to the contractor's (retailer's) gross receipts from the sale of the materials. If the sale occurs prior to the time the property is brought into this state, the contractor's (retailer's) customer is the consumer and his or her use (unless otherwise exempt) is subject to use tax measured by the sales price. The contractor must collect the use tax and pay it to this state. (B) Fixtures. 1. In General. Construction contractors are retailers of fixtures which they furnish and install in the performance of construction contracts and tax applies to their sales of the fixtures. 2. Measure of Tax. a. In General. If the contract states the sale price at which the fixture is sold, tax applies to that price. If the contract does not state the sale price of the fixture, the sale price shall be deemed to be the cost price of the fixture to the contractor. b. Determining Cost Price. If the contractor purchases the fixtures in a completed condition, the cost price is deemed to be the sale price of the fixture to him or her and shall include any manufacturer's excise tax or import duty imposed with respect to the fixture prior to its sale by the contractor. If the contractor is the manufacturer of the fixture, the cost price is deemed to be the price at which similar fixtures in similar quantities ready for installation are sold by him or her to other contractors. If similar fixtures are not sold to other contractors ready for installation, then the cost price shall be deemed to be the amount stated in the price lists, bid sheets or other records of the contractor. If the sale price cannot be established in the above manner and the fixture is manufactured by the contractor, the cost price shall be deemed to be the aggregate of the following: [1] Cost of materials, including such items as freight-in and import duties, [2] Direct labor, including fringe benefits and payroll taxes, [3] Specific factory costs attributable to the fixture, [4] Any manufacturer's excise tax, [5] Pro rata share of all overhead attributable to the manufacture of the fixture, and [6] Reasonable profit from the manufacturing operation which, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the preceding factors. Jobsite fabrication labor and its prorated share of manufacturing overhead must be included in the sale price of the fixture. Jobsite fabrication labor includes assembly labor performed prior to attachment of a component or a fixture to a structure or other real property. 3. Exceptions-Leased Fixtures. In some instances the construction contractor may furnish and install a fixture for a person, other than the owner of the realty, who intends to lease the fixture in place as tangible personal property as provided in section 6016.3 of the Revenue and Taxation Code and pay tax measured by rental receipts. In this case the construction contractor may take a resale certificate from the lessor at the time of the transaction and the sale to the lessor will be considered to be a sale for resale. The resale certificate should indicate that the fixture is purchased for resale by the purchaser as tangible personal property under section 6016.3 of the Revenue and Taxation Code. (C) Machinery and Equipment. 1. In General. Construction contractors are retailers of machinery and equipment even though the machinery and equipment is furnished in connection with a construction contract. Tax applies to the contractor's gross receipts from such sales. 2. Measure of Tax. a. In General. Tax applies to the gross receipts from the sale of machinery and equipment furnished and installed by a construction contractor. If the contract calls only for the furnishing and installation of machinery and equipment, tax applies to the total contract price less those charges excludible from gross receipts under Section 6012 of the Revenue and Taxation Code. b. Lump Sum Contracts-Determining Gross Receipts. If the contract is for a lump sum and includes the furnishing and installation of materials, fixtures, and machinery and equipment, the gross receipts from the sale of the machinery and equipment shall be the price at which similar quantities ready for installation are sold at retail delivered in the market area where the installation takes place. If there is no such retail price for the machinery and equipment, then the gross receipts shall be determined from the contracts, price lists, bid sheets, or other records of the contractor. If the gross receipts cannot be established in the above manner and the machinery and equipment is manufactured by the contractor, the gross receipts from the sale shall be the aggregate of the following: [1] Cost of materials, including such items as freight-in and import duties, [2] Direct labor, including fringe benefits and payroll taxes, [3] Specific factory costs attributable to the machinery or equipment, [4] Any manufacturer's excise tax, [5] Pro rata share of all overhead attributable to the machinery or equipment, including overhead attributable to manufacturing, selling, contracting, and administration, and [6] Reasonable profit from the manufacture and sale of the machinery or equipment which, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the preceding factors. Jobsite fabrication labor and its prorated share of manufacturing overhead must be included in the sale price of the machinery or equipment. Jobsite fabrication labor includes assembly labor performed prior to attachment of a component or the machinery or equipment to a structure or other real property. (D) Cost Plus A Fee Contracts. When a contractor enters into a construction contract for a cost plus a fee or time and materials plus a fee, whether the fee is a lump sum or a percentage of costs, the fee is not included in the measure of tax. When the contractor is the manufacturer of the fixtures or machinery and equipment, the "cost price" of the fixtures and the gross receipts from the sale of the machinery and equipment shall be determined in accordance with (B) and (C) above. (3) Miscellaneous Sales by Contractors. In addition to sales of fixtures and machinery and equipment, tax applies to all retail sales by contractors of tangible personal property, including parts, supplies, tools, construction equipment, buildings severed or to be severed by the contractor, and furniture, including furniture sold with a building, even though the building is sold "in place." (4) Permits. Contractors engaged solely in performing construction contracts which do not involve the sale and installation of fixtures and who do not also engage in business as sellers or retailers are not required to hold seller's permits. However, if a contractor is a seller or retailer because he or she makes sales of fixtures, materials, or machinery and equipment, or other tangible personal property either in connection with or as part of a construction contract, or otherwise, he or she is required to hold a seller's permit. (5) Supplies and Tools for Self-Use. Contractors are the consumers of supplies such as oxygen, acetylene, gasoline, acid, thread-cutting oil, and tools and parts for tools, which they use in their business, and the tax applies to the sale of such supplies and tools to contractors. (6) Exemption Certificates. (A) Resale Certificates. Contractors holding valid seller's permits may purchase fixtures and machinery and equipment for resale by issuing resale certificates to their suppliers. They may not purchase materials for resale unless they are also in the business of selling materials. A contractor cannot avoid liability for sales or use tax on materials or fixtures furnished and installed by him or her by taking a resale certificate from the prime contractor, interior decorators, designers, department stores, or others. However, under the circumstances described in subsection (b) (2) (B)3., a contractor may take a resale certificate for fixtures furnished and installed by him or her for a person other than the owner of the realty. (B) Exemption Certificates for Out-of-State Use. Sales tax does not apply to sales of tangible personal property to a construction contractor who holds a valid California seller's permit when the property is used by the contractor outside this state in his or her performance of a contract to improve real property and as a result of such use the property is incorporated into and becomes a part of real property located outside this state. This exemption is available only if at the time of the purchase the contractor certifies in writing to the seller that he or she holds a valid California seller's permit (giving the number of that permit and identifying the property purchased) and states that the property will be used in the manner stated above. The certificate must be signed by the contractor or an authorized employee. Such a certification may appear in the body of a purchase order which bears the signature of the purchaser. Any certificate given subsequent to the time of purchase will not be recognized. If the property purchased under a certificate is used by the contractor in any other manner or for any other purpose than stated in the certificate, the contractor shall be liable for sales tax as if he or she were a retailer making a retail sale of the property at the time of such use, and the sale price of the property to him or her shall be deemed the gross receipts from the sale. (C) Deductions for Tax-Paid Purchases Resold. A contractor may claim a "tax-paid purchases resold" deduction for any property of which he or she is the retailer when he or she has reimbursed his or her vendor for tax which the vendor is required to pay to the State or has paid the use tax with respect to the property, and has resold the property prior to making any use of it. In the event that the contractor sells short ends or pieces which are not used other than in severing them from larger units purchased by him or her and as to which he or she has paid sales tax reimbursement or use tax, he or she may claim the deduction for tax-paid purchases resold, but the amount of the deduction shall not exceed the price at which he or she sells such short ends or pieces. (c) Particular Applications. (1) Draperies and Drapery Hardware. Persons who contract to sell and install draperies including drapery hardware, such as brackets, rods, tracks, etc., are retailers of the items which they furnish and install. Tax applies to the entire contract price exclusive of the charge for installation which charge should be separately stated. Installers who furnish drapery hardware or other tangible personal property may accept resale certificates from department stores or other sellers to furnish and install the draperies and drapery hardware. The department stores or other sellers furnishing resale certificates are required to pay the tax to the state upon their selling price of the draperies and drapery hardware, exclusive of installation charges. The installer should segregate his or her installation charge in order that the department store or other seller may properly segregate its charge attributable to installation for purposes of determining its taxable gross receipts. (2) Prefabricated Cabinets. A cabinet will be considered to be "prefabricated" and a "fixture" when 90 percent of the total direct cost of labor and material in fabricating and installing the cabinet is incurred prior to affixation to the realty. In determining this 90 percent, the total direct cost of all labor and materials in fabricating the cabinet to the point of installation will be compared to the total direct cost of all labor and materials in completely fabricating and installing the cabinet. If more than one cabinet is fabricated and installed under the contract, each cabinet will be considered separately in determining whether the cabinet is prefabricated. (3) Prefabricated Buildings. Prefabricated units such as commercial coaches, house trailers, etc., registered with the Department of Motor Vehicles or the Department of Housing and Community Development, are tangible personal property even though they may be connected to plumbing and utilities. A mobilehome which meets or is modified to meet, all applicable building codes and regulations and which is permanently affixed to realty, is an improvement to realty and is not personal property. A contract to furnish and install a prefabricated or modular building which is not a factory-built school building (relocatable classroom) is a construction contract whether the building rests in place by its own weight or is physically attached to realty. It is immaterial whether the building is erected upon or affixed to land owned by the owner of the building or is leased to the landowner or lessee of the land. Generally, a contract to furnish and install a small prefabricated building, such as a shed or kiosk, which is movable as a unit from its site of installation, is a construction contract only if the building is required to be physically attached to real property by the seller, upon a concrete foundation or otherwise. The sale of such a unit to rest in place by its own weight, whether upon the ground, a concrete slab, or sills or piers, is not a construction contract even though the seller may deliver the unit to its site of use. Prefabricated or modular buildings which are "factory-built housing" where permanently affixed to the realty are improvements to realty. The manufacturer of factory-built housing who contracts to furnish and install the factory-built housing manufactured by him or her is the consumer of the materials used in building and installing the factory-built housing and the retailer of the fixtures. Tax applies as provided in (b) above. (4) Factory-built School Buildings. (A) General. On and after September 26, 1989, a contract to furnish and install a factory-built school building is not a construction contract but rather is a sale of tangible personal property. (B) Definitions. 1. "Factory-built School Building." The term "factory-built school building" (relocatable classroom) means and includes: A. for the period September 26, 1989 through September 12, 1990, any building designed to be used as a school building as defined in sections 39214 and 81165 of the Education Code and so used. A factory-built school building must be designed in compliance with state laws for school construction and approved by the structural safety section in the office of the State Architect. It must be wholly or substantially manufactured at an offsite location for the purpose of being assembled, erected, or installed on a school site. B. effective September 13, 1990, any building which is designed or intended for use as a school building and is wholly or substantially manufactured at an offsite location for the purpose of being assembled, erected, or installed on a site owned or leased by a school district or a community college district. A factory-built school building must be designed and manufactured in accordance with building standards adapted and approved pursuant to chapter 4 (commencing with section 18935) of part 2.5 of division 13 of the Health and Safety Code and must be approved by the structural safety section in the office of the State Architect. The term does not include buildings licensed by either the Department of Motor Vehicles or the Department of Housing and Community Development. The term also does not include prefabricated or modular buildings which are similar in size to, but which are not, "factory-built school buildings". It is immaterial whether the building is erected upon or affixed to land owned by the owner of the building or is leased to the landowner or lessee of the land. 2. "Consumer." A. For the period September 26, 1989 through September 12, 1990, the term "consumer" as used herein means either (1) a school or a school district or (2) a contractor who purchases a factory-built school building for the purpose of fulfilling the requirements of an existing contract with a school or school district to furnish and install such building. B. Effective September 13, 1990, the term "consumer" as used herein means either (1) a school district or a community college district or (2) a contractor who purchases a factory-built school building for the purpose of fulfilling the requirements of an existing contract with a school district or a community college district to furnish and install such building. (C) Place of Sale. The place of sale or purchase of a factory built school building is the place of business of the retailer regardless of whether the sale of the building includes installation or whether the building is placed upon a permanent foundation. (D) Application of Tax. 1. Tax applies to 40 percent of the sales price of the building to the consumer excluding any charges for placing the completed building on the site. The sales price of the building shall include amounts representing tangible personal property installed in the building by a subcontractor, whether prior to or after installation of the building at the site, provided such installation is called for in the prime contract for the building. A separate contract to furnish and install tangible personal property in a factory-built school building after installation of the building at the site is a construction contract and the tax applies as in (b) above. Any contract or subcontract for site preparation (e.g., foundation) is a construction contract and tax applies as in (b) above. 2. The sale of a factory-built school building to a purchaser who will resell the building without installation is a sale for resale and the seller may accept a resale certificate from the purchaser. If the purchaser then sells to a contractor who has an existing contract to install the building on a school site, tax will apply as in (c)(4)(D)1 above. If tax has been paid on the purchase price of a factory-built school building which is subsequently resold for installation, a tax-paid purchases resold deduction may be taken as provided in Regulation 1701 (18 CCR 1701). E. Exclusion Certificate. For the period September 26, 1989, through September 12, 1990, if the purchaser certifies in writing to the retailer that the factory built school building purchased will be consumed in a manner or for a purpose entitling the retailer to exclude 60% of the gross receipts or sales price from the measure of tax and uses the property in some other manner or for some other purpose, the purchaser shall be liable for payment of tax measured by 60% of the sales price. For the above stated period, all retailers who make retail sales of "factory-built school buildings" claimed to be subject to tax measured by 40 percent of the sales price must obtain from the "consumer" a signed certificate substantially in the form set forth below. CLAIM FOR 60% EXCLUSION FROM TAX ON PURCHASE OF FACTORY-BUILT SCHOOL BUILDINGS (Sec. 6012.6. Rev. & Tax. Code) I hereby certify that the factory-built school building that I _______________________________________________________________ (Name of Purchaser-Consumer) am purchasing under the authority of this certificate from _______________________________________________________________ (Name of Retailer) will be used as a school building as defined in Sales and Use Tax Regulation 1521. My seller's permit number, if any, is ____________ . I further certify that I understand and agree that if the property purchased under the authority of this certificate is used by the purchaser for any purpose other than indicated above, the purchaser shall be liable for payment of tax to the State Board of Equalization at the time of such use measured by 60% of the sales price of the factory-built school building. Signed by ______________________________________________________ (Name of Purchaser) As: ____________________________________________________________ (Owner, Partner, Purchasing Agent, etc.) Date _______________________________________ (5) Mobilehomes Installed for Occupancy as Residences. Operative July 1, 1980, a special measure of sales or use tax is provided for a mobilehome sold to be affixed to realty for occupancy as a residence. A mobilehome dealer who sells a new mobilehome to a construction contractor to be affixed to land for occupancy as a residence is the "retailer-consumer" of the property and is required to pay tax for the period in which the sale was made by the dealer measured by an amount equal to 75 percent of the retailer-consumer's purchase price of the mobilehome. A construction contractor who withdraws a new mobilehome from an inventory purchased for resale to be affixed to realty for occupancy as a residence in the performance of a construction contract is required to pay tax measured by 75 percent of the purchase price by his or her mobilehome vendor except where the purchase is made directly from a mobilehome manufacturer. In the absence of satisfactory evidence of the vendor's purchase price it shall be presumed that the measure of tax for the transaction is an amount equivalent to 60 percent of the sales price of the mobilehome to the construction contractor. A mobilehome manufacturer who sells a new mobilehome directly to a construction contractor for installation to real property for occupancy as a residence is required to pay tax measured by 75 percent of the sales price at which a similar mobilehome ready for installation would be sold by the manufacturer to a retailer-consumer in this state. A construction contractor who withdraws a new mobilehome from an inventory purchased from a manufacturer for resale must pay tax measured by 75 percent of his or her purchase price. A mobilehome manufacturer who performs a construction contract by permanently affixing a new mobilehome to real property is the consumer of the material and the retailer of fixtures installed by him or her and the tax applies as set forth in paragraph (b) above. Reference should also be made to the provisions of Regulation 1610.2 for additional interpretative rules relating to custom additions to the mobilehome prior to sale, transfers of nonvehicle items, and the application of the tax to a purchase made from an out-of-state retailer. (6) Repair Contracts. A contract to repair a fixture in place or a fixture the contractor is required by the contract to reaffix to the realty is a construction contract. Sales or use tax applies to the gross receipts or sales price of the parts sold by a contractor who is a retailer under this provision. Either sales tax or use tax applies to the sales price of the parts sold to or used by a contractor who is a consumer under this provision. (A) United States Construction Contractors. A United States construction contractor is the consumer of the parts furnished in the performance of a construction contract to repair a fixture. (B) Construction Contractors Other Than United States Construction Contractors. 1. A contractor is the retailer of the parts furnished in the performance of a construction contract to repair a fixture when the sale price of the parts is billed separately from the repair labor. 2. A contractor is the consumer of the parts furnished in the performance of a lump sum construction contract to repair a fixture. (7) Elevator Installations. A large number of components are included in the installation of an elevator system. Those portions constituting the cage or platform and its hoisting machinery are fixtures. The balance of the installation, if attached to a structure or other real property will generally be "materials." Similarly, installation of escalators and moving sidewalks are in part fixtures and in part materials. Following are examples of components constituting part of the cage or platform and its hoisting machinery, and which are fixtures: alarm bell cab or car car doors car platform and sling door hanger on cab door openers door operator on cab or car door safety edge on cab door sills on cab electronic door protector jack assembly motors power units and control boxes pumps pushbuttons on cab wire and piping (which are components of a fixture) Following are examples of components constituting "materials" when attached to realty: car guides casing section of jack assembly guide rails hoistway doors hoistway door frames hoistway door safety edge hoistway door sills and jambs hoistway door supports hoistway entrance pushbuttons on hoistway rail brackets sill, struts sound insulating panels on "materials" structural steel (unless part of cab, car, or other "fixture") valve strainer wire and piping attached to "materials" Following are examples of components constituting parts of escalators or moving sidewalks which are fixtures: staircase moving sidewalk moving handrails chains sprockets motors other operating mechanisms (8) Telephone Switchboards and Instruments. Telephone switching equipment installed in a building specifically designed to accommodate the equipment or attached to a building or structure in a manner such that its removal would cause damage to the equipment or building in which it is installed will be considered to be "fixtures" under paragraph (a)(5) of this regulation. Telephone handsets, modular switching equipment and standardized, off-shelf, general purpose switching equipment sold for use in general purpose office buildings constitute machinery and equipment under paragraph (a)(6) of this regulation. Handsets, modular switching equipment and standardized equipment were previously classified as fixtures. This change in classification shall be applied prospectively only with respect to construction contracts entered into on and after July 1, 1988, by contractors other than United States construction contractors. (9) Deep-Well Agricultural Pumps. A deep-well agricultural pump is tangible personal property if installed so that it rests in position by force of gravity and is not otherwise affixed to the land. The pump is a fixture if: (A) It is affixed to the land such as by concrete, bolts or screws, (B) It is physically connected to an irrigation system such as by pipes or couplings so as to become an integral part of the system, or (C) It is enclosed by a pump house or other building or structure. (10) Remote Control Garage Door Openers. Remote control garage door opening units are fixtures. Portable transmitter units furnished pursuant to a construction contract are deemed to be fixtures and are taxable as provided in subdivision (b)(2)(B). Sales of portable transmitter units not a part of a construction contract, as, for example, sales of replacement units, are retail sales of tangible personal property and subject to tax as such. (11) Excess Reimbursement. The excess tax reimbursement provisions of Regulation 1700 apply to construction contractors. (12) On-Premise Electric Signs (A) An on-premise electric sign is an electrically powered or illuminated structure, housing, sign, device, figure, statuary, painting, display, message, placard, or other contrivance or any part thereof affixed to real property and intended or used to advertise, or to provide data or information in the nature of advertising, for any of the following purposes: 1) To designate, identify, or indicate the name or business of the owner or occupant of the premises upon which the advertising display is located, or 2) To advertise the business conducted, services available or rendered, or the goods produced, sold, or available for sale, upon the property where the advertising display has been erected. (B) Application of tax. An on-premise electric sign is a fixture and tax applies to the sale price of the sign. Notwithstanding the provisions of 1521(b)(2)(B), operative October 1, 2000, if the contract does not state the sale price of the sign, tax applies to 33 percent of the contract price of on-premise electric signs that are furnished and installed by the seller. "Contract price" includes charges for materials, fabrication labor, installation labor, overhead, profit, and other charges associated with the sale and installation of the sign. If a contract provides that a contractor is to install an on-premise electric sign furnished by a third party, the charges for installation are not taxable. If a seller furnishes but does not install an on-premise electric sign, the seller is a retailer of the sign and tax applies to the total contract price. Separately stated charges for transportation are subject to tax as defined in Regulation 1628, Transportation Charges. Appendix A The following is a list of typical items regarded as materials: Asphalt Bricks Builders' hardware Caulking material Cement Conduit Doors Ducts Electric wiring and connections Flooring Glass Gravel Insulation Lath Lead Lime Linoleum Lumber Macadam Millwork Mortar Oil Paint Paper Piping, valves, and pipe fittings Plaster Power poles, towers, and lines Putty Reinforcing mesh Roofing Sand Sheet metal Steel Stone Stucco Tile Wall coping Wallboard Wallpaper Wall-to-wall carpeting (when affixed to the floor) Weather stripping Windows Window screens Wire netting and screen Wood preserver Appendix B The following is a list of typical items regarded as fixtures: Air conditioning units Awnings Burglar alarm and fire alarm fixtures Cabinets, counters, and lockers (prefabricated) Cranes [FN1] (including moving parts of cranes) affixed or annexed to a building, structure or fixed work Electric generators (affixed to and accessory to a building, structure or fixed works) Elevators, hoists, and conveying units Furnaces, boilers, and heating units Lighting fixtures Plumbing fixtures Refrigeration units Signs Television antennas Transformers and switchgear Vault doors and equipment Venetian blinds [FNMoving] parts of cranes are classified as machinery and equipment when furnished and installed pursuant to fixed price construction contracts entered into prior to July 1, 1985. Appendix C The following are lists of typical items regarded as: Machinery and Equipment Drill presses Electric generators (unaffixed, or, if affixed, which meet the requirements of subparagraph (a)(6)) Lathes Machine tools Printing presses Not Machinery or Equipment Fixtures and materials as defined in this regulation Wiring, piping, etc., used as a source of power, water, etc., for machinery and equipment Radio transmission antennas Large tanks (i.e., over 500 barrel capacity) Fire alarm systems Street light standards Cooling towers other than small prefabricated cooling units Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6010, 6012, 6012.2, 6012.6, 6012.8, 6012.9, 6015, 6016, 6016.3, 6016.5, 6055, 6091-6095, 6203.5, 6241-6246, 6276, 6276.1, 6379, 6384, 6386, 6421 and 6901.5, Revenue and Taxation Code.Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6010, 6012, 6012.2, 6012.6, 6012.8, 6012.9, 6015, 6016, 6016.3, 6016.5, 6055, 6091-6095, 6203.5, 6241-6246, 6276, 6276.1, 6379, 6384, 6386, 6421 and 6901.5, Revenue and Taxation Code. s 1521.2. Factory Built Housing. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6012.7, Revenue and Taxation Code. s 1521.4. Factory-Built Housing. (a) General. "Gross receipts" from the sale of factory-built housing, and the "sales price" of factory-built housing, sold or stored, used, or otherwise consumed in this state shall be 40 percent of the sales price of the factory-built housing to the consumer. (b) Definitions. (1) Factory-built housing includes only those particular models or units that are approved by the Department of Housing and Community Development of the State of California (Department) or by the local building authority under contract with the Department as factory-built housing within Section 19971 of the Health and Safety Code. Those models or units approved as factory-built housing by the Department or local building authority bear an insignia of approval issued by the Department under Section 19980 of the Health and Safety Code and attached at the factory before shipment. Such models or units include: (A) A residential building, dwelling unit, or an individual dwelling room or combination of rooms thereof, or building component, assembly, or system, so manufactured that all of its parts cannot be inspected prior to affixation to realty without disassembly, damage, or destruction, including units designed for use as part of an institution for resident or patient care, which is either wholly manufactured or is in substantial part manufactured at an offsite location to be wholly or partially assembled onsite in accordance with regulations adopted by the Commissioner of Housing and Community Development of the State of California or in accordance with applicable local building requirements if such factory-built housing is inspected and approved by the local enforcement agency at the place and time of manufacture pursuant to Section 19990 of the Health and Safety Code. (B) "Modular housing," which is a three dimensional box or cube-shaped structure or structures making up one or more rooms of a residential building, or an institution or part thereof for resident or patient care. (C) "Sectionalized housing," which generally consists of two modules which form a total living unit of a residential building, or an institution or part thereof for resident or patient care. (D) "Modular," "utility," or "wet cores," which are three-dimensional habitable rooms or modules and which are generally comprised of a kitchen or a bathroom or bathrooms of a residential building, or an institution or part thereof for resident or patient care. (E) "Fixtures" and "materials," as defined in regulation 1521, which were included as items sold or purchased as a part of the factory-built housing package and installed in the resulting structure. (2) Factory-built housing does not include: (A) A "mobilehome," as defined in Sections 18008 and 18211 of the Health and Safety Code, which provide that a mobilehome is a structure transportable in one or more sections designed and equipped to contain not more than two dwelling units to be used with or without a foundation system. (B) "Precut housing packages" where more than 50 percent of the package consists of precut lumber only. This percentage is determined by using the ratio of direct labor and material costs applicable to the precut lumber to the total direct labor and material costs applicable to the housing package. (C) "Panelized construction," such as walls or components that may become one or more rooms of a building. However, "factory-built housing" does include panelized construction sold by the builder or manufacturer of the panelized construction and which consists of a package including wall panels, floors, and a roof that will form a complete housing structure. (D) Porches, awnings, materials, fixtures, or components which are not purchased as a part of the factory-built housing package. (E) Freestanding appliances, such as freestanding refrigerators, stoves, washers, and dryers, which are included in the sales or purchase price of, and installed as part of, the factory-built housing package. (F) Rugs (except wall-to-wall carpets), draperies, free-standing cabinets, furniture, or other furnishings. (3) The term "consumer" as used herein means any person who purchases factory-built housing for use in erecting or remodeling a building or other structure on land to be used for residential dwelling purposes or as an institution or part thereof for resident or patient care. (c) Application of Tax. (1) Tax applies to 40 percent of the sales price at which factory-built housing is sold to a "consumer" as defined herein. If factory-built housing is purchased free of tax for resale and is subsequently installed and assembled into buildings by the purchaser or on his behalf, tax applies to 40 percent of the sales price of the factory-built housing provided such buildings are to be used for residential dwelling purposes, or as an institution or part thereof for resident or patient care. If any other use is made of the factory-built housing, tax applies to the full sales price, or to 60 percent of the sales price if purchased tax paid with tax measured by 40 percent of the sales price. Taxable use of property purchased free of tax occurs when the property is allocated for use in construction and tax should be reported and paid with the return for that period. (2) Tax applies as in regulation 1521 to: (A) "Factory-built housing" furnished and installed by the manufacturer thereof. (B) Materials used at the jobsite to construct foundations, rough plumbing, or other improvements to realty which are installed preparatory to installing or affixing the factory-built housing and which were not sold or purchased as a part of the factory-built housing package. (C) Fixtures and other items installed in the structure and which are not sold or purchased as a part of the factory-built housing package. (d) Exclusion Certificate. All retailers who make retail sales of "factory-built housing" claimed to be subject to tax measured by 40 percent of the purchase price must obtain from the "consumer" a signed certificate substantially in the form set forth below. Each person using a certificate of this nature must provide his own forms. They will not be supplied by this board. The form of certificate prescribed by the board is: CLAIM FOR 60% EXCLUSION FROM TAX ON PURCHASE OF FACTORY-BUILT HOUSING (Sec. 6012.7, Rev. & Tax. Code) I hereby certify that the factory-built housing that I ___________________________________________________________ (Name of Purchaser-Consumer) am purchasing under the authority of this certificate from ___________________________________________________________ (Name of Supplier) will be consumed by me in erecting or remodeling a building or other structure on land to be used for residential purposes or as an institution or part thereof for resident or patient care. My seller's permit number if any is_____________. I further certify that I understand and agree that if the property purchased under the authority of this certificate is used by the purchaser for any purpose other than indicated above, the purchaser shall be liable for payment of tax to the State Board of Equalization measured by 60% of the sales price of the factory-built housing at the time of such use. Date Certificate Given _______________________________________ Signed by ____________________________________________________ (Name of Purchaser) As: __________________________________________________________ (Owner, Partner, Purchasing Agent, etc.) (e) Books and Records. All retailers who claim that their gross receipts from the sale of factory-built housing by reason of the provisions of this regulation is limited to 40 percent of the sales price of such housing must keep adequate and complete records in accordance with regulation 1698. The certificates must be attached to or filed in such a manner that they may readily be checked against purchase orders or any document evidencing a sale to the persons claiming that the tax due is limited to 40 percent of the sales price of the factory-built housing. All purchasers must keep adequate and complete records in accordance with regulation 1698 and such additional records as will clearly support that all property purchased under the certificate was used exclusively under conditions set forth in this regulation. (f) Operative Date. The provisions of this regulation are operative on and after January 1, 1981. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6012.7, Revenue and Taxation Code. s 1521.5. Construction Contractor Exemption from Increase in Rate of State Sales and Use Taxes. Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6051, 6201, Revenue and Taxation Code; Section 36, Statutes 1972, Chapter 1406; and Statutes 1973, Chapter 208, as amended by Statutes 1974, Chapter 259. Construction Contractors, see Regulation 1521. United States Contractors, see Regulation 1615. Records, see Regulation 1698. s 1524. Manufacturers of Personal Property. (a) In General. Tax applies to the gross receipts from retail sales (i.e., sales to consumers) by manufacturers of tangible personal property the sale of which is not otherwise exempted. The measure of the tax is the gross receipts of, or sales price charged by, the manufacturer, from which no deduction may be taken by the manufacturer on account of the cost of the raw materials or other components purchased, or labor or service costs of any step in the manufacturing process, including work performed to fit he customer's specific requirements, whether or not performed at the customer's specific request, or any other services that are a part of the sale. In addition, no deduction may be taken on account of interest paid, losses or any other expense. (b) Particular Applications. (1) Alterations to New Clothing for Men, Women and Children. (A) Definition of Alteration. "Alteration," as herein used, means and includes any work performed upon new clothing to meet the requirements of a customer, whether the work involves the addition of material to the garment, the removal of material from the garment, the rearranging or restyling of the garment, or any other change therein. (B) Application of Tax. 1. In General. Charges for alterations to new clothing are subject to tax. It is immaterial whether the charges for the alterations are separately stated or are included in the price of the garment. It also is immaterial whether the alterations are performed by the seller of the garment or by another person. (2) Alterations by Clothes Cleaning or Clothes Dyeing Establishment. A person who operates a clothes cleaning or clothes dyeing establishment is the consumer of property used or furnished in altering new and used clothing, provided that (A) 75 percent or more of the establishment's total gross receipts represent charges for garment cleaning or dyeing services and (B) No more than 20 percent of the establishment's total gross receipts during the preceding calendar year were from the alteration of new and used garments. If both requirements are met, sales tax shall not apply to the operator's charges for alterations of new or used clothing. However, that person is a retailer of any other tangible personal property sold to consumers in the regular course of business, and sales tax shall apply to the gross receipts from those sales. (3) Painting, Polishing, Finishing. Tax applies to charges for painting, polishing, and otherwise finishing tangible personal property in connection with the production of a finished product for consumers, whether the article to be finished is supplied by the customer or by the finisher. Tax does not apply to charges for painting or finishing real property. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011, 6012 and 6018.6, Revenue and Taxation Code. Bad debts, see regulation 1642; Tax Paid Purchases Resold, see regulation 1701. s 1525. Property Used in Manufacturing. (a) Tax applies to the sale of tangible personal property to persons who purchase it for the purpose of use in manufacturing, producing or processing tangible personal property and not for the purpose of physically incorporating it into the manufactured article to be sold. Examples of such property are machinery, tools, furniture, office equipment, and chemicals used as catalysts or otherwise to produce a chemical or physical reaction such as the production of heat or the removal of impurities. (b) Tax does not apply to sales of tangible personal property to persons who purchase it for the purpose of incorporating it into the manufactured article to be sold, as, for example, any raw material becoming an ingredient or component part of the manufactured article. (c) Particular Application of Oak Wine Barrels. Tax does not apply to sales of new, used, or re-coopered oak barrels to persons who purchase the barrels for the purpose of physically incorporating oak into wine to be sold. Re-coopered barrels have the inner surface shaved off to expose new wood. The use of oak wine barrels as a container during the manufacturing process is incidental to the primary purpose of incorporating oak into the wine. (d) Particular Application of Brandy Barrels. Tax does not apply to sales of new or used oak barrels to persons who purchase the barrels for the purpose of physically incorporating oak into brandy to be sold. The use of the barrels as containers during the manufacturing process is incidental to the primary purpose of incorporating oak into the brandy. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007-6009.1, Revenue and Taxation Code. s 1525.1. Manufacturing Aids. Tax applies to the sale of manufacturing aids such as dies, patterns, jigs and tooling used in the manufacturing process notwithstanding the fact that the property used in manufacturing may subsequently be delivered to or held as property of the person to whom the manufactured product is sold. If the contract of sale between the manufacturer and the customer provides that title to the manufacturing aid passes to the purchaser prior to physical use of the property in the manufacturing process, then the manufacturing aid or its raw materials, if the manufacturing aid is fabricated by the manufacturer, may be purchased for resale. Tax then applies, unless otherwise exempt, to the sale of the manufacturing aid by the manufacturer to the customer, and not also with respect to the sale to the manufacturer. If the contract provides that title to the manufacturing aid passes to the customer in this state prior to use, then a retail sale subject to tax occurs in this state even though the manufacturing aid may subsequently be shipped to a point outside this state. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007-6009.1 and 6010.5, Revenue and Taxation Code. s 1525.2. Manufacturing Equipment. (a) Partial Exemption for Property Purchased for Use in the Manufacturing Process. Section 6377 of the Revenue and Taxation Code provides a partial exemption from sales and use tax for certain properties described in this regulation. For the period commencing on January 1, 1994, and ending on December 31, 1994, the partial exemption applies to the taxes imposed by the state (6%), but does not apply to the taxes imposed by counties, cities, and districts pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law (Rev. & Tax. Code ss 7200, et seq.) or the Transactions and Use Tax Law (Rev. & Tax. Code ss 7251, et seq.). For the period commencing on January 1, 1995, and ending on December 31, 2000, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2001, and ending on December 31, 2001, the partial exemption applies to the taxes imposed by sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on December 31, 2003, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. Pursuant to the provisions of the Revenue and Taxation Code section 6377(g), the partial exemption from tax on the sale and use of property used in manufacturing and related activities as described in this regulation expired on December 31, 2003. Subject to the limitations set forth above, this partial exemption applies to gross receipts from the sale, storage, use, or other consumption in this state of the following items: (1) Tangible personal property purchased for use by a qualified person to be used primarily in any stage of the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point that raw materials are received by the qualified person and introduced into the process and ending at the point at which the property has been altered to its completed form, including packaging, if required. For purposes of this regulation: (A) Raw materials will be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified person's manufacturing activities are conducted. Raw materials that are stored on premises other than where the qualified person's manufacturing activities are conducted, however, will not be considered to have been introduced into the process for purposes of this regulation. (B) For purposes of this regulation, the term "packaging" includes only that packaging necessary to prepare the goods for delivery to and placement in the qualified person's finished goods inventory, or to prepare the goods so that they are suitable for delivery to and placement in finished goods inventory. Any additional packaging, such as that packaging necessary to consolidate the goods prior to shipping or to protect them during transportation, shall not be considered to be "packaging" for purposes of this regulation. (2) Tangible personal property purchased for use by a qualified person to be used primarily in research and development as defined in subdivision (c)(8). (3) Tangible personal property purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any property described in subdivision (a)(1) or (a)(2). (4) Tangible personal property purchased for use by a contractor purchasing that property either as an agent of a qualified person or for the contractor's own account and subsequent resale to a qualified person for use in the performance of a construction contract for the qualified person who will use the tangible personal property as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or as a research or storage facility for use in connection with the manufacturing process. (b) Property Used Primarily in Administration, General Management, or Marketing. Notwithstanding any other provision of this regulation, this partial exemption shall not apply to any tangible personal property that is used primarily in administration, general management, or marketing. For purposes of this subdivision: (1) Tangible personal property is used primarily in administration, general management, or marketing when it is used 50 percent or more of the time in one or more of those activities. (2) Tangible personal property used primarily to clean and maintain the factory floor of a manufacturing facility is used primarily in a stage of the manufacturing of property and is not used primarily in administration, general management, or marketing. (3) Fire safety equipment that is tangible personal property and that is used primarily at and in connection with the factory floor of a manufacturing facility is used primarily in a stage of the manufacturing of property and is not used primarily in administration, general management, or marketing. (c) Definitions. For purposes of this regulation: (1) "Fabricating" means to make, build, create, produce, or assemble components or property to work in a new or different manner. (2) "Manufacturing" means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property. For purposes of this regulation, "greater functionality" means that the tangible personal property has been improved so that it can perform new or different functions than the original property. Manufacturing includes logging, that is, the felling of timber, but does not include tree farming. Manufacturing does not include crop harvesting. Provided that the activity constitutes a "sale" as that term is used in subdivision (b) of section 6006 of the Revenue and Taxation Code, the tangible personal property need not be owned by the qualified person in order for the activity to qualify as manufacturing for purposes of this regulation. (3) "Primarily" means that the tangible personal property is used 50 percent or more of the time in the designated activity or activities. (4) "Process" means the period beginning at the point at which any raw materials are received by the qualified person and are introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified person and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified person has altered tangible personal property to its completed form including packaging, if required. Raw materials shall be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified person's manufacturing, processing, refining, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified person's manufacturing, processing, refining, fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process. (5) "Processing" means the physical application of materials and labor to modify or change the characteristics of property. (6) "Qualified person" means any person that satisfies the requirements of both subdivisions (c)(6)(A) and (c)(6)(B) below with regard to the trade or business in which the property will be placed into service in the use qualifying the property for this partial exemption: (A) A "qualified person" must have first commenced trade or business activities in a new trade or business in this state on or after January 1, 1994. For purposes of this subdivision, the term "activities" means trade or business activities. In determining whether or not a person is qualified within the meaning of this subdivision, the following rules apply: 1. The term "trade or business activities" does not mean the mere formation or organization of a corporation or other business entity that is intended to conduct a trade or business. Instead, a corporation or business entity first conducts activities when it first starts or commences the trade or business for which it was organized. The acquisition of operating assets that are necessary to the type of business contemplated, however, will constitute commencing activities. The term "operating assets" as used in this subdivision means assets that are in a state of readiness to be placed in service within a reasonable time period following their acquisition. 2. Notwithstanding any other provision of this subdivision, a person will not be considered to have first commenced activities in a new trade or business in this state on or after January 1, 1994, if, at any time within the 36 months preceding that date, that person, or any related person, was required to have secured a seller's permit under section 6066 of the Revenue and Taxation Code for that trade or business, or any other trade or business classified under the same division of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition (the "Manual"). For purposes of this regulation, the term "division" means a division as that term is used in the Manual. 3. A trade or business is not a new trade or business in this state if, within the 36 months preceding the date that activities were first commenced in that trade or business in this state, either the person claiming the partial exemption, or any related person, had conducted any activities in this state in any trade or business classified under the same division of the Manual as that trade or business. 4. Where a person, or any related person, is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (a "prior trade or business activity"), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new trade or business if the additional trade or business activity is classified under a different division of the Manual than are any of the person's (or any related person's) current or prior trade or business activities in this state within the preceding 36 months. 5. Where a person, including all related persons, is engaged in trade or business activities wholly outside of this state and that person first commences doing business in this state (within the meaning of section 23101 of the Revenue and Taxation Code) after December 31, 1993 (other than by purchase or other acquisition described in subdivision (c)(6)(A)6., the newly commenced trade or business activity in this state shall be treated as a new trade or business for purposes of this subdivision. 6. On or after January 1, 1995, notwithstanding anything else set forth in this subdivision, in any case where a person purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of the entity) that is doing business in this state (within the meaning of section 23101 of the Revenue and Taxation Code), the trade or business thereafter conducted by that person (or any related person) shall not be treated as a new trade or business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by that person (or any related person) in the conduct of his or her trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the person (or any related person) being used in the same trade or business both within and without this state. For purposes of this subdivision only: a. The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the month following the quarterly period in which the person (or any related person) first uses any of the acquired trade or business assets in his or her business activity. b. Any acquired assets that constitute property described in section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring person (or any related person). c. The trade or business conducted in this state by the acquiring person after the asset acquisition date shall be considered to be the same as an out-of-state trade or business conducted or previously conducted by the acquiring person (or any related person) only if the trade or business activities of both companies are or would be classified in the same division of the Manual. d. An acquired trade or business will not be considered to have been acquired as an existing trade or business for purposes of this subdivision if it is acquired either: (1) from a liquidation sale of assets pursuant to a bankruptcy filed under Chapter 7 of the United States Bankruptcy Code; or (2) pursuant to a creditor's execution or foreclosure sale of a secured interest in the assets of the trade or business. e. Example No. 1: Corporation X is doing business wholly outside of this state in the trade or business of manufacturing automobiles. The total fair market value of the total assets of this trade or business is $100,000,000. Then, on or after January 1, 1994, Corporation X acquires all of the assets of an automobile manufacturing business in this state with a fair market value of $5,000,000 and immediately uses the acquired assets in its automobile manufacturing trade or business. Thereafter, between the date of acquisition and the last day of the month following the quarterly period during which the acquisition occurred, Corporation X acquires another $1,000,000 in assets for use in the automobile manufacturing business in this state. Under these assumed facts, the conditions set forth in this subparagraph will not serve to disqualify Corporation X from the partial exemption since the fair market value of the acquired assets does not exceed 20 percent ($5,000,000/$106,000,000) of the aggregate fair market value of the total assets of the trade or business being conducted by Corporation X; and neither Corporation X nor any related person had conducted any trade or business activities in this state within the preceding 36 months. f. Example No. 2: Assume the same facts as in Example No. 1 above, but in this case, prior to acquiring the assets of the automobile manufacturing business in this state, Corporation X was solely and exclusively in the trade or business of providing data processing services. After the acquisition of the assets by Corporation X, however, the acquired assets will continue to be used in the automobile manufacturing business in this state. Assume further that no additional purchases are made after the date of acquisition. Under these assumed facts, since data processing services and automobile manufacturing are classified in different divisions of the Manual, the partial exemption will not be available to Corporation X because the fair market value of the acquired assets exceeds 20 percent ($5,000,000/$5,000,000) of the aggregate fair market value of the total assets held by Corporation X in the same trade or business. 7. In any case where the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the person as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business. For purposes of this subdivision only: a. Example No. 1: Corporation X is doing business in this state. One of its trade or business activities in this state is manufacturing automobiles. After January 1, 1994, for consideration, Corporation X transfers all of the assets used in the trade or business of manufacturing automobiles to a newly-formed, wholly-owned subsidiary known as Corporation Y. For purposes of applying this regulation, this transaction shall be treated as an acquisition of an existing trade or business by Corporation Y. b. Example No. 2: Partnership A is a manufacturer doing business in this state. After January 1, 1994, for consideration, Partnership A transfers all of its assets to a newly-formed corporation known as Corporation B. Corporation B is owned by the partners of Partnership A in the same proportionate ownership interests as their respective ownership interests in the partnership. For purposes of applying this regulation, this transaction shall be treated as an acquisition of an existing trade or business by Corporation B. 8. For purposes of this subdivision, a person is a "related person" if that person is or previously was related to the qualified person within the meaning of either section 267 or 318 of the Internal Revenue Code. 9. The term "acquire" shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration. (B) A qualified person must be engaged in those manufacturing lines of business described in Codes 2011 to 3999, inclusive, of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition. For purposes of this subdivision: 1. For purposes of classifying a line or lines of business, the economic unit shall be the "establishment" and the classification of the line or lines of business will be based on the establishment's single most predominant activity based upon value of production. The term "establishment" means an economic unit, generally at a single physical location, where business is conducted or where services or manufacturing or other industrial operations are performed. The following will generally constitute an "establishment": a factory, mill, store, hotel, movie theater, mine, farm, ranch, bank, railroad depot, airline terminal, sales office, warehouse, or central administrative office. 2. For purposes of determining the "establishment" or "establishments" of a trade or business: a. Where distinct and separate economic activities are performed at a single physical location, such as construction activities operated out of the same physical location as a lumber yard, each activity should be treated as a separate establishment where: (i) no one industry description in the classification includes such combined activities; (ii) the employment in each such economic activity is significant; and (iii) separate reports are prepared on the number of employees, their wages and salaries, sales or receipts, property and equipment, and other types of financial data, such as financial statements, job costing, and profit center accounting. For purposes of this paragraph, whether or not employment in an economic activity is significant shall be based upon all of the facts and circumstances. Nevertheless, employment in an economic activity will be considered to be "significant" for purposes of this paragraph whenever more than 25 percent of the taxpayer's total number of employees at a single physical location, or more than 25 percent of the taxpayer's total dollar value of payroll at a single physical location, is attributable to the economic activity being tested for separate establishment status. b. An establishment is not necessarily identical with the enterprise or company which may consist of one or more establishments. Also, an establishment is to be distinguished from subunits of the establishment such as departments. c. Where a person conducts business at more than one establishment within the meaning of this subdivision, then that person shall be considered to be a "qualified person" for purposes of this regulation only as to those purchases that are intended to be used and are actually used in those lines of business that are described in Codes 2011 to 3999, inclusive, of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition. (7) "Refining" means the process of converting a natural resource to an intermediate or finished product. (8) "Research and development" means those activities that are described in section 174 of the Internal Revenue Code or in any regulations thereunder. (9) "Tangible personal property" does not include any of the following: (A) Real property, including tangible personal property to be incorporated into an improvement to real property, except for "special purpose buildings and foundations" as defined in subdivision (c)(10)(D) and conveyance systems and assembly lines as provided in subdivision (c)(10)(A). (B) Consumables with a normal useful life of less than one year, except as provided in subdivision (c)(10)(E). For purposes of this regulation, it shall be presumed tangible personal property that the qualified person treats as having a normal useful life of less than one year for state income or franchise tax purposes is tangible personal property with a normal useful life of less than one year. This presumption may be rebutted by evidence satisfactory to the Board. (C) Furniture, inventory, equipment used in the extraction process, equipment used to store raw materials that have not yet entered or commenced the manufacturing process, or equipment used to store finished products that have completed the manufacturing process. The extraction process includes such severance activities as mining, oil and gas extraction. (D) Any property for which a credit is claimed under either section 17053.49 or 23649 of the Revenue and Taxation Code. (10) "Tangible personal property" includes but is not limited to the following: (A) Machinery and equipment within the meaning of subdivision (a)(6) of Regulation 1521 of the Sales and Use Tax Regulations, including component parts and contrivances such as belts, shafts, moving parts, and operating structures. The term also includes conveyance systems and assembly lines without regard to the manner of affixation to real property. (B) All equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, without limitation, computers, data processing equipment, and computer software, including both operating programs and application programs, together with all repair and replacement parts with a useful life of one or more years therefor, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the taxpayer or another party. Any repair and replacement parts that the qualified person treats as having a useful life of less than one year for state income or franchise tax purposes shall be presumed to have a useful life of less than one year for purposes of this regulation. This presumption may be rebutted by evidence satisfactory to the Board. (C) Property used in pollution control that meets or exceed standards established by this state or any local or regional governmental agency within this state. (D) Special purpose buildings and foundations that (i) are used as an integral part of the manufacturing, processing, refining, or fabricating process, or (ii) constitute a research facility used during the manufacturing process as an integral part of a manufacturing, processing, refining, or fabricating activity, or (iii) constitute a storage facility used during the manufacturing process as an integral part of a manufacturing, processing, refining, or fabricating activity. For purposes of this subdivision: 1. For purposes of this subdivision, "special purpose building and foundation" means only a building and the foundation immediately underlying the building that is specifically designed and constructed or reconstructed for the installation, operation, and use of specific machinery and equipment with a special purpose, which machinery and equipment, after installation, will become affixed to or a fixture of the real property, and the construction or reconstruction of which is specifically designed and used exclusively for the specified purposes as set forth in subdivision (a)(1) of this regulation (the qualified purpose). 2. A building is specifically designed and constructed or modified for a qualified purpose if it is not economic to design and construct the building for the intended purpose and then use the structure for a different purpose. 3. A building is used exclusively for a qualified purpose only if its use does not include a use for which it was not specifically designed and constructed or modified. Incidental use of a building for non-qualified purposes does not preclude the building from being a special purpose building. "Incidental use" means a use which is both related and subordinate to the qualified purpose. A use is not subordinate if more than one-third of the total usable volume of the building is devoted to a use which is not a qualifying purpose. 4. In the event an entire building does not qualify as a special purpose building, a taxpayer may establish that a portion of a building, and the foundation immediately underlying the portion, qualifies for treatment as a special purpose building and foundation if the portion satisfies all of the definitional provisions in this subdivision. 5. Buildings and foundations that do not meet the definition of a special purpose building and foundation set forth above include, but are not limited to, buildings designed and constructed or reconstructed principally to function as a general purpose manufacturing, industrial, or commercial building; research facilities that are used primarily prior to or after, or prior to and after, the manufacturing process; or storage facilities that are used primarily prior to or after, or prior to and after, completion of the manufacturing process. 6. For purposes of this subdivision, the term "integral part" means that the special purpose building or foundation (i) is used directly in the activity qualifying for the partial exemption from sales and use tax and (ii) is essential to the completeness of that activity. In determining whether property is used as an integral part of manufacturing, all properties used by the qualified person in processing the raw materials into the final product are properties used as an integral part of manufacturing. (E) Fuels used or consumed in the manufacturing process. (F) Property used in recycling. (11) "Standard Industrial Classification" means a Standard Industrial Classification in the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition. (d) Three-Year Limitation. Notwithstanding any other provision of this regulation, once a person has conducted business activities in a new trade or business for three or more years, that person will no longer be considered to be in a "new trade or business," nor "qualified" for this partial exemption. (e) Taxes as to Which the Partial Exemption Does Not Apply. This partial exemption does not apply to any tax levied by a county, city, or district pursuant to, or in accordance with, either the Bradley-Burns Uniform Local Sales and Use Tax Law (Rev. & Tax. Code ss 7200 et seq.) or the Transactions and Use Tax Law (Rev. & Tax Code ss 7251 et seq.). On or after January 1, 1995, this partial exemption shall not apply to any tax levied pursuant to section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to section 35 of article XIII of the California Constitution. (f) Exemption Certificates. Except as otherwise set forth in subdivision (f)(3), to claim the partial exemption provided by this regulation, a person must be both pre-qualified by the Board and either registered to hold a seller's permit or maintain a consumer use tax account. Exemption certificates issued to qualified persons will contain a control number and expiration date for verifying a person's status as a qualified person. An exemption certificate is not valid if it has not been issued by the Board or if it is accepted after the expiration date on the certificate. Qualified persons who have been pre-qualified may reproduce the issued certificates as needed for their qualifying purchases. The exemption certificates issued by the Board will be in substantially the same form as they appear in Appendices A and B of this regulation. Qualified persons who purchase or lease tangible personal property from an in-state retailer or an out-of-state retailer obligated to collect the use tax must provide the retailer with a manufacturer's exemption certificate in order to claim the partial exemption. The manufacturer's use tax declaration must be completed by a qualified person to claim a partial exemption from use tax on purchases of tangible personal property from an out-of-state retailer not obligated to collect the use tax. Solely for the purposes of this regulation, it is presumed that a seller accepts a manufacturer's exemption certificate from a prequalified purchaser in good faith in the absence of evidence to the contrary. A retailer's direct knowledge that the purchaser is not purchasing tangible personal property for use in a manufacturing activity, that the purchaser intends the tangible personal property for his or her own use, or that the tangible personal property does not have a normal useful life of one year or more constitutes evidence to the contrary. A purchaser providing a manufacturer's exemption certificate accepted in good faith by the seller for tangible personal property that does not qualify for this exemption is liable for the payment of tax as set forth in subdivision (h). (1) Manufacturer's Exemption Certificates. (A) In General. Except as otherwise provided in subdivisions (f)(1)(B) or (f)(3) of this regulation, or in section 6902.2 of the Revenue and Taxation Code, a partial exemption from sales or use tax shall not be allowed unless: 1. The qualified person furnishes the retailer with a manufacturer's exemption certificate no later than 60 days after the date of the purchase; and 2. The retailer timely files a sales and use tax return claiming the partial exemption and, together with that timely return, provides the Board with a copy of the manufacturer's exemption certificate. (B) Exclusions. Except as provided in subdivision (f)(1)(C) below, retailers claiming the partial exemption in timely filed returns will not be required to furnish the Board with copies of manufacturer's exemption certificates for sales or leases of tangible personal property made by a retailer at any single physical location to a single qualified purchaser that do not exceed an aggregate total of $25,000 during a single calendar quarter. Regardless of the total quarterly sales per purchaser, however, when necessary for the efficient administration of the sales and use tax law, the Board may, on 30 days' written notice, require a retailer to commence furnishing the Board with copies of all certificates on a quarterly basis pursuant to subdivision (f)(1)(A)2. (C) Retention and Availability of Certificates. A retailer must retain each manufacturer's exemption certificate received from a qualified person for a period of four years from the date on which the retailer claims a partial exemption based on the exemption certificate. Within 45 days of the Board's request, retailers must furnish to the Board any and all manufacturer's exemption certificates, or copies thereof, received from qualified persons, including exemption certificates for aggregate sales or leases of $25,000 or less to a single qualified person made at any single physical location of the retailer during a single calendar quarter. (2) Manufacturer's Use Tax Declaration. Except as provided in section 6902.2 of the Revenue and Taxation Code, a partial exemption from the use tax shall not be allowed unless the qualified person: (A) Timely files a sales and use tax return or consumer use tax return for the period in which the purchase occurs and timely pays any applicable tax in full that is excluded from this partial exemption as provided in subdivision (e) of this regulation; and (B) Attaches a completed manufacturer's use tax declaration to the sales and use tax return or consumer use tax return that is timely filed with the Board. (3) Refund of Partial Exemption. (A) For the period commencing on January 1, 1994, and ending on December 31, 1994, a qualified person may claim the partial exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a manufacturer's exemption certificate on or before March 31, 1995. The retailer must refund the tax directly to the purchaser or, at the purchaser's sole option, the purchaser may be credited with such amount. In the event that the retailer has already reported and paid the tax to the Board, the retailer must file a written claim for refund on or before April 30, 1995. (B) A person who paid sales tax on a qualified sale or paid use tax on a qualified purchase and who failed to claim the partial exemption as provided by this regulation may file a claim for refund equal to the amount of the partial exemption that he or she could have claimed pursuant to this regulation. The procedure for such a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code section 6901. For transactions subject to use tax, a person filing a claim for refund of the partial exemption has the burden of establishing that he or she was entitled to claim the partial exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the partial exemption has the burden of establishing that the purchaser of the qualified property otherwise met all the requirements of a qualified person at the time of the purchase subject to the refund claimed under this part. (4) Construction Contractors. In the case of a contractor who purchases property as an agent of a qualified person or for subsequent resale to a qualified person, the qualified person is deemed to be the purchaser for purposes of this subdivision. (g) Conversion of Property to a Use Not Qualifying for the Partial Exemption. Notwithstanding subdivision (a), this partial exemption shall not apply to any sale of, or the storage, use, or other consumption in this state of property that, within one year from the later of the date of purchase of the property or the date that the property was first placed into service by the purchaser in an exempt use, is: (i) removed from this state, (ii) converted from an exempt use under this regulation to some other use not qualifying for the partial exemption, or (iii) used in a manner not qualifying for the partial exemption under this regulation. For purposes of this subdivision, property is converted to a use not qualifying for the partial exemption if, without limitation, the property, or any interest in the property, or possession or control of the property, is either directly or indirectly sold, transferred, leased, or assigned to a person who is not a qualified person on the date the property is sold, transferred, leased, or assigned to such non-qualified person. In the case of a corporation that, as a qualified person, purchases tangible personal property under this partial exemption and then, within one year from the later of the date of purchase of the property or the date that the property was first placed into service by that corporation in an exempt use, either directly or indirectly transfers that property to its parent corporation that is not a qualified person on the date of the transfer of property to the parent corporation, that property has been converted to a use not qualifying for the partial exemption. (h) Purchaser's Liability for the Payment of Sales Tax. If a purchaser submits a copy of a manufacturer's exemption certificate to the seller, and then within one year from the later of the date of purchase of the property or the date that the property was first placed into service by the purchaser in an exempt use, the purchaser either (i) removes that property from this state, (ii) converts that property from an exempt use under this regulation to some other use not qualifying for the partial exemption, or (iii) uses that property in a manner not qualifying for the partial exemption under this regulation, then, in that event, the purchaser shall be liable for payment of sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was so removed, converted, or used; and the sales price of the property to the purchaser shall be deemed to be the gross receipts from that retail sale. For purposes of this subdivision, property is converted to a use not qualifying for the partial exemption if, without limitation, the property, or any interest in the property, or possession or control of the property, is either directly or indirectly sold, transferred, leased, or assigned to a person who is not a qualified person on the date the property is sold, transferred, leased, or assigned to such nonqualified person. (i) Leases to Qualifying Persons. (1) Leases -In General. Subject to all the limitations and conditions set forth in this regulation and regulation 1525.3, this partial exemption may apply to rental receipts paid by a qualified person with respect to a lease of tangible personal property to the qualified person, which tangible personal property is used as set forth in subdivisions (a)(1), (a)(2), (a)(3), or (a)(4) of this regulation. (2) Leases -Acquisition Sale and Leaseback. A person will be regarded as having paid sales tax reimbursement or use tax with respect to that person's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the person has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the partial exemption from tax provided by this regulation. (3) Subsequent Lease of Property Acquired Subject to Partial Exemption. If a person has acquired property subject to the partial exemption provided by this regulation and has paid all applicable taxes at that acquisition, the property will be regarded as property as to which sales tax reimbursement or use tax has been paid, and the subsequent lease of that property will not be subject to tax measured by rental receipts. (j) Operative Date. Except as expressly set forth otherwise in subdivisions (c)(6)(A)6. and (e) of this regulation, this regulation is operative as of January 1, 1994. All provisions of this regulation cease to be operative as of January 1, 2004, as provided by Revenue and Taxation Code section 6377(g). Retailers and qualified persons may not accept or claim any Section 6377 Manufacturer's Exemption Certificates for a sale or a use made after December 31, 2003. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6377, Revenue and Taxation Code. Appendix A Appendix B s 1525.3. Manufacturing Equipment -Leases of Tangible Personal Property. (a) General Application to Leases. Leases of tangible personal property which are classified as "continuing sales" and "continuing purchases" of tangible personal property, in accordance with Regulation 1660, "Leases of Tangible Personal Property -In General," may qualify for the partial exemption from tax for manufacturing equipment, under the conditions set forth in paragraph (i)(1) of Regulation 1525.2, "Manufacturing Equipment." Lease transactions which qualify for the partial exemption are taxed at the rate specified in Regulation 1525.2, paragraph (a). (b) Recharacterization. With respect to transactions which the parties denominate as a "lease," but which are recharacterized for sales and use tax purposes either as sales at their inception, pursuant to Regulation 1641, "Credit Sales and Repossessions," paragraph (b), or as sales under a security agreement, Regulation 1660, "Leases of Tangible Personal Property -In General," paragraph (a)(2), the transactions may qualify for the partial exemption, in accordance with Regulation 1525.2. (c) Continuation of Partial Exemption. Where possession of tangible personal property is transferred to a qualified person as defined in paragraphs (c) and (d) of Regulation 1525.2 and pursuant to a lease agreement classified as a continuing sale and continuing purchase, lease receipts shall remain partially exempt for a period of six years from the date of the inception of the lease whether or not the lessee remains as a qualified person throughout the six year period. At the close of the six year period from the date of the inception of the lease, lease receipts are subject to tax without exemption. (d) Leases of Tax-Paid Property. The partial exemption is not available to lessors who lease to qualified persons or to vendors to such lessors when the lessor elects to pay sales tax reimbursement at the time of acquisition of the property or pays use tax measured by the purchase price of the property. (e) Manufacturers Who Lease Qualified Property. A lease of tangible personal property by the manufacturer of that property is ordinarily regarded as a "continuing sale" and "continuing purchase" in accordance with Regulation 1660, "Leases of Tangible Personal Property - In General." Nevertheless, beginning January 1, 1997, a lessor of tangible personal property described in sections 17053.49 or 23649 of the Revenue and Taxation Code, who is the manufacturer of that property and who leases that property to a qualified person, as defined in section 17053.49 or 23649 of the Revenue and Taxation Code, in a form that is not substantially the same form as acquired, may, in lieu of reporting tax measured by the rentals payable, elect to pay tax measured by the cost price of that property where the election is made on or before the due date of the return for the period in which the property is first leased to the qualified person. The election shall be made by reporting use tax measured by the cost price of that property on the return for that period. The election shall not be revoked with respect to the property as to which it is made. The lease of that property for which an election is made to report and pay tax on the cost price of that property shall thereafter be excluded from the classification of a "continuing sale" and "continuing purchase." For purposes of this subdivision, "cost price" means the price at which similar property has been previously sold or offered for sale. If that property has not been previously sold or offered for sale, then the cost price shall be deemed to be the aggregate of the following: (1) Cost of materials. (2) Direct labor. (3) The pro rata share of all overhead costs attributable to the manufacturer of the property. (4) Reasonable profit from the manufacturing operations which, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the factors listed in subsections (1) to (3), inclusive. (f) Operative Date. All provisions of this regulation cease to be operative as of January 1, 2004, as provided by Revenue and Taxation Code section 6377(g). Retailers and qualified persons may not accept or claim any Section 6377 Manufacturer's Exemption Certificates for a sale or use made after December 31, 2003. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6244.5 and 6377, Revenue and Taxation Code. s 1525.5. Manufacturing By-Products and Joint-Products. (a) In general. Manufacturers and refiners are consumers of tangible personal property purchased for the purpose of use and consumed in the manufacturing or refining process, including that portion of purchased raw materials that comprise by-products that are produced and consumed during the manufacturing or refining process, or subsequent thereto. (b) Definitions. (1) Property Purchased. As used herein the term "property purchased" means materials that have been acquired in a transaction defined as a "purchase" pursuant to Section 6010 of the Revenue and Taxation Code and includes property acquired by purchase from a joint venture of which the manufacturer or refiner is a member. (2) Split-Off Point. The point at which joint products being manufactured or refined become separately identifiable. (3) Separable Costs. All costs incurred to further process and dispose of products and by-products after split-off point. (4) By-Products. As used herein the term "by-products" means products simultaneously produced from the manufacturing process, including joint-products. (5) Net Realizable Value. The market value or sales value of a product or by-product less costs of completion and disposal after split-off point, if any. (c) Commingled goods. When a manufacturer or refiner purchases property for resale, and prior to or during the refining or manufacturing process, physically commingles these materials with property not so purchased of such similarity that the identity of the materials that comprise this commingled mass cannot be determined, by-products that are produced from the mass of commingled goods and consumed shall be deemed to be first consumed from the property not purchased for resale until a quantity of commingled goods equal to the quantity of property not purchased for resale has been consumed. Any manufacturer or refiner that claims its consumed by-products are not subject to tax, because of the physical commingling of property purchased and property not so purchased, must establish by its records that this commingling occurred prior to such consumption. (d) Reporting methods. (1) Manufacturers or refiners that consume by-products that are produced during the manufacturing or refining process from purchased raw material may use any method of cost allocation consistent with generally accepted accounting principles that accurately computes the purchased cost of the consumed raw materials to report their tax liability for the reporting period in which the use was made. The manufacturer or refiner must be prepared to demonstrate by records which can be verified by audit that the method used properly reflects their tax liability. (2) The following is a description of an approved method that manufacturers and refiners that consume by-products from purchased materials may utilize to compute their tax liability: (A) Determine the split-off point for by-products that are used. (B) Determine the net realized values of all products and by-products. (C) Determine the net realizable value(s) of by-product(s) used. (D) Divide the net realizable value(s) of by-product(s) used (Step C) by the net realizable values of all products and by-products (Step B) to obtain a taxable ratio. (E) Multiply the purchase cost of all raw materials added to the manufacturing or refining process prior to the split-off by the taxable ratio (Step D) to find the measure of the tax liability resulting from the use of by-products. The following formulas summarize the above steps: MV = Market Value PC = Purchase Cost SC = Separable Costs Beyond Split-Off bp = By-Products Used tp = Total Products and By-Products Where no processing is necessary beyond split-off to obtain market value so that MV equals market or sales value at split-off: MV bp X PC = MEASURE OF TAX MV tp Where processing beyond split-off is necessary to obtain market values so that MV equals market or sales value beyond split-off. MV -SC ------ bp bp X PC = MEASURE OF TAX MV - SC ------- tp tp Note: MV-SC = Net Realizable Value at Split-Off (e) To ensure compliance with the provisions of this regulation, manufacturers and refiners are encouraged to obtain approval by the Board prior to adopting a method of calculating their tax liability incurred as a result of the consumption of purchased raw materials produced and consumed during the manufacturing or refining process. (f) Audits. Taxpayers using the suggested method or an alternate method that has been approved by the Board will normally be audited by application of the same approved procedure in the audit to verify the accuracy of reported amounts. Determinations may be imposed or refunds granted if the Board, upon audit of the books and records, determines that the amounts reported by return did not accurately disclose the amount of tax due. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6094 and 6244, Revenue and Taxation Code. s 1525.7. Rural Investment Tax Exemption. (a) General. Commencing on and after January 1, 2001, and before January 1, 2006, section 6378.1 of the Revenue and Taxation Code authorizes the Rural Investment Tax exemption (hereafter "Partial Exemption") which provides a partial exemption from sales or use taxes imposed on the gross receipts from the sale of, and the storage, use, or other consumption in this state, of tangible personal property as defined in subdivision (b)(6) by an eligible entity as defined in subdivision (b)(3). For the period commencing on January 1, 2001, and ending on December 31, 2001, the Partial Exemption applies to the taxes imposed by sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on June 30, 2004, the Partial Exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on July 1, 2004, the Partial Exemption applies to the taxes imposed by sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. The California Infrastructure & Economic Development Bank (CIEDB) Board determines who is eligible to receive this Partial Exemption and monitors eligible entities for compliance with the requirements of the Partial Exemption. As the aggregate amount of this Partial Exemption is limited, the CIEDB Board determines the amount of this Partial Exemption available to each eligible entity. (b) Definitions. For purposes of this regulation: (1) "Board" refers to the Board of Equalization. (2) "CIEDB Board" refers to the California Infrastructure & Economic Development Bank Board. (3) "Eligible entity" means any entity that meets all of the following: (A) The entity is deemed eligible for the Partial Exemption in writing by the CIEDB Board. (B) The entity has been pre-qualified, and re-qualified as applicable, by the Board and registered to hold a California seller's permit or maintain a consumer use tax account. (4) "Primarily" means used 50 percent or more of the time in a qualified county for the one-year period following the date of purchase of the property. Tangible personal property shall not be considered used for any period of time that the property is located outside a qualified county, regardless of how the property is used while outside the qualified county. (5) "Qualified county" means a California county with an average annual unemployment rate of five percentage points or more above the statewide average for the most recent calendar year as determined by the State of California, Employment Development Department. (6) "Tangible personal property" includes all of the following: (A) Machinery and equipment within the meaning of subsection (a)(6) of Regulation 1521 of the Sales and Use Tax Regulations, including component parts and contrivances such as belts, shafts, moving parts, and operating structures. The terms also include conveyance systems and assembly lines without regard to the manner of affixation to real property. (B) All equipment or devices used or required to operate, control, regulate, or maintain the machinery including, without limitation, computers, data processing equipment, and computer software, including both operating programs and application programs, together with all repair and replacement parts with a useful life of one or more years therefor, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the taxpayer or another party. Repair and replacement parts with a useful life of more than one year may qualify for this Partial Exemption even where such items are expensed for income tax purposes under the special provisions of section 179 of the Internal Revenue Code (26 U.S.C. s 179). (7) "Tangible personal property" does not include any of the following: (A) Any tangible personal property that is used primarily in administration, general management, or marketing. (B) Furniture, inventory, or equipment used to store products. (C) Any property for which a credit is claimed under either Section 17053.49 or 23649 of the Revenue and Taxation Code. (D) Materials or fixtures within the meaning of subsections (a)(4) and (a)(5), respectively, of Regulation 1521 of the Sales and Use Tax Regulations, including such items set forth in Appendices A and B of Regulation 1521. (E) Fuels. (F) Real property. (c) Partial Exemption Certificates. (1) Obtaining and Maintaining the Partial Exemption Certificate. To obtain a Partial Exemption certificate, an entity must be pre-qualified by the Board, registered to hold a California seller's permit or maintain a consumer use tax account, and be deemed eligible for the Partial Exemption by the CIEDB Board. An entity shall include in its application a copy of its written notification from the CIEDB Board verifying the entity's eligibility and the amount allocated by the CIEDB Board for use by that eligible entity pursuant to the Partial Exemption. Partial Exemption certificates issued to eligible entities will contain a control number and expiration date for verifying the entity's status as an eligible entity. To maintain a Partial Exemption certificate it may be necessary to re-qualify with the Board periodically in accordance with Revenue and Taxation Code section 6378.1. A Partial Exemption certificate is not valid if it has not been issued by the Board or if it is accepted after the expiration date on the certificate. Eligible entities that have been pre-qualified or re-qualified, as applicable, may reproduce the issued certificates as needed for their qualifying purchases. The Partial Exemption certificates issued by the Board will be in substantially the same format as they appear in Appendices A and B of this regulation. Eligible entities who purchase or lease tangible personal property from an in-state retailer or an out-of-state retailer obligated to collect the use tax must provide the retailer with a Partial Exemption certificate in order to claim the Partial Exemption. The Partial Exemption Use Tax Declaration must be completed by an eligible entity to claim a Partial Exemption from use tax on purchases of tangible personal property from an out-of-state retailer not obligated to collect the use tax. For purposes of this regulation, it is presumed that a seller accepts a Partial Exemption certificate from a purchaser in good faith in the absence of evidence to the contrary. (2) Claiming the Partial Exemption. (A) In General. The Partial Exemption from sales or use tax authorized under this part shall not be allowed unless: 1. The eligible entity furnishes the retailer with a Partial Exemption certificate no later than 60 days after the date of purchase; and 2. The retailer timely files a sales and use tax return claiming the Partial Exemption and, together with that timely return, provides the Board with a copy of the Partial Exemption certificate. (B) Exclusions. Except as provided in subdivision (c)(2)(C) below, retailers claiming the Partial Exemption in timely filed returns will not be required to furnish the Board with copies of Partial Exemption certificates for sales or leases of tangible personal property made by a retailer at any single physical location to a single eligible entity that do not exceed an aggregate total of $25,000 during a single calendar quarter. Regardless of the total quarterly sales per purchaser, however, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may, on 30 days written notice, require a retailer to commence furnishing the Board with copies of all certificates on a quarterly basis pursuant to subdivision (c)(2)(A)2. (C) Retention and Availability of Certificates. A retailer must retain each Partial Exemption certificate received from an eligible entity for a period of not less than four years from the date on which the retailer claims a Partial Exemption based on the Partial Exemption certificate. Within 45 days of the Board's request, retailers must furnish to the Board any and all Partial Exemption certificates, or copies thereof, received from eligible entities, including Partial Exemption certificates for aggregate sales or leases of $25,000 or less to a single eligible entity made at any single physical location of the retailer during a single calendar quarter. (3) Partial Exemption Use Tax Declaration. A Partial Exemption from the use tax shall not be allowed unless the eligible entity: (A) Timely files a sales and use tax return or consumer use tax return for the period in which the purchase occurs and timely pays any applicable tax in full that is excluded from this Partial Exemption as provided in subsection (a) of this regulation; and (B) Attaches a completed Partial Exemption Use Tax Declaration (Appendix B) to the sales and use tax return or consumer use tax return that is timely filed with the Board. (d) Refund of Partial Exemption. (1) For the period commencing on January 1, 2001, and ending on June 30, 2002, an eligible entity may claim the Partial Exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a Partial Exemption certificate on or before September 30, 2002. The retailer must refund the tax or tax reimbursement directly to the purchaser or, at the purchaser's sole option, the purchaser may be credited with such amount. In the event that the retailer has already reported and paid the tax to the Board, the retailer must file a written claim for refund on or before October 31, 2002. (2) An eligible entity who paid sales tax on a qualified sale or paid use tax on a qualified purchase and who failed to claim the Partial Exemption as provided by this regulation may file a claim for refund equal to the amount of the Partial Exemption that he or she could have claimed pursuant to this regulation. The procedure for such a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code Section 6901. For transactions subject to use tax, an eligible entity filing a claim for refund of the Partial Exemption has the burden of establishing that he or she was entitled to claim the Partial Exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the Partial Exemption has the burden of establishing that the purchaser of the qualified property otherwise met all the requirements of an eligible entity at the time of the purchase subject to the refund claimed under this part. (e) Improper Use of Partial Exemption. (1) Conversion of Property to a Use Not Qualifying for the Partial Exemption. Notwithstanding subdivision (a), this Partial Exemption shall not apply to any sale of, or the storage, use, or other consumption in this state of property that, within one year from the later of the date of purchase of the property or the date that the property was first placed into service by the purchaser in an exempt use, is: (i) removed from a qualified county, (ii) converted from an exempt use under this regulation to some other use not qualifying for the Partial Exemption, or (iii) used in a manner not qualifying for the Partial Exemption under this regulation. For purposes of this regulation, property is converted to a use not qualifying for the Partial Exemption if, without limitation, the property, or any interest in the property, or possession or control of the property, is either directly or indirectly sold, transferred, leased, or assigned to an entity who is not an eligible entity on the date the property is sold, transferred, leased, or assigned to such non-eligible entity. In the case of a corporation that, as an eligible entity, purchases tangible personal property under this Partial Exemption and then, within one year from the later of the date of purchase of the property or the date that the property was first placed into service by that corporation in an exempt use, either directly or indirectly transfers that property to its parent corporation that is not an eligible entity on the date of the transfer of property to the parent corporation, that property has been converted to a use not qualifying for the Partial Exemption. Tangible personal property shall not be considered used in a qualifying manner for any period of time that the property is located outside a qualified county, regardless of how the property is used while outside such a county. (2) Purchases by Ineligible Entities. Notwithstanding subdivision (a), this Partial Exemption shall not apply if the CIEDB Board subsequently determines that a purchaser is not an eligible entity pursuant to Revenue and Taxation Code section 6378.1. (3) Purchases Exceeding the Partial Exemption Allotment. Notwithstanding subdivision (a), this Partial Exemption shall not apply to any sale of, or the storage, use, or other consumption in this state of tangible personal property purchased by an eligible entity that exceeds the amounts allocated by the CIEDB Board for use by that eligible entity pursuant to the partial exemption. (f) Purchaser's Liability for the Payment of Sales Tax. (1) If a purchaser timely submits a copy of a Partial Exemption certificate to the seller or Partial Exemption Use Tax Declaration to the Board, and then within one year from the later of the date of purchase of the property or the date that the property was first placed into service by the purchaser in an exempt use, the purchaser either (i) removes that property from a qualified county, (ii) converts the property from an exempt use under this regulation to some other use not qualifying for the Partial Exemption, or (iii) uses that property in a manner not qualifying for the Partial Exemption under this regulation, then, in that event, the purchaser shall be liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was so removed, converted, or used. (2) A purchaser providing a Partial Exemption certificate accepted timely and in good faith by the seller or a Partial Exemption Use Tax Declaration to the Board for tangible personal property that does not qualify for the Partial Exemption is liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was purchased. (g) Leases to Qualifying Persons. (1) Leases -In General. Subject to all the limitations and conditions set forth in this regulation, this Partial Exemption may apply to rental receipts paid by an eligible entity with respect to a lease of tangible personal property to the eligible entity. (2) Leases -Acquisition Sale and Leaseback. An eligible entity will be regarded as having paid sales tax reimbursement or use tax with respect to that eligible entity's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the eligible entity has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the Partial Exemption from tax provided by this regulation. (3) Subsequent Lease of Property Acquired Subject to Partial Exemption. If an eligible entity has acquired property subject to the Partial Exemption provided by this regulation and has paid all applicable taxes at that acquisition, the property will be regarded as property as to which sales tax reimbursement or use tax has been paid, and the subsequent lease of that property will not be subject to tax measured by rental receipts. (h) Records. Adequate and complete records must be maintained by the eligible entity as evidence that the property purchased qualifies under the provisions of this regulation and that the property was used by the eligible entity. The eligible entity must also maintain detailed records to show the amount of the tax benefit derived from this Partial Exemption as each eligible entity will have an annual limit established by the CIEDB Board. The Board shall, within one year after being notified by the CIEDB Board that an entity has not fulfilled the requirements of Revenue and Taxation Code section 6378.1, examine the books and records of the entity, and issue a determination of any liabilities due. (i) Operative Date. This regulation is operative as of January 1, 2001 and expires December 31, 2005 unless Revenue and Taxation Code section 6378.1 is extended by an act of the Legislature. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6378.1, Revenue and Taxation Code. Appendix A Appendix B s 1526. Producing, Fabricating and Processing Property Furnished by Consumers-General Rules. (a) In General. Tax applies to charges for producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing or imprinting. (b) Operations Included-Repairing and Reconditioning Distinguished. Producing, fabricating, and processing include any operation which results in the creation or production of tangible personal property or which is a step in a process or series of operations resulting in the creation or production of tangible personal property. The terms do not include operations which do not result in the creation or production of tangible personal property or which do not constitute a step in a process or series of operations resulting in the creation or production of tangible personal property, but which constitute merely the repair or reconditioning of tangible personal property to refit it for the use for which it was originally produced. (c) Operations Included-Stretch Limousines. Producing, fabricating, and processing include any operation which results in the creation or production of a stretch limousine. The following rules apply in determining the measure of tax for converting a vehicle into a stretch limousine: (1) When a vehicle dealer, at the request of a consumer, has a conversion company convert (i.e., stretch) a vehicle into a limousine, the tax does not apply to the conversion company's charge to the dealer, but the tax does apply to the entire charge made to the consumer by the dealer for the conversion. (2) When a consumer provides the conversion company with a vehicle for conversion into a stretch limousine, the tax applies to the entire charge made to the consumer by the conversion company. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6006, Revenue and Taxation Code. Alterations of new garments, see regulation 1524 (Section 1524 of Title 18). Printing and imprinting, see regulation 1541 (Section 1541 of Title 18). Repairing and reconditioning generally, see regulation 1546 (Section 1546 of Title 18). s 1527. Sound Recording. (a) Recording Studios. (1) Tax does not apply to the charges for the making of an original recording on recording media if the recording media is not delivered to the customer or to any person at the direction of the customer, and title is retained by the studio. If, however, the recording studio agrees to furnish finished records, acetates, or other recording media, tax applies to the sale of such tangible personal property but, effective January 1, 1976, the measure of tax is limited to the sale price of the unprocessed recording media. Recording media includes wax, tape, wire, or other material used to embody sound. (2) Rental of Studio Facilities. To the extent that the studio which is making the recording rents tangible personal property to the customer, tax applies in the same manner as it does to rentals generally. (b) Master Tapes and Records. (1) "Master tapes and master records embodying sound" means tapes, records, and other devices, not including mothers, stampers or finished records, utilized by the recording industry in making recordings embodying sound. The term includes, but is not limited to tapes or records which are produced for the immediate purpose of auditioning or demonstrating the particular artistic talents contained therein. The term includes tapes or records which are produced for use as radio commercials or other advertising, syndicated radio programs or for educational purposes. The term does not include recordings for video games or seismic surveys. (2) Measure of Tax. Effective January 1, 1976, the measure of tax with respect to the retail sale of master tapes or master records embodying sound is limited to the sale price of the unprocessed recording media. The measure of tax does not include charges for labor in recording sound, services rendered in producing, fabricating, processing or imprinting the master tapes, any other services or production expenses or amounts paid for the copyrightable, artistic, or intangible elements of master tapes or master records, whether designated as royalties or otherwise. Tax applies to subsequent retail sales of master records and tapes in the same manner as tax applies to the original retail sale. (See Regulation 1529 for application of tax to recording sound for motion pictures.) (3) Intermediate Working Products. The recording of sound on intermediate recording media used to produce a master tape or master record is included within the exemption for master tapes and records under (b)(2). For example, studio charges for recording on multi-track tape which is to be mixed down and transferred to two-track tape are not subject to tax. Tax applies only to the sale of the unprocessed recording media. (4) Safety Tapes. Charges for the production of a safety copy of the master tape or master record exempt under (b)(2) are not subject to tax. Charges for the unprocessed recording media are subject to tax. (c) Processors. The furnishing of "mothers," "stampers," and finished records by a processor to a record manufacturer constitutes a sale of tangible personal property and tax applies thereto. (d) Library Producers. Tax applies to rentals of records and other tangible personal property by library producers in the same manner as it does to rentals generally whether designated as a license to use or otherwise. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010-6012 and 6362.5, Revenue and Taxation Code. s 1528. Photographers, Photocopiers, Photo Finishers and X-Ray Laboratories. (a) Photographers and Photocopiers. Tax applies to sales of photographs, whether or not produced to the special order of the customer. Tax applies to sales of photocopies, whether or not produced to the special order of the customer, and to charges for the making of photographs or photocopies out of materials furnished by the customer or others. Except as provided in subdivision (b)(2), no deduction is allowable on account of expenses such as travel time, telephone calls, rental of equipment, or salaries or wages paid to assistants or models, whether or not such expenses are itemized in billings to customers. Tax does not apply to sales to photographers and persons who make photocopies of tangible personal property which becomes an ingredient or component part of photographs or photocopies sold, such as mounts, frames, sensitized paper, and toner but does apply to sales to the photographer or producer of materials used in the process of making the photographs or photocopies and not becoming an ingredient or component part thereof, such as chemicals, trays, films, plates, proof paper, cameras, and copy machine drums. See Regulation 1540,Advertising Agencies and Commercial Artists, for transfers of photographic images by commercial artists. (b) Photocopying of Records. (1) General Rules. Tax applies to sales of photocopies of records. Persons who make and sell, or obtain and sell, photocopies of records to consumers are retailers of the photocopies whether they make the photocopies themselves, hire a subcontractor to make the photocopies, or acquire the photocopies for resale from the person who owns or maintains the records. Tax applies whether or not the copies are made at the business location of the retailer or at the location of the person who owns or maintains the records. The tax applies to the entire charge for making and selling, or obtaining and selling, photocopies, without deduction for expenses incurred in obtaining access to the records, travel time, time spent in selecting the particular records desired, the field service of photocopying or microfilming the records, telephone calls, file setup charges, basic fees, typing fees, document handling fees, or any other costs or expenses of filling the customer's order. (2) Service Transactions. Merely because a fee is charged in connection with the transfer of a photocopy of a record does not mean that the transaction is a sale transaction under the Sales and Use Tax Law. If a person who owns or maintains the records (recordholder) is required by law to furnish the photocopy upon tender and payment of a fee, the transfer of the photocopies by that person is not a sale. For sales and use tax purposes, that person is the consumer of the photocopies transferred and charges by a photocopy company to the recordholder for the photocopies are subject to tax. (A) Medical Records. Ordinarily tax does not apply to charges made by a hospital or other health care provider (recordholder) for photocopying of medical records. The transaction is regarded as a service transaction, and the fees are nontaxable if the photocopies are furnished to the patient, or to someone acting on behalf of the patient, or to the patient's representative, as provided in Health and Safety Code section 123110(b). Likewise, the fees are nontaxable if the photocopies are furnished in response to a written authorization presented by an attorney or the attorney's representative as provided in Evidence Code section 1158, or if the photocopies are furnished as provided in subdivision (b)(2)(C) below. Tax does apply, however, if the hospital or other health care provider is not required by law to furnish photocopies but otherwise sells photocopies of records for a price. Charges made by a photocopy company directly to the requesting party for photocopies which, by agreement with the recordholder, were made and furnished directly to the requesting party are taxable in their entirety. The preparation and service of a written authorization as provided in California Evidence Code Section 1158 is a nontaxable service. The tax does not apply to separately stated charges for this service even though the written authorization is served in connection with the performance of a contract to produce and deliver photocopies of records. (B) Public Records. Tax does not apply to charges made by a public agency for photocopies of records furnished pursuant to the California Public Records Act or local law, ordinance, or resolution. Persons who obtain photocopies of public records from public agencies and sell the photocopies are making retail sales and must pay sales tax measured by their entire charge, including reimbursement of legally required fees. (C) Witness Fees. Copying, witness, mileage or other fees which are charged by a person who furnishes copies of records in response to a subpoena as provided in California Evidence Code Section 1563 are not subject to tax. Separately stated charges by a photocopy company for the reimbursement of witness fees which were paid to the recordholder are not subject to tax. Tax does not apply to separately stated fees, made by a person who makes or acquires records for another for advancing payment of statutory witness fees. Such fees, commonly identified as "check charges, are made to cover the cost of providing the check, advancing moneys, and associated bookkeeping costs. When a witness fee is charged, the "check charge" will be regarded as part of the charge for a nontaxable service and not as a part of the charge made for the tangible personal property. (3) Preparation of Subpoena Duces Tecum. The preparation and service of a subpoena duces tecum is a nontaxable service. The tax does not apply to separately stated charges made for the service even though the subpoena is served in connection with the performance of a contract to produce and deliver photocopies of records. (4) Typewritten Transcriptions and Interpretation of Medical Records. The tax does not apply to a separately stated charge made for providing a typewritten transcription of a medical report or an interpretation of the contents of a medical record. However, the tax applies to the fair retail value of any photocopies produced for the customer in connection with the nontaxable service. (c) Photo Finishers. (1) Prints and Enlargements. Tax applies to charges for printing pictures or making enlargements from negatives or slides furnished by the customer. Tax applies to sales to photo finishers of all tangible personal property used by them in printing pictures or making enlargements except property becoming an ingredient or component part of the prints, enlargements and other items sold by them. (2) Coloring and Tinting. Tax applies to charges for coloring and tinting new pictures. Tax does not apply to sales of colors and tints to photo finishers for use by them in coloring and tinting new pictures. (3) Film Processing. (A) Negative Development of Customer Furnished Film. Tax does not apply to separately stated charges for the negative development of customer furnished film. Development of film by the reverse process method is not the negative development of film. Tax applies to sales of chemicals for use in such negative development whether or not the chemicals become a component part of the negative. (B) Other Film Processing. Tax applies to all film processing charges other than separately stated charges for the negative development of customer furnished film. For example, tax applies to charges for development of film by the reverse process method. Tax applies to sales of chemicals for use in such film processing if the chemicals do not become a component part of the processed film transferred to customers. Tax does not apply to sales of chemicals which do become a component part of film sold to customers before use. (d) X-Ray Laboratories. Producers of X-Ray films or photographs for the purpose of diagnosing medical or dental conditions of humans, excluding such films and photographs used only for cosmetic purposes, are the consumers of materials and supplies used in the production thereof. Thus, the tax applies to the sale of such materials and supplies to laboratories producing X-Ray films or photographs for the purpose of such diagnoses. Whether the laboratory is a "lay laboratory" or is operated by a physician, surgeon, dentist or hospital is immaterial. Producers of X-Ray films or photographs for any other purpose such as use for purely cosmetic purposes, diagnosis of medical or dental conditions of animals, inspection of metals, welds and similar purposes are retailers of the films or pictures and the tax applies to the gross receipts from the retail sale thereof. If, however, an X-Ray laboratory contracts to furnish an X-Ray inspection service, retaining title to and possession of the X-Ray or pictures produced, charges for the performance of such an inspection service are not subject to tax. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6009, 6015 and 6020, Revenue and Taxation Code. s 1529. Motion Pictures. (a) General. (1) A person who produces a motion picture or performs "qualified production services" is the consumer of, and tax applies to the sale to such persons of raw film, sound tape, or videotape stock; paintings; models; artwork; and other tangible personal property for such use. (2) Tax does not apply to amounts charged for the right to exploit a qualified motion picture. (3) Tax does not apply to charges for "qualified production services" performed by any person in any capacity (employee, agent, independent contractor or otherwise) in connection with the production of all or any part of a "qualified motion picture." (4) Tax does not apply to charges for services performed by persons who do not fabricate or process tangible personal property, such as directors and lighting technicians. (See Regulation 1501 for a more detailed discussion.) (b) Application of Tax. (1) Qualified Motion Picture. A "qualified motion picture" is any motion picture or portion thereof, whether finished or not, which is produced, adapted, or altered for exploitation in, on, or through any medium or by any device for any purpose, including, but not limited to, any entertainment, commercial, advertising, promotional, industrial, or educational purpose. (A) Qualified motion picture includes, but is not limited to: 1. Motion pictures produced for display at theaters, amusement parks or on commercial carriers; television shows including closed circuit and broadcast; commercials; trailers; television spots; specials; featurettes; "promos"; "sneaks"; corporate training and sales presentations; video press kits; music videos; and special effects, titles, and credits which are embodied on film, tape, or other motion picture media. 2. Original and adapted versions including, but not limited to, adaptation to another language or another medium. 3. Motion pictures produced for the federal government or its instrumentalities, foreign governments, state and local governments, or political subdivisions thereof. (B) Qualified motion picture does not include motion pictures produced for private noncommercial use, such as motion pictures of weddings or graduations to be used as family mementos, accident reconstruction videotapes to be used for legal analysis, or student films to be used for class projects. (C) Tax does not apply to the transfer of all or part of, or any interest in, a qualified motion picture if either: 1. The transfer is prior to the date that the qualified motion picture is exhibited or broadcast to its general audience, or 2. The transfer is to any person holding either directly or indirectly, or by affiliation, any exploitation rights obtained prior to the date that the qualified motion picture is exhibited or broadcast to its general audience. For example, a transfer to any entity that has control over or is under the control of another entity that held any exploitation rights directly would not be subject to tax. Further, a transfer to an entity which is under common control with another entity which held exploitation rights directly would not be subject to tax. Control, as used herein, is the ability of any person, such as a corporate parent or other entity, to direct the policies or actions of another entity through stock or other ownership. (2) Qualified Production Services. "Qualified production services" are any fabrication performed by any person in any capacity (including, but not limited to, an employee, agent, or independent contractor) on film, tape, or other audiovisual embodiment in connection with the production of all or any part of any qualified motion picture. Qualified production services include, but are not limited to, photography; sound or music recording; creation of special effects or animation on film, tape or other audiovisual embodiment, including animation drawings, inkings, paintings, tracings and celluloid "cels"; technological modification, including colorizing; adaptation; alteration; computer graphics, including transfers of computer graphics on computer-generated media; sound dubbing or sound mixing; sound or music or effect transferring; film or tape editing or cutting; developing or processing of negatives or positives; timing; coding or encoding; creation of opticals, titles, main or end credits; captioning; and medium transfers (e.g., film to tape, tape to tape). The term includes any such fabrication whether performed on the qualified motion picture before or after the release date. The term does not include work to manufacture release prints. Qualified production services include processing performed on a qualified motion picture, except for processing to produce release prints. Processing includes film developing and processing; film to tape transfers; and sound transferring, rerecording, dubbing, and mixing. (A) Performance of Services. Tax does not apply to charges for qualified production services. For example, tax does not apply to charges for photography, film developing other than of release prints, editing, or negative cutting performed on a qualified motion picture. (B) Tangible Personal Property. A person who performs qualified production services is the consumer of, and tax applies to the sale to that person of, tangible personal property which that person uses in the performance of the services. For example, persons who perform nontaxable film and tape processing work are consumers of all chemicals and raw stock used in the process regardless that the final film or tape product is transferred to a customer. Tax does not apply to the charge for the following tangible personal property transferred in connection with the performance of qualified production services: 1. Film, tape, or other embodiment upon which sound, visual images, or computer-generated graphics are created or recorded. See subdivision (d)(11)(B) for a list of film prints and tapes which are considered to be the product of qualified production services and distinguishable from release prints. 2. Paintings, models, and artwork (including drawings, inkings, tracings, celluloid "cels," or photostats used in the animation process) used by those filming special effects, titles, or credits regardless that title to the property may be transferred to the customer. Sales of tangible personal property to persons who perform qualified production services are subject to tax. The person performing the services shall not issue a resale certificate when purchasing such property. The application of tax is the same regardless of whether the person contracts to furnish the services and the tangible personal property for one price or separately itemizes such charges and whether the product of the service is transferred in California or is shipped out of state. (C) Retail Sales of Tangible Personal Property. Tax applies to other retail sales of tangible personal property by a person who performs qualified production services. For example, if a person who performs qualified production services purchases costumes or props to include in a scene and transfers title to the property to the customer in California, the retail sale of the costumes or props is subject to sales tax. (D) Services In General. 1. Tax does not apply to charges for services which are not fabrication or processing of tangible personal property. Such nontaxable services commonly found in the motion picture industry include writing, acting, directing, casting, music composing, management, production consulting and services rendered by stage personnel not performing fabrication or processing labor; such as grips, property personnel, lighting technicians or transportation drivers. Persons rendering services are consumers of any tangible personal property which may be incidentally used in rendering the services. (See Reg. 1501.) 2. Charges for repairing, reconditioning, or restoring a qualified motion picture are not subject to tax. Such nontaxable services include the retiming, remounting, or laboratory splicing of negative or positive film, tape, or other audiovisual embodiment. 3. Appliance Make-up. A person who fabricates and applies expendable appliance make-up is the consumer of materials and make-up used. Tax does not apply to charges made to the customer. 4. Storyboards. The preparation of storyboards for either animation or live photography is a service, and tax does not apply to the charge. 5. Creative Art Services. Tax does not apply to charges or buyout fees for creative art services in connection with the production, distribution or exploitation of a qualified motion picture. A person who provides creative art services is the consumer of tangible personal property used in the performance of such services and tax applies to the sale of property to the service provider. Tax does not apply to the charges for tangible personal property transferred in connection with the performance of creative art services. However, if the service recipient subsequently displays the property as a work of art (for example, frames it and hangs it on a wall), the service recipient would owe use tax based on their purchase price. In addition, if the property is subsequently physically incorporated into finished art for reproduction by photomechanical processes, the service recipient would owe use tax based on their purchase price. (3) Release Prints. (A) The manufacturing of release prints is not the performance of qualified production services. The application of sales tax to sales of release prints is the same as the application of tax to other sales of tangible personal property; that is, the sale of a release print to a person for exhibition or broadcast is a retail sale subject to sales tax. The sale of a release print for resale is not subject to tax. See subdivision (d)(11)(A) for a list of film and tape products which are release prints. (B) When a contract calls for production or sale of a qualified motion picture, but only requires delivery of one or more release prints, the first film or tape delivered which is of a quality suitable for exhibition will be considered the principal release print. The person required to deliver the principal release print under the contract is the consumer of, and tax applies to the sale to that person of, the principal release print. For the application of tax to all other sales of release prints, whether called for in the original contract or not, see paragraph (A) of this subdivision. (4) Stock Shots. (A) The production of a stock shot, whether by the owner at its own facility or by a subcontractor, is a qualified production service. The person producing the stock shot is the consumer of, and tax applies to the sale to that person of, tangible personal property which such person uses to produce the stock shot. The transfer, either outright or by lease, of such stock shot by the owner of the stock shot or subcontractor is nontaxable. (B) The outright sale of a stock shot library consisting of negative and/or positive materials is a sale subject to tax unless otherwise exempt. (5) Special Production Partnerships. If two or more persons engaged in the production and distribution of motion pictures for use in any media form a partnership for the purpose of reducing the cost of producing motion pictures through the sharing of the use of equipment, studio facilities, and the services of personnel, the furnishing (without transferring title to tangible personal property) of such equipment, facilities, and services by the partnership to its members for the purpose of the production of motion pictures by its members does not constitute a "sale" or "purchase." Refer to subdivision (b)(2)(B) for the application of tax to charges for tangible personal property transferred along with the sale of qualified production services. (6) Rentals Generally. (A) Rentals of Equipment. Tax applies to rentals of tangible personal property as explained in Regulation 1660. A person who contracts to provide qualified production services and provides equipment, such as an editing machine or a camera, together with an operator of the equipment to perform the services, does not thereby rent out the equipment but uses the equipment in performing the qualified production services. Such person may not purchase the equipment under a resale certificate but should pay sales tax reimbursement or timely pay use tax on the purchase of the equipment. (B) Rentals Under A Studio Facilities Contract. Under a studio facilities contract, a studio provides the use of certain property and services for a facilities fee. Included within the property made available are items of tangible personal property, the furnishing of which constitutes a rental. In addition, billings are made for additional costs of materials and labor for sets, props and wardrobes. Such costs include the labor of persons such as carpenters, electricians, painters, plasterers, to fabricate flats, to revamp and change existing flats, and to assemble the components into a set (flats are portable components of sets and are usually prefabricated). Usually the facilities contract provides that title to these items remains in the studio. Under these circumstances, charges billed out as the cost of materials and labor are considered rentals. In view of the difficulty of determining the amount of taxable rentals included within the facilities fee and the additional costs billed for sets, props, and wardrobes, the taxable rental so included will be deemed to be 55 percent of the actual set designing, set construction, and set striking costs billed to the lessee. The 55 percent factor covers set rentals and rentals of all other items furnished under a studio facilities contract whether charged to production cost or included as a portion of the facilities fee. If title to any particular item is actually transferred, e.g., an item of wardrobe to an actress, the entire charge for the item is taxable. Rentals of tangible personal property by motion picture and television studios which do not have a studio facilities contract with the lessee are taxable in the same manner as rentals generally. Charges involving rentals of permanent standing sets, which are real property rather than personal property, are not taxable where the transactions are clearly identifiable in the lessor's records. (C) Distribution or Rental of Motion Pictures. Rental receipts from any motion picture such as release prints or stock shots are not subject to tax. Tax applies to leases of videocassettes, videotapes, and videodiscs for private use under which the lessee or renter does not obtain or acquire the right to license, broadcast, exhibit, or reproduce the videocassette, videotape, or videodisc. (Reg. 1660, subd. (d)(2).) (D) Rentals of Still Photographs and Photographic Slide Films. Leases of still photographs or photographic slides are subject to tax unless the lessor leases the property in substantially the same form as acquired by the lessor, or by his or her transferor, and the lessor or transferor has paid sales tax reimbursement or has timely paid use tax measured by the purchase price. (Reg. 1660, subd. (b)(1)(E).) (c) Miscellaneous. (1) Slide films. Still slide films and filmstrips are not motion pictures. A person who makes such films or filmstrips for customers is a retailer, and tax applies to charges made to the customers. (d) Definitions. (1) "Adapt." To make suitable for a different use. (2) "Animation." A process by which the portrayal of action is created by a computer or by the recording of a series of images of drawings or models, each image representing an advancement in the action. (3) "Cutting services." All labor involved in cutting and splicing film, tape or other embodiment. (4) "Exploit" or "Exploitation." Any use of all or any part of a qualified motion picture, including exhibiting, broadcasting, telecasting, displaying, projecting, transmitting, duplicating, reproducing, distributing, promoting, advertising, commercializing, merchandising, marketing, in any or all media markets and territories and by any or all means, methods, modes, processes, and devices or delivery systems of every kind and character. "Exploitation" includes each and every act comprising part of any phase of the process of exploiting all or any qualified motion picture, whether before or after commencement of principal photography. (5) "Facilities fee." An amount charged by the studio to a person who works on any part of a motion picture under a studio facilities contract which entitles the person to the use of basic facilities, such as stage space, projection room, sound facilities, cutting room, dressing rooms, office space, parking, grip equipment, props, set dressings, drapes, and backings, and to services, such as accounting, budgeting, and janitors. Items provided by studios are usually divided into "below-the-line" elements and "above-the-line" elements. The term "below-the-line" includes all elements related to production other than basic format, scripts, directors, talent, and writers, (including persons such as secretaries, production or administrative assistants, and script secretaries). (6) "Model." Any three dimensional representation including, but not limited to landscape or other miniatures, creatures, puppets, sculptures, or non-real life objects or structures. (7) "Motion picture." Any audiovisual work (at any stage of the production thereof) consisting of a series of related images, either on film, tape, or other embodiment, whether photographic, or otherwise, and for these purposes, includes all physical materials comprising part of, or synchronized with, the motion picture, including the original, duplicate, and other negatives, intermediary film products, tapes, prints and original, duplicate and other sound or visual recordings created to accompany the pictorial material depicted in the motion picture. (8) "Produce or production of any qualified motion picture." To originate, create, invent, design, devise, develop, photograph, edit, record, imprint, adapt, alter, make, process, fabricate, assemble, construct, or manufacture all or any part of that qualified motion picture by any means, method, or devise of any kind or character, whether before or after commencement of principal photography. (9) "Qualified motion picture." See subdivision (b)(1). (10) "Qualified production services." See subdivision (b)(2). (11) "Release print." A copy of a qualified motion picture complete in all respects, which is of a quality suitable for exhibition or broadcast. (A) The following film and tape products, if complete in all respects and suitable for exhibition or broadcast, qualify as release prints: FILM TAPE Screening Copy (Complete) Promo/Marketing Videotape A print used for A copy used for marketing, goodwill marketing, goodwill or other promotional or other promotional #purposes. purposes. Release Print Broadcast/Air Dub A print produced on A broadcast quality high quality stock copy made from an and used for exhibition edited or safety to the public. master. Show Print A high quality rint used for industry screening and major market exhibition. (B) The following film and tape products are not considered release prints but rather are the product of qualified production services: FILM TAPE Work Print/Rush/Daily Master A positive print made An original tape of from a developed negative filmed action. and used for editing. The negative may be the embodiment of elements including, but not limited to, original photography, leaders, opticals, intermediates, sound tracks, overlay titles, or mattes. Fine Grain/Interpositive Window Dub/Submaster/ Master Positive An intermediate A copy of the master positive film used for used for editing. storing and processing images, creating visual effects or duplicate negatives for release printing or for archival or other uses. Duplicate (Dupe) Negative Edited Master Internegative A negative film produced An edited copy of a sub from a fine grain or sub or edited master. interpositive and used for producing release prints. Answer Print/First Safety Master Trial/Composite Print Protection Copy A print produced from A back-up copy of a an original or dupe sub or edited master. negative for evaluation of color balance and used to generate an interpositive or internegative. YCM - (Yellow, Cyan and Work Print Videotape Magenta) A black and white fine An intermediate copy copy or primary made from film and colors produced for used for reviewing archival purposes. dailies, preliminary editing or network approvals. Contrast Prints Technical Check Videotape A print manufactured A broadcast quality on special low copy used for technical contrast film emulsion and internal review. designed to be used for transferring a motion picture from film medium to tape. Stock Shot Stock Shot A clip from a motion A clip from a motion picture which has been picture which has been exhibited or broadcasted exhibited or broadcasted to its general audience. to its general audience. One Light Print Approval Copy An untimed color A copy of the director's positive print used final version which is for editing purposes. prepared for client review. Black and White ("Blue") Dupes Viewing/Screening Videotape (Incomplete) A positive print generally without A non-broadcast quality sound used for copy of the finished various types of editing. version used for review purposes which may include visual time codes or overt anti-piracy protection or lack title or end credits. Check Print A print produced for purposes of checking the quality of the internegative and to assure that subsequent prints conform to the answer print. Edited Work Print/Edited Daily A print used for internal review prior to a final version. Preview Print An edited work print which represents the director's final version as required by guild agreement. Bid Print An interim edited preview print used for evaluating market potential. Screening Copy (Incomplete) A print used for review purposes which may include visual time codes or overt anti-piracy protection or lack title or end credits. Approval Copy A preview print used for customer review purposes. (12) "Sets." Artificial settings for scenes of motion pictures. They may be either of a temporary or portable nature, such as interiors, or of a permanent nature erected on real property, such as Western streets or city streets. (13) "Special effects." A visual representation, on film, tape, or other audiovisual embodiment of illusory live action produced through photographic, electronic, mechanical, or other means, which comprises all or part of a motion picture. (14) "Technological modifications." Alteration of a motion picture through computer, electromagnetic or other processes or means including color imaging and color enhancing. (15) "Creative Art Services." Creative art services are services performed by persons such as advertising agencies, commercial artists and designers to convey ideas, concepts, looks or messages in connection with production, distribution or exploitation of a qualified motion picture. Creative art services may result in a transfer, enhancement or revision on any medium including, without limitation, the following: roughs, visualizations, drawings, sketches, renderings, illustrations, layouts, comprehensives, photographs, negatives, transparencies, prints, copies, chromatics, stats, logo types, scans, lasergraphics, visual prototypes and electronic imagery. Creative art services do not include services for the preparation of finished art for use in reproduction by photomechanical processes. (16) "Buyout Fees." Buyout fees are amounts paid for the right to use an idea, concept, look or message previously presented during any phase of creative art services. Note: Authority: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6006.1, 6006.3, 6007, 6010, 6010.4 and 6010.6, Revenue and Taxation Code. s 1530. Foundries. Tax applies to 55 percent of the receipts from the sale of coke to foundries for use in the manufacture of castings by the cupola process, which percentage represents that portion of the coke that is consumed in the process. Tax does not apply to the remaining 45 per cent, which percentage represents that portion of the coke that is purchased by the foundries for resale. Effective August 1, 1933. Adopted as of January 1, 1945, as a restatement of previous rulings. Note: (Sections 6007-6009, Revenue and Taxation Code) s 1531. Fur Dressers and Dyers. Tax does not apply to sales of dyestuffs and the following chemicals to fur dressers and dyers engaged in processing and dyeing skins and furs of which they are the owners and which they will sell: (a) Chemicals used in the pickling and tanning process: Aluminum sulphate Ammonium sulphate Sodium chloride [FNa1] Potassium aluminum sulphate Ammonium chloride Sulfuric acid Chrome alum Formaldehyde [FNa1] Sodium chloride is also used in "fleshing," i.e., the process of removing the residue of the flesh from the skin, in which case it does not become a component part of the finished product. In the event that a fur dyer purchases under resale certificates sodium chloride, a portion of which he uses in fleshing, he will be required to pay sales tax on the cost of the total amount purchased, unless he keeps accurate records showing the respective amounts used in each process. (b) Chemicals used in mordanting: Potassium dichromate Potassium tartrate Copper sulphate Acetic acid Ferrous sulphate Antimonium potassium tartrate Sodium dichromate Formic acid Lead acetate (c) Dyes: Universal D E G N Z A D M G--Gray B C A D B "P" Base Aniline Hydrochloride Fur Brown Universal P S Fur Black "P H C L Acid Red "A Acid Blue "2 G S "2 G E (d) Intermediates: Hydrogen peroxide [FNa1] Ammonium chloride Potassium chlorate Copper sulphate Ammonium hydroxide Pyrogallic acid [FNa1] Hydrogen peroxide is also commonly used as a bleaching agent, in which case the person so using it is the consumer thereof, and the same comments are applicable to it as have been made above in connection with sodium chloride. (e) Processing oils used to produce softness and flexibility: Glycerine Sulphonated nutracod Nutramented cod oil Sulphonate cod oil Shellacol (f) It is possible that other chemicals than those listed may be used in the above processes and may also be regarded as being purchased by fur dyers for the purpose of resale. All chemicals, however, which are not listed above and which are not used in a manner comparable to those which are listed, must be regarded as being purchased by fur dyers for their own consumption rather than for the purpose of resale. (g) Included among the products which are commonly used by fur dressers and dyers and which should not be purchased under resale certificates are the following: Sodium carbonate (soda ash) French chalk Sodium sulphate (glauber salts) Sierra white talc Trisodium phosphate Chloride of lime Fibrin talc (h) Fur dressers and dyers sometimes process and dye furs belonging to others, as distinguished from furs which they have purchased and will resell. Unless their operations amount to producing, processing, or fabricating within the meaning of regulation 1526, they are the consumers of all products used in connection with such work, including dyestuffs and other chemicals which combine with the fur and become a component part of the finished article. Effective August 1, 1933. Adopted as of January 1, 1945, as a restatement of previous rulings. Note: (Sections 6007-6009, Revenue and Taxation Code; altering, repairing and remodeling furs. See Ruling 1949) s 1532. Teleproduction or Other Postproduction Service Equipment. (a) Partial Exemption for Property Purchased for Use in Teleproduction or Other Postproduction Services. Commencing on January 1, 1999, section 6378 of the Revenue and Taxation Code provides a partial exemption from sales and use tax for certain properties described in this regulation. For the period commencing on January 1, 1999, and ending on December 31, 2000, the partial exemption applies to the taxes imposed by Sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2001, and ending on December 31, 2001, the partial exemption applies to the taxes imposed by sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to section 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on June 30, 2004, the partial exemption applies to the taxes imposed by Sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to Section 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. For the period commencing on July 1, 2004, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. Subject to the limitations set forth above, this partial exemption applies to sales or use taxes imposed on the gross receipts from the sale of, and the storage, use, or other consumption in this state of, any of the following items: (1) Tangible personal property as defined in subdivision (c)(5) purchased for use by a qualified person to be used primarily in teleproduction or other postproduction services. (2) Tangible personal property as defined in subdivision (c)(5) purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any property described in subdivision (a)(1). (b) Property Used Primarily in Administration, General Management, or Marketing. Notwithstanding any other provision of this regulation, this partial exemption shall not apply to any tangible personal property that is used primarily in administration, general management, or marketing. For purposes of this subdivision, tangible personal property is used primarily in administration, general management, or marketing when it is used 50 percent or more of the time in one or more of those activities for the one year period following the date of purchase of the property. (c) Definitions. For purposes of this regulation: (1) "Primarily" means tangible personal property as defined in subdivision (c)(5) of this regulation used 50 percent or more of the time in an activity described in subdivision (a) for the one-year period following the date of purchase of the property. Tangible personal property shall not be considered used in such activities for any period of time that the property is located outside the state, regardless of how the property is used while outside the state. (2) "Qualified person" means any person whose line of business is primarily engaged in teleproduction or other postproduction activities, including postproduction audio services for film, television, and video productions, described in Code 512191 of the North American Industry Classification System (NAICS) Manual published by the United States Office of Management and Budget, 1997 edition, and as further defined in (c)(4) of this regulation. The term "qualified person" does not include persons whose line of business is primarily engaged in portrait studios providing still, video, or digital portrait photography services (NAICS Code 541921, incorporated herein by reference), or commercial photography services (NAICS Code 541922, incorporated herein by reference). For the purposes of this subdivision: (A) "Primarily engaged" means 50 percent or more of gross revenues, including intra-company charges, are derived from teleproduction or other postproduction activities for the financial year of the purchaser preceding the purchase of the property. In cases where the purchaser was not primarily engaged in "teleproduction or other postproduction services" for the financial year preceding the purchase of the property, the one year period following the date of purchase of the property will be used. In the case of a nonprofit teleproduction or other postproduction establishment, "primarily engaged" means 50 percent or more of the funds allocated to the establishment are attributable to teleproduction or other postproduction services. (B) For purposes of classifying a line of business, the economic unit shall be the "establishment" and the classification of the line or lines of business will be based on the establishment's primary activity based upon gross revenues. (C) "Establishment" is defined as the smallest operating unit for which records provide information on the revenues and cost of operations incurred to perform the teleproduction or postproduction services. 1. The services may be provided to other divisions within the same entity or to related parties with or without direct compensation. 2. Establishments may include, but are not limited to, departments, divisions, subdivisions and product lines. (3) "Sale" includes the producing, fabricating or processing of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating or processing. When performed outside this state or when the customer issues a resale certificate, a "purchase" includes the producing, fabricating or processing of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating or processing. If such producing, fabricating or processing is performed on property described in subdivision (a)(1) or (a)(2) of this regulation for a qualified person and the other requirements for the partial exemption in this regulation are met, the partial exemption applies to the gross receipts or sales price for such producing, fabricating, or processing. (4) "Teleproduction or other postproduction services" means services for film, video, or digital multimedia formats (audio or visual) that include editing, film and video transfers, transcoding, dubbing, subtitling, credits, close captioning, audio production, special effects (visual or sound), graphics, or animation. For the purposes of this regulation, "teleproduction or other postproduction services" includes postproduction services and does not include production services or activities. "Teleproduction or other postproduction services" include the duplicating of film for postproduction purposes. However, the duplication of film to make release prints does not qualify as a "teleproduction or other postproduction service." The term "teleproduction or other postproduction services" also includes, but is not limited to: (A) Services performed to transform, manipulate, assemble, and duplicate visual moving images and synchronous sound previously captured on film, video, or digital formats (audio or visual) or as data during principal photography. (B) Services to create digital images, models, miniatures or sounds that may be, but are not required to be combined with live action images. Teleproduction or other postproduction services does not include the recording of music except music recorded with synchronous visual images. (C) Film processing; film to tape transfers; tape to tape transfers; DVD or digital audiovisual multimedia format authoring and encoding; color correction; digitizing; on-line and off-line editing; negative cutting; assembling; animation, creating 2d images, creating 3d images (CGI), visual effects; compositing; digital video image manipulation; dirt fixes; motion control visual effects capture; scanning and recording to or from film, video or data; transform; standards or format conversion; transcoding; duplication (except as provided); titles; subtitling; credits; closed captioning; creating graphics; audio scoring; automated dialogue replacement; foley; audio mixing; audio editing; audio laybacks; audio laydowns; audio special effects; management of visual or audio assets and related files stored as data; film, video or audio (dialogue, music and effects) restoration and preservation; archiving, format transfer utilizing compression standards; film cleaning; quality control processes performed in conjunction with any other postproduction process; and creation of data files related to a service defined above. Definitions of the terms used in this subdivision are provided in Appendix C. (D) The providing of postproduction facilities, such as personnel and scoring stages or equipment where the provider is deemed to be providing a qualified teleproduction or other postproduction service, is not a lease of tangible personal property. The providing of special configured equipment to be used in (A) through (D) above with 24 hour a day, 7-day a week available on site technical support where the provider is deemed to be providing a qualified teleproduction or other postproduction service, is not a lease of tangible personal property. (5) "Tangible personal property" includes, but is not limited to, all of the following: (A) Machinery and equipment, including component parts. Machinery and equipment includes, but is not limited to, duplication equipment used for postproduction purposes and any property used to provide teleproduction or other postproduction services that is mounted or installed in a vehicle. (B) All equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, without limitation, audio and visual monitoring equipment, scopes, computers, data processing equipment, electronic data storage equipment, including both internal and external devices, consoles which are custom built, which have open compartments in which tangible personal property described in subdivisions (a)(1) and (a)(2) is placed and which are not suitable for use for other purposes, equipment racks and computer software, including both operating programs and application programs. This also includes all repair and replacement parts with a useful life of one or more years whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the taxpayer or another party. Repair and replacement parts that are treated as a depreciable asset for financial purposes will be treated as having a useful life of more than one year for the purposes of this regulation, even when such items are expensed for income tax purposes under the special provisions of Internal Revenue Code Section 179. (C) Materials (as defined in Regulation 1521), only when purchased by a qualified person as tangible personal property and not pursuant to a construction contract, unless the construction contractor is the retailer of materials under Regulation 1521(b)(2)(A)(2); fixtures; or other tangible personal property used to operate, control, regulate, or maintain the property described in subdivisions (a)(1) and (a)(2) which may subsequently be incorporated into real property, including but not limited to items such as air conditioning units dedicated to cooling equipment, electrical UPS (uninterrupted power source) units, sub-flooring, specialized lighting, sound insulation, hydraulics, cabling, routers, patch bays, hubs, robotic storage and retrieval equipment, switchers, satellite and/or other telecommunications equipment used to facilitate the distribution or movement of elements (in either video or data form) between all the various parties collaborating in the completion of a film or video project as part of the postproduction process. (6) "Tangible personal property" does not include any of the following: (A) Furniture, inventory, meals, vehicles (including those in or on which qualifying property is mounted or installed,) or equipment used to store products. The term "furniture" includes, but is not limited to, tables, chairs, desks or consoles other than those described in subdivision (c)(5)(B). (B) Real property. (d) Taxes as to Which the Partial Exemption Does Not Apply. This partial exemption does not apply to any tax levied by a county, city, or district pursuant to, or in accordance with, either the Bradley-Burns Uniform Local Sales and Use Tax Law (Rev. & Tax. Code ss 7200 et seq.) or the Transactions and Use Tax Law (Rev. & Tax Code ss 7251 et seq.). This partial exemption also does not apply to any tax levied pursuant to section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to section 35 of article XIII of the California Constitution. (e) Section 6378 Exemption Certificate. (1) Qualified persons who purchase or lease tangible personal property from an in-state seller, or an out-of-state seller obligated to collect use tax, must provide the seller with a section 6378 exemption certificate in order for the seller to claim the partial exemption. If the seller takes a complete section 6378 exemption certificate timely and in good faith, the certificate relieves the seller from the liability for the sales tax subject to exemption under this regulation or the duty of collecting the use tax subject to exemption under this regulation. A certificate will be considered timely if it is taken any time before the seller bills the purchaser for the property, any time within the seller's normal billing or payment cycle, or any time at or prior to delivery of the property to the purchaser. A section 6378 exemption certificate which is not taken timely will not relieve the seller of the liability for tax excluded by the partial exemption unless the seller presents satisfactory evidence to the Board that the specific property was sold to a qualified person and primarily used in a qualifying manner. The exemption certificate form set forth in Appendix A may be used as an exemption certificate. (2) Blanket Certificates. In lieu of requiring an exemption certificate for each transaction, a qualified person may issue a blanket exemption certificate. The blanket exemption certificate form set forth in Appendix B may be used as an exemption certificate. Qualified persons claiming the partial exemption through a blanket exemption certificate must make a clear reference to the blanket exemption certificate in documents such as their written purchase orders, sales agreements, leases, or contracts. Qualified persons claiming the partial exemption must also include in the document referencing the blanket exemption certificate a description of the property. (3) Form of Certificate. Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as an exemption certificate with respect to the sale of the property described in the document if it contains all of the following essential elements: (A) The signature of the purchaser or an agent or employee of the purchaser. (B) The name and address of the purchaser (C) The seller's permit number held by the purchaser, or a notation to the effect that the purchaser is not required to hold a permit. (D) A statement that the property acquired is to be used primarily in teleproduction or other postproduction services or to be used primarily to maintain, repair, measure, or test any such property. (E) A statement that the purchaser is a qualified person primarily engaged in teleproduction or other postproduction services as described in Regulation 1532. (F) Description of property purchased, including sales price or rentals payable. (G) Date executed. (4) Retention and Availability of Certificates. A seller must retain each exemption certificate, including a blanket exemption certificate, received from a qualified person for a period of not less than four years from the date on which the seller claims a partial exemption based on the exemption certificate. If a qualified person issues a blanket exemption certificate, the seller must also retain all documents, such as purchase orders, sales agreements, lease agreements, or contracts referencing the blanket exemption certificate and all invoices containing the sales price of the property that the qualified person claims is partially exempt by reference to the blanket exemption certificate. Such documents shall be retained for a period of not less than four years from the date on which the seller claims a partial exemption based on the reference to the blanket exemption certificate. While the Board will not normally require the filing of the Section 6378 exemption certificate with a sales and use tax return, when necessary for the efficient administration of the Sales and Use Tax Laws, the Board may, on 30 days' written notice, require a seller to commence filing with its sales and use tax returns copies of all certificates. The Board may also require that, within 45 days of the Board's request, sellers furnish to the Board any and all exemption certificates, or copies thereof, accepted for the purpose of supporting the partial exemption. (5) If a purchaser who issues a section 6378 exemption certificate pursuant to subdivision (e)(1), (2), or (3) subsequently does not meet the requirements of a qualified person as set forth in subdivision (c)(2) or does not use the property in a manner or for the purpose which entitles the purchaser to the partial exemption, or if a purchaser issues a section 6378 exemption certificate pursuant to subdivision (e)(1), (2), or (3) for property that does not qualify for the partial exemption, the purchaser shall be liable for payment of the sales tax excluded by the partial exemption, with applicable interest, to the same extent as if the purchaser were a seller making a retail sale of the property at the time of conversion. The sales price of the property to the purchaser shall be deemed to be the gross receipts from that retail sale. (f) Use Tax. With respect to tangible personal property the use of which is subject to use tax, any purchaser claiming the partial exemption pursuant to Section 6378 of the Revenue and Taxation Code must file a sales and use tax return or consumer use tax return for the period in which the property is first stored, used, or consumed in California unless the seller holds a valid California seller's permit or a Certificate of Registration - Use Tax and collects the use tax. The purchaser will not be relieved of his or her liability to pay any applicable use tax that is excluded from the partial exemption as provided in subdivision (d) of this regulation until such tax is remitted either to a vendor who issues a receipt which meets the requirements of Regulation 1686 or directly to the Board. (g) Conversion of Property to a Use Not Qualifying for the Partial Exemption. Property that, within one year from the date of purchase, is removed from California, converted from an exempt use under this regulation to some other use not qualifying for the partial exemption, or used in a manner not qualifying for the partial exemption under this regulation, such as a lease to a non-qualified person, is used in a non-qualifying manner. If, as a result of the total non-qualifying use, the property is not primarily used, as defined in subdivision (c)(1), in a qualifying activity, the partial exemption shall not apply. In determining the non-qualifying use, two or more non-qualifying uses that occur at the same time shall be counted as one. For example, a lease to a non-qualified person of property that is removed from California shall be considered as one non-qualifying use for the period it was removed from California and leased to a non-qualified person. The property shall not, however, be regarded as converted to a use not qualifying for the partial exemption if the qualified person sells or leases the property to a qualified person for qualified use in California. For purposes of this subdivision, tangible personal property shall not be regarded as being converted to a non-qualifying use if such property is used for teleproduction or other postproduction services in this state for more than one half of the one year period from the date of purchase of the property. (h) Purchaser's Liability for the Payment of Sales Tax. If a purchaser submits a Section 6378 exemption certificate to the seller, and then within one year of the date of purchase of the property converts that property as described in subdivision (g) from an exempt use pursuant to this regulation to some other use not qualifying for the partial exemption, the purchaser shall be liable for payment of sales tax excluded by the partial exemption, with applicable interest, to the same extent as if the purchaser were a seller making a retail sale of the property at the time the property was so removed, converted, or used; and the sales price of the property to the purchaser shall be deemed to be the gross receipts from that retail sale. In the case of a non-qualifying lease, the payment of sales tax by a purchaser when included on the return for the period covering the date of conversion shall be deemed to be a timely election to pay tax based on the purchase price. (i) Leases. (1) Leases - In General. Leases of tangible personal property which are classified as "continuing sales" and "continuing purchases" of tangible personal property, in accordance with Regulation 1660, "Leases of Tangible Personal Property - In General," may qualify for the partial exemption subject to all the limitations and conditions set forth in this regulation. This partial exemption may apply to rental receipts paid by a qualified person with respect to a lease of tangible personal property to the qualified person, which tangible personal property is used as set forth in subdivisions (a)(1) and (a)(2) of this regulation, notwithstanding the fact that the lease was entered into prior to the operative date of this regulation. For purposes of this subdivision, a non-qualified person may purchase property for resale and subsequently lease the property to a qualified person subject to the partial exemption. A lessee is a qualified person if the lessee is "primarily engaged" in teleproduction or other postproduction activities and meets the requirements of a qualified person set forth in subdivision (c)(2). (2) Leases of Tax-Paid Property. The partial exemption does not apply to the sale of property to, or the storage, use, or other consumption of property by, a person who is not a qualified person even if that person subsequently leases the property to a qualified person. (3) Lease of Property By a Qualified Person. If a qualified person has acquired property subject to the partial exemption provided by this regulation, the subsequent lease of that property will not be subject to tax measured by rental receipts. A lease of property to a qualified person for use in a qualified manner constitutes a qualifying use of the property by the lessor. If, however, the property is used in a manner not qualifying for the exemption, such as being leased to a non-qualified person in the aggregate for more than one half of the one year period following the date of purchase by the qualified person, such property is not considered to be primarily used in "teleproduction or other postproduction services." Therefore, the lessor will be liable for tax in accordance with subdivision (e)(5). For example, if a qualified person purchases property under the partial exemption, and then leases the property to a non-qualified person, the lease receipts will not be subject to tax as the purchaser has elected to pay tax on their cost. However, if the qualified person who purchases the property leases the property to a non-qualified person for more than one half of the one year period following the date of purchase, the lessor is not using the property in a qualifying manner and is responsible for the tax excluded by the partial exemption based upon the purchase price of the property. (4) Leases - Recharacterization. With respect to transactions which the parties denominate as a "lease," but which are recharacterized for sales and use tax purposes either as sales at their inception, pursuant to Regulation 1641, "Credit Sales and Repossessions," subdivision (b), or as sales under a security agreement, Regulation 1660, "Leases of Tangible Personal Property - In General," subdivision (a)(2), the transactions may qualify for the partial exemption, in accordance with this regulation. (5) Leases - Acquisition Sale and Leaseback. A qualified person will be regarded as having paid sales tax reimbursement or use tax with respect to that person's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the qualified person has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the partial exemption from tax provided by this regulation. (j) Records. Adequate and complete records must be maintained by the purchaser to support that the property purchased was used primarily in the performance of teleproduction or other postproduction services for a period of no less than one year prior to conversion of the property to a non-qualifying use or use by a non qualifying party. (k) Operative Date. This regulation is operative as of January 1, 1999. The partial exemption under section 6378 of the Revenue and Taxation Code only applies to qualifying tangible personal property that is sold or first stored, used, or consumed in California on or after the operative date. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6378, Revenue and Taxation Code. Appendix A Section 6378 Exemption Certificate Please Note: This is a partial exemption from sales and use tax at the rate of 5% effective January 1, 2002, 4.75% from January 1, 2001 to December 31, 2001, and 5% from January 1, 1999 to December 31, 2000. You are not relieved from your obligations for the local and district taxes on this transaction. This partial exemption also does not apply to any tax levied pursuant to section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to section 35 of article XIII of the California Constitution. The exemption is specific to these transactions only and may not be construed to exempt other transactions. This exemption also applies to lease payments made on or after January 1, 1999, notwithstanding the fact that the lease agreement was entered into prior to January 1, 1999. This certificate may not be used to purchase certain property such as, furniture, inventory, meals, vehicles, equipment used to store products or real property. Seller's Name______________________________________________ ___________________________________________________________ Seller's Address___________________________________________ (Street, City, State, Zip Code)____________________________ --------------------------------------------------------------------- PURCHASE ORDER DATE OF DESCRIPTION OF PROPERTY SALES PRICE/ NUMBER PURCHASE PURCHASED OR LEASED [FNa1] RENTALS PAYABLE ORDER --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- I hereby certify that I am a qualified person primarily engaged in teleproduction or other postproduction services as described in Regulation 1532 and that the property listed above will be used primarily in teleproduction or other postproduction services or to maintain, repair, measure or test any such property. I understand that if such property is used outside the State of California or leased to a non-qualified person in the aggregate for more than one half of the one year period following the date of purchase or lease, or if such property is converted for use in a manner not qualifying for the exemption, that I am required by the Revenue and Taxation Code to report and pay the state sales/use tax measured by the sales price of the property to/by me. ------------------------------------------------------------------------------- PRINT NAME TITLE COMPANY NAME ------------------------------------------------------------------------------- SIGNATURE DATE PERMIT NUMBER (if applicable) [FNa1] ------------------------------------------------------------------------------- ADDRESS CITY STATE, ZIP ------------------------------------------------------------------------------- Seller must retain a copy of this exemption certificate to support a deduction taken on their return. [FNa1]A seller's permit is required to be held by any person engaged in the business of selling tangible personal property in California. Certain lessors must also hold a seller's permit. If you are not required to hold a seller's permit because you make no sales or leases of tangible personal property in California, please enter "Not Applicable". Appendix B Section 6378 Blanket Exemption Certificate Please Note: This is a partial exemption from sales and use tax at the rate of 5% effective January 1, 2002, 4.75% from January 1, 2001 to December 31, 2001, 5% from January 1, 1999 to December 31, 2000. You are not relieved from your obligations for the local and district taxes on this transaction. This partial exemption also does not apply to any tax levied pursuant to section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to section 35 of article XIII of the California Constitution. This exemption also applies to lease payments made on or after January 1, 1999, notwithstanding the fact that the lease agreement was entered into prior to January 1, 1999. This certificate may not be used to purchase certain property such as furniture, inventory, meals, vehicles, equipment used to store products or real property. __________________________________________________________ Seller's Name_____________________________________________ __________________________________________________________ Seller's Address___________________________________________ (Street, City, State, Zip Code)____________________________ ___________________________________________________________ I hereby certify that I am a qualified person primarily engaged in teleproduction or other postproduction services as described in Regulation 1532 and that the property purchased or leased will be used primarily in teleproduction or other postproduction services or to maintain, repair, measure or test any such property. I understand that if such property is used outside the State of California or leased to a non qualified person in the aggregate for more than one half of the one year period following the date of purchase or lease, or if such property is converted for use in a manner not qualifying for the exemption, that I am required by the Revenue and Taxation Code to report and pay the state sales/use tax measured by the sales price of the property to/by me. ------------------------------------------------------------------------------- PRINT NAME TITLE COMPANY NAME ------------------------------------------------------------------------------- SIGNATURE DATE PERMIT NUMBER (if applicable) [FNa1] ------------------------------------------------------------------------------- ADDRESS CITY STATE, ZIP ------------------------------------------------------------------------------- Seller must retain a copy of this exemption certificate to support a deduction taken on their return. [FNa1] [FNa1]A seller's permit is required to be held by any person engaged in the business of selling tangible personal property in California. Certain lessors must also hold a seller's permit. If you are not required to hold a seller's permit because you make no sales or leases of tangible personal property in California, please enter "Not Applicable." Appendix C Technical Definitions DVD (Digital Video Disk) - is a medium for recording compressed audio, visual images and other related data. Digitizing - Process of converting video containing audio, visual images and other related data into digital format. Assembly - Combining audio, visual images and other related data into proper sequence and recording to a new edited master videotape pursuant to instructions provided by editor. Creating 2D Images - Process of enhancing original elements captured through principal photography by creating or manipulating two dimensional images. Creating 3D Images (CGI) - process of creating three-dimensional images that will ultimately be recorded on film, video or other multimedia format. Dirt Fixes - Process to electronically "clean up" or "remove" undesirable elements such as dirt and film scratches from visual images. Digital Video Image Manipulation - This process includes: compositing multiple layers of visual images, changing aspect ratio or scale, flip, defocus, rotate, resize, reposition, crop, color correction, apply special effects such as warping the image, create transitional effects between scenes or shots. Motion Control Visual Effects Capture - Recording flat art such as pictures and logos and applying movement to the visual image such as pan, scan, zoom. Motion Control Capture could also create tracking points through recording movement of a live subject that will be applied to a computer generated image. Transcoding - Converting video and audio formats. Duplication - Process of making film or videotape copies excluding film processing to produce release prints as defined in Regulation 1529 or duplication of video tapes intended for non-broadcast consumer sale or rental. Automated Dialogue Replacement (ADR) - Recording new dialogue or re-recording dialogue where the production sound is unusable or obscured. Foley - Process of adding to or replacing sound elements that enhance ambient sounds such as footsteps, doors closing, breathing, rustling of clothes, keys jangling in pockets and punches. Audio Laybacks - Recording the completed audio back to a videotape or film master. Audio Laydowns - Recording sound from an audio source or video element to another audio element. Quality Control (QC) - Process by which a film print or videotape is evaluated to make sure it meets technical requirements. Archiving - Processes involved in preparing and storing film, videotape or other multimedia elements for future use. Format Transfer Utilizing Compression Standards - To transfer video or audio format utilizing a compression standard to allow for more efficient file size management or file format changes. Management of Visual or Audio Assets and Related Files Stored as Data - Process of creating database with specified reference points to allow for timely search and retrieval of elements by multiple users through central file servers. Creation of Data Files Related to a Teleproduction or other Postproduction Service - Data files contain information that is related to the visual and audio information stored on film, video or other multimedia format such as timecode, keycode/flex files, edit decision lists. s 1533. Liquefied Petroleum Gas. (a) General. Commencing on and after September 1, 2001, Section 6353(b) of the Revenue and Taxation Code exempts from sales and use tax the sale of, and the storage, use, or other consumption in this state, of qualified LPG used by a qualified person in an agricultural activity, or used in a qualified residence for a household activity. The terms "qualified LPG," "qualified person," "agricultural activity," "qualified residence," and "household activity" are defined below. (b) Definitions. For purposes of this regulation: (1) "Agricultural activity" means the producing and harvesting of agricultural products as defined in subdivision (b)(4), by a qualified person as defined in subdivision (b)(5). (2) "Household activity" means those activities normally undertaken in a qualified residence as defined in subdivision (b)(7), such as cooking, heating and lighting. (3) "Person that assists a qualified person" means a person employed by a qualified person, or engaged on a contract or fee basis to perform activities described in Major Group 07 of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition (hereafter SIC Manual) which include soil preparation services, crop services, veterinary services, animal services, landscape and horticultural services, and farm labor and management services, that uses qualified LPG in assisting a person engaged in a line of business described in subdivision (b)(5). A person that assists a qualified person may perform a construction contract only if the person performing the contract is engaged in farm management services as described in Code 0762 of the SIC Manual and the construction is integral to the producing and harvesting of an agricultural product as defined in (b)(4). A person that assists a qualified person must provide physical aid or assistance in the actual producing and harvesting of agricultural products owned by the qualified person and not merely provide aid in administrative, managerial, or marketing activities. A person that assists a qualified person does not include persons performing services such as an attorney, accountant, consultant, or other similar activity. Except as otherwise provided above, a person that assists a qualified person also does not include persons who perform construction contracts or who perform repairs to farm equipment and machinery, or a person who assists such persons. (4) "Producing and harvesting agricultural products" means those activities described in Major Groups 01, 02 and 07 of the SIC Manual. Major Group 01 includes establishments engaged in the production of crops, plants, vines, and trees (excluding forestry operations). This major group also includes establishments engaged in the operation of sod farms; in the production of mushrooms, bulbs, flower seeds, and vegetable seeds; and in the growing of hydroponic crops. Major Group 02 includes establishments engaged in the keeping, grazing, or feeding of livestock for the sale of livestock or livestock products (including serums), for livestock increase, or for value increase. Livestock, as specified in Major Group 02, includes cattle, hogs, sheep, goats, and poultry of all kinds; also included are animal specialties, such as horses, rabbits, bees, pets, fish in captivity, and fur-bearing animals in captivity. Major Group 07 includes establishments engaged in performing soil preparation services, crop services, veterinary services, animal services, landscape and horticultural services, and farm labor and management services. Producing and harvesting agricultural products involves the cultivation of land or the growing, raising, or gathering of the commodities described in Codes 0111 to 0291 of the SIC Manual and integral activities thereto described in Codes 0711 to 0783 of the SIC Manual. Such activities include, but are not limited to, flame weeding, pest control, nut hulling and shelling, crop drying, cotton ginning, poultry and pig brooding, livestock breeding, water heating, crop heating, and fruit ripening. Producing and harvesting agricultural products also includes the washing of agricultural products, the inspection and grading of agricultural products or livestock, or the packaging of agricultural products for shipment. Except as otherwise provided under Major Groups 01, 02 or 07 of the SIC Manual, producing and harvesting activities do not include post harvesting activities nor those activities described or otherwise designated in Major Group 20 - Food and Kindred Products of the SIC Manual. Nevertheless, the specific activities of sun drying or artificially dehydrating fruits and vegetables as described in Code 2034 of the SIC Manual qualify as producing and harvesting activities where those activities are performed by a qualified person as defined in (b)(5) or a person who assists a qualified person as defined in (b)(3). Example A: Grower A farms raisins and uses qualified LPG to dry Grower A's raisins. Grower A is a qualified person (Code 0172 of the SIC Manual) and uses qualified LPG in the producing and harvesting of an agricultural commodity. The sale of qualified LPG to Grower A for use in this activity is exempt from tax. Example B: Grower B farms plums and contracts with ABC, Inc. to dry the plums owned by Grower B in preparation for sale. ABC, Inc. uses qualified LPG to dry the plums. ABC, Inc. is a person assisting a qualified person (Code 0723 of the SIC Manual) such that the sale of qualified LPG to ABC for use in this activity is exempt from tax. Example C: Grower C farms corn. Grower C sells the "wet" corn to a food processor based on the net dry weight of the product. The food processor uses qualified LPG to dry the corn. The food processor's use of qualified LPG to dry the commodity is not a qualified use since the food processor owns the commodity and thereby only performs a non-qualified, post harvesting activity. The sale of qualified LPG to the food processor for use in this activity is not exempt from tax. (5) "Qualified person" means a person who purchases qualified LPG that is engaged in a line of business described in Codes 0111 to 0291 of the SIC Manual or performs activities described in Codes 0711 to 0783 in addition to being engaged in a line of business described in Codes 0111 to 0291, which includes cash grains, field crops, vegetables and melons, fruits and tree nuts, horticultural specialties, livestock, dairy, poultry and eggs, and animal specialties and who sells such commodities to others. A qualified person also includes any person conducting activities, as defined in subdivision (b)(3), that uses qualified LPG to assist a person engaged in a line of business described herein in producing and harvesting agricultural products owned by the qualified person. A qualified person is not required to be engaged 50 percent or more of the time in a line of business described in Codes 0111 to 0291. A qualified person does not include a person operating a garden plot, orchard, or farm for the purpose of growing produce or animals for that person's own use. (6) "Qualified LPG" means liquefied petroleum gas delivered into a tank with a storage capacity that is equal to or greater than 30 gallons. Liquefied petroleum gas is a mixture of light hydrocarbons which are gaseous at atmospheric temperature and pressure. Liquefied petroleum gas occurs naturally in crude oil and natural gas production fields and is also produced in the oil refining process. Its main components are Propane (C3H8) at a boiling point of -42.07 o C and Butane (C4H10) at a boiling point of 0 o C. Delivery into tanks smaller than 30 gallons do not qualify for the exemption even if the total delivery exceeds 30 gallons. (7) "Qualified residence" means a primary residence not serviced by gas mains and pipes, to which qualified LPG is delivered by a seller. A primary residence means a person's domicile where that person spends the greatest portion of his or her time during a calendar year. A person may change his or her primary residence only when that person moves from and otherwise abandons his or her previous residence and has no intent to return to that previous residence. In no event shall a primary residence include multiple residences maintained simultaneously such as a second, or vacation home. Solely for purposes of this regulation, a qualified residence also includes a residence where qualified LPG is purchased by a qualified person for use in a household activity at the primary residence of: (A) A person that assists a qualified person; or (B) An employee of a qualified person where such person that assists a qualified person or employee of a qualified person performs an agricultural service described in Codes 0711 to 0783 of the SIC Manual for the qualified person. In addition, solely for purposes of this regulation, a qualified residence includes a residence where qualified LPG is purchased by a landlord or management company on behalf of a renter or tenant for use in a household activity at the primary residence of the renter or tenant. (c) Exemption Certificates. (1) In General. A person who purchases qualified LPG for use in an agricultural or household activity from an in-state retailer, or an out-of state retailer obligated to collect use tax, must provide the retailer with an exemption certificate in order for the retailer to claim the exemption. If the retailer takes an exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a purchaser, the exemption certificate relieves the retailer from the liability for the sales tax subject to exemption under this regulation or the duty of collecting the use tax subject to exemption under this regulation. An exemption certificate will be considered timely if it is taken any time before the retailer bills the purchaser for the qualified LPG, any time within the retailer's normal billing or payment cycle, any time at or prior to delivery of the qualified LPG to the purchaser, or no later than 15 days after the date of purchase. An exemption certificate which is not taken timely will not relieve the retailer of the tax liability; however the retailer may present satisfactory evidence to the Board that the retailer sold the qualified LPG to a purchaser for use in an agricultural or household activity. An exemption from the sales and use tax under this part shall not be allowed unless the retailer claims the exemption on its sales and use tax return for the reporting period during which the transaction subject to the exemption occurred. Where the retailer fails to claim the exemption as set forth above, the retailer may file a claim for refund as set forth in subdivision (e). The exemption certificate form set forth in Appendix A may be used to claim the exemption. (2) Blanket Exemption Certificates. In lieu of requiring an exemption certificate for each transaction, a person who purchases qualified LPG for use in an agricultural or household activity may issue a blanket exemption certificate. The exemption certificate form set forth in Appendix A may be used as a blanket exemption certificate. Appendix A may also be used as a specific exemption certificate if the purchaser provides the purchase order or sales invoice number and a precise description of the property being purchased. A person who purchases qualified LPG for use in an agricultural or household activity must include in the exemption certificate how much or what percentage of the qualified LPG will be used in the agricultural or household activity. If purchasing liquefied petroleum gas not qualifying for the exemption, the purchaser must clearly state in documents such as a written purchase order, sales agreement, lease, or contract that the sale or purchase is not subject to the blanket exemption certificate. (3) Form of Exemption Certificate. Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as an exemption certificate with respect to the sale or purchase of the liquefied petroleum gas if it contains all of the following essential elements: (A) The signature of the purchaser, purchaser's employee, or authorized representative of the purchaser. (B) The name, address and telephone number of the purchaser. (C) The number of the seller's permit held by the purchaser. Except as otherwise provided in subdivision (b)(7), if the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in this state, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a California seller's permit in lieu of a seller's permit number. (D) A statement that: 1. Of the liquefied petroleum gas purchased, how much or what percentage will be delivered by the seller into a tank with a storage capacity equal to or greater than 30 gallons for use in a household activity at the primary residence, which is not serviced by gas mains and pipes, of: a. The purchaser; b. A person described in Codes 0711 to 0783 of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, that assists a person engaged in an agricultural business described in Codes 0111 to 0291 of the SIC Manual ( "qualified person") or an employee of a qualified person where the LPG is purchased by such qualified person on behalf of the person that assists that qualified person in producing and harvesting agricultural products or on behalf of the employee that assists a qualified person in producing and harvesting agricultural products; or c. A renter or tenant where the LPG is purchased by a landlord or management company on behalf of the renter or tenant. 2. Of the liquefied petroleum gas purchased, how much or what percentage will be delivered into a tank with a storage capacity equal to or greater than 30 gallons for use in producing and harvesting agricultural products, and will be purchased by: a. A person engaged in an agricultural business described in Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, ( "qualified person"); b. A person described in Codes 0711 to 0783 of the SIC Manual, that assists a qualified person; or c. An employee of a qualified person. (E) Date of execution of document. (4) Retention and Availability of Exemption Certificates. A retailer must retain each exemption certificate received from a qualified person for a period of not less than four years from the date on which the retailer claims an exemption based on the exemption certificate. While the Board will not normally require the filing of the exemption certificate with a sales and use tax return, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may on 30 days' written notice, require a retailer to commence filing with its sales and use tax returns copies of all exemption certificates. The Board may also require, within 45 days of the Board's request, retailers provide the Board access to any and all exemption certificates, or copies thereof, accepted for the purposes of supporting the exemption. (5) Good Faith. A seller will be presumed to have taken an exemption certificate in good faith in the absence of evidence to the contrary. A seller, without knowledge to the contrary, may accept an exemption certificate in good faith where the purchaser states that the qualified LPG will be used in a qualified residence for a household activity or in which a qualified person states that the qualified LPG will be used for an agricultural activity. However, an exemption certificate cannot be accepted in good faith where the seller has knowledge that the LPG is not subject to an exemption, will not be otherwise used in an exempt manner, or where a person is not a qualified person when purchasing qualified LPG for an agricultural activity. (d) Exemption Certificate for Use Tax. The exemption certificate must be completed by a purchaser to claim an exemption from use tax on purchases of qualified LPG for use in an agricultural or household activity from an out-of-state retailer not obligated to collect the use tax. An exemption from the use tax shall not be allowed unless the purchaser or retailer claims the exemption on its individual use tax return, sales and use tax return, or consumer use tax return for the reporting period during which the transaction subject to the exemption occurred. Where the purchaser or retailer fails to claim the exemption as set forth above, the purchaser or retailer may file a claim for refund as set forth in subdivision (e). The purchaser who files an individual use tax return must attach a completed exemption certificate to the return. The purchaser who is registered with the Board as a retailer or consumer and files a sales and use tax return or consumer use tax return must, within 45 days of the Board's request, provide the Board access to any and all documents that support the claimed exemption. The exemption certificate form set forth in Appendix A may be used to claim the exemption. (e) Refund of Tax. (1) For the period commencing on September 1, 2001, and ending on April 30, 2002, a purchaser may claim the exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with an exemption certificate on or before July 31, 2002. The retailer must refund the tax or tax reimbursement directly to a qualified purchaser of qualified LPG or, at the purchaser's sole option, the purchaser may be credited with such amount. (2) A retailer who paid sales tax on a qualified sale or a person who paid use tax on a qualified purchase and who failed to claim the exemption as provided by this regulation may file a claim for refund equal to the amount of the exemption that he or she could have claimed pursuant to this regulation. The procedure for filing a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code section 6901. For transactions subject to use tax, a purchaser filing a claim for refund of the exemption has the burden of establishing that he or she was entitled to claim the exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the exemption has the burden of establishing that the purchaser of qualified LPG for use in an agricultural or household activity otherwise met all the requirements of a qualified sale at the time of the purchase subject to the refund claimed under this part. (f) Improper Use of Exemption. (1) Property Used or Delivered in a Manner Not Qualifying for the Exemption. Tax applies to any sale of, and the storage, use, or other consumption in this state of liquefied petroleum gas that is used or delivered in a manner not qualifying for the exemption under this regulation. (2) Purchases by Non-Qualified Persons. Tax applies to any sale of, and the storage, use, or other consumption in this state of qualified LPG for use in an agricultural activity if the purchaser is not a qualified person. (g) Purchaser's Liability for the Payment of Sales Tax. (1) If a purchaser timely submits a copy of an exemption certificate to the retailer or exemption certificate for use tax to the Board, and then uses or takes delivery of the liquefied petroleum gas in a manner not qualifying for the exemption, the purchaser shall be liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the liquefied petroleum gas at the time the liquefied petroleum gas was so removed, converted, or used. (2) A purchaser providing an exemption certificate accepted in good faith by the retailer or an exemption certificate for use tax to the Board for liquefied petroleum gas that does not qualify for the exemption is liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the liquefied petroleum gas at the time the liquefied petroleum gas was purchased. (h) Records. Adequate and complete records must be maintained by the purchaser as evidence that the qualified LPG purchased was used in an agricultural or household activity. (i) Effective Date. This regulation is effective as of September 1, 2001. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6353, Revenue and Taxation Code. Appendix A EXEMPTION CERTIFICATE STATE BOARD OF EQUALIZATION Qualified Sales and Purchases of Liquefied Petroleum Gas (LPG) The undersigned purchaser hereby certifies that the LPG will be used by a qualified person, as applicable, and in the manner as specified below (check applicable box and complete as necessary) : - LPG used in a Household Activity [FNa1] - In accordance with Revenue & Taxation Code Section 6353(b), _______% of the LPG purchased will be delivered by the seller into a tank with a storage capacity equal to or greater than 30 gallons for use in a household activity at the primary residence, which is not serviced by gas mains and pipes, of: 1) the purchaser; 2) a person described in Codes 0711 to 0783 of the Standard Industrial Classification (SIC) Manual, that assists a person engaged in an agricultural business described in Codes 0111 to 0291 of the SIC Manual ( "qualified person"), or an employee of a qualified person where the LPG is purchased by such qualified person on behalf of the person that assists a qualified person in producing and harvesting agricultural products, or on behalf of the employee of that qualified person in producing and harvesting agricultural products; or 3) a renter or tenant where the LPG is purchased by a landlord or management company on behalf of the renter or tenant. - LPG used in an Agricultural Activity [FNa1] - In accordance with Revenue & Taxation Code Section 6353(b), _______% of LPG purchased will be delivered into a tank with a storage capacity equal to or greater than 30 gallons and used in producing and harvesting agricultural products, and will be purchased by: 1) a person engaged in an agricultural business described in Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual ( "qualified person"); or 2) a person described in Codes 0711 to 0783 of the SIC Manual, that assists a qualified person; or 3) an employee of the qualified person. [FNa1] This certificate will be considered a blanket certificate for future purchases, unless otherwise specified. If this is a specific partial exemption certificate, provide the purchase order or sales invoice number in the following space: ______________________________ _________ I understand that if the LPG is not used in the manner qualifying for the partial exemption, or if I am not a qualified person, as applicable, that I am required by the Sales and Use Tax Law to report and pay the state tax measured by the sales price of the LPG to me. I also understand that this exemption certificate is in effect as of the date shown below and will remain in effect until revoked in writing. PURCHASER'S NAME OR COMPANY NAME (If applicable) DATE SIGNATURE (signature of the purchaser, PERMIT NUMBER (If applicable) purchaser's employee, or authorized [FN1] representative of the purchser) TITLE TELEPONE NUMBER ADDRESS CITY STATE, ZIP [FN1] If you are not required to hold a seller's permit, please enter "Not Applicable." s 1533.1. Farm Equipment and Machinery. (a) General. Commencing on and after September 1, 2001, Section 6356.5 of the Revenue and Taxation Code partially exempts from sales and use tax the sale of, and the storage, use, or other consumption in this state, of farm equipment and machinery, and parts of farm equipment and machinery purchased for use by a qualified person to be used primarily in producing and harvesting agricultural products. The terms "farm equipment and machinery," "parts of farm equipment and machinery," "qualified person," and "producing and harvesting agricultural products" are defined below. For the period commencing on September 1, 2001, and ending on December 31, 2001, the partial exemption applies to the taxes imposed by Sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to Sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on June 30, 2004, the partial exemption applies to the taxes imposed by Sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to Sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. For the period commencing on July 1, 2004, the partial exemption applies to the taxes imposed by Sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to Sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. (b) Definitions. For purposes of this regulation: (1) "Farm equipment and machinery" means implements of husbandry, which include: (A) Any new or used tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations, except where such items are intended for sale in the ordinary course of business. Such items include, but are not limited to, combines, harrows, tractor implements, agricultural heating and cooling equipment, fuel storage equipment, wind machines, handling and packing equipment and conveyors, ginning equipment, feeding, watering and waste disposal systems for livestock, incubators and equipment used for egg and poultry production, harvesting trays and bins, farm tools such as rakes and hoes, plant support equipment such as trellis systems, irrigation systems, fencing systems, milking systems, agricultural operating structures, squeeze chutes, portable panels, corrals, loading chutes, veterinary instruments, free stalls, cages and tack items such as saddles and rope. Farm equipment and machinery also includes any equipment or device used or required to operate, control, or regulate machinery not limited to computers, data processing equipment, and computer software, including both operating programs and application programs. Farm equipment and machinery may be attached to realty. Agricultural operating structures include single purpose agricultural or horticultural structures as defined in Treasury Regulation 1.48-10 (26 CFR 1.48-10). Such structures must be specifically designed and constructed for the permitted purposes of housing, raising and feeding of livestock or the commercial production of plants. A structure is specifically designed and constructed if it is not economic to design and construct the structure for the intended qualifying purpose and then use the structure for a different purpose. A structure qualifies as single purpose agricultural or horticultural structure only if it is used exclusively for a permitted purpose. The structure may not be used for any nonpermissible purposes such as processing, marketing, or more than incidental use for storing feed and equipment. A single purpose agricultural structure also houses equipment necessary to house, raise and feed livestock including, but not limited to, equipment necessary to contain livestock, to provide them with feed or water, and to control the temperature, lighting, and humidity of the interior structure. Examples of structures that qualify as a single purpose agricultural or horticultural structure include, but are not limited to, a farrowing barn, greenhouse, free stall barn, milking parlor, and egg production or poultry brooding facility. Single purpose agricultural or horticultural structures do not include general purpose farm buildings. Farm equipment and machinery does not include tangible personal property primarily used in the administration, management, or marketing of a qualified person's operations or that of another who assists a qualified person. Farm equipment and machinery also does not include tangible personal property that is, without limitation, a supply item not used in producing or harvesting agricultural products such as shop towels, cleaning agents, hand cleaners, chemicals, and articles of clothing, except clothing designed primarily to protect a commodity or to apply agricultural chemicals as described in 3 CCR 6738. (B) Any new or used vehicle, as defined in Chapter 1, Division 16 of the Vehicle Code, which is used exclusively in the conduct of agricultural operations such as a farm tractor, but not including a vehicle whose existing design is primarily for the transportation of persons or property on a highway, unless such vehicle is otherwise specified as an implement of husbandry in some other provision of the Vehicle Code. A list of typical vehicles regarded as farm equipment and machinery is set forth in Appendix A. (2) "Parts of farm equipment and machinery" means: (A) All component parts and contrivances such as belts, shafts, pipes, hoses and moving parts, that are parts of farm equipment and machinery as defined in subdivision (b)(1) which can be separated from the farm equipment and machinery and replaced. Parts of farm equipment and machinery do not include items that are consumed (e.g., burned, evaporate, dissolve, dissipate) through the regular use of the farm equipment and machinery (e.g., gasoline, cleaning agents, solutions, chemicals) which are ordinarily supplies; however, engine oil not consumed (i.e., not consumed as part of fuel for a two-stroke engine) is regarded as a component part. (B) All repair and replacement parts for farm equipment and machinery as defined in subdivision (b)(1), which replace previous parts and can include parts that are identical to the parts they replace as well as parts that are different from the ones they replace, such as replacement parts added for the purpose of improving or modifying the farm equipment and machinery, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by a qualified person, a person that assists a qualified person, or another person. (3) "Person that assists a qualified person" means a person employed by a qualified person, or engaged on a contract or fee basis to perform activities described in Major Group 07 of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition (hereafter SIC Manual) which include soil preparation services, crop services, veterinary services, animal services, landscape and horticultural services, and farm labor and management services, that uses farm equipment and machinery in assisting a person engaged in a line of business described in subdivision (b)(6) below. A person that assists a qualified person may perform a construction contract only if the person performing the contract is engaged in farm management services as described in Code 0762 of the SIC Manual and the construction is integral to the producing and harvesting of an agricultural product as defined in (b)(5). A person that assists a qualified person must provide physical aid or assistance in the actual producing and harvesting of agricultural products owned by the qualified person and not merely provide aid in administrative, managerial, or marketing activities. A person that assists a qualified person does not include persons performing services such as an attorney, accountant, consultant, or other similar activity. Except as otherwise provided above, a person that assists a qualified person also does not include persons who perform construction contracts or who perform repairs to farm equipment and machinery, or a person that assists such persons. (4) "Primarily" means used 50 percent or more of the time in producing and harvesting agricultural products as defined in subdivision (b)(5). (5) "Producing and harvesting agricultural products" means those activities described in Major Groups 01, 02 and 07 of the SIC Manual. Major Group 01 includes establishments engaged in the production of crops, plants, vines, and trees (excluding forestry operations). This major group also includes establishments engaged in the operation of sod farms; in the production of mushrooms, bulbs, flower seeds, and vegetable seeds; and in the growing of hydroponic crops. Major Group 02 includes establishments engaged in the keeping, grazing, or feeding of livestock for the sale of livestock or livestock products (including serums), for livestock increase, or for value increase. Livestock, as specified in Major Group 02, includes cattle, hogs, sheep, goats, and poultry of all kinds; also included are animal specialties, such as horses, rabbits, bees, pets, fish in captivity, and fur-bearing animals in captivity. Major Group 07 includes establishments engaged in performing soil preparation services, crop services, veterinary services, animal services, landscape and horticultural services, and farm labor and management services. Producing and harvesting agricultural products involves the cultivation of land or the growing, raising, or gathering of the commodities described in Codes 0111 to 0291 of the SIC Manual and integral activities thereto described in Code 0711 to 0783 of the SIC Manual. Such activities include, but are not limited to, flame weeding, pest control, nut hulling and shelling, crop drying, cotton ginning, poultry and pig brooding, livestock breeding, water heating, crop heating, and fruit ripening. Producing and harvesting agricultural products also includes the washing of agricultural products, the inspection and grading of agricultural products or livestock, or the packaging of agricultural products for shipment. Except as otherwise provided under Major Groups 01, 02 or 07 of the SIC Manual, producing and harvesting activities do not include post harvesting activities nor those activities described or otherwise designated in Major Group 20 - Food and Kindred Products of the SIC Manual. Nevertheless, the specific activities of sun drying or artificially dehydrating fruits and vegetables as described in Code 2034 of the SIC Manual qualify as producing and harvesting activities where those activities are performed by a qualified person as defined in (b)(5) or a person who assists a qualified person as defined in (b)(3). For example, a person engaged in a SIC Code 0172 establishment that performs activities such as producing grapes on a grape farm or vineyard, who uses crop drying equipment primarily to remove moisture from the grapes to prevent mold, will qualify for the partial exemption if the grapes are owned by a qualified person engaged in an establishment described in SIC Code 0111 to 0291. However, a person who is exclusively engaged in a SIC Code 2034 establishment that sun dries or artificially dehydrates fruits and vegetables such as dates, prunes or raisins, that purchases grapes from a grape farm, and uses crop drying equipment primarily to change the character of the commodity from a grape to a raisin, will not qualify for the partial exemption since he or she is not engaged in a qualified SIC Code activity. A person engaged in a qualified SIC Code that performs a harvest activity will qualify for the partial exemption to the extent the qualified property is used primarily in such qualified activity despite the fact that the property may otherwise be used less than 50% of the time in post-harvest activities by a person undertaking activities described in SIC Code 2034. (6) "Qualified person" means a person engaged in a line of business described in Codes 0111 to 0291 of the SIC Manual or performs activities described in Codes 0711 to 0783 in addition to being engaged in a line of business described in Codes 0111 to 0291, which includes cash grains, field crops, vegetables and melons, fruits and tree nuts, horticultural specialties, livestock, dairy, poultry and eggs, and animal specialties and who sells such commodities to others. A qualified person also includes any person conducting activities, as defined in (b)(3) above, that uses qualified property to assist a person engaged in a line of business described herein in producing and harvesting agricultural products owned by the qualified person. A qualified person is not required to be engaged 50 percent or more of the time in a line of business described in Codes 0111 to 0291. A qualified person does not include a person operating a garden plot, orchard, or farm for the purpose of growing produce or animals for that person's own use. (7) "Qualified property" means farm equipment and machinery, and the parts thereof, as defined in subdivision (b)(1)-(2) used primarily in producing and harvesting agricultural products. (c) Partial Exemption Certificates. (1) In General. Qualified persons who purchase or lease qualified property from an in-state retailer, or an out-of state retailer obligated to collect use tax, must provide the retailer with a partial exemption certificate in order for the retailer to claim the partial exemption. If the retailer takes a partial exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a qualified person, the partial exemption certificate relieves the retailer from the liability for the sales tax subject to exemption under this regulation or the duty of collecting the use tax subject to exemption under this regulation. A partial exemption certificate will be considered timely if it is taken any time before the retailer bills the purchaser for the qualified property, any time within the retailer's normal billing or payment cycle, any time at or prior to delivery of the qualified property to the purchaser, or no later than 15 days after the date of purchase. A partial exemption certificate which is not taken timely will not relieve the retailer of the liability for tax excluded by the partial exemption; however the retailer may present satisfactory evidence to the Board that the retailer sold the specific property to a qualified person and the property was primarily used in a qualifying manner. A partial exemption from the sales and use tax under this part shall not be allowed unless the retailer claims the partial exemption on its sales and use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the retailer fails to claim the partial exemption as set forth above, the retailer may file a claim for refund as set forth in subdivision (e). The partial exemption certificate form set forth in Appendix B may be used to claim the partial exemption. (2) Blanket Partial Exemption Certificates. In lieu of requiring a partial exemption certificate for each transaction, a qualified person may issue a blanket partial exemption certificate. The partial exemption certificate form set forth in Appendix B may be used as a blanket partial exemption certificate. Appendix B may also be used as a specific partial exemption certificate if the purchaser provides the purchase order or sales invoice number and a precise description of the property being purchased. Qualified persons must include in the partial exemption certificate a description of the qualified property. If purchasing tangible personal property not qualifying for the partial exemption, the qualified person must clearly state in documents such as a written purchase order, sales agreement, lease, or contract that the sale or purchase is not subject to the blanket partial exemption certificate. (3) Form of Partial Exemption Certificate. Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a partial exemption certificate with respect to the sale or purchase of the property described in the document if it contains all of the following essential elements: (A) The signature of the purchaser, purchaser's employee, or authorized representative of the purchaser. (B) The name, address and telephone number of the purchaser. (C) The number of the seller's permit held by the purchaser. If the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in this state, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a California seller's permit in lieu of a seller's permit number. (D) A statement that the property purchased is to be used primarily, or exclusively as to qualifying vehicles, in producing and harvesting agricultural products. (E) A statement that the purchaser is a person engaged in an agricultural business described in Codes 0111 to 0291 of the SIC Manual or is a person that assists such classified person by performing an agricultural service described in Codes 0711 to 0783 of the SIC Manual. (F) Description of property purchased. (G) Date of execution of document. (4) Retention and Availability of Partial Exemption Certificates. A retailer must retain each partial exemption certificate received from a qualified person for a period of not less than four years from the date on which the retailer claims a partial exemption based on the partial exemption certificate. While the Board will not normally require the filing of the partial exemption certificate with a sales and use tax return, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may on 30 days' written notice, require a retailer to commence filing with its sales and use tax returns copies of all partial exemption certificates. The Board may also require, within 45 days of the Board's request, retailers provide the Board access to any and all partial exemption certificates, or copies thereof, accepted for the purposes of supporting the partial exemption. (5) Good Faith. A seller will be presumed to have taken a partial exemption certificate in good faith in the absence of evidence to the contrary. A seller, without knowledge to the contrary, may accept a partial exemption certificate in good faith where a qualified person states that he or she is engaged in an agricultural business described in Codes 0111 to 0291 of the SIC Manual or in which a person that assists a qualified person states that he or she performs an agricultural service described in Codes 0711 to 0783 of the SIC Manual and states that the property purchased is to be used primarily, or exclusively as to qualifying vehicles, in producing and harvesting agricultural products. If the qualified person or person that assists a qualified person is buying property of a kind not normally used in producing and harvesting agricultural products, the seller should require a statement as to how the specific property purchased will be used. However, an exemption certificate cannot be accepted in good faith where the seller has knowledge that the property is not subject to a partial exemption, or will not be otherwise used in a partially exempt manner. (d) Partial Exemption Certificate for Use Tax. The partial exemption certificate must be completed by a qualified person to claim a partial exemption from use tax on purchases of qualified property from an out-of-state retailer not obligated to collect the use tax. A partial exemption from the use tax shall not be allowed unless the purchaser or retailer claims the partial exemption on its individual use tax return, sales and use tax return, or consumer use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the purchaser or retailer fails to claim the partial exemption as set forth above, the purchaser or retailer may file a claim for refund as set forth in subdivision (e). The purchaser who files an individual use tax return must attach a completed partial exemption certificate to the return. The purchaser who is registered with the Board as a retailer or consumer and files a sales and use tax return or consumer use tax return must, within 45 days of the Board's request, provide the Board access to any and all documents that support the claimed partial exemption. The partial exemption certificate form set forth in Appendix B may be used to claim the partial exemption. (e) Refund of Partial Exemption. (1) For the period commencing on September 1, 2001, and ending on April 30, 2002, a qualified person may claim the partial exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a partial exemption certificate on or before July 31, 2002. The retailer must refund the tax or tax reimbursement directly to a qualified purchaser of qualified property or, at the purchaser's sole option, the purchaser may be credited with such amount. (2) A retailer who paid sales tax on a qualified sale or a person who paid use tax on a qualified purchase and who failed to claim the partial exemption as provided by this regulation may file a claim for refund equal to the amount of the partial exemption that he or she could have claimed pursuant to this regulation. The procedure for filing a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code section 6901. For transactions subject to use tax, a qualified person filing a claim for refund of the partial exemption has the burden of establishing that he or she was entitled to claim the partial exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the partial exemption has the burden of establishing that the purchaser of the qualified property otherwise met all the requirements of a qualified person at the time of the purchase subject to the refund claimed under this part. (f) Improper Use of Partial Exemption. (1) Property Used in a Manner Not Qualifying for the Partial Exemption. Notwithstanding subdivision (a), tax applies to any sale of, and the storage, use, or other consumption in this state of tangible personal property that is used in a manner not qualifying for the partial exemption under this regulation. (2) Purchases by Non-Qualified Persons. Notwithstanding subdivision (a), tax applies to any sale of, and the storage, use, or other consumption in this state of tangible personal property if a purchaser is not a qualified person. (g) Purchaser's Liability for the Payment of Sales Tax. (1) If a purchaser timely submits a copy of a partial exemption certificate to the retailer or partial exemption certificate for use tax to the Board, and then uses that tangible personal property in a manner not qualifying for the partial exemption, the purchaser shall be liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was so removed, converted, or used. (2) A purchaser providing a partial exemption certificate accepted in good faith by the retailer or a partial exemption certificate for use tax to the Board for tangible personal property that does not qualify for the partial exemption is liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was purchased. (h) Leases to Qualifying Persons. (1) Leases -In General. Leases of tangible personal property which are classified as "continuing sales" and "continuing purchases" of tangible personal property, in accordance with Regulation 1660, "Leases of Tangible Personal Property - In General," may qualify for the partial exemption subject to all the limitations and conditions set forth in this regulation. This partial exemption may apply to rentals payable paid by a qualified person on or after September 1, 2001 with respect to a lease of qualified property to the qualified person, which qualified property is used in producing and harvesting agricultural products, notwithstanding the fact that the lease was entered into prior to the effective date of this regulation. For purposes of this subdivision, a non-qualified person may purchase property for resale and subsequently lease the property to a qualified person subject to the partial exemption. (2) Leases -Acquisition Sale and Leaseback. A qualified person will be regarded as having paid sales tax reimbursement or use tax with respect to that qualified person's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the qualified person has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the partial exemption from tax provided by this regulation. (3) Subsequent Lease of Property Acquired Subject to Partial Exemption. If a qualified person has acquired property subject to the partial exemption provided by this regulation and has paid all applicable taxes at that acquisition, the property will be regarded as property as to which sales tax reimbursement or use tax has been paid, and the subsequent lease of that property will not be subject to tax measured by rentals payable. (i) Records. Adequate and complete records must be maintained by the qualified person as evidence that the qualified property purchased was used by the qualified person primarily in producing and harvesting agricultural products. (j) Operative Date. This regulation is operative as of September 1, 2001. Note: Authority cited: Section 7051, Revenue and Taxation Code Reference: Section 6356.5, Revenue and Taxation Code Appendix A The following is a list of typical vehicles regarded as farm equipment and machinery: 1. A lift carrier or other vehicle designed and used exclusively for the lifting and carrying of implements of husbandry or tools used exclusively for the production or harvesting of agricultural products, when operated or moved upon a highway. 2. A trailer of the tip-bed type when used exclusively in the transportation of other implements of husbandry or tools used exclusively for the production or harvesting of agricultural products. 3. A trailer or semi-trailer having no bed, and designed and used solely for transporting a hay loader or swather. 4. A spray or fertilizer applicator rig used exclusively for spraying or fertilizing in the conduct of agricultural operations, except anhydrous ammonia fertilizer applicator rigs which have a transportation capacity in excess of 500 gallons. 5. A trailer or semi-trailer which has a maximum transportation capacity in excess of 500 gallons, but not more than 1,000 gallons, used exclusively for the transportation and application of anhydrous ammonia, if the vehicle is either equipped with operating brakes or is towed upon a highway by a motor truck that is assigned a manufacturer's gross vehicle weight rating of 3/4 ton or more. 6. A nurse rig or equipment auxiliary to the use of and designed or modified for the fueling, repairing, or loading of an applicator rig or an airplane used for the dusting, spraying, fertilizing, or seeding of crops. 7. A row duster. 8. A wagon or van used exclusively for carrying products of farming from one part of a farm to another part thereof, or from one farm to another farm, and used solely for agricultural purposes, including any van used in harvesting alfalfa or cotton, which is only incidentally operated or moved on a highway as a trailer. 9. A wagon or portable house on wheels used solely by shepherds as a permanent residence in connection with sheep raising operations and moved from one part of a ranch to another part thereof or from one ranch to another ranch, which is only incidentally operated or moved on a highway as a trailer. 10. A trap wagon, as defined in Vehicle Code Section 36016, moved from one part of a ranch to another part of the same ranch or from one ranch to another, which is only operated or moved on a highway incidental to agricultural operations. The fuel tank or tanks of the trap wagon shall not exceed 1,000 gallons total capacity. 11. Any vehicle which is operated upon a highway only for the purpose of transporting agricultural products and is in no event operated along a highway for a total distance greater than one mile from the point of origin of the trip. 12. A portable honey-extracting trailer or semi-trailer. 13. A fertilizer nurse tank or trailer that is not self-propelled and which is moved unladen on the highway and auxiliary to the use of a spray or fertilizer applicator rig. 14. Any cotton trailer when used on the highways for the exclusive purpose of transporting cotton from a farm to a cotton gin, and returning the empty trailer to such farm. 15. A truck tractor or truck tractor and semi-trailer combination which is owned by a farmer and operated on the highways, (1) only incidental to a farming operation, (2) not for compensation, and (3) for a distance of not more than two miles (on the highway) each way. This subdivision applies only to truck tractors with a manufacturer's gross vehicle weight rating over 10,000 pounds that are equipped with all-wheel drive and off-highway traction tires on all wheels, and only to semi-trailers used in combination with such a truck tractor and exclusively in production or harvesting of tomatoes. The vehicles specified in this subdivision shall not be operated in excess of 25 miles per hour on the highways. 16. Any farm tractor used upon a highway to draw a farm trailer carrying farm produce, or to draw any trailer or semi-trailer carrying other implements of husbandry, between farms, or from a farm to a processing or handling point and returning with or without the trailer. Appendix B PARTIAL EXEMPTION CERTIFICATE STATE BOARD OF EQUALIZATION Qualified Sales and Purchases of Farm Equipment and Machinery NOTE: This is an exemption only from the state general fund portion of the sales and use tax rate. You are not relieved from your obligations for the local and district taxes on this transaction. This partial exemption also does not apply to any tax levied pursuant to Section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to Section 35 of article XIII of the California Constitution. This partial exemption also applies to lease payments made on or after September 1, 2001, for tangible personal property even if the lease agreement was entered into prior to September 1, 2001. SELLER'S/LESSOR'S NAME SELLER'S/LESSOR'S ADDRESS (Street, City, State, Zip Code) I, as the undersigned purchaser, hereby certify I am engaged in an agricultural business described in Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual, or I perform an agricultural service described in Codes 0711 to 0783 of the SIC Manual for such classified persons. The property purchased or leased will be used primarily in producing and harvesting agricultural products in accordance with Revenue & Taxation Code Section 6356.5. [FN1] Type of Farm Equipment and Machinery (or parts [FN2] there of) [FNa1]___________________________________________________________ ___________________________________________________________________ [FNa1] If you also want this certificate to be used as a blanket certificate for future purchases, describe generally the type of property you will be purchasing and ask your vendor to keep this certificate on file. If this is a specific partial exemption certificate, provide the purchase order or sales invoice number and a precise description of the property being purchased. I understand that if such property is not used in the manner qualifying for the partial exemption, or if I am not a qualified person, as applicable, that I am required by the Sales and Use Tax Law to report and pay the state tax measured by the sales price/rentals payable of the property to/by me. I also understand that this partial exemption certificate is in effect as of the date shown below and will remain in effect until revoked in writing. PURCHASER'S NAME OR COMPANY NAME (If DATE applicable) SIGNATURE (signature of the purchaser, PERMIT NUMBER (If applicable) purchaser's employee, or authorized [FN3] representative of the purchser) TITLE TELEPONE NUMBER ADDRESS CITY STATE, ZIP [FN1] Vehicles that qualify as farm equipment and machinery, as defined in Regulation 1533.1(b)(1)(B), must be used exclusively in producing and harvesting agricultural products. [FN2] If you are purchasing oil, grease, or lubricating or other qualifying fluids, indicate what percentage will be used in farm equipment and machinery performing qualified producing and harvesting activities. [FN3] If you are not required to hold a seller's permit, please enter "Not Applicable." s 1533.2. Diesel Fuel Used in Farming Activities or Food Processing. (a) General. Commencing on and after September 1, 2001, Section 6357.1 of the Revenue and Taxation Code partially exempts from sales and use tax the sale of, and the storage, use, or other consumption in this state, of diesel fuel used in farming activities or food processing. The terms "farming activities" and "food processing" are defined below. For the period commencing on September 1, 2001, and ending on December 31, 2001, the partial exemption applies to the taxes imposed by Sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to Sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on June 30, 2004, the partial exemption applies to the taxes imposed by Sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to Sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. For the period commencing on July 1, 2004, the partial exemption applies to the taxes imposed by Sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to Sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or Section 35 of article XIII of the California Constitution. (b) Definitions. For purposes of this regulation: (1) "Farming activities" mean a trade or business involving the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity that may be legally sold to or offered for sale to others. These include the trade or business of operating a nursery or sod farm; the raising or harvesting of trees bearing fruit or nuts, or of other crops (e.g., grains, vegetables, or cotton); the raising of ornamental trees (other than evergreen trees that are more than six years old at the time they are severed from their roots); and the raising, shearing, feeding, caring for, training, and management of animals. The raising of animals includes the delivery of feed to the animal feeding operation, whether by the owner or the supplier of the feed. Operating a garden plot, orchard, or farm for the purpose of growing plants or animals for a person's own use shall not be considered a farming activity. Harvesting involves the gathering of any agricultural or horticultural commodity and includes activities such as crop drying, cotton ginning, and fruit ripening. Harvesting an agricultural commodity also includes the washing of the agricultural commodity, the inspection and grading of the agricultural commodity or livestock, and the packaging of the agricultural commodity for shipment as well as those activities delineated in Codes 0723 and 0724 of the Standard Industrial Classification Manual published by the United States Office of Management and Budget, 1987 edition (hereafter SIC Manual). For purposes of this regulation, merely buying and reselling plants or animals grown or raised entirely by another is not raising an agricultural or horticultural commodity. A person is engaged in raising a plant or animal, rather than the mere selling of a plant or animal, if the plant or animal is held for further cultivation and development prior to sale. In determining whether a plant or animal is held for further cultivation and development prior to sale, consideration will be given to all of the facts and circumstances, including: the value added by a person to the plant or animal through agricultural or horticultural processes; the length of time between the person's acquisition of the plant or animal and the time that the person makes the plant or animal available for sale; and in the case of a plant, whether the plant is kept in the container in which purchased, replanted in the ground, or replanted in a series of larger containers as it is grown to a larger size. Farming activities also include the transportation and delivery of the agricultural or horticultural commodity, as described herein, from the trade or business that cultivated, raised or harvested the commodity to the marketplace, as described in subdivision (b)(5), and any empty haul related to the transportation of that agricultural or horticultural commodity. Farming activities do not include food processing or transportation and delivery of processed food products to the marketplace. Example A: A commercial hauler travels from its company yard to Grower A's field to pick up a load of tomatoes. The tomatoes are hauled to a processing plant. The hauler returns to the field with empty trailers. The sale of diesel fuel to the commercial hauler for use in this activity is partially exempt from tax. Example B: A commercial hauler travels from its company yard to Grower A's field to pick up a load of fresh bell peppers. The bell peppers are sold to a grocery store and are delivered to the grocery store's distribution center. At the distribution center, the hauler picks up a load of pallets to deliver to another customer. The sale of diesel fuel to the commercial hauler for use from the yard the field and to the grocery store's distribution center is partially exempt from tax. The sale of diesel fuel to the commercial hauler for use in delivering the pallets is not partially exempt from tax. Example C: A nursery owner transports its horticultural products to a distribution center. After delivering the product, the nursery owner makes two stops. The first stop is to pick up fertilizer for use at the nursery. The second stop is personal business unrelated to the nursery operation. The sale of diesel fuel to the nursery owner for use in this example is partially exempt from tax up to and including the first stop. (2) "Plants" mean an agricultural or horticultural commodity produced in a farming activity which includes, but is not limited to, trees bearing fruit or nuts, other crops, an ornamental tree, a vine, a bush, or sod. Sea plants are produced in a farming activity if they are tended and cultivated as opposed to merely harvested. (3) "Animals" mean a life form produced in a farming activity which includes, but is not limited to, any livestock, poultry or other bird, and fish or other sea life. Fish and other sea life are produced in a farming activity if they are raised on a fish farm. A fish farm is an area where fish or other sea life are grown or raised as opposed to merely caught or harvested. (4) "Food processing" means the activities described in Industry Groups 201, 202, 203, 204, and 207, or Codes 2068 and 2084 of the SIC Manual. Food processing activities also includes transporting raw product, supplies and materials to the processing facility, transporting partially processed food products between various divisions of the same food processing entity for further processing operations, and any empty hauls related to the transportation of that product. Food processing does not include transportation and delivery of processed food products to the marketplace. A food processor is not required to be engaged 50 percent or more of the time in such activities as described herein. Example A: A for-hire carrier, contracted for by a cheese plant, transports unprocessed milk from a dairy farm to the cheese plant for processing and then returns to the carrier's truck yard. The diesel used in this example is eligible for the partial sales tax exemption. Example B: A flour mill transports flour sacks from a bag manufacturer to the mill's facility, and then transports those sacks to other flour mills owned by the same entity. The diesel used to transport the sacks in this example is eligible for the partial sales tax exemption, but the transportation of flour is not. Example C: Cannery A and Cannery B are different divisions of the same food processing entity. Cannery A processes unprocessed tomatoes into tomato paste and then transports the paste to Cannery B for further processing. Cannery B processes the paste into tomato soup which is then transported to a grocery distribution warehouse. From the distribution warehouse the processed product is transported by the buyer to individual grocery stores and other distribution warehouses. Only the movement of paste from Cannery A to Cannery B is eligible for the partial sales tax exemption. The subsequent movement of product to the first distribution center and to retail stores and other warehouses is not eligible for the exemption. (5) "Marketplace" means the place where a commodity is sold for resale, at retail or for consumption at an animal feeding operation, notwithstanding any intervening activities to prepare the product for sale in the marketplace. Such preparation activities include, but are not limited to, cooling, sorting, inspection, grading, drying, packing, handling, washing, slaughtering and butchering (except as otherwise described in Codes 2011 and 2015 of the SIC Manual), candling, sterilizing, freezing, pasteurizing, homogenizing, and packaging. Producers of agricultural or horticultural products may prepare and market their products through a cooperative, joint venture, corporation or partnership in which they have a financial interest, or other such enterprises, and the diesel used in these enterprises to transport products to the marketplace is eligible for the sales tax exemption. (6) "Diesel fuel" means, for purposes of this regulation only, any fuel that is commonly or commercially known, sold or represented as diesel fuel No. 1-D or No. 2-D, pursuant to the specifications in American Society for Testing and Materials Standard Specification for Diesel Fuel Oils ( "ASTM") D 975-81, which is incorporated herein by reference. Diesel fuel, for purposes of this regulation only, also includes Environmental Protection Agency rated diesel fuel commonly known as "federal fuel" sold for use in locomotives, or which is used in generators, pumps, dehydrators and any other equipment used in the conduct of farming and food processing activities. "Diesel fuel" does not include gasoline, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, alcohol, aviation fuel, except diesel fuel sold for use in aircraft designed for agricultural aerial applications that meets the specifications of ASTM D 1655, jet fuel, bunker fuel, or other like substance used as a fuel. Qualifying diesel fuel shall be identified accordingly on the invoice of sale. (7) "Qualified activity" means farming activities as defined in subdivision (b)(1) or food processing, as defined in subdivision (b)(4). (c) Partial Exemption Certificates. (1) In General. A person who purchases diesel fuel for use in a qualified activity from an in-state retailer, or an out-of state retailer obligated to collect use tax, must provide the retailer with a partial exemption certificate in order for the retailer to claim the partial exemption. If the retailer takes a partial exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a person who purchases diesel fuel for use in a qualified activity, the partial exemption certificate relieves the retailer from the liability for the sales tax subject to partial exemption under this regulation or the duty of collecting the use tax subject to partial exemption under this regulation. A partial exemption certificate will be considered timely if it is taken any time before the retailer bills the purchaser for the diesel fuel, any time within the retailer's normal billing or payment cycle, any time at or prior to delivery of the diesel fuel to the purchaser, or no later than 15 days after the date of purchase. A partial exemption certificate which is not taken timely will not relieve the retailer of the liability for tax excluded by the partial exemption; however the retailer may present satisfactory evidence to the Board that the retailer sold the diesel fuel to a person that used it in a qualified activity. A partial exemption from the sales and use tax under this part shall not be allowed unless the retailer claims the partial exemption on its sales and use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the retailer fails to claim the partial exemption as set forth above, the retailer may file a claim for refund as set forth in subdivision (e). The partial exemption certificate form set forth in Appendix A may be used to claim the partial exemption. (2) Blanket Partial Exemption Certificates. In lieu of requiring a partial exemption certificate for each transaction, a person who purchases diesel fuel for use in a qualified activity may issue a blanket partial exemption certificate. The partial exemption certificate form set forth in Appendix A may be used as a blanket partial exemption certificate. Appendix A may also be used as a specific partial exemption certificate if the purchaser provides the purchase order or sales invoice number and a precise description of the property being purchased. A person who purchases diesel fuel for use in a qualified activity must include in the partial exemption certificate how much or what percentage of the diesel fuel purchased will be used in a qualified activity. If purchasing diesel fuel not qualifying for the partial exemption, the purchaser must clearly state in documents such as a written purchase order, sales agreement, or contract that the sale or purchase is not subject to the blanket partial exemption certificate. (3) Form of Partial Exemption Certificate. Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a partial exemption certificate with respect to the sale or purchase of diesel fuel if it contains all of the following essential elements: (A) The signature of the purchaser, purchaser's employee, or authorized representative of the purchaser. (B) The name, address and telephone number of the purchaser. (C) The number of the seller's permit held by the purchaser. If the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in this state, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a California seller's permit in lieu of a seller's permit number. (D) A statement of how much or what percentage of the diesel fuel purchased will be used in a qualified farming or food processing activity. (E) Date of execution of document. (4) Retention and Availability of Partial Exemption Certificates. A retailer must retain each partial exemption certificate received from a person who purchases diesel fuel for use in a qualified activity for a period of not less than four years from the date on which the retailer claims a partial exemption based on the partial exemption certificate. While the Board will not normally require the filing of the partial exemption certificate with a sales and use tax return, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may, on 30 days' written notice, require a retailer to commence filing with its sales and use tax returns copies of all partial exemption certificates. The Board may also require, within 45 days of the Board's request, retailers provide the Board access to any and all partial exemption certificates, or copies thereof, accepted for the purposes of supporting the partial exemption. (5) Good Faith. A seller will be presumed to have taken a partial exemption certificate in good faith in the absence of evidence to the contrary. A seller, without knowledge to the contrary, may accept a partial exemption certificate in good faith where the purchaser states that a certain percentage of the diesel fuel purchased will be used in farming activities or food processing. However, a partial exemption certificate cannot be accepted in good faith where the seller has knowledge that the diesel fuel is not subject to a partial exemption, or will not be otherwise used in a partially exempt manner. (d) Partial Exemption Certificate for Use Tax. The partial exemption certificate must be completed by a person who purchases diesel fuel for use in a qualified activity to claim a partial exemption from use tax from an out-of-state retailer not obligated to collect the use tax. A partial exemption from the use tax shall not be allowed unless the purchaser or retailer claims the partial exemption on its individual use tax return, sales and use tax return, or consumer use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the purchaser or retailer fails to claim the partial exemption as set forth above, the purchaser or retailer may file a claim for refund as set forth in subdivision (e). The purchaser who files an individual use tax return must attach a completed partial exemption certificate to the return. The purchaser who is registered with the Board as a retailer or consumer and files a sales and use tax return or consumer use tax return must, within 45 days of the Board's request, provide the Board access to any and all documents that support the claimed partial exemption. The partial exemption certificate form set forth in Appendix A may be used to claim the partial exemption. (e) Refund of Partial Exemption. (1) For the period commencing on September 1, 2001, and ending on April 30, 2002, a person who purchases diesel fuel for use in a qualified activity may claim the partial exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a partial exemption certificate on or before July 31, 2002. The retailer must refund the tax or tax reimbursement directly to a purchaser of diesel fuel for use in a qualified activity or, at the purchaser's sole option, the purchaser may be credited with such amount. (2) A retailer who paid sales tax on a qualified sale or a person who paid use tax on a qualified purchase and who failed to claim the partial exemption as provided by this regulation may file a claim for refund equal to the amount of the partial exemption that he or she could have claimed pursuant to this regulation. The procedure for filing a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code section 6901. For transactions subject to use tax, a person who purchases diesel fuel for use in a qualified activity filing a claim for refund of the partial exemption has the burden of establishing that he or she was entitled to claim the partial exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the partial exemption has the burden of establishing that the purchaser of the diesel fuel otherwise met all the requirements of a person who purchases diesel fuel for use in a qualified activity at the time of the purchase subject to the refund claimed under this part. (f) Improper Use of Partial Exemption. Notwithstanding subdivision (a), tax applies to any sale of, and the storage, use, or other consumption in this state of diesel fuel that is used in a manner not qualifying for the partial exemption under this regulation. (g) Purchaser's Liability for the Payment of Sales Tax. (1) If a purchaser timely submits a copy of a partial exemption certificate to the retailer or partial exemption certificate for use tax to the Board, and then uses the diesel fuel in a manner not qualifying for the partial exemption, the purchaser shall be liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the diesel fuel at the time the diesel fuel was so removed, converted, or used. (2) A purchaser providing a partial exemption certificate accepted in good faith by the retailer or a partial exemption certificate for use tax to the Board for diesel fuel that does not qualify for the partial exemption is liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the diesel fuel at the time the diesel fuel was purchased. (h) Records. Adequate and complete records must be maintained by the person who purchases diesel fuel for use in a qualified activity as evidence that the diesel fuel purchased was used in a qualified activity. (i) Operative Date. This regulation is operative as of September 1, 2001. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6357.1, Revenue and Taxation Code. Appendix A PARTIAL EXEMPTION CERTIFICATE STATE BOARD OF EQUALIZATION Qualified Sales and Purchases of Diesel and Farm Equipment and Machinery NOTE: This is an exemption only from the state general fund portion of the sales and use tax rate. You are not relieved from your obligations for the local and district taxes on this transaction. This partial exemption also does not apply to any tax levied pursuant to Section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to Section 35 of article XIII of the California Constitution. This partial exemption also applies to lease payments made on or after September 1, 2001, for tangible personal property even if the lease agreement was entered into prior to September 1, 2001. Diesel Fuel Used in Farming Activities or Food Processing [FNa1] - I as the undersigned purchaser, hereby certify that of the diesel purchased, ____% will be used in qualified farming activities or food processing in accordance with Revenue and Taxation Code Section 6357.1. Farm Equipment and Machinery (or parts [FN1] thereof) [FNa1] - I as the undersigned purchaser, hereby certify I am engaged in an agricultural business described in Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual, or I perform an agricultural service described in Codes 0711 to 0783 of the SIC Manual for such classified persons. The property purchased or leased will be used primarily in producing and harvesting agricultural products in accordance with Revenue & Taxation Code Section 6356.5. [FN2] Type of Farm Equipment and Machinery (or parts thereof) __________ __________ __________ __________ [FNa1] If you also want this certificate to be used as a blanket certificate for future purchases, describe generally the type of property you will be purchasing and ask your vendor to keep this certificate on file. If this is a specific partial exemption certificate, provide the purchase order or sales invoice number and a precise description of the property being purchased. I understand that if such property is not used in the manner qualifying for the partial exemption, or if I am not a qualified person, as applicable, that I am required by the Sales and Use Tax Law to report and pay the state tax measured by the sales price/rentals payable of the property to/by me. I also understand that this partial exemption certificate is in effect as of the date shown below and will remain in effect until revoked in writing. [FN1]. If you are purchasing oil, grease, or lubricating or other qualifying fluids, indicate what percentage will be used in farm equipment and machinery performing qualified producing and harvesting activities. [FN2]. Vehicles that qualify as farm equipment and machinery, as defined in Regulation 1533.1(b)(1)(B), must be used exclusively in producing and harvesting agricultural products. [FN3]. If you are not required to hold a seller's permit, please enter "Not Applicable." s 1534. Timber Harvesting Equipment and Machinery. (a) General. Commencing on and after September 1, 2001, section 6356.6 of the Revenue and Taxation Code partially exempts from sales and use tax the sale of, and the storage, use, or other consumption in this state, of off-road commercial timber harvesting equipment and machinery, and parts of off-road commercial timber harvesting equipment and machinery, that are purchased by a qualified person for use primarily in timber harvesting. The terms "off-road commercial timber harvesting equipment and machinery," "parts of off-road commercial timber harvesting equipment and machinery," "qualified person," and "commercial timber harvesting operations" are defined below. For the period commencing on September 1, 2001, and ending on December 31, 2001, the partial exemption applies to the taxes imposed by sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on June 30, 2004, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on July 1, 2004, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. (b) Definitions. For purposes of this regulation: (1) "Commercial timber harvesting operations" means the cutting or removal or both of timber or other solid wood forest products, from timberlands for commercial purposes, together with all the work incidental thereto, including but not limited to, construction and maintenance of roads, fuel breaks, firebreaks, stream crossings, landings, skid trails, beds for the falling of trees, fire hazard abatement, reforestation, and site preparation that involves disturbance of soil or burning of vegetation following timber harvesting activities. Such activities include, but are not limited to, bucking, bunching, chipping, debarking, delimbing, felling, forwarding, loading, piling, skidding, slashing, topping and yarding operations performed on timber. Commercial timber harvesting operations do not include the use of timber in processing activities or other activities resulting in the creation of other commercial wood products for sale to others, including, without limitation, milling, planing, carving, paper manufacturing, the treating of wood with creosote or other preservatives to prevent decay or protect against fire, or the packaging of wood chips for use in preparing food. (2) "Off-road commercial timber harvesting equipment and machinery" means any new or used device, that may be powered by an internal combustion engine, electric motor, or otherwise, that is necessary in complying with any operational requirements of federal, state, or local government laws and regulations and is designed primarily for use off the highways, to propel, move, draw or cut timber in commercial timber harvesting operations. Such items include, but are not limited to, chainsaws, slashers, debarkers, harvesters, forwarders, feller-bunchers, cable yarding equipment, yarders, loading helicopters, chippers, bulldozers; loading equipment used to lift and move the equipment; graders; water trucks and similar logging road building and maintenance equipment; fuel storage equipment, site preparation equipment; all-terrain vehicles; fire fighting and safety equipment; timber harvest preparation equipment; reforestation tools and equipment; loaders; carriages; skidders; mobile metal spars; delimbers; chokers; steel cables; grapples; front-end loaders, and tractors or rubber tire skidders and other equipment used to fell, delimb, cross-cut, measure, sort, bunch, move and load timber for transport to roadside. Off-road commercial timber harvesting equipment and machinery does not include junction boxes, switches, conduit and wiring, valves, pipes, tubing incorporated into fixed works, buildings, or other structures, whether or not such items are used solely or partially in connection with the operation of equipment and machinery. Off-road commercial timber harvesting equipment and machinery also does not include supplies such as articles of clothing, fuels, real property, materials or fixtures within the meaning of subdivisions (a)(4) and (a)(5), respectively, of Regulation 1521, Construction Contractors, including such items set forth in Appendix A and B of Regulation 1521. (3) "Parts of off-road commercial timber harvesting equipment and machinery" means: (A) All component parts and contrivances include, but are not limited to, belts, shafts, pipes, hoses and moving parts, that are parts of off-road commercial timber harvesting equipment and machinery as defined in subdivision (b)(2) that can be separated from the off-road commercial timber harvesting equipment and machinery and replaced. Parts of off-road commercial timber harvesting equipment and machinery do not include items that are consumed (e.g., burned, evaporate, dissolve, dissipate) through the regular use of the off-road commercial timber harvesting equipment and machinery (e.g., gasoline, cleaning agents, solutions, chemicals) which are ordinarily supplies; however, lubricants and fluids not consumed (e.g., engine oil not consumed as part of fuel for a two-stroke engine) is regarded as a component part. (B) All repair and replacement parts for off-road commercial timber harvesting equipment and machinery as defined in subdivision (b)(2) which replace previous parts and can include parts that are identical to the parts they replace as well as parts that are different from the ones they replace, such as replacement parts added for the purpose of improving or modifying the off-road commercial timber harvesting equipment and machinery, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by a qualified person or another person. Parts of off-road commercial timber harvesting equipment and machinery do not include tangible personal property used in effectuating the repair of any timber harvesting equipment and machinery such as a wrench used to replace a spark plug, except tools used for repair that are designed exclusively for specific off-road commercial timber harvesting equipment and machinery. (C) All equipment or devices used or required to operate, control, regulate, or maintain the machinery including, without limitation, computers, data processing equipment, and computer software, including both operating programs and application programs. Parts of off-road commercial timber harvesting equipment and machinery do not include tangible personal property used primarily in the administration, management, or marketing of timber harvesting operations. (4) "Primarily" means used 50 percent or more of the time. As used herein, the qualified property has to be designed for use 50 percent or more of the time off-road in commercial timber harvesting operations and be used 50 percent or more of the time in timber harvesting. (5) "Qualified person" means a person engaged in commercial timber harvesting operations. A qualified person is not required to be engaged 50 percent or more of the time in commercial timber harvesting operations. (6) "Qualified property" means off-road commercial timber harvesting equipment and machinery, and the parts thereof, as defined in subdivisions (b)(2) and (b)(3) used primarily in timber harvesting. (7) "Timber" means trees of any species maintained for eventual harvest for forest products or other forest purposes, whether planted or of natural growth, standing or down, including Christmas trees, on privately or publicly owned land, but does not mean nursery stock. (8) "Timberland" means privately or publicly owned land which is devoted to and used for growing or timber harvesting, or for growing and timber harvesting and compatible uses, and which is capable of growing an average annual volume of wood fiber of at least 15 cubic feet per acre. (c) Partial Exemption Certificates. (1) In General. Qualified persons who purchase or lease qualified property from an in-state retailer, or an out-of state retailer obligated to collect use tax, must provide the retailer with a partial exemption certificate in order for the retailer to claim the partial exemption. If the retailer takes a partial exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a qualified person, the partial exemption certificate relieves the retailer from the liability for the sales tax subject to exemption under this regulation or the duty of collecting the use tax subject to exemption under this regulation. A partial exemption certificate will be considered timely if it is taken any time before the retailer bills the purchaser for the qualified property, any time within the retailer's normal billing or payment cycle, any time at or prior to delivery of the qualified property to the purchaser, or no later than 15 days after the date of purchase. A partial exemption certificate that is not taken timely will not relieve the retailer of the liability for tax excluded by the partial exemption; however the retailer may present satisfactory evidence to the Board that the retailer sold the specific property to a qualified person and the property was primarily used in a qualifying manner. A partial exemption from the sales and use tax under this part shall not be allowed unless the retailer claims the partial exemption on its sales and use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the retailer fails to claim the partial exemption as set forth above, the retailer may file a claim for refund as set forth in subdivision (e). The partial exemption certificate form set forth in Appendix A may be used to claim the partial exemption. (2) Blanket Partial Exemption Certificates. In lieu of requiring a partial exemption certificate for each transaction, a qualified person may issue a blanket partial exemption certificate. The partial exemption certificate form set forth in Appendix A may be used as a blanket partial exemption certificate. Appendix A may also be used as a specific partial exemption certificate if the purchaser provides the purchase order or sales invoice number and a precise description of the property being purchased. Qualified persons must include in the partial exemption certificate a description of the qualified property. If purchasing tangible personal property not qualifying for the partial exemption, the qualified person must clearly state in documents such as a written purchase order, sales agreement, lease, or contract that the sale or purchase is not subject to the blanket partial exemption certificate. (3) Form of Partial Exemption Certificate. Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a partial exemption certificate with respect to the sale or purchase of the property described in the document if it contains all of the following essential elements: (A) The signature of the purchaser, purchaser's employee, or authorized representative of the purchaser. (B) The name, address and telephone number of the purchaser. (C) The number of the seller's permit held by the purchaser. If the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in this state, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a California seller's permit in lieu of a seller's permit number. (D) A statement that the purchaser is engaged in commercial timber harvesting operations, and that the property purchased is primarily designed for off-road use in commercial timber harvesting operations and will be used primarily in timber harvesting. (E) Description of property purchased. (F) Date of execution of document. (4) Retention and Availability of Partial Exemption Certificates. A retailer must retain each partial exemption certificate received from a qualified person for a period of not less than four years from the date on which the retailer claims a partial exemption based on the partial exemption certificate. While the Board will not normally require the filing of the partial exemption certificate with a sales and use tax return, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may on 30 days' written notice, require a retailer to commence filing with its sales and use tax returns copies of all partial exemption certificates. The Board may also require, within 45 days of the Board's request, retailers provide the Board access to any and all partial exemption certificates, or copies thereof, accepted for the purposes of supporting the partial exemption. (5) Good Faith. A seller will be presumed to have taken a partial exemption certificate in good faith in the absence of evidence to the contrary. A seller, without knowledge to the contrary, may accept a partial exemption certificate in good faith where a qualified person states that he or she is engaged in commercial timber harvesting operations and states that the property purchased is primarily designed for off-road use in commercial timber harvesting operations and will be used primarily in timber harvesting. If the qualified person is buying property of a kind not normally used in timber harvesting, the seller should require a statement as to how the specific property purchased will be used. However, an exemption certificate cannot be accepted in good faith where the seller has knowledge that the property is not subject to a partial exemption, or will not be otherwise used in a partially exempt manner. (d) Partial Exemption Certificate for Use Tax. The partial exemption certificate must be completed by a qualified person to claim a partial exemption from use tax on purchases of qualified property from an out-of-state retailer not obligated to collect the use tax. A partial exemption from the use tax shall not be allowed unless the purchaser or retailer claims the partial exemption on its individual use tax return, sales and use tax return, or consumer use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the purchaser or retailer fails to claim the partial exemption as set forth above, the purchaser or retailer may file a claim for refund as set forth in subdivision (e). The purchaser who files an individual use tax return must attach a completed partial exemption certificate to the return. The purchaser who is registered with the Board as a retailer or consumer and files a sales and use tax return or consumer use tax return must, within 45 days of the Board's request, provide the Board access to any and all documents that support the claimed partial exemption. The partial exemption certificate form set forth in Appendix A may be used to claim the partial exemption. (e) Refund of Partial Exemption. (1) For the period commencing on September 1, 2001, and ending on June 30, 2002, a qualified person may claim the partial exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a partial exemption certificate on or before September 30, 2002. The retailer must refund the tax or tax reimbursement directly to the purchaser or, at the purchaser's sole option, the purchaser may be credited with such amount. (2) A retailer who paid sales tax on a qualified sale or a person who paid use tax on a qualified purchase and who failed to claim the partial exemption as provided by this regulation may file a claim for refund equal to the amount of the partial exemption that he or she could have claimed pursuant to this regulation. The procedure for filing a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code section 6901. For transactions subject to use tax, a qualified person filing a claim for refund of the partial exemption has the burden of establishing that he or she was entitled to claim the partial exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the partial exemption has the burden of establishing that the purchaser of the qualified property otherwise met all the requirements of a qualified person at the time of the purchase subject to the refund claimed under this part. (f) Improper Use of Partial Exemption. (1) Property Used In a Manner Not Qualifying for the Partial Exemption. Notwithstanding subdivision (a), tax applies to any sale of, and the storage, use, or other consumption in this state of tangible personal property that is used in a manner not qualifying for the partial exemption under this regulation. (2) Purchases By Non-Qualified Persons. Notwithstanding subdivision (a), tax applies to any sale of, and the storage, use, or other consumption in this state of tangible personal property if a purchaser is not a qualified person. (g) Purchaser's Liability for the Payment of Sales Tax. (1) If a purchaser timely submits a copy of a partial exemption certificate to the retailer or partial exemption certificate for use tax to the Board, and then uses that tangible personal property in a manner not qualifying for the partial exemption, the purchaser shall be liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was so removed, converted, or used. (2) A purchaser providing a partial exemption certificate accepted in good faith by the retailer or a partial exemption certificate for use tax to the Board for tangible personal property that does not qualify for the partial exemption is liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was purchased. (h) Leases to Qualifying Persons. (1) Leases -In General. Leases of tangible personal property which are classified as "continuing sales" and "continuing purchases" of tangible personal property, in accordance with Regulation 1660, "Leases of Tangible Personal Property - In General," may qualify for the partial exemption subject to all the limitations and conditions set forth in this regulation. This partial exemption may apply to rentals payable paid by a qualified person on or after September 1, 2001 with respect to a lease of qualified property to the qualified person, which qualified property is used primarily in timber harvesting, notwithstanding the fact that the lease was entered into prior to the effective date of this regulation. For purposes of this subdivision, a non-qualified person may purchase property for resale and subsequently lease the property to a qualified person subject to the partial exemption. (2) Leases -Acquisition Sale and Leaseback. A qualified person will be regarded as having paid sales tax reimbursement or use tax with respect to that qualified person's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the qualified person has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the partial exemption from tax provided by this regulation. (3) Subsequent Lease of Property Acquired Subject to Partial Exemption. If a qualified person has acquired property subject to the partial exemption provided by this regulation and has paid all applicable taxes at that acquisition, the property will be regarded as property as to which sales tax reimbursement or use tax has been paid, and the subsequent lease of that property will not be subject to tax measured by rentals payable. (i) Records. Adequate and complete records must be maintained by the qualified person as evidence that the qualified property purchased was primarily designed for off-road use in commercial timber harvesting operations and was used by the qualified person primarily in timber harvesting. (j) Operative Date. This regulation is operative as of September 1, 2001. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6356.6, Revenue and Taxation Code. Appendix A PARTIAL EXEMPTION CERTIFICATE STATE BOARD OF EQUALIZATION Qualified Sales and Purchases of Timber Harvesting Equipment and Machinery NOTE: This is an exemption only from the state general fund portion of the sales and use tax rate. You are not relieved from your obligations for the local and district taxes on this transaction. This partial exemption also does not apply to any tax levied pursuant to section 6051.2 and 6201.2 of the Revenue and Taxation Code, or pursuant to section 35 of article XIII of the California Constitution. This partial exemption also applies to lease payments made on or after September 1, 2001, for tangible personal property even if the lease agreement was entered into prior to September 1, 2001. I, as the undersigned purchaser, hereby certify I am engaged in commercial timber harvesting operations. The property purchased or leased is primarily designed for off-road use in commercial timber harvesting operations and will be used primarily in timber harvesting in accordance with Revenue & Taxation Code section 6356.6. Type of Timber Harvesting Equipment and Machinery (and the parts 1 thereof) [FNa1] __________ [FNIf] you also want this certificate to be used as a blanket certificate for future purchases, describe generally the type of property you will be purchasing and ask your vendor to keep this certificate on file. If this is a specific partial exemption certificate, provide the purchase order or sales invoice number and a precise description of the property being purchased. I understand that if such property is not used in the manner qualifying for the partial exemption, or if I am not a qualified person, as applicable, that I am required by the Sales and Use Tax Law to report and pay the state tax measured by the sales price/rentals payable of the property to/by me. I also understand that this partial exemption certificate is in effect as of the date shown below and will remain in effect until revoked in writing. s 1535. Racehorse Breeding Stock. (a) General. Commencing on and after September 1, 2001, section 6358.5 of the Revenue and Taxation Code partially exempts from sales and use tax the sale of, and the storage, use, or other consumption in this state, of racehorse breeding stock purchased for use by a qualified person. The terms "racehorse breeding stock" and "qualified person" are defined below. For the period commencing on September 1, 2001 and ending December 31, 2001, the partial exemption applies to the taxes imposed by sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on January 1, 2002, and ending on June 30, 2004, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. For the period commencing on July 1, 2004, the partial exemption applies to the taxes imposed by sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution. (b) Definitions. For purposes of this regulation: (1) "Qualified person" means a person who purchases racehorse breeding stock solely with the intent and purpose of breeding. (2) "Qualified property" means racehorse breeding stock, as defined in subdivision (b)(3). (3) "Racehorse breeding stock" means a live horse that meets all of the following criteria: (A) Is or will be eligible to participate in a horseracing contest in California wherein pari-mutuel wagering is permitted under rules and regulations prescribed by the California Horse Racing Board. (B) Is capable of producing foals which will be eligible to participate in a horseracing contest in California wherein pari-mutuel wagering is permitted under rules and regulations prescribed by the California Horse Racing Board. (C) Is or was registered with an agency recognized by the California Horse Racing Board and such registering agency does not register the horse as ineligible for breeding stock. Agencies currently recognized are The Jockey Club, The American Quarter Horse Association, The United States Trotting Association, The Appaloosa Horse Club, The Arabian Horse Registry of America, and the American Paint Horse Association. Racehorse breeding stock does not include any horse over four years old, or five years old in the case of an Arabian horse, that has neither participated in or trained for a horserace contest on which pari-mutuel wagering is permitted, nor been used for breeding purposes in order to produce racehorses. (4) "Solely" means 100 percent or "only." (c) Partial Exemption Certificates. (1) In General. Qualified persons who purchase or lease qualified property from an in-state retailer, or an out-of-state retailer obligated to collect use tax, must provide the retailer with a partial exemption certificate in order for the retailer to claim the partial exemption. If the retailer takes a partial exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a qualified person, the partial exemption certificate relieves the retailer from the liability for the sales tax subject to exemption under this regulation or the duty of collecting the use tax subject to exemption under this regulation. A partial exemption certificate will be considered timely if it is taken any time before the retailer bills the purchaser for the qualified property, any time within the retailer's normal billing or payment cycle, any time at or prior to delivery of the qualified property to the purchaser, or no later than 15 days after the date of purchase. A partial exemption certificate which is not taken timely will not relieve the retailer of the liability for tax excluded by the partial exemption; however the retailer may present satisfactory evidence to the Board that the retailer sold the specific property to a qualified person and the property was used in a qualifying manner. A partial exemption from the sales and use tax under this part shall not be allowed unless the retailer claims the partial exemption on its sales and use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the retailer fails to claim the partial exemption as set forth above, the retailer may file a claim for refund as set forth in subdivision (e). The partial exemption certificate form set forth in Appendix A may be used to claim the partial exemption. (2) Blanket Partial Exemption Certificates. In lieu of requiring a partial exemption certificate for each transaction, a qualified person may issue a blanket partial exemption certificate. The partial exemption certificate form set forth in Appendix A may be used as a blanket partial exemption certificate. Appendix A may also be used as a specific partial exemption certificate if the purchaser provides the purchase order or sales invoice number of the property being purchased. Qualified persons must include in the partial exemption certificate a description of the qualified property. If purchasing tangible personal property not qualifying for the partial exemption, the qualified person must clearly state in documents such as a written purchase order, sales agreement, lease, or contract that the sale or purchase is not subject to the blanket partial exemption certificate. (3) Form of Partial Exemption Certificate. Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a partial exemption certificate with respect to the sale or purchase of the property described in the document if it contains all of the following essential elements: (A) The signature of the purchaser, purchaser's employee, or authorized representative of the purchaser. (B) The name, address and telephone number of the purchaser. (C) The number of the seller's permit held by the purchaser. If the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in this state, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a California seller's permit in lieu of a seller's permit number. (D) A statement that the property purchased is capable of reproduction. (E) A statement that the purchaser will use the property solely for the purpose of breeding. (F) A description of the property purchased. (G) Date of execution of the document. (4) Retention and Availability of Partial Exemption Certificates. A retailer must retain each partial exemption certificate received from a qualified person for a period of not less than four years from the date on which the retailer claims a partial exemption based on the partial exemption certificate. While the Board will not normally require the filing of the partial exemption certificate with a sales and use tax return, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may on 30 days written notice, require a retailer to commence filing with its sales and use tax returns copies of all partial exemption certificates. The Board may also require that, within 45 days of the Board's request, retailers provide the Board access to any and all partial exemption certificates, or copies thereof, accepted for the purposes of supporting the partial exemption. (5) Good Faith. A seller will be presumed to have taken a partial exemption certificate in good faith in the absence of evidence to the contrary. A seller, without knowledge to the contrary, may accept a partial exemption certificate in good faith where a qualified person states that he or she is purchasing the qualified property solely with the intent and purpose of breeding. If the qualified person is buying a horse of a kind not normally used to breed racehorses, the seller should require a statement as to how the specific property purchased will be used. However, a partial exemption certificate cannot be accepted in good faith where the seller has knowledge that the property is not subject to the partial exemption, or will not be otherwise used in a partially exempt manner. (d) Partial Exemption Certificate for Use Tax. The partial exemption certificate must be completed by a qualified person to claim a partial exemption from use tax on purchases of qualified property from an out-of-state retailer not obligated to collect the use tax. A partial exemption from the use tax shall not be allowed unless the purchaser or retailer claims the partial exemption on its individual use tax return, sales and use tax return, or consumer use tax return for the reporting period during which the transaction subject to the partial exemption occurred. Where the purchaser or retailer fails to claim the partial exemption as set forth above, the purchaser or retailer may file a claim for refund as set forth in subdivision (e). The purchaser who files an individual use tax return must attach a completed partial exemption certificate to the return. The purchaser who is registered with the Board as a retailer or consumer and files a sales and use tax return or consumer use tax return must, within 45 days of the Board's request, provide the Board access to any and all documents that support the claimed partial exemption. The partial exemption certificate form set forth in Appendix A may be used to claim the partial exemption. (e) Refund of Partial Exemption. (1) For the period commencing on September 1, 2001, and ending on December 31, 2002, a qualified person may claim the partial exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a partial exemption certificate on or before March 31, 2003. The retailer must refund the tax or tax reimbursement directly to the qualified purchaser of qualified property or, at the purchaser's sole option, the purchaser may be credited with such amount. (2) A retailer who paid sales tax on a qualified sale or a person who paid use tax on a qualified purchase and who failed to claim the partial exemption as provided by this regulation may file a claim for refund equal to the amount of the partial exemption that he or she could have claimed pursuant to this regulation. The procedure for filing a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code section 6901. For transactions subject to use tax, a qualified person filing a claim for refund of the partial exemption has the burden of establishing that he or she was entitled to claim the partial exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the partial exemption has the burden of establishing that the purchaser of the qualified property otherwise met all the requirements of a qualified person at the time of the purchase subject to the refund claimed under this part. (f) Improper Use of Partial Exemption. (1) Property Used in a Manner Not Qualifying for the Partial Exemption. Notwithstanding subdivision (a), tax applies to any sale of, or the storage, use, or other consumption in this state of tangible personal property that is used in a manner not qualifying for the partial exemption under this regulation. (2) Purchases By Non-Qualified Persons. Notwithstanding subdivision (a), tax applies to any sale of, and the storage, use, or other consumption in this state of tangible personal property if a purchaser is not a qualified person. (g) Purchaser's Liability for the Payment of Tax. (1) If a purchaser timely submits a copy of a partial exemption certificate to the retailer or partial exemption certificate for use tax to the Board, and then uses that tangible personal property in a manner not qualifying for the partial exemption, the purchaser shall be liable for payment of the tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was so removed, converted, or used. (2) A purchaser providing a partial exemption certificate accepted in good faith by the retailer or a partial exemption certificate for use tax to the Board for tangible personal property that does not qualify for the partial exemption is liable for payment of the tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was purchased. (h) Leases to Qualifying Persons. (1) Leases-In General. Leases of tangible personal property which are classified as "continuing sales" and "continuing purchases" of tangible personal property, in accordance with Regulation 1660, "Leases of Tangible Personal Property - In General," may qualify for the partial exemption subject to all the limitations and conditions set forth in this regulation. This partial exemption may apply to rentals payable paid by a qualified person on or after September 1, 2001 with respect to a lease of qualified property to the qualified person, which qualified property is used for breeding purposes, notwithstanding the fact that the lease was entered into prior to the effective date of this regulation. For purposes of this subdivision, a non-qualified person may purchase property for resale and subsequently lease the property to a qualified person subject to the partial exemption. (2) Leases-Acquisition Sale and Leaseback. A qualified person will be regarded as having paid sales tax reimbursement or use tax with respect to that qualified person's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the qualified person has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the partial exemption from tax provided by this regulation. (3) Subsequent Lease of Property Acquired Subject to Partial Exemption. If a qualified person has acquired property subject to the partial exemption provided by this regulation and has paid all applicable taxes at that acquisition, the property will be regarded as property as to which sales tax reimbursement or use tax has been paid, and the subsequent lease of that property will not be subject to tax measured by rentals payable. (i) Records. Adequate and complete records must be maintained by the qualified person as evidence that the qualified property was capable of reproduction and purchased by the qualified person solely for breeding purposes. (j) Operative Date. This regulation is operative as of September 1, 2001. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6358.5, Revenue and Taxation Code. Appendix A s 1540. Advertising Agencies and Commercial Artists. (a) Definitions. (1) Advertising. Advertising is commercial communication utilizing one or more forms of communication (such as television, print, billboards, or the Internet) from or on behalf of an identified person to an intended target audience. (2) Advertising Agencies. Advertising agencies design and implement advertising campaigns for purposes of advertising the goods, services, or ideas of their clients. As part of that primary function, advertising agencies provide their clients with services (such as consultation, consumer research, media planning and placement, public relations, and other marketing activities), and may also provide tangible personal property (such as print advertisements, finished art, and video and audio productions). (3) Commercial Artists. Commercial artists, who may characterize themselves as commercial artists, commercial photographers, or designers, provide services and tangible personal property to their clients for use in their clients' advertising campaigns, or for their clients' other commercial endeavors such as sales of copies of finished art (including, e.g., photographic images) provided by a commercial artist. Services they provide to their clients include the creation and development of ideas, concepts, looks, or messages. Electronic artwork they provide may be transferred through remote telecommunications such as by modem or over the Internet, or by tangible means through electronic media such as compact or floppy disc. Tangible personal property they provide may include electronic media on which electronic artwork is transferred to the client, hard copies of the electronic artwork, hard copies of finished art (which may consist of photographic images). (4) Contract of Sale. An agreement to transfer tangible personal property for consideration is a contract of sale. The client may, for example, issue a purchase order for the purchase of tangible personal property. The contract of sale for that tangible personal property consists of the terms of the purchase order together with the relevant terms of the master agreement (defined in subdivision (a)(10)). (5) Digital Pre-Press Instruction. Digital pre-press instruction is the creation of original information in electronic form by combining more than one computer program into specific instructions or information necessary to prepare and link files for electronic transmission for output to film, plate, or direct to press, which is then transferred on electronic media such as tape or compact disc. (6) Electronic Artwork. Electronic artwork is artwork created through the use of computer hardware and software processes which results in artwork in a digital format that can be transmitted to others via electronic means (that is, transmitted through remote telecommunications such as by modem or over the Internet, or by electronic media such as compact or floppy disc). Elements of the process include the creation of original artwork or photographic images, scanning of artwork or photographic images, composition and design of text, insertion and manipulation of scanned and original electronic artwork, photographic images, and text. Electronic artwork does not include artwork that is transferred to clients in a tangible form, other than on electronic media, even where such artwork may have been manufactured or produced in whole or in part by computer hardware and software processes. (7) Finished Art. Finished art is the final artwork used for actual reproduction by photomechanical or other processes, or used for display. It includes electronic artwork, illustrations (e.g. drawings, diagrams, halftones, or color images), photographic images, sculptures, paintings, and handlettering. Blueprints, diagrams, and instructions for signage furnished to a client as the result of environmental graphic design services are not finished art. (8) Hard Copies. An item is transferred on hard copy when it is transferred on any tangible personal property other than in digital format on electronic media. For example, finished art transferred on canvas or paper is transferred on hard copy while a transfer of finished art in digital format on compact or floppy disc is not regarded as a transfer on hard copy. (9) Intermediate Production Aids. Intermediate production aids include items such as artwork, illustrations, photograph images, photo engravings, and other similar materials which are used to produce special printing aids or finished art. (10) Master Agreement. A master agreement is a contract, however characterized (such as "agency-client agreement"), entered into between an advertising agency or commercial artist and its client which specifies the obligations of each party to the master agreement with respect to their relationship, whether for a specified time or advertising campaign or until one of the parties terminates the agreement. A master agreement between an advertising agency and its client may specify the obligations of each with respect to the design of an advertising campaign for the client, the placement of the advertising with print and television media, and for the sale and purchase of tangible personal property related to the advertising campaign. There may then be additional terms for the purchase of specific tangible personal property during the advertising campaign, such as in a purchase order, which identifies the specific property that will be purchased and sold and the sales price for that property. (11) Preliminary Art. Preliminary art is tangible personal property which is prepared solely for the purpose of demonstrating an idea or message for acceptance by the client before a contract is entered into, or before approval is given, for preparation of finished art provided neither title to, nor permanent possession of, such tangible personal property passes to the client. Examples of preliminary art include roughs, visualizations, layouts, comprehensives, and instant photos. (12) Special Printing Aids. Special printing aids are reusable manufacturing aids which are used by a printer during the printing process and are of unique utility to a particular client. Special printing aids include electrotypes, stereotypes, photoengravings, silk screens, steel dies, cutting dies, lithographic plates, film, single or multi color separation negatives, and flats. (13) Third Parties. A reference in this regulation to a transfer to a client also includes a transfer to a third party on the client's behalf. For example, the discussion in subdivision (b)(2)(B) for transfers of finished art by loading into the client's computer also includes transfers of the finished art by loading it into a third party's computer at the instruction of the client. (b) Application of Tax to Activities of Advertising Agencies and Commercial Artists. (1) Services. (A) General. 1. Services performed to convey ideas, concepts, looks, or messages to a client may result in a transfer, enhancement, or revision of either electronic artwork, hard copies of electronic artwork, or copies of manually prepared artwork. If charges for such services are separately stated as "design charges," "preliminary art," "concept development," or any other designation that clearly indicates that the charges are for such services and not for finished art, they are nontaxable; however, tax applies if: (a) the master agreement or other contract provides that the advertising agency or commercial artist will pass to the client title or the right to permanent possession of the artwork in tangible form, such as on electronic media or hard copy, or (b) permanent possession of the artwork in tangible form is transferred to the client. If the master agreement provides that the client owns the concepts embodied in tangible personal property that is owned and possessed by the advertising agency or commercial artist (e.g., so that such concepts cannot be used on behalf of any other person), that contract provision does not constitute the passage of title to tangible personal property to the client. A requirement that an advertising agency or commercial artist retain permanent possession of the artwork in tangible form does not itself constitute a sale of that property to the client in the absence of a provision passing title to such property to the client. 2. Tangible personal property developed and used during services performed to convey ideas, concepts, looks, or messages is consumed in the performance of those services. Unless, prior to any use, the advertising agency or commercial artist passes title to such property to the client as discussed in the previous paragraph, the advertising agency or commercial artist is the consumer of such tangible personal property used and tax applies to the sale of property to, or to the use of the property by, the advertising agency or commercial artist. If the advertising agency or commercial artist passes title to, or permanent possession of, such tangible personal property to its client, tax applies to the sale of the tangible personal property by the advertising agency or commercial artist to the client. (B) Digital Pre-Press Instruction. Digital pre-press instruction is a custom computer program under section 6010.9 of the Revenue and Taxation Code, the sale of which is not subject to tax, provided the digital pre-press instruction is prepared to the special order of the purchaser. Digital pre-press instruction shall not, however, be regarded as a custom computer program if it is a "canned" or prewritten computer program which is held or existing for general or repeated sale or lease, even if the digital pre-press instruction was initially developed on a custom basis or for in-house use. The sale of such canned or prewritten digital pre-press instruction in tangible form is a sale of tangible personal property, the retail sale of which is subject to tax. (C) Retouching Photographic Images. Retouching a photographic image for the purpose of repairing or restoring the photograph to its original condition is a repair, the charge for which is not taxable. (D) Signage. The creation and providing of single copies of blueprints, diagrams, and instructions for signage as a result of environmental graphic design is a service the charge for which is not taxable. Charges for additional copies are taxable. (E) Websites. The design, editing, or hosting of an electronic website in which no tangible personal property is transferred to the client is a service, the charge for which is not subject to tax. (F) Specific Nontaxable Charges. The following and similar fees and commissions are not taxable when they are separately stated. Whether separately stated or not, these fees and commissions are not included in the calculation of "direct labor" for purposes of subdivision (b)(3). 1. Media commissions or fees received for placement of advertising whether paid by the medium, by another advertising agency, or by the client. 2. Commissions or fees paid to advertising agencies by suppliers. Examples of such commissions are those paid to an advertising agency by a premium manufacturer (or distributor) or a direct-by-mail supplier. 3. Consultation and concept development fees related to client discussion, development of ideas, and other services. If the advertising agency transfers to the client tangible personal property produced as a result of these services, the transfer is incidental to the advertising agency's providing of the service and is not a sale of that tangible personal property; the advertising agency is the consumer of tangible personal property transferred to the client incidental to the providing of a service. 4. Fees for research or account planning that entail consumer research and the application of that research to the client's business or industry. 5. Fees for quality control supervision that entails the proofing and review of printing and other products provided by outside suppliers. 6. Charges for the formulation and writing of copy. (G) Example. A designer contracts to create and sell printed brochures to a law firm. The contract separately states a charge for design, for art direction, for preliminary art, and for the printed brochures. The designer's design and art direction services culminate in the creation of preliminary art that the designer uses to show the designer's concepts to the law firm. After the law firm approves the concepts, the designer finalizes the design of the brochure and contracts with a printer to print the brochures. The printer sells the printed brochures to the designer for resale, and the designer resells the printed brochures to the law firm. The only tangible personal property that will be transferred to the law firm (or to anyone on behalf of the law firm) are the printed brochures. The law firm will not obtain title to, or the right to possession of, any finished art or any other tangible personal property. Tax does not apply to the designer's separately stated charges for design, art direction, and preliminary art. Tax applies to the designer's separately stated charge to the law firm for the printed brochures. (2) Finished Art. (A) Use of Aids in Creation of Finished Art. If the advertising agency or commercial artist uses any intermediate production aids or special printing aids in the creation of the finished art, the presumptions with respect to passage of title and the calculation of the measure of tax on the sale of such aids by the advertising agency or commercial artist, is governed by the provisions of Regulation 1541 applicable to special printing aids. (B) Transfers of Electronic Artwork. A transfer of electronic artwork in tangible form is a sale. However, a transfer of electronic artwork from an advertising agency or commercial artist to the client or to a third party on the client's behalf that is not in tangible form is not a sale of tangible personal property, and the charges for the transfer are not subject to tax. A transfer of electronic artwork is not in tangible form if the file containing the electronic artwork is transferred through remote telecommunications (such as by modem or over the Internet), or if the file is loaded into the client's computer by the advertising agency or commercial artist, and the client does not obtain title to or possession of any tangible personal property, such as electronic media or hard copy. If the transfer is not a transfer in tangible form because it is loaded onto the client's computer, the advertising agency or commercial artist should document that transfer by a written statement signed at the time of loading by the client and by the person who loaded the electronic artwork into the client's computer with the following or similar language: "This electronic artwork was loaded into the computer of [client's name] by [advertising agency's or commercial artist's name], and [advertising agency's or commercial artist's name] did not transfer any tangible personal property containing the artwork, such as electronic media or hard copies, to [client's name]." When such a statement is signed at the time the file is loaded, it will be rebuttably presumed that the transfer of electronic artwork was not transferred in tangible form. If there is no such timely completed statement, the advertising agency or commercial artist may provide other substantive evidence establishing that the artwork was not transferred in tangible form. (C) Transfers of Finished Art in Tangible Form. The electronic or manual preparation of finished art for use in reproduction or display is not a service. Unless the transfer is not in tangible form as explained in subdivision (b)(2)(B), the transfer of finished art is a sale of tangible personal property and tax applies to charges for that finished art, including all charges for any rights sold with the finished art, such as copyrights or distribution and production rights, except as provided in subdivision (b)(2)(D)2. 1. Combined Charge for Finished Art and Conceptual Services. If charges for finished art are combined into a single charge that also includes nontaxable charges for conceptual services described in subdivision (b)(1)(A), the advertising agency or commercial artist may report the measure of tax on the retail sale of the finished art as specified in subdivision (b)(3), provided that the reported measure of tax must also include the value of reproduction rights included with the transfer except those that are not taxable as provided in subdivision (b)(2)(D)2. 2. Lump Sum Billing - 75/25 Presumption. If tax is not reported as provided in the previous paragraph, it will be rebuttably presumed that 75 percent of the combined charge for the finished art and conceptual services is for the nontaxable services and that 25 percent of the combined charge is the measure of tax on the retail sale of the finished art. However, if the sales price to the advertising agency or commercial artist of the finished art (or component parts) and any intermediate production aids or special printing aids sold to the client for that combined charge is more than 25 percent of the combined charge to the client, the measure of tax is the sales price of the tangible personal property to the advertising agency or commercial artist. (D) Reproduction Rights Transferred With Finished Art. 1. Charges for the transfer of possession in tangible form to the client or to anyone else on the client's behalf of finished art for purposes of reproduction are included in the measure of tax on that sale, including all charges for the right to use that property, even though there is no transfer of title to the person reproducing the finished art, except as provided in subdivision (b)(2)(D)2. 2. Any agreement evidenced by a writing (such as a contract, invoice, or purchase order) that assigns or licenses a copyright interest in finished art for the purpose of reproducing and selling other property subject to the copyright interest is a technology transfer agreement, as explained further in Regulation 1507. Tax applies to amounts received for any tangible personal property transferred as part of a technology transfer agreement. Notwithstanding subdivision (b)(2)(C), tax does not apply to temporary transfers of computer storage media containing finished art transferred as part of a technology transfer agreement. Tax does not apply to amounts received for the assignment or licensing of a copyright interest as part of a technology transfer agreement. The measure of tax on the sale of finished art transferred by an advertising agency or commercial artist as part of a technology transfer agreement shall be: a. The separately stated sales price if the finished art is permanently transferred, or the separately stated lease price if the finished art is temporarily transferred; provided that the separately stated price is reasonable; b. Where there is no such separately stated price, the separate price at which the person holding the copyright interest in the finished art has sold or leased that finished art or like finished art to an unrelated third party where: 1) the finished art was sold or leased without also transferring an interest in the copyright; or 2) the finished art was sold or leased in another transaction at a stated price satisfying the requirements of subdivisions (b)(2)(D)2.a.; or c. If there is no such separately stated price under subdivision (b)(2)(D)2.a., nor a separate price under subdivision (b)(2)(D)2.b., 200 percent of the combined cost of materials and labor used to produce or acquire the finished art. "Cost of materials" consists of the costs of those materials used or incorporated into the finished art, or any tangible personal property transferred as part of the technology transfer agreement. "Labor" means any charges for labor used to create such tangible personal property where the advertising agency or commercial artist purchases such labor from a third party, or the work is performed by an employee of the advertising agency or commercial artist. (3) Sales of Other Tangible Personal Property by Advertising Agency or Commercial Artist. Tax applies to the total charge for the retail sale of tangible personal property by an advertising agency or commercial artist. If an advertising agency or commercial artist combines charges for nontaxable services as defined in subdivision (b)(1)(F), such as media placement, with charges for tangible personal property for which the advertising agency or commercial artist is the retailer, the measure of tax on that retail sale of property includes the total of: direct labor; the cost of purchased items that become an ingredient or component part of the tangible personal property; the cost of any intermediate production aids or special printing aids; and a reasonable markup. Commissions, fees, and other charges exclusively related to the production or fabrication of tangible personal properly are part of direct labor and are thus included in the measure of tax. Such charges include retouching of photographic images or other artwork for reproduction, provided the retouching is intended to improve the quality of the reproduction. An advertising agency or commercial artist must keep sufficient records to document the basis for the reported measure of tax. (4) Items Purchased by an Advertising Agency or Commercial Artist. Except when property is resold prior to any use, an advertising agency or commercial artist is the consumer of tangible personal property used in the operation of its business. Tax applies to the sale of such property to, or to the use of such property by, the advertising agency or commercial artist. (c) Situations Specific to Advertising Agencies. (1) Advertising Agency Acting as an Agent for Its Client. An agent is one who represents another, called the principal, in dealings with third persons. (Civil Code section 2295.) To the extent that an advertising agency acts as the agent of its client when acquiring tangible personal property, it is neither a purchaser of the property with respect to the supplier nor a seller of the property with respect to its principal (that is, its client). Because of the unique relationship between advertising agencies and their clients, unless an advertising agency elects non-agent status under subdivision (c)(2)(A) or is otherwise the retailer of the property under subdivision (c)(2)(B) or (c)(2)(C), it is rebuttably presumed that the advertising agency acts as the agent of its client when acquiring tangible personal property on its client's behalf. (A) A supplier of tangible personal property to an advertising agency is presumed to have made a retail sale of that property unless the supplier takes a timely and valid resale certificate in good faith from the advertising agency. Otherwise, the supplier has the burden of establishing that the advertising agency elected non-agent status under subdivision (c)(2)(A) and resold the property or that the advertising agency resold the property as the retailer under subdivision (c)(2)(B) or (c)(2)(C). (B) When an advertising agency is the agent of its client for the purchase of tangible personal property under subdivision (c)(1), sales or use tax is due on the purchase price from the supplier to the advertising agency. Tax does not apply to the charge made by an advertising agency to its client for reimbursement, including tax reimbursement, for the amount charged by a supplier, nor does tax apply to the advertising agency's separately stated charges for its services directly related to its acquisition of such tangible personal property (e.g., when the advertising agency makes a separately itemized charge for reimbursement of the amount paid to the supplier of the property, tax does not apply to a separately itemized "agency fee"). When the applicable tax is use tax and the advertising agency does not pay that use tax to the supplier on the client's behalf, the advertising agency is liable for the use tax and must report and pay the use tax to the Board. The advertising agency's liability for that use tax is not extinguished unless the client has self-reported and paid the tax to the Board. (C) An advertising agency may not issue a resale certificate when purchasing tangible personal property as the agent of its client. An advertising agency who issues a resale certificate to a supplier is presumed to be purchasing tangible personal property from that supplier on its own behalf for resale and not to be acting as an agent of its client. However, the advertising agency may provide evidence to prove that its issuance of the resale certificate was erroneous and that the advertising agency was acting as an agent of its client, provided the advertising agency has not treated the transaction as its own sale of tangible personal property to its client, collecting tax or tax reimbursement from its client on that sale. If the resale certificate was issued in error, the advertising agency is liable for use tax on the cost of tangible personal property purchased under the certificate unless the advertising agency has already paid that tax to the supplier or to the Board, or the client has self-reported and paid the tax to the Board. (2) Advertising Agency Acting as a Retailer. An advertising agency that acts as a retailer of tangible personal property may issue a resale certificate for such tangible personal property if the property will be resold prior to any use. Absent an agreement that the property will be sold prior to use, tax is due on the purchase price of tangible personal property that is used prior to being resold to the client and, in addition, tax is also due on the sales price of the tangible personal property to the client. (A) Election of Non-Agent Status. An advertising agency may elect non-agent status with respect to sales of tangible personal property to its client. This election must be supported by a specific written statement in its master agreement with the client. Alternatively, a statement may be included on an advertising agency's job order or invoice to its client. Statements should include the following or similar language: "(Advertising Agency's name) will not be acting as an agent of (client's name) for purposes of this transaction." An advertising agency that elects non-agent status is a retailer with respect to tangible personal property sold to its clients. The measure of tax on the advertising agency's retail sale is the separately stated charge for the tangible personal property. If there is no such separately stated charge, the measure of tax is calculated as provided in subdivision (b). (B) Items Produced or Fabricated by an Advertising Agency In-House. Advertising agencies are retailers of tangible personal property they produce or fabricate, e.g., by their own employees. Advertising agencies are not agents of their clients with respect to the acquisition of materials incorporated into such items of tangible personal property they produce or fabricate, but instead are the retailers of such property. The measure of tax on their retail sale of that property is the separately stated charge for the property sold. If there is no such separately stated charge, the measure of tax is calculated as provided in subdivision (b). (C) Invoice to Client for More Than Cost of Tangible Personal Property to Advertising Agency. When an advertising agency invoices its client for tangible personal property provided by the advertising agency without separately stating the amount paid to the supplier for that property, the advertising agency is the retailer of the tangible personal property to its client. For example, when the advertising agency invoices a single charge to its client for tangible personal property that includes the amount paid to the supplier for the tangible personal property together with a markup, the advertising agency is the retailer of that tangible personal property and tax applies to that separately stated charge. If the advertising agency makes a combined charge to its client that includes the charge for the tangible personal property as well as the charge for any nontaxable services or reproduction rights under subdivision (b), the advertising agency is the retailer of the tangible personal property provided and the measure of tax on the sale of that tangible personal property is calculated as provided in subdivision (b). (d) Transfers by an Artist at a Social Gathering. The transfer of original drawings, sketches, illustrations, or paintings by an artist at a social gathering for entertainment purposes is not a sale or use or purchase of tangible personal property, and the artist is the consumer of any property so transferred, when all the following requirements are satisfied: (1) Eighty percent or more of the drawings, sketches, illustrations, or paintings are delivered by the artist to a person or persons other than the purchaser; (2) Eighty percent or more of all of the drawings, sketches, illustrations, or paintings are received by a person or persons, other than the purchaser, at no cost to the person or persons who become the owner of the drawings, sketches, illustrations, or paintings; (3) The charge for the drawings, sketches, illustrations, or paintings is based on a preset fee; and (4) The preset fee charged for the drawings, sketches, illustrations, or paintings is contingent upon a minimum number of at least three drawings, sketches, illustrations, or paintings to be produced by the artist at the social gathering. (e) Charges and Transactions Governed by Other Regulations. (1) Audio Productions. Tax applies to charges for an audio production obtained or furnished by an advertising agency to its client as provided in Regulation 1527. (2) Photography. Tax applies to charges for photography as provided in Regulation 1528 except when the photographic image is furnished by a commercial artist as defined in subdivision (a)(3). (3) Printed Sales Messages. Qualifying sales of printed sales messages may qualify for exemption, as explained in Regulation 1541.5. (4) Typography. Tax applies to charges for typography or composed type obtained from outside suppliers as provided in Regulation 1541. (5) Video or Film Productions. When a video or film production obtained or furnished by an advertising agency to its client constitutes qualified production services as defined in Regulation 1529, tax applies to the charges for such qualified production services as provided in Regulation 1529. Note: Authority: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010.3, 6010.30 and 6015, Revenue and Taxation Code; andPreston v. State Board of Equalization(2001) 25 Cal. 4th 197, 105 Cal. Rptr. 2d 407. s 1541. Printing and Related Arts. (a) Definitions. (1) Clip Art. Clip art is prepackaged art (including photographic images) which is not produced to the special order of the customer and which is commercially available on CD ROM, other electronic media, or by computer program for use in digital page layout. Images that are enlarged, reduced, or rotated are not considered "produced to the special order of the customer." (2) Color Separator. A color separator is a person who engages in the process of color separation. The process of color separation divides a full color photographic image into four separate components, corresponding to the four primary colors used in process color printing. The color separator may accomplish this photographically or electronically, and the products of this process may be either a negative or positive film separation or a separated printing plate. (3) Color Separation Working Products. Color separation working products consist of property such as photographic film for making transparencies, masks, internegatives, interpositives, halftone negatives, composite color separation negatives, goldenrod paper and mylar plastic used in making flats, tape used in stripping negatives into flats, developing chemicals which become a component part of negatives and positives, proofing material and ink used in making final proofs, progressive proofs, and similar items, which are similar in function to special printing aids as defined in subdivision (a)(12). (4) Digital Pre-Press Instruction. Digital pre-press instruction is the creation of original information in electronic form by combining more than one computer program into specific instructions or information necessary to prepare and link files for electronic transmission for output to film, plate, or direct to press, which is then transferred on electronic media such as tape or compact disc. (5) Finished Art. Finished art is the final artwork used for actual reproduction by photomechanical or other processes, or used for display. It includes electronic artwork, illustrations (e.g. drawings, diagrams, halftones, or color images), photographic images, sculptures, paintings, and handlettering. (6) Intermediate Production Aids. Intermediate production aids include items such as artwork, illustrations, photographic images, photo engravings, and other similar materials which are used to produce special printing aids or finished artother intermediate production aids. (7) Mechanical or Paste-Up. A mechanical or paste-up (also called camera-ready art or camera-ready copy) is produced by preparing copy to make it camera-ready with all type and design elements, and then pasting the prepared copy on artboard or illustration board in exact position along with instructions, either in the margins or on an overlay, for the platemaker. (8) Print Broker. A print broker is a person who contracts to sell printed matter, but who does not actually engage in the printing process to produce the printed matter to be sold, instead purchasing the printed matter from a printer or from another print broker for resale to the print broker's customer. A person who sells printed matter for which that person did not engage in the printing process is acting as a print broker even if that person engages in the print process for other contracts. (9) Printer. A printer is a person engaged in the printing process. (10) Printing Process. The printing process involves activities related to the production of printed matter such as letterpress, flexography, gravure, offset lithography, reprography, screen printing, steel-die engraving, thermography, laser printing, inkjet printing, and photocopying. (11) Reproduction Proof. A reproduction proof is used exclusively for reproduction. It consists of either a direct impression of composed type forms containing type matter only or type matter combined with clip art, or a copy of that direct impression made by any method, including the diffusion transfer method. (12) Special Printing Aids. Special printing aids are reusable manufacturing aids which are used by a printer during the printing process and are of unique utility to a particular customer. Special printing aids include electrotypes, stereotypes, photoengravings, silk screens, steel dies, cutting dies, lithographic plates, film, single color or multicolor separation negatives, and flats. For purposes of this regulation, special printing aids includes items defined by subdivision (a)(6) as intermediate production aids. (b) Application of Tax. (1) Sales by Printers. The production of printed matter for a consumer is a sale of tangible personal property whether the materials incorporated into the printed matter are furnished by the consumer or the printer. Unless that sale is exempt from tax, tax applies to the total gross receipts or sales price of the sale with no deduction on account of: the cost of the raw materials or other components; labor or service costs of any step in the process of producing, fabricating, processing, printing, or imprinting the tangible personal property; or any other expenses or services that are a part of the sale. Services that are a part of the sale of tangible personal property to consumers include charges for overtime, set-up, die cutting, embossing, folding (except as provided in subdivision (h)), and other binding operations. Printers may not deduct from the gross receipts or sales price from their sales of printed matter charges related to their typography work or the cost of typography or typesetting to them, nor can they deduct the costs of special printing aids for which they are consumers under subdivision (c)(1)(A), whether or not a separate charge is made to the customer for the special printing aids. Receipts attributable to such costs are includable in the measure of tax. Tax applies to a printer's sale of special printing aids as provided in subdivision (c). (2) Purchases by Printers. Printers are consumers of tangible personal property which is not sold prior to use or physically incorporated into the article to be sold. Tax applies to the sale of such property to, or to the use of the property by, a printer and also to any sale subsequent to its use by the printer. Property ordinarily consumed by a printer includes machinery (e.g., printing presses, cameras, digital pre-press equipment, and plate makers), office equipment, and printing aids. Printers, however, may purchase special printing aids for resale as explained in subdivision (c). (c) Special Printing Aids. In recognition of the unique utility that special printing aids have to the production of printed matter, the practices of the industry, and the need to avoid burdening businesses with unnecessary paperwork, the presumptions and rules set forth in this subdivision apply to a printer's purchase and sale of special printing aids used to produce printed matter sold by the printer. (1) Printer's Purchase of Special Printing Aids. (A) When a printer who uses special printing aids to produce printed matter does not wish to sell those special printing aids in connection with the printer's sale of the printed matter so produced, the printer shall include the following or substantially similar statement in the contract or the sales invoice: "Special printing aids are not being sold to the customer as part of the sale of the printed matter, and the selling price of the printed matter does not include the transfer of title to the special printing aids." When this statement, or a substantially similar statement, is included in the contract or sales invoice, the printer retains title to the special printing aids and is the consumer thereof, without regard to whether the printer separately itemizes a charge for the special printing aids. Accordingly, the printer may not issue a resale certificate to purchase such special printing aids for resale, and tax applies to the cost to the printer of those special printing aids. (B) Unless the printer includes a statement in the contract or sales invoice retaining title to the special printing aids, as described in subdivision (c)(1)(A), it shall be irrebuttably presumed that the printer resold to the customer the special printing aids purchased or produced by the printer for use on the customer's job, prior to any use, along with the printed matter produced with the special printing aids, without regard to whether the printer separately itemizes a charge for the special printing aids. Accordingly, unless the printer includes a statement in the contract or sales invoice retaining title, the printer may issue a resale certificate when purchasing such special printing aids or their components. If the vendor of the special printing aids to the printer does not take a valid and timely resale certificate from the printer stating that the special printing aids are for resale, the vendor has the burden of showing that the printer actually resold the special printing aids prior to use as provided in this subdivision. (2) Printer's Sale of Special Printing Aids. When the printer is regarded as purchasing the special printing aids for resale under subdivision (c)(1)(B), the following rules apply to determine the application of tax to the printer's sale of those special printing aids along with the printed matter produced with the special printing aids. (A) Retail Sales of Special Printing Aids. 1. Sales to the United States Government. When a printer makes a retail sale of special printing aids along with the printed matter produced with those special printing aids to the United States Government, the sale of the printed matter and the special printing aids to the United States Government is exempt from tax as provided in Regulation 1614. 2. With nontaxable sale of printed matter. When a printer makes a retail sale of special printing aids to anyone other than the United States Government along with a nontaxable sale of printed matter (such as an exempt sale in interstate commerce, an exempt sale of qualifying newspapers, periodicals, or printed sales messages, or a nontaxable sale for resale), the printer's sale of the special printing aids is subject to sales tax. The printer's taxable gross receipts or sales price from the sale of the special printing aids is deemed to be the sale price of the special printing aids, or their components, to the printer without regard to whether the printer separately states a charge for the special printing aids or, if the printer does so, without regard to the amount of that separately stated charge, and tax is due measured by that sale price. If the printer has paid California sales tax reimbursement or use tax on the sale price of the special printing aids or their components to the printer, no additional tax is due. 3. With taxable sale of printed matter. When a printer makes a retail sale of special printing aids along with the taxable retail sale of printed matter, tax applies to the entire charge for the printed matter and special printing aids, without regard to whether the charge for the special printing aids is separately stated. If the printer does not make a separate charge for the special printing aids, the charge for the printed matter is deemed to include the taxable charge for the special printing aids, and no further tax is due on account of the sale of those special printing aids. (B) Nontaxable Sales of Special Printing Aids for Resale. A person purchasing printed matter for resale may also purchase the special printing aids used to produce the printed matter for resale if that person will, in fact, resell the special printing aids prior to any use. A printer will not be regarded as selling special printing aids for resale unless: 1) the printer separately states the sale price of the special printing aids in an amount not less than the sale price of the special printing aids, or their components, to the printer; and 2) the printer accepts a timely and valid resale certificate in good faith from the printer's customer stating that the special printing aids are purchased for resale. The term "special printing aids" on a resale certificate shall be sufficient to cover all special printing aids as defined in subdivision (a)(12), and a printer accepting such a resale certificate in good faith will be regarded as selling the special printing aids for resale provided the printer includes the required separately stated price for them. Otherwise, the printer will be regarded as selling the special printing aids at retail, and will owe tax on that retail sale accordingly. A printer might sell special printing aids for resale along with printed matter under circumstances where the sale of the printed matter is for resale and also qualifies for exemption, such as a sale in interstate commerce where the purchaser will then resell the printed matter prior to use. However, since a purchaser of special printing aids from a printer would not be regarded as purchasing them for resale unless reselling them as part of the sale of the printed matter produced with those special printing aids, a printer claiming its sale of special printing aids is for resale should take a resale certificate for its sale of the printed matter as well, even if the sale of that printed matter would also qualify for exemption. 1. Sales of printed matter to multiple purchasers. A person is not purchasing special printing aids for resale when title to the special printing aids does not pass to that person's customer prior to any use. If that person's customer does not obtain the right to exercise dominion and control over the special printing aids, the person will not be selling the special printing aids to its customer and cannot purchase the special printing aids for resale. A person does not purchase special printing aids for resale when the printed matter produced with those special printing aids is sold to several purchasers. For example, a person purchasing newspapers for individual sale cannot purchase special printing aids for resale because the individual purchasers of the newspaper are not also purchasing the special printing aids. A person purchasing posters for sale to the general public is not purchasing special printing aids for resale to the general public. A person purchasing printed cartons to pack items for individual sale is not purchasing the special printing aids used to produce the cartons for resale to the ultimate purchasers of the contents of the carton. In addition to the fact that the multiple purchasers in each of these cases could not at any time be regarded as purchasing the special printing aids, the retail purchaser of the end product is not known at the time the special printing aids are used, meaning that the special printing aids could not in any event be resold to those purchasers prior to use. 2. Existing obligation to resell special printing aids. A person cannot purchase special printing aids for resale when that person does not have an existing obligation to resell those particular special printing aids since, if the purchaser does not have such an existing obligation to resell the special printing aids, the printer will use them on the purchaser's behalf before they could be resold by the purchaser. An existing obligation may be represented by a purchase order, invoice, or other existing agreement, whether oral or in writing. If the existing obligation is an oral agreement, the person purchasing the special printing aids for resale must have some means to establish that the agreement was in existence no later than the time the special printing aids were used in the printing process. (C) Split Sales. A printer may use special printing aids to produce printed matter where a portion of the sale is taxable and a portion of the sale is not taxable, such as the sale of printed sales messages some of which are delivered as required for exemption by Regulation 1541.5 and some of which are delivered directly to the purchaser. If a printer makes a sale of printed matter where a portion of the sale is taxable and a portion is not taxable along with a retail sale of the special printing aids used to produce that printed matter, tax is due on the full sale price of the special printing aids. If the printer separately states a charge for the special printing aids in an amount not less than the sale price of the special printing aids or their components to the printer, tax applies to that separate charge. In the absence of such a separate charge, the taxable portion of the sale of printed matter will be regarded as including the sale of the special printing aids provided that the measure of tax on that sale is at least equal to the sale price of the special printing aids or their components to the printer. If so, no further tax is due for the printer's sale of the special printing aids. If the measure of tax on the sale of the printed matter is less than the sale price of the special printing aids or their components to the printer, then the printer owes tax on the difference. (3) Purchases and Sales of Special Printing Aids by Print Brokers. (A) Print Broker's Purchase of Special Printing Aids for Resale. A person who purchases special printing aids for resale with printed matter but who will not itself use those special printing aids in the printing process is a print broker for that purchase and resale. A print broker who will acquire title to special printing aids from a printer or other print broker will be irrebuttably presumed to have resold the special printing aids to the customer, prior to any use, along with the printed matter produced with the special printing aids provided the print broker has, at the time of acquisition of the special printing aids, an existing obligation with a customer for the sale of printed matter and the print broker does not include a statement in the contract or sales invoice retaining title to the special printing aids, as described in subdivision (c)(1)(A). Accordingly, unless the print broker includes a statement in the contract or sales invoice retaining title, the print broker may purchase such special printing aids for resale pursuant to its existing obligation and issue a resale certificate for both the special printing aids and the printed matter. However, without regard to the taking of a resale certificate, a printer or print broker is regarded as making a retail sale of the special printing aids, and not a sale for resale, unless the printer or print broker separately states the charge for those special printing aids, which charge cannot be less than the sale price of such printing aids, or their components, to the printer. (B) Print Broker Issuing Resale Certificate. A print broker who issues a resale certificate for the purchase of special printing aids is liable for tax on the print broker's sale price of the special printing aids, even if the print broker's sale of the printed material produced with the special printing aids is not subject to tax (such as an exempt sale in interstate commerce, an exempt sale of qualifying newspapers, periodicals, or printed sales messages, or a nontaxable sale for resale), unless the print broker sells the special printing aids to the United States Government or to another print broker who issues a timely and valid resale certificate in good faith as provided in this subdivision (c). (C) Print Broker's Retail Sales of Special Printing Aids. 1. Sales to the United States Government. When a print broker who purchases special printing aids under a resale certificate sells those special printing aids along with the printed matter produced with those special printing aids to the United States Government, the sale of the special printing aids to the United States Government is exempt from tax as provided in Regulation 1614. 2. With nontaxable sale of printed matter. When a print broker who purchases special printing aids under a resale certificate makes a retail sale of special printing aids to anyone other than the United States Government along with a sale of printed matter that is not taxable (such as an exempt sale in interstate commerce, an exempt sale of qualifying newspapers, periodicals, or printed sales messages, or a nontaxable sale for resale), that sale of the special printing aids is subject to tax. If the print broker separately states a charge for the special printing aids that is not less than the printer's separately stated sale price for the special printing aids to the print broker, then tax applies to that separately stated sale price. Otherwise, tax applies to the the print broker's sale of the special printing aids measured by the printer's separately stated sale price to the print broker. 3. With taxable sale of printed matter. When a print broker who purchases special printing aids under a resale certificate makes a retail sale of those special printing aids along with the taxable retail sale of printed matter, tax applies to the entire charge for the printed matter and special printing aids, without regard to whether the charge for the special printing aids is separately stated. If the print broker does not make a separate charge for the special printing aids, the charge for the printed matter is deemed to include the taxable charge for the special printing aids, and no further tax is due on account of those special printing aids. 4. Split Sales. A print broker may sell special printing aids to produce printed matter the sale of which is partially exempt and partially subject to tax, such as the sale of printed sales messages some of which are delivered as required for exemption by Regulation 1541.5 and some of which are delivered directly to the purchaser. If a print broker makes a sale of printed matter where a portion of the sale is taxable and a portion is not taxable along with a retail sale of the special printing aids used to produce that printed matter, tax is due on the full sale price of the special printing aids. If the print broker separately states a charge for the special printing aids in an amount not less than the printer's separately stated sale price of the special printing aids to the print broker, tax applies to that separate charge. In the absence of such a separate charge, the taxable portion of the sale of printed matter will be regarded as including the sale of the special printing aids provided that the measure of tax on that sale is at least equal to the printer's separately stated sale price of the special printing aids to the print broker; if so, no further tax is due for the print broker's sale of the special printing aids, but if the measure of tax on the sale of the printed matter is less than the printer's separately stated sale price of the special printing aids to the print broker, then the print broker owes tax on the difference. (d) Conceptual Services. (1) When the printer makes a lump sum charge for a taxable sale of printed matter, the full lump sum charge is subject to tax with no deduction on account of any conceptual or other services performed to produce that printed matter. When the printer itemizes its charges for a taxable sale of printed matter, tax applies to the printer's entire charge except as provided below. (2) As part of its contract to produce and sell printed matter, a printer may also agree to acquire finished art for use in producing the printed matter, and the acquisition of that finished art may involve the providing of services to convey ideas, concepts, looks, or messages to a printer's customer which result in a transfer, enhancement, or revision of either electronic artwork, hard copies of electronic artwork, or copies of manually prepared artwork. If the printer states a separate charge for such services which are itemized as "design charges," "preliminary art," "concept development," or any other designation that clearly indicates that the charges are for such services and not for finished art, they are nontaxable unless the contract of sale provides that the printer will pass to its customer title or the right to permanent possession of the artwork in tangible form, such as on electronic media or hard copy, or permanent possession of the artwork in tangible form is, in fact, transferred to the client. The remainder of the printer's charge is subject to tax. (3) If a printer separately itemizes charges for finished art that also include charges for conceptual services described in subdivision (d)(2), it will be rebuttably presumed that 75 percent of the combined charge for the finished art and conceptual services is for the nontaxable services. If, however, the printer acquires the finished art and conceptual services from a commercial artist (rather than producing the finished art itself) and the commercial artist itemizes a separate charge for conceptual services that is less than 75 percent of the commercial artist's combined charge for conceptual services and finished art, that lesser percentage shall be applied to the printer's combined charge for final art and conceptual services to determine the total nontaxable charges for conceptual services. Tax applies to the remaining portion of the combined charge for final art and conceptual services unless: 1) the printer passes title to the final art to its customer; and 2) that transfer qualifies a technology transfer agreement under subdivision (b)(2)(D)2 of Regulation 1540, in which case tax applies to the charge for finished art in accordance with that provision. A separately itemized charge for special printing aids is not a separately itemized charge for finished art and conceptual services, and no portion of that charge is excluded from tax as a charge for nontaxable conceptual services. (e) Color Separators. The application of tax to printers as explained in this regulation also applies to color separators. Color separators are consumers and not retailers of tangible personal property which is not sold prior to use or physically incorporated into the article to be sold. Tax applies to the sale of such property to, or to the use of such property by, the color separator. Examples of such property include filters and screens, trial proofing materials, disposable lithographic plates, and developing chemicals which do not become incorporated into the article sold. Color separator working products are special printing aids for purposes of this regulation, and the provisions of subdivision (c) apply to their purchase and sale. Color separators, and persons such as printers when acting as color separators, may purchase color separator working products for resale when title to such property passes to the customer prior to use by the color separator as described in subdivision (c). The term "color separator working products" or "special printing aids" on a resale certificate shall be sufficient to cover all such products. Charges for alterations of film work for $100 or less shall be considered charges for restoring property to its original condition and not subject to tax. Charges greater than $100 shall be considered charges for fabrication labor and subject to tax. (f) Composed Type. (1) In General. Tax does not apply to the fabrication or transfer by a typographer or typesetter of composed type, or reproduction proofs of such composed type to printers to use in the preparation of printed matter. The composition of type is the performance of a service, and tax does not apply to charges for such service, unless that service is a part of the sale of printed matter. Tax applies to the gross receipts from the sale of printed matter without any deduction for the charge for typography. Tax applies to charges for transfers of composed type combined with artwork as provided in subdivision (f)(3). Typographers and typesetters are the consumers and not retailers of materials, such as typesetting machinery, metal forms, galleys, proofing paper, and cleaners which are used in the performance of their service and are consumers of materials transferred to their customers incidental to the performance of nontaxable typography or typesetting services, such as clip art that is combined with text on the same page. Composed type includes type together with lined borders and plain, straight, fancy, or curved lines. Composed type also includes charts, tables, graphs, and similar methods of providing information. (2) Photocomposition (Including Phototypesetting and Computer Typesetting). Tax does not apply to the composing of type regardless of whether the type is composed by means of such simplified methods as standard typewriter, desktop publishing, Varityper or Justowriter; by means of photolettering or headlining machines; or by means of a photocomposition (including computer photocomposition) method. Tax does not apply to the transfer, whether temporary or permanent, of the direct product of the type composition service or copy thereof (e.g., typeset matter direct from the typesetting machine ready to be cut and pasted up for reproduction or computer generated type), if that product contains text only or text combined with clip art, whether that product is a paper or film (negative or positive) product, provided the product or copy is to be used exclusively for reproduction. The transfer of camera-ready copy containing text only or text and clip art in the form of a paste-up, mechanical, or assembly, or a camera-ready reproduction of such, is the transfer of composed type and the charge made by the typographer or typesetter to his or her customer is not subject to tax. Tax does not apply to the transfer of a direct photoreproduction of type composed by means of a photolettering or headlining machine or other similar device. Camera-ready copy which is produced through the use of desktop publishing software and a personal computer is nontaxable composed type provided it does not contain artwork other than clip art. Transfers of plates and mats for use in the printing process which are produced using composed type are subject to tax, and tax applies to the entire charge made to the customer including any portion of the charge attributable to the type composition service, whether that charge is separately stated or not. Transfers of engraved printing plates and duplicate plates such as electrotypes, plastic plates, rubber plates, and other plates used in letterpress printing are subject to tax. Similarly, transfers of exposed presensitized, wipe-on, deep-etch, bi-metal and other plates used in offset lithography or of exposed plates produced by a photo-direct method, do not qualify as transfers of reproduction proofs of composed type and are subject to tax. A transfer of gelatin coated film to be transferred to fine mesh silk in the silk-screening process is subject to tax. (3) Artwork. Artwork, other than clip art combined with composed type on the same page, is not composed type. The term "artwork" includes illustrations (e.g., drawings, diagrams, halftones, or color images), photographic images, drawings, paintings, handlettering, and computer generated artwork. If the basis for billing is on a per page basis, the charge for any page with artwork is subject to sales tax and the charge for any page with only text, or text and clip art, is not subject to tax. If the basis for billing is lump sum, the ratio of pages containing artwork to the total number of pages, applied to the lump sum charge, represents the retail sale price of the artwork and is subject to tax, but in no event shall the retail sale price of the artwork be less that the sale price of the artwork, or its components, to the typographer. However, if ten percent or fewer of the pages contain artwork, the true object of the sale shall be deemed to be a sale of typography services with an incidental transfer of artwork, and the typographer is the consumer of that artwork. Tax applies to the sale price of the artwork, or its components, to the typographer. Tax does not apply to the sale of the typography service as explained in subdivision (f)(1). (4) Reproduction Rights. Notwithstanding subdivision (f)(3), if the transfer of artwork qualifies as a technology transfer agreement under subdivision (b)(2)(D)2. of Regulation 1540, tax applies to the transfer of the artwork in accordance with that provision. (g) Digital Pre-Press Instruction. Digital pre-press instruction is a custom computer program under section 6010.9 of the Revenue and Taxation Code, the sale of which is not subject to tax, provided the digital pre-press instruction is prepared to the special order of the purchaser. Digital pre-press instruction shall not, however, be regarded as a custom computer program if it is a "canned" or prewritten computer program which is held or existing for general or repeated sale or lease, even if the digital pre-press instruction was initially developed on a custom basis or for in-house use. The sale of such canned or prewritten digital pre-press instruction in tangible form is a sale of tangible personal property, the retail sale of which is subject to tax. (h) Mailing. Tax does not apply to charges for postage or for addressing for the purpose of mailing (by hand or by mechanical means), folding for the purpose of mailing, enclosing, sealing, preparing for mailing or mailing letters or other printed matters, provided such charges are stated separately on invoices and in the accounting records. Tax applies, however, to charges for envelopes. (i) Signs, Show Cards, and Posters. Tax applies to retail sales of signs, show cards, and posters, and to charges for painting signs, show cards, and posters, whether the materials are furnished by the painter or by the customer. Tax does not apply to charges for painting or lettering on real property. The painter or letterer is the consumer of the materials used in such work, and tax applies with respect to the sale of such property to, or the use of such property by, the painter or letterer. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6012, Revenue and Taxation Code. Note:For Publications, exemption of certain, see regulation 1590 (Section 1590), Title 18). Note:For Advertising Agencies, see regulation 1540 (Section 1540, Title 18). For Mailing Services, see regulation 1504 (Section 1504, Title 18). s 1541.5. Printed Sales Messages. (a) Definitions. (1) "Printed Sales Messages" means and is limited to catalogs, letters, circulars, brochures, and pamphlets printed for the principal purpose of advertising or promoting goods or services. The term includes such items as department store catalogs, brochures advertising automobiles and vacations, circulars advertising professional services, and coupon books. The term does not include campaign literature and other fund-raising materials, stationery, reply envelopes, except as provided for in (b) of this regulation, order forms, sales invoices, containers for sample merchandise, newspapers or periodicals, calendars, notepads, cash register tapes, or directories unless they meet the principal purpose of advertising or promoting goods or services. (2) "Printed to the Special Order" means designed and prepared according to the specific request of the purchaser. The term is also applicable to additional or supplemental orders, when the original order was printed to the special order of the purchaser. (3) "Mailing House" means any person engaged in the business of stamping, addressing, sealing or otherwise preparing property for mailing for compensation. (4) "Common Carrier" means any person engaged in the business of transporting property for hire or compensation and who offers his services indiscriminately to the public or to some portion of the public. (5) "Cost" means any consideration given for the acquisition of the property, whether directly or indirectly. Examples of indirect costs include subscription fees, franchise fees or any general overhead billing. (6) "Any other Person" as used herein means any person, other than the purchaser or the purchaser's agent, who takes physical delivery of the printed sales messages and who exercises dominion and control over the property. (b) Application of Tax. Operative January 1, 1987, tax does not apply to the sale or use of printed sales messages which are: (1) Printed to the special order of the purchaser; (2) Mailed or delivered by the seller, the seller's agent or a mailing house acting as the agent for the purchaser, through the United States Postal Service or by common carrier; (3) Received by any other person at no cost to that person who becomes the owner of the printed material. (4) If all of the above conditions in (b)(1) through (b)(3) are not met, tax applies to the charges for the printed sales messages to the same extent as to charges for printed matter generally. (5) To satisfy the common carrier requirement, it is only necessary that a common carrier be involved in some stage of the delivery. (6) The tax exemption applies regardless of whether or not the purchaser of printed sales messages offers for sale the goods or services advertised in the printed sales messages. (7) Tax does not apply to charges for containers, such as envelopes or wrapping paper, when sold with the printed sales messages for shipment or delivery, or when sold to persons who place the printed sales messages in the container and sell the printed sales messages together with the container. (8) Generally, tax applies to sales of reply envelopes and order forms. However, reply envelopes, order forms, or other printed matter will be considered part of the printed sales message when such property is inserted in, stapled, glued, or otherwise affixed to the printed sales message in such a manner that it becomes a component or integral part of the printed sales message and is sold together with the printed sales message. Accordingly, the total charge in such cases is deemed to be for printed sales messages and not subject to tax. (9) When printed sales messages are attached to reply envelopes and the reply envelopes are provided for the primary purpose of securement of a return payment on a billing, or business reasons other than the promotion of goods or services, tax applies to charges for such reply envelopes. (10) A purchaser of printed sales messages may act as the agent of the seller of the printed sales messages to purchase from a third party supplier envelopes or other printed matter which become incorporated by the seller into the printed sales message and are sold together with the printed sales message. The purchaser must clearly establish with respect to any acquisition of printed matter that it is acting as agent for the seller of printed sales messages. To establish that a particular acquisition was made as an agent, the purchaser must (1) clearly disclose to the supplier the name of the seller for whom the purchaser is acting as agent, and (2) obtain, prior to acquisition, and retain written evidence of agent status with the seller of printed sales messages. The purchaser (agent) may not charge the seller, exclusive of any agency fee, an amount in excess of the amount paid to the third party supplier for the purchase of the envelopes or other printed matter (see Regulation 1540). The sale by the seller (third party supplier) under this agency relationship is a sale for resale to the seller of the printed sales message. Accordingly, the agent should provide the supplier with a resale certificate, purchase order, or other such document containing the principal/seller's name, address, permit number, signature of the agent or principal/seller, date of execution, and a statement that the property is purchased "for resale." (see Regulation 1668). Unless the resale certificate, purchase order, or other such document is given on behalf of the seller of printed sales messages pursuant to the agency agreement, it will be presumed that the purchaser is acting on its own behalf. At no time will the purchaser of the printed sales messages act as an agent of the seller with regards to the delivery of the printed sales messages. (c) Supporting Documentation. Any seller claiming an exemption for the sale of printed sales messages must obtain and retain supporting evidence of the delivery of the property. (1) Delivery by the Seller. A seller who mails exempt printed sales messages through the United States Postal Service or by common carrier, should obtain and retain U.S. Postal receipts or bills of lading and obtain and retain a timely exemption certificate, taken in good faith, from the purchaser. The exemption certificate should be similar to the following: "I hereby certify that the items purchased are printed sales messages and that the printed sales messages described herein which I shall purchase from __________ __________ will be delivered by the seller or the seller's agent through the U.S. Postal Service or by common carrier at no cost to another person who becomes the owner of the printed material. If any of such printed material is determined not to be a printed sales message or is delivered other than as specified above, I understand that I am required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. Description of property to be purchased: ____________ Date ________________, ____ Purchaser: ____________________ (Company Name) Address: ______________________ Signature: ____________________ (Signature of Authorized Person) Title: ________________________ Seller's Permit No. of Purchaser (if any) __________" (2) Delivery by Mailing House as Agent for Purchaser. When the seller of printed sales messages delivers the property to a mailing house acting as agent for the purchaser, the contract of sale should specify to whom the property was delivered, and the seller should obtain and retain a timely exemption certificate, taken in good faith from the purchaser, similar to the following: "I hereby certify that the items purchased are printed sales messages and that the printed sales messages described herein which I shall purchase from __________, delivered by the seller to the mailing house designated below, will be delivered by the mailing house, acting as my agent, through the United States Postal Service or common carrier at no cost to another person who becomes the owner of the printed material. If any such printed material is delivered other than as specified above, I understand that I am required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. Description of property to be purchased: Mailing house ___________________________________ (Name) (Address)_____________________________ Date ________________, ____ Purchaser: ___________________________ (Company Name) Address: _____________________________ Signature: __________________________ (Signature of Authorized Person) Title: _______________________________ Seller's Permit No. of Purchaser (if any) __________" (3) A copy of the exemption certificate described in subdivision (c)(1) or (c)(2), accepted in good faith, shall relieve the seller from liability for the sales tax for the sale of printed sales messages delivered in accordance with subdivisions (b)(2), (b)(3), and (b)(10) of this regulation. If the seller fails to deliver the printed sales messages in such a manner, the seller will not be relieved from liability for the sales tax, on the ground that an exemption certificate was obtained with respect to the transaction. (4) If a purchaser certifies in writing to a seller that the printed matter is a printed sales message or that the printed sales messages purchased will be delivered in a manner entitling the seller to regard the gross receipts from the sale as exempt from the sales tax and it is determined that the printed matter is not a printed sale message or the purchaser arranges for the delivery of the printed sales messages in some other manner, the purchaser shall be liable for payment of sales tax as if the purchaser were a retailer making a retail sale of the printed matter at the time of such use and the sales price of the printed matter to the purchaser shall be deemed the gross receipts from such retail sale. (5) If a purchaser wishes to designate on each purchase order that the property is an exempt printed sales message, the seller should obtain a qualified exemption certificate, i.e., one that states "see purchase order" in the space provided for a description of the property to be purchased. Each purchase order must then specify whether the property covered by the order constitutes an exempt printed sales message within the provisions of this regulation or whether tax applies to the order. If each purchase order does not so specify, it will be assumed that the property covered by that purchase order is not an exempt printed sales message. If the purchase order includes both exempt printed sales messages and printed matter subject to tax, the purchase order must specify which items are exempt printed sales messages and which items are subject to tax. (6) When the purchaser and seller of printed sales messages enter into an agency agreement for the purchase of envelopes or other printed matter, pursuant to subdivision (b)(10), the purchaser must clearly disclose to the third party supplier the name of the seller for whom the purchaser is acting as an agent prior to, or at the time of purchase. This condition will be met by including on all purchase orders provided to the third party supplier a statement containing the elements noted on the following example: "This order is placed for and on behalf of ________________ [printer/principal's name]; seller's permit No. _____________ [printer/principal's permit number] located at ______________ [address of printer/principal] for whom _____________________ [purchaser/agent's name] is acting as agent. "The order is for _______________________ [number of envelopes] envelopes to be used as containers for printed sales messages. The envelopes are to be delivered to _________________ [mailing house name] for inclusion of the printed sales message. Date: __________ __________ (Signature of Purchaser or Authorized Agent)" (7) Pursuant to subdivision (b)(10), prior to the acquisition of the envelopes or other printed matter, the purchaser and seller of the printed sales messages must agree that the purchaser is acting as an agent for the seller with respect to the purchase of envelopes or other printed matter which become incorporated by the seller into the printed sales message sold. This condition will be met by including a statement in a letter of agreement or other such document similar to the following example: "You are hereby authorized to act as our agent in the procurement on our behalf of ______________ [number of envelopes] envelopes purchased for resale under seller's permit number _________ [printer/seller's permit number] from ____________________ [third party supplier's name], located at _________________ [address of third party supplier] for inclusion of printed sales messages to be sold and delivered pursuant to Regulation 1541.5. Date: _____________ 19___ __________ (Signature of Printer/Seller)" (8) The fact that the seller/principal of the printed sales messages may not formally reimburse the purchaser/agent with respect to the acquisition of envelopes or other printed matter from the third party supplier will not invalidate the agency relationship between the seller and purchaser of printed sales messages when all other provisions of this regulation are met. (d) Examples of the Application of Tax Under Specific Circumstances. (1) A real estate company contracts with a printer to design and prepare a brochure describing homes for sale in an area. The brochures are delivered by the seller to a mailing house for redelivery by common carrier to local merchants at no charge to the merchants. The merchants voluntarily display on the store premises the brochures which are available to the public free of charge. The merchants may dispose of the brochures in any manner they see fit. Tax does not apply to the charges for the brochures by the printer since the mailing house delivered the brochures by common carrier to a person other than the purchaser. (2) The same real estate company in Example 1 requests the printer to prepare a second distribution of the same brochures in the same manner one month later. Tax does not apply to the charges for the second distribution, since the original printed matter was prepared to the special order of the purchaser and met the other conditions of the exemption. (3) A manufacturer of automotive oil contracts with a printer to design and prepare a brochure describing the unique features of the oil. The brochures are delivered by the seller to a mailing house for redelivery by the U.S. Postal Service to automotive parts stores at no charge to the stores. The automotive parts stores voluntarily display on the store premises the brochures which are available to the public free of charge. Although the automobile parts store sells the oil, there is no direct or indirect cost to the store for displaying the brochures, that is, the wholesale cost is not determined by the distribution of the brochures. Tax does not apply to the charges for the brochures by the printer since the mailing house delivered the brochures by the U.S. Postal Service to a person other than the purchaser and all other conditions of the exemption were met. (4) A fast-food franchiser contracts with a printer to prepare and deliver by a common carrier to the franchisee, coupons for a free soft drink. The franchisee distributes the coupons to its patrons at the premises. The franchisee pays a flat monthly fee to the franchiser for general expenses incurred by the franchiser for promotion of the products sold by the franchise. Although no specific charge was made by the franchiser to the franchisee, an indirect charge was made by way of the monthly fee, and, accordingly, tax applies to the charge for the printed matter. (5) A company contracts with an advertising agency, who is acting as a seller, to prepare and deliver printed sales messages. The advertising agency contracts with a third party to do the printing and mailing. When the advertising agency separately bills the printed material to the company, and all other requirements for exemption are met, tax does not apply to the advertising agency's charges for the printed matter, since the seller need not be the actual printer to qualify for an exemption from the tax. (6) A department store contracts with a printer to prepare sales catalogs. The printer delivers the catalogs through the U.S. Postal Service to the department store where the catalogs are available at no charge to the store's patrons. Tax applies to the charges made by the printer since delivery was made to the purchaser. (7) The same department store in Example (6) requests the printer to deliver 75 percent of the catalogs through U.S. Postal Service to be distributed to individuals at no cost to those individuals. The printer delivers 25 percent of the catalogs to the department store and separately lists and prices on the invoice to the department store the charges for the printing aids used in the preparation of the printed sales messages. Tax would not apply to the charges by the printer on 75 percent of the printed material; tax would apply to the 25 percent delivered to the department store and to the entire charge for the printing aids. (8) An attorney requests a printer to prepare and mail a letter to potential clients advertising the attorney's professional services. The printer inserts a reply envelope into the folder letter and places both into a large envelope and mails the material through the U.S. Postal Service. The letter qualifies as an exempt sales message. The outer envelope is an exempt container sold with the exempt printed sales message. The reply envelope is a component or integral part of the printed sales message when inserted with the letter into the larger envelope and sold with the exempt printed sales message. (9) A furniture store requests a printer to prepare and mail billings and furniture advertisements to the store's customers. Both the billings and the advertisements are placed by the printer in the same envelope and mailed through the U.S. Postal Service. When the charges for the advertisement material are separately stated, tax does not apply to such charges. Tax does apply to the charges for the preparation of the billings and charges for the envelopes containing the billings, since the primary use of the envelopes is to mail billings and the addition of the printed sales messages is only secondary. (10) A distributor requests a printer to prepare and mail through the U.S. Postal Service sales catalogs and order forms. The distributor also contracts with an envelope company to prepare reply envelopes to be incorporated into the catalog. The envelope company is requested by the distributor to deliver the reply envelopes to the printer, who will staple a reply envelope with an order form into the center of each catalog. The catalogs are subsequently delivered to the recipients free of charge through the U.S. Postal Service. Tax does not apply to the charges made by the printer for the catalogs or order forms. The order forms were sold by the printer along with the sale of the catalogs and became component parts of the catalogs. Tax applies to the distributor's purchase of the reply envelopes, since the reply envelopes were not component parts of the catalogs at the time they were purchased. However, when the distributor purchases the envelopes from the envelope company as an agent of the seller of the catalogs (in this case the printer), and such agency relationship is disclosed at the time of purchase, the reply envelopes will be considered sold with the catalogs. Accordingly, tax does not apply to the purchase of the envelopes (purchased for resale on behalf of the printer) or the printer's subsequent sale of the reply envelopes. In this case, the reply envelopes are sold along with the catalogs and become component parts when inserted. (e) Special Printing Aids. The exemption provided under this regulation is limited to sales of printed sales messages and does not affect the application of tax with respect to "special printing aids" or other materials used in the preparation of printed sales messages. Tax applies to the sale of "special printing aids" as provided in Section 1541(e) of Title 18. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6379.5 and 6421, Revenue and Taxation Code. s 1542. Signs, Show Cards, and Posters. Note: Authority cited: Section 6006, Revenue and Taxation Code. s 1543. Publishers. (a) Definitions. (1) ART DIRECTOR. An art director prepares general specifications (in the form of verbal instructions or rough sketches) for an illustrator or photographer. (2) AUTHOR. An author creates an original manuscript, whether written by hand, on a typewriter or computer, or otherwise, for the purpose of publication. For purposes of this regulation, the following persons are also authors: (A) Copy editor, who reviews a manuscript for grammatical consistency and clarity. (B) Developmental editor, who consults with the author who created an original manuscript for purposes of publication to develop the concepts in the manuscript, or who reviews the copy edited manuscript and recommends visual concepts. (C) Manuscript reviewer, who reviews a manuscript for technical accuracy and acceptability to the proposed audience. For example, a reviewer may review the manuscript of a book on gardening for technical accuracy and suitability of the gardening advice for a particular climate. (D) Photo researcher, who assists other authors or publishers in obtaining permission and rights from third parties to use photographic images for purposes of reproduction in the publication of a manuscript. (E) Translator, who produces a manuscript that is a translation of material from a different language. (3) DESIGNER. A designer plans and prepares a general layout of typographical and illustrative elements for printed literature. (4) FINISHED ART. Finished art is the final artwork used for actual reproduction by photomechanical or other processes, or used for display. It includes electronic art, illustrations (e.g. drawings, diagrams, halftones, or color images), photographic images, sculptures, paintings, and handlettering. (5) ILLUSTRATOR. An illustrator creates an illustration, which is an original artwork (including cartoons and comic strips) licensed for the purpose of publication. (6) PHOTOGRAPHER. A photographer creates an original photographic image through the use of a camera or similar device, which photographic image is licensed for the purpose of publication. (7) PHOTOSTAT. A photostat (also called a "stat") is a copy produced by photographic means, often used in layout, dummy work, or "for position only" on camera-ready art. (8) PRELIMINARY ART. Preliminary art is tangible personal property which is prepared solely for the purpose of demonstrating an idea or message for acceptance by the client before a contract is entered into, or before approval is given, for preparation of finished art provided neither title to, nor permanent possession of, such tangible personal property passes to the client. Examples of preliminary art include roughs, visualizations, layouts, comprehensives, and instant photos. (9) PRODUCTION FUNCTION. A production function is a segment of the process of producing camera-ready art or camera-ready copy, and includes the following: (A) Alterations, which are changes made to typeset copy or camera-ready copy. (B) Dummy, which is a mock-up or layout of a page showing position and overall form, used for approval. A dummy can be assembled manually or generated by a computer program. A dummy is never physically incorporated into a mechanical or paste-up. (C) Formatting, which is a manuscript mark-up, when done electronically. (D) Manuscript mark-up, which is the application of type specifications to a manuscript for typesetting, when done manually. (E) Mechanical or paste-up (also called camera-ready art or camera-ready copy), which is produced by preparing copy to make it camera-ready with all type and design elements, and then pasting the prepared copy on artboard or illustration board in exact position along with instructions, either in the margins or on an overlay, for the platemaker. (F) Production Coordination or Production Direction, which is the coordination and scheduling of the various components of a project. (G) Production Editing, which is editing that maintains editorial integrity of the author's work during the production process. (H) Proofreading, which is a reading of typeset copy for correctness in comparison with the original manuscript. (I) Typesetting, typography, or composition, which is the fabrication or production of composed type, or reproduction proofs thereof, for use in the preparation of printed matter. Typesetting, typography, or composition does not include the fabrication or production of a paste-up, mechanical, or assembly of which a reproduction proof is a component part. (10) PUBLISHER. A publisher owns, outright or by license, the rights to reproduce, market, and distribute printed literature. (11) SYNDICATOR. A syndicator receives from authors original manuscripts, or reproduction proofs thereof, including columns, cartoons, and comic strip drawings, and distributes those manuscripts to publishers for publication. (b) Application of Tax. (1) Authors. (A) The transfer by an author to a publisher or syndicator, for the purpose of publication, of an original manuscript or copy thereof, including the transfer of an original column, cartoon, or comic strip drawing, is a service, the charge for which is not subject to sales tax. If the author transfers the original manuscript or copy thereof in tangible form, such as on paper or in machine-readable form such as on tape or compact disc, that transfer is incidental to the author's providing of the service, and the author is the consumer of any such property. However, the transfer of mere copies of an author's work is a sale of tangible personal property, and tax applies accordingly. (B) Tax applies to charges for transfers of photographic images and illustrations, whether or not the photographic images or illustrations are copyrighted. Transfers of photographic images or illustrations illustrating text written by the photographer or illustrator are not taxable when they are merely incidental to the editorial matter. (2) Syndicators. The transfer by a syndicator to a publisher of impressed mats or proofs of syndicated columns, cartoons, or comic strip drawings for the purpose of publication is not subject to tax. (3) Designers and art directors. Fees paid to a designer or art director for his or her ability to design, conceive, or dictate ideas, concepts, or specifications are not subject to tax if the designer or art director does not transfer to the client or to any other person on behalf of the client title or possession of any tangible personal property used to convey the ideas. The designer or art director is the consumer of any paper, tape, film, diskette, or other tangible personal property used. Tax applies to the sale of such tangible personal property to, or use of such tangible personal property by, the designer or art director. (4) Production Functions, (A) Tax applies to the gross receipts from the retail sale of camera-ready art or camera-ready copy. The measure of tax includes charges for the performance of all production functions, whether the charges are separately stated or not. (B) A contract under which a person performs only the following functions (or any combination of the following functions) is not subject to tax: manuscript mark-up, formatting, typesetting, proofreading, production coordination, and production editing. Charges for any of such functions are taxable when they are provided as part of the taxable sale of camera-ready copy or camera-ready art unless there is no contract for the camera-ready copy or camera-ready art until after such functions are completed, in which case the charges for such functions are nontaxable. (5) Contract To Perform Services and To Furnish Tangible Personal Property. One person may, under a single agreement, contract both to perform author, design, or art direction services, and to produce camera-ready copy or art. If, under the terms of the agreement, the client retains the right to approve the manuscript, layout, or general specifications before authorizing preparation of camera-ready copy or art, and if the author, designer, or art director does not transfer to the client title to the layouts or possession of the layouts other than for the purpose of review and approval only, then separately stated charges for performance of the services are not taxable. In the absence of specific contractual language, proof of client approval shall be evidenced by contemporaneous notation of receipt of approval in the records of the author, designer, or art director. No other proof shall be required. (6) PRELIMINARY ART. Tax does not apply to separately stated charges for preliminary art, except where the preliminary art becomes physically incorporated into the finished art, as, for example, when the finished art is made by inking directly over the pencil sketch or drawing, or the approved layout is used as camera copy for reproduction. The charge for the preliminary art is separately stated if it is billed separately to the client, either on a separate billing or separately itemized on the billing for the finished art, provided it is clearly identified on the billing as roughs, visualizations, layouts, comprehensives, or other preliminary art. Proof of ordering or producing the preliminary art, prior to the date of the contract or approval for finished art, shall be evidenced by purchase orders of the buyer, or by work orders or other records of the seller. No other proof shall be required. Tax applies to the total charges made for finished art. If there is no separately stated charge for preliminary art, then there is no deduction for such services from the taxable measure for the sale of the finished art except as provided in subdivision (b)(2)(C) of Regulation 1540. (7) Sales By Publishers. Sales of printed literature are subject to tax unless the sale is for resale or is specifically exempted by law, e.g., qualifying sales of printed sales messages and sales in interstate and foreign commerce. (8) Transportation Charges and Services Related to Transportation. Tax applies to charges for the transportation of printed matter in connection with a taxable retail sale except as provided in Regulation 1628. Separately stated charges for services such as addressing (by hand or by mechanical means), folding, enclosing, or sealing directly related to the transportation of printed matter to the customer are not subject to tax. Tax applies, however, to charges for envelopes except as otherwise provided in Regulation 1541.5. (9) Purchase of Property For Resale. Tax applies to the purchase of tangible personal property that is consumed in any production function and does not become a part of the finished product. However, a person may purchase such property for resale if that person's contract of sale with its client explicitly passes title to the property to that person's client prior to its use. Tangible personal property so purchased must be separately listed and priced on the person's sales invoice to the client and sales tax applies to that charge. (10) REPRODUCTION RIGHTS. Notwithstanding anything to the contrary in this regulation, if the transfer of a photographic image or artwork is made pursuant to a technology transfer agreement under subdivision (b)(2)(D)2. of Regulation 1540, tax applies to the transfer of the artwork in accordance with that provision. (c) Examples of the Application of Tax Under Specific Circumstances. (1) A firm provides various services to a publisher. In performing a contract with the publisher, the firm buys a color separation from a third party. The firm does not make a copy of the color separation or use it in any way, but resells it to the publisher. The firm may give a resale certificate to the third party but tax applies to the sale to the publisher. (2) The firm in Example (1) uses the color separation before reselling it to the publisher. Both the firm and the publisher are consumers, and both sales are subject to tax. (3) The firm in Example (1) buys both the color separation and a photostatic copy of it from the third party who separately states the price of each item on the sales invoice. The firm retains the photostatic copy but resells the color separation to the publisher without using it in any way. Since the third party used the color separation to make a copy of it, the sale of the component parts to the third party, or the third party's use of those component parts, is subject to tax. The firm may give a resale certificate to the third party for the color separation, but tax applies to the third party's sale of the photostatic copy. Tax also applies to the firm's sale of the color separation to the publisher. (4) A firm contracts with a publisher to perform a contract in three stages, as follows: (A) The firm creates an original manuscript of a book. The publisher reviews the first draft, comments on it, and approves it. The firm then does developmental editing, in which the writer and editors develop the manuscript for sound editorial structure and organization. The publisher reviews the resulting second draft, comments on it, and approves it. The firm then does copy editing, in which editors review the manuscript for grammatical consistency and clarity. After this, the firm passes title to the manuscript to the publisher for the purpose of publication. Under the contract, the firm can proceed with further work only with the publisher's approval. Tax does not apply to the sale of the finished manuscript or to any of the steps of writing and editing it. (B) In the second stage, the publisher returns the accepted manuscript to the firm for typesetting into galleys, which the publisher reviews and approves. The firm then arranges the galleys into page form, which the publisher reviews and approves. The firm then produces camera-ready art, which the publisher reviews for approval or alterations. The publisher then accepts and takes title to the camera-ready art. Tax applies to the firm's gross receipts from the sale of the camera-ready art, including formatting, typesetting, proofreading, and production coordination, whether separately stated or not. To preserve the nontaxable status of the receipts described in Example (4)(A), the charges for work done in Example (4)(A) must be separately stated from the charges for the sale of the tangible personal property in this Example (4)(B). (C) In the third stage, the publisher returns the camera-ready art to the firm for printing, The firm subcontracts the printing to a printer. The firm manages the quality of the printing. A representative of the publisher visits the printer to approve the work. At the firm's instruction, the printer ships the completed books to the publisher's warehouse. Since the firm will be reselling the books to the publisher without using them, the firm may issue a resale certificate to the printer. Since the publisher intends to resell the books, the publisher may issue a resale certificate to the firm. Tax applies to sales of the books by the publisher to consumers unless the sales are specifically exempt by statute (e.g. sales in interstate commerce.) (5) A publisher owns an existing manuscript. The publisher contracts with an editorial design firm for developmental editing, copy editing, and design specifications. The firm reviews the manuscript and makes recommendations to the publisher for developing it into publishable form, including recommended layout and a general approach to design (e.g., trim size). After the publisher accepts these recommendations, a designer (at the firm or a subcontractor) prepares sample sketches and dummies to express the idea to the publisher. After the publisher approves the sketches and dummies, the designer creates type specifications. A developmental editor and a copy editor (at the firm or a subcontractor) perform development and copy editing services. The edited manuscript, dummies, and type specifications are transferred to the publisher. Tax does not apply to the editing services because they are author's services. Tax does not apply to charges for the dummies and type specifications if those charges are separately stated and if possession and title is retained by the editorial design firm. (6) A publisher has an office in California and an office in New York. The publisher's California office purchases camera-ready art from a California production firm, with title passing in California. However, the production firm, on instructions from the publisher, ships the camera-ready art directly to the publisher's New York office for use at the New York office, with no use of the camera-ready art in California. Tax does not apply to the production firm's gross receipts from the sale of the camera-ready art, because the sale is in interstate commerce. (7) A commercial artist (such as a commercial photographer or illustrator) makes a temporary transfer of finished art (such as a photograph or illustration) that qualifies as a technology transfer agreement under subdivision (b)(2)(D)2. of Regulation 1540 to a publisher for purposes of reproducing the finished art in a children's book. The publisher makes a computer scan of the finished art and returns the original finished art to the commercial artist. The publisher incorporates the computer scan into layouts which are used to reproduce the finished art in the printed children's books, which are then sold. The commercial artist is paid an advance against royalties, and is then paid royalties based on retail sales of the children's book. The commercial artist does not make a separate charge for the tangible personal property leased to the publisher in accordance with subdivision (b)(2)(D)2.a. of Regulation 1540. As provided in subdivision (b)(2)(D)2.b. of Regulation 1540, if the commercial artist has leased like property for a separate price to an unrelated third party without also transferring an interest in the copyright, or has leased that finished art or like finished art for a separate price satisfying the requirements of subdivision (b)(2)(D)2.a. of Regulation 1540, then tax applies to that separate price. Otherwise, tax applies to the commercial artist's transfer as specified in subdivision (b)(2)(D)2.c. of Regulation 1540. Except for the tax due under subdivision (b)(2)(D)2.b. or (b)(2)(D)2.c. of Regulation 1540, no further tax is due on the royalties or the advance paid to the commercial artist. Tax applies to the retail sales of the children's book unless specifically exempt by statute. Note: Authority: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6015, 6094, 6244, 6362, 6379.5 and 6396, Revenue and Taxation Code. (Also See Article 24) s 1546. Installing, Repairing, Reconditioning in General. (a) Installation Generally. Charges for labor or services used in installing or applying the property sold are excluded from the measure of the tax. Such labor and services do not include the fabrication of property in place. (b) Repairmen. (1) When Retailers. If the retail value of the parts and materials furnished in connection with repair work is more than 10 percent of the total charge, or if the repairman makes a separate charge for such property, the repairman is the retailer and tax applies to the fair retail selling price of such property. [FN1] If the retail value of the property is more than 10 percent of the total charge, the repairman must segregate on the invoices to his customers and in his records the fair retail selling price of the parts and materials from the charges for labor of repair, installation, or other services performed. [FN2] "Total charge" means the aggregate of the retail value of the parts and materials furnished or consumed in making the repairs, charges for installation, and charges for labor of repair or other services performed in making the repairs, including charges for in-plant or on-location handling, disassembly and reassembly. It does not include pick-up or delivery charges. If the retailer does not make a segregation, the retail selling price of the parts and materials will be determined by the board based on information available to it. (2) When Consumers. If the retail value of the parts and materials furnished in connection with the repair work is 10 percent or less of the total charge, as defined in (b)(1) above, and if no separate charge is made for such property, the repairman is the consumer of the property, [FN3] and tax applies to the sale of the property to him. (3) Lump-sum Maintenance Contracts. (A) In General -Definitions. "Mandatory maintenance contract." A maintenance contract is mandatory within the meaning of this regulation when the buyer, as a condition of the sale, is required to purchase the maintenance contract from the seller. "Optional maintenance the meaning of this regulation when the buyer is not required to purchase the maintenance contract from the seller, i.e., he is free to contract with anyone he chooses. (B) Mandatory Maintenance Contracts. If the repair work is performed under a mandatory lump-sum maintenance contract providing for the furnishing of parts, materials, and labor necessary to maintain the property, the repairer is regarded as the retailer of the material furnished. Accordingly, if the property upon which the maintenance will be performed is sold at retail, the measure of tax includes any amount charged for the lump-sum maintenance contract, whether or not separately stated. The sale of the parts and materials to the repairer furnishing them under such a contract is a sale for resale and is not taxable. (C) Optional Maintenance Contracts. If the repair work is performed under an optional lump-sum maintenance contract providing for the furnishing of parts, materials, and labor necessary to maintain the property, the repairer is regarded as the consumer of the parts and materials furnished. (4) Exchange of Used for Reconditioned Similar Property. If the method of repairing or reconditioning certain tangible personal property involves commingling property delivered to a repairman or reconditioned property which may not be the identical property delivered to the repairman or reconditioner but which is exactly the same kind of property or derived from exactly the same kind of property as that so delivered, tax applies to the amount charged by the repairman or reconditioner for the repaired or reconditioned property. (5) Repair Jobs Covered by Insurance. An amount represented as the sales price of parts in an accepted bid is the taxable measure required to be reported by the repairman unless there is a subsequent modification of the bid agreement and the customer or the insurer is informed of the change, provided, however, that the sales price of the parts is not less than the cost of the parts actually used. The bid agreement may be modified by an invoice or a priced repair order given to the customer or the insurer showing the sales order given to the customer or the insurer showing the sales price of the property actually furnished by the repairman. If a bid is so modified and the customer or insurer is notified of the change, the amount represented as the sales price of the parts on the modified bid is the amount upon which tax must be reported. When the accepted bid is in writing, the subsequent modification to the bid agreement must also be in writing. The customer or the insurer should be notified of such modification prior to completion of the sale (e.g., delivery of the repaired automobile). [FN1] Parts furnished for repairing such property as motor vehicles, airplanes, bicycles, machinery, refrigerators, farm implements, musical instruments, radios, television sets, boats and furniture. [FN2] Section 9884.8 of the Business and Professions Code provides in part, with respect to automotive repair dealers, that ". . . Service work and parts shall be listed separately on the invoice, which shall also state separately the subtotal prices for service work and for parts, not including sales tax, and shall state separately the sales tax, if any, applicable to each . . ." [FN3] Parts furnished for repairing such property as tires (retreading and recapping, see regulation 1548), tubes, clothing, fishing rods, watches, and jewelry (see regulation 1553). Note: Authority cited: 7051, Revenue and Taxation Code. References: Sections 6006, 6010, 6011, 6012, and 6015, Revenue and Taxation Code. Tire Retreading and Recapping, see regulation 1548. Accommodation loaned by repairers, see regulation 1669. Returns, Defects, and Replacements, see regulation 1655. s 1547. Vehicle Engine Exchanges. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006 and 6012, Revenue and Taxation Code. s 1548. Retreading and Recapping Tires. (a) Retreading and Recapping Customer's Own Tires. Tire retreaders and recappers are the retailers of the tangible personal property furnished to consumers and tax applies to sales of such property. If a lump-sum charge is made for retreading or recapping, 75 percent thereof is considered to be the sales price of the property. (b) Sales of Retreaded or Recapped Tires Generally. Tax applies to sales of retreaded or recapped tires, the sales price of which includes any amount allowed for the customer's old tires or other merchandise traded in (see regulation 1654, Barter, Exchange, Trade-ins). If the method of retreading or recapping tires involves the commingling of old tires delivered to the retreader or recapper with similar property so that the customer receives retreaded or recapped tires which may not be the identical tires delivered to the retreader or recapper, but which are similar to those delivered, the tax applies to the amount charged by the retreader or recapper for the tires. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6006, Revenue and Taxation Code. s 1549. Fur Repairers, Alterers and Remodelers. (a) In General. Repairers, alterers, and remodelers of furs are retailers of the fur sold in connection with repairing, altering, and remodeling of fur garments. Fur repairers, alterers, and remodelers must segregate on the invoices presented to their customers and in their records the fair retail selling price of the fur furnished by them, from the charges for the labor of repairing, altering, or remodeling the fur garment. If the retailer does not make a segregation of these charges, the retail selling price of the fur will be determined by the Board based on information available to it. The repairers, alterers, and remodelers are the consumers of the thread, buttons, lining, and materials other than fur used in connection with such repairing, altering, and remodeling unless a separate charge for such property is made on the invoices to the customers at the fair retail selling price, in which case they are the retailers of the property. (b) Fabrication Labor. Where the services performed on the fur garment by repairers, alterers, or remodelers result in producing, processing, or fabricating tangible personal property or are a step in producing, processing, or fabricating tangible personal property, the entire charge, including fabrication labor and materials, is subject to tax. (c) Examples of the Application of Tax Under Specific Circumstances. Listed below are 12 situations involving the measure of taxability on repairing or remodeling fur garments. The answer "Repair" indicates that the tax applies to the retail selling price of materials furnished by the furrier. The answer "Taxable" indicates that the total charge is subject to tax. (1) A customer brings in a fur coat and requests that it be restyled as a coat.-Repair. (2) A customer brings in a coat and requests that it be remodeled into a jacket.-Repair. (3) A customer brings in a coat and requests that it be made into a cape.- Taxable. (4) A customer brings in a coat and requests that it be made into a stole.- Taxable. (5) A customer brings in a jacket and requests that it be remodeled into a cape.-Taxable. (6) A customer brings in a jacket and requests that it be remodeled into a stole.-Taxable. (7) A customer brings in a cape and requests that it be remodeled into a stole.-Repair. (8) A customer brings in a stole and requests that it be remodeled into a cape.-Repair. (9) A customer brings in a coat and requests that it be remodeled, and it is necessary to use additional fur to add collar or cuffs which have not heretofore existed on the coat.-Repair. (10) A customer comes in and requests that a garment be relined.-Repair. (11) A customer comes in with an animal scarf and requests that the scarf be restyled into a new style animal scarf.-Repair. (12) A customer brings in an animal scarf and requests that it be remodeled into a stole or cape.-Taxable. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6015, Revenue and Taxation Code. Fur dressers and dyers, see Regulation 1525 and Regulation 1928-Unrevised Series. s 1550. Reupholsterers. (a) General. This regulation applies to reupholsterers in general, including but not limited to, reupholsterers of household furniture, automobiles, boats, and airplanes. Effective January 1, 1975, the term "reupholsterers" as used in this regulation includes box spring and mattress renovators. Reupholsterers generally perform four functions when completing a contract for their services. (1) The sale of material and parts. (2) The fabrication of back and seat cushions and the cutting and sewing of new material used for upholstery covering. (3) Labor for stripping old materials and applying new material to tangible personal property. (4) Repair labor such as retying springs and refinishing the exposed wooden areas of furniture, i.e., arms, legs, etc. (b) Sales of Materials and Parts. Reupholsterers are the retailers of materials and parts they sell in connection with reupholstering jobs. These include but are not limited to: fabrics for furniture covering, cushions, foam rubber, padding, burlap, dust covers, seat decking, spring units, legs, arms and casters. Reupholsterers also are the retailers of items with small unit values or furnished in small quantities on any particular job. These are commonly referred to as findings and include such items as brads, buttons, cardboard strips, edge roll, edge wire, glue, spring clips, tacks, tacking strips, thread, twine, web cord and varnish. If charges for the findings are not segregated, the tax on such findings may be computed and reported in the manner specified in paragraph (e) below. (c) Fabrication Labor. Charges for fabrication labor are taxable. Cutting and sewing materials for coverings for furniture being reupholstered, including back and seat cushions, are steps in the process of completing a new article and are fabrication labor. Labor for making new furniture from material furnished directly or indirectly by the customer is fabrication labor. (d) Exempt Labor. Labor charges for repairing furniture and for applying new materials to furniture are exempt providing such charges are segregated in the reupholsterers' records from charges for materials and fabrication labor. (e) Computation of Exempt Labor. Reupholsterers are required to segregate material charges (other than charges for findings) from labor charges in their records. If no segregation is made between taxable fabrication labor and exempt installation or repair labor, it will be considered that 80 percent of total labor charges represent exempt labor. The remaining 20 percent of total labor charges will be regarded as the measure of taxable fabrication labor and findings. (f) Method of Reporting. Reupholsterers who segregate in their records the sale price of materials, charges for fabrication labor, and charges for exempt labor may report their taxable sales by reporting total sales less a deduction for exempt labor. If fabrication labor and sales of findings are not segregated in the reupholsterers' records, the allowable deduction for exempt labor will be an amount equal to 80 percent of the total labor charges. A combination of the two reporting methods cannot be used for the same reporting period. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6012, and 6015, Revenue and Taxation Code. Fabrication Generally, see regulation 1526. s 1551. Repainting and Refinishing. (a) Repainting and Refinishing for Consumers. Tax does not apply to single or lump-sum charges for repainting or refinishing used articles. Tax applies in such case to the sale to the refinisher of the paint and other materials used in the process, as he is regarded as the consumer of such property. If the refinisher uses paint or other materials purchased under a resale certificate, or without payment of use tax if purchased outside the state or in interstate commerce, he must report and pay tax measured by the cost of the materials to him. If, however, the refinisher makes a separate charge at the fair retail selling price for the paint or similar finishing material that is applied to and becomes a component part of the used articles, he is the retailer of such paint or finishing material and tax applies to the amount of the separate charge. (b) Repainting and Refinishing for Sellers. A refinisher of used articles for sellers who will resell the articles in the regular course of their businesses will be regarded as selling for resale the paint or similar finishing material that becomes a component part of the used articles. The refinisher should take a resale certificate under these circumstances. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6006, Revenue and Taxation Code. Neon sign relettering, see Regulation 1552. Painters, polishers and finishers, see Regulation 1931 Unrevised Series. Resale certificates, see Regulation 1688 (2668 Unrevised Series). s 1553. Miscellaneous Repair Operations. (a) Bookbinders.Bookbinders are consumers, rather than retailers, of the materials, such as cloth, leather, cardboard, glue, and thread, used in rebinding used books for a single or lump-sum charge, and tax applies to the sale of such materials to the bookbinder. If, however, the bookbinder makes a separate charge for such property at the fair retail selling price, the bookbinder is the retailer of the materials and tax applies to the amount of the separate charge. When bound books are sold at retail, tax applies to the gross receipts without any deduction for the cost of binding, even when done by the seller of the books. Tax also applies to the entire charge for the initial binding of new books furnished to a bookbinder for binding, unless the customer of the bookbinder will sell the books in the regular course of business, in which case the customer of the bookbinder may furnish a resale certificate to the bookbinder. Tax applies to the entire charge for binding done in connection with the furnishing of a finished product, i.e., a bound book, including a book produced with either a hard or soft cover by binding together materials such as magazines, newspapers, or business records. (b) Motor and Transformer Rewinding. Tax applies to sales of materials and supplies furnished in connection with the rewinding of motors and transformers. If a lump-sum price is charged for the materials and labor, 50 percent thereof is regarded as the sales price of the supplies and materials. (c) Shoe Repairperson. Persons engaged in repairing shoes are retailers of the tangible personal property furnished in connection with the repair work and tax applies to the retail selling price of such property. If a lump-sum or single charge is made for both materials and labor, 25 percent thereof is considered the retail selling price of the materials. Tax applies to retail sales by shoe repairpersons of such items as shoes, polishes, and laces. (d) Tennis Racket Restringing and Repairing.Persons engaged in repairing and restringing tennis rackets are retailers of the strings and other tangible personal property furnished, and tax applies to the retail selling price thereof. If a lump-sum charge is made for materials and labor, 50 percent thereof is regarded as the retail selling price of the materials furnished. (e) Watch and Jewelry Repair Persons.Persons engaged in repairing watches and jewelry are consumers of watch, clock and jewelry repair parts and materials such as crystals, findings, chain links, gold and gems used in repairing watches, clocks and jewelry. Tax applies with respect to the sale to them of such property unless (1) The retail value of the parts and materials furnished in connection with repair work is more than 10 percent of the total charge, or (2) The repair person makes a separate charge for the repair parts and materials. Repairers are, however, retailers of wrist watch straps, metal bands, watches, clocks, chains, precious stones, gems and other tangible personal property which they sell to consumers in the regular course of business, and tax applies to the gross receipts from such retail sales. When the retail value of wrist watch straps, metal bands, watches, clocks, chains, precious stones, gems and other tangible personal property furnished in connection with a repair work is more than 10 percent of the total charge for the repair, the repair person is the retailer of these parts and materials, and must segregate on the invoices to customers and in its records the fair retail selling price of these parts and materials from the charges for the repair labor performed. "Total charge" means the aggregate of the retail value of the parts and materials furnished or consumed in making the repairs and charges for the labor performed in making the repairs. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6006, Revenue and Taxation Code.Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6006, Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1565. Auctioneers. Persons engaged in the business of making retail sales at auction of tangible personal property owned by such person or others are retailers, and are, therefore, required to hold sellers' permits and pay tax measured by the gross receipts from such sales. The amount upon which tax is computed includes he amount charged for merchandise returned by a customer at an auction sale, if the sale is made under an agreement or understanding at the time of sale that the property will not be delivered or that any amount paid will be returned to the bidder. Sales tax does not apply, however, when an owner of property delivers it to an auctioneer for auction and bids in his own property at the auction. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006.6, 6015, Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1566. Automobile Dealers and Sales Representatives. (a) Dealer Aid to Sales Representatives.An automobile dealer, pursuant to section 6015, is regarded as the retailer of tangible personal property sold by the dealer's sales representatives in their own behalf if the dealer aids the sales representatives in making such sales in either of the following ways: (1) By reporting the sales representatives' sales on the dealer's report of sales to the Department of Motor Vehicles. (2) By executing conditional sales agreements with respect to such sales representatives' sales in which the dealer appears as the seller. Dealers who aid their sales representatives by acting as guarantors on conditional sales agreements executed by the sales representatives or by requiring or permitting the sales representatives to use the dealer's showroom or other facilities in making such sales are not required to pay tax on the sale of the vehicles. The purchasers from these sales representatives, and from sales representatives making sales without dealer aid, must pay the use tax to the Department of Motor Vehicles. (b) Resale Certificates from Nondealer Retailers. A dealer who is licensed or certificated pursuant to the California Vehicle Code and who sells a vehicle to a retailer who is not regularly engaged in selling or leasing vehicles should accept a resale certificate only if it contains a statement that the specific vehicle is being purchased for resale in the regular course of business. Unless the person named as the purchaser on the resale certificate is also named on the dealer's report of sale and application for registration, either singly or jointly as registered owner, the sale will be regarded as a retail sale subject to sales tax, and the resale certificate will not be honored, whether or not it contains a statement that the specific vehicle is being purchased for resale in the regular course of business. (c) Sales to Members of the Armed Services.A dealer (or manufacturer or dismantler) who is licensed or certificated pursuant to the California Vehicle Code must report and pay sales tax to the Board with respect to the sale of a vehicle in California to a member of the armed services regardless of the service member's place of residence. A dealer (or manufacturer or dismantler) so licensed or certificated who sells a vehicle outside of California to a member of the armed services for use in California must collect use tax from the service member and remit it to the Board unless the sale is made to a service member on active duty, prior to the effective date of his discharge and his intention to use the vehicle in California results from official transfer orders to California and not from the service member's own independent determination. The service member will be considered to have made an independent determination to use the vehicle in California if the contract to purchase the vehicle is made after the service member receives official transfer orders to California or if at the time the contract to purchase the vehicle is made the service member arranges to take receipt of the vehicle in California. (d)Out-of-State Purchases of Vehicles. Regarding the applicability of tax to the out-of-state purchase of a vehicle, see subdivision (b) of Regulations 1620 (18 CCR 1620). (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6015, 6092-6242, 6248, 6249, 6422.1 and Chapter 3.5 (commencing with Section 6271), Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1567. Banks and Insurance Companies. (a) Banks. (1) Sales by Banks. Sales tax applies to the sale by banks, other than federally-chartered banks exempt from direct state taxation under federal law such as federal reserve banks and federal home loan banks, of tangible personal property sold at retail in this state. [FN1] Use tax applies to the storage, use, or other consumption in this state of tangible personal property purchased at retail from a bank for storage, use, or other consumption in this state, the sale of which is exempt from sales tax. Banks, whether or not exempt from direct state taxation, which are engaged in business in this state and making sales of tangible personal property the storage, use, or other consumption of which is subject to use tax, must collect the tax from the purchaser and pay the amount of tax to the board. (2) Sales to Banks. Sales tax applies to the sale to banks, other than federally-chartered banks exempt from direct state taxation under federal law, of tangible personal property sold at retail in this state. Banks, other than federally-chartered banks exempt from direct state taxation under federal law, are required to pay use tax to the same extent and in the same manner as other persons storing, using, or otherwise consuming tangible personal property in this state. [FN1] Retailers engaged in business in this state and making sales to banks of tangible personal property the storage, use, or other consumption of which is subject to use tax must collect the tax from the purchaser and pay the amount of the tax to the board. (b) Insurance Companies. Sales tax applies to retail sales in this state to insurance companies. Although sales tax does not apply to sales by insurance companies, they are required to collect use tax from consumers when making sales or leases of tangible personal property, and to pay the amount of the tax to the board to the same extent and in the same manner as other retailers selling or renting tangible personal property for storage, use, or other consumption in this state. Use tax does not apply to the storage, use or other consumption in this state by insurance companies of tangible personal property. __________ [FN1] Sales and use taxes imposed upon banks with respect to all income years, as defined in Revenue and Taxation Code Section 23042, beginning on and after January 1, 1980.- (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6203 and 6352, Revenue and Taxation Code. Mutual Life Insurance Co. v. City of Los Angeles (1990) 50 Cal.3d 402. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1568. Beer, Wine and Liquor Dealers. The measure of tax with respect to retail sales of beer, wine and spirituous liquors is the entire amount charged therefor, inclusive of the amount of other state or federal taxes imposed with respect to the property. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6012, Revenue and Taxation Code. Federal areas, sales on, see Regulation 1616. Federal taxes generally, see Regulation 1617. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1569. Consignees and Lienors of Tangible Personal Property for Sale. A person who has possession of property owned by another, and also the power to cause title to that property to be transferred to a third person without any further action on the part of its owner, and who exercises such power, is a retailer when the party to whom title is transferred is a consumer. Tax applies to his gross receipts from such a sale. Pawnbrokers, storage men, mechanics, artisans, or others selling the property to enforce a lien thereon, are retailers with respect to sales of the property to consumers and tax applies to the receipts from such sales. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6015, Revenue and Taxation Code. Sales by court-appointed officers, see Regulation 1573 (unrevised series 1974). ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1570. Charitable Organizations. (a) Definition. For purposes of this regulation, the term "charitable organization" means and includes any organization which meets all of the following conditions: (1) The organization must be formed and operated for charitable purposes and must qualify for the "welfare exemption" from property taxation provided by section 214 of the Revenue and Taxation Code. (2) The organization must be engaged in the relief of poverty and distress. (3) The organization's sales or donations must be made principally as a matter of assistance to purchasers or donees in distressed financial condition. (4) The property sold or donated must have been made, prepared, assembled or manufactured by the organization. (A) The welfare exemption referred to in condition (1) is available to property owned and operated by a charitable organization under certain conditions. Among them is the requirement that the property be used in the actual operation of a charitable activity. Property used merely to raise funds is not used in a charitable activity even though the funds will be devoted to a charitable purpose. An example of a retail location being engaged in a charitable activity is a store employing handicapped persons as store personnel which devotes its profits to the store operation and an associated closed workshop for the handicapped. (B) In order to receive the sales tax exemption it is necessary for the organization to receive the welfare exemption on the retail location for which the seller's permit is held. The welfare exemption must be claimed annually by March 15 with the county assessor on forms provided for this purpose. If the organization does not own the store premises, it must receive the welfare exemption on its personal property, i.e., inventory, furnishings, and fixtures. (C) Conditions (2) and (3) are fulfilled if the primary purpose of the organization is to relieve poverty and distress and to aid purchasers and donees by selling its property at reduced prices or donating its property so as to be of real assistance to the purchasers and donees. Incidental sales to persons other than indigents will not preclude the organization from receiving the benefits of Revenue and Taxation Code Section 6375. (D) Condition (4) is fulfilled when the property is picked up at various locations and brought together (assembled) at one or more locations for purposes of sale or donation, even though nothing further remains to be done to the property to place it in saleable condition. Property is deemed "prepared" when it is made ready for sale or donation by such processes as cleaning, repairing, or reconditioning. (b) Sales by Charitable Organizations. Sales by a charitable organization are exempt from the sales tax and the purchaser is exempt from the use tax provided all of the conditions of paragraph (a) above are met. (c) Sales to Charitable Organizations. (1) Effective January 1, 1990, neither the sales tax nor the use tax apply to tangible personal property purchased by a charitable organization for the purpose of donation by the organization provided all of the conditions of paragraph (a) above are met. Tax applies, however, to sales to the organization of supplies (such as tools and office supplies) and other articles not otherwise exempt. (2) Any seller claiming an exemption from the sales tax for property sold to a charitable organization for subsequent donation may obtain from the organization and retain an exemption certificate in accordance with the requirements of section 1667, Title 18, California Code of Regulations (Regulation 1667, "Exemption Certificates"). (d) Seller's Permits Required. Organizations qualifying for exemption under section 6375 are retailers and are required to hold seller's permits even though all of their sales are exempt from tax. (e) Medical Health Information Literature. Use tax does not apply to the storage, use, or other consumption in this state of medical health information literature purchased by any organization formed and operated for charitable purposes which qualifies for the exemption provided by section 214, the "welfare exemption," which is engaged in the dissemination of medical health information; provided that such purchases are made from a national office, or another branch of that national office, of the same organization. (f) Health and Safety Materials. Use tax does not apply to the storage, use, or other consumption in this state of health and safety educational materials and insignia routinely sold in connection with health and safety and first aid classes, purchased or sold by any national organization formed and operated for charitable purposes which qualifies for the exemption provided by section 214, the "welfare exemption," which is engaged in the dissemination of health and safety information; provided that such purchases are made from a national office another branch or chapter of such office of the same organization. (g) Medical Identification Tags. Tax does not apply to the sale of, or the storage,use, or other consumption of, medical identification tags furnished by an organization exempt from taxes under Revenue and Taxation Code section 23701. The term "medical identification tags" includes any tag worn by a person for the purpose of alerting other persons that the wearer of such tag has a medical disability or allergic reaction to certain treatments. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6371, 6375, 6408 and 6409, Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1571. Florists. Tax applies to amounts charged by a florist to his customers for the delivery of flowers, wreaths, etc., to points within California, even though he instructs another florist to make the delivery, but in such case tax will not apply to amounts received by the florist making the delivery. Tax applies to amounts charged by florists who receive orders for the delivery of flowers, wreaths, etc., to points outside this state and instruct florists outside this state to make the delivery. The measure of tax includes charges made for telegrams or telephone calls whether or not the charges are separately stated. A "relay" or other service charge, made in addition to the charge for the telegram or telephone call, must also be included in the measure of tax. Tax does not apply to amounts received by California florists who make deliveries in this state pursuant to instructions received from florists outside this state. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sec. 6012, Rev. and Tax. Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1572. Memorial Dealers. (a) Memorial Dealers as Retailers. Memorial dealers are retailers of the tombstones, markers, and other memorials sold by them, and the consumers of materials, such as cement, used in setting the memorial in the cemetery. The term memorial dealer includes cemeteries which sell memorials. (b) Measure of Tax-Cemetery Installations by Memorial Dealers. When the memorial dealer agrees to furnish a memorial and to set it in the cemetery, the dealer must segregate on the invoice presented to his customer, and in his records, the fair retail selling price of the memorial from the charge for setting the memorial in the cemetery. Tax applies to the sale to the customer measured by the fair retail selling price of the memorial, including charges for cutting, shaping, polishing, or lettering the memorial, or for transporting the memorial to the cemetery. Tax does not apply to the charge for the labor of setting the memorial in the cemetery. Tax applies to the sale to or the use by the memorial dealer of the material consumed in the installation of the memorial. (c) Cemeteries Constructing Foundations. When a cemetery constructs a foundation upon which a memorial dealer places a memorial, the cemetery is the consumer of the materials furnished in the construction of the foundation and tax applies to the sale to or the use by it of the material consumed in constructing the foundation. This is the case, whether a cemetery collects charges for the foundation from the memorial dealer or directly from the customer of the memorial dealer. (d) Segregation of Charges. If the memorial dealer or cemetery does not segregate the retail selling price of the memorials from the charges for installation of the memorials and the construction of the foundations, a segregation of these charges will be determined by the Board based on information available to it. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010-6012, Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1573. Court Ordered Sales, Foreclosures and Repossessions. (a) Sales Ordered by State Courts. Tax applies to the sale of tangible personal property by an officer of the court such as a sheriff, commissioner, assignee for the benefit of creditors, executor or administrator (including a bank), or other officer appointed by a court to make the sales if the officer is a retailer with respect to that sale. Generally, an officer is a retailer if he makes three or more sales of tangible personal property for substantial amounts, or a substantial number of sales for relatively small amounts, in any period of 12 months in the conduct or liquidation of a single business or estate. Sales of vehicles required to be registered or subject to identification under the Vehicle Code or of vessels or aircraft are not counted in determining the number of sales for this purpose. An officer is a retailer with respect to every sale of a vehicle required to be registered under the Vehicle Code or subject to identification under Division 16.5 of that code, of a vessel, or of an aircraft. This is true whether or not the officer makes a series of sales of other tangible personal property from the same business or estate. The purchaser of such a vehicle, vessel or aircraft is generally required to pay use tax. (b) Foreclosure Sales. Tax does not apply to sales of tangible personal property at public auction pursuant to the provisions of a security agreement if the property is purchased by the secured party who sold the property to the debtor. Tax applies to other foreclosure sales and to other sales by the secured party or the debtor to the same extent as it applies to sales generally. (c) Repossessions. Tax does not apply to a repossession of tangible personal property by a seller from a purchaser who has not completed his payments provided the purchaser does not receive an amount from the seller, including the cancellation of the unpaid balance, that is greater than his purchase price. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6015 and 6019, Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1574. Vending Machine Operators. (a) General. (1) Permits. Persons operating vending machines dispensing tangible personal property of a kind the gross receipts from the retail sale of which are subject to tax or dispensing food products at retail for more than 15 cents must obtain permits to engage in the business of selling tangible personal property. One permit is sufficient for all machines of one operator. A statement in substantially the following form must be affixed upon each vending machine in a conspicuous place: "This vending machine is operated by _________________________ ________________________________________________________________ Name of Operator ________________________________________________________________ Address of Operator who holds Permit No. __________________________________________ issued pursuantto the Sales and Use Tax Law.' (2) Records. Adequate and complete records must be kept by the operator showing the location or locations of each machine operated by him or her, the serial number thereof, purchases and inventories of merchandise bought for sale through all such machines, the prices charged by the operator, the gross receipts derived from the operation at each location, the receipts from exempt sales, and where applicable, the sales price to consumer, see subdivision (b). Records must be kept of the receipts derived from each machine at the location if differing kinds of merchandise are vended through separate machines at that location. (3) Schedule Showing Allocation by County. If the machines are operated in more than one county, a schedule must be attached to the return showing the tax allocable to each county. If a person purchases property under a resale certificate and dispenses it through a vending machine under circumstances where the person is considered to be the consumer of the property, see subdivision (b), a schedule must be attached to the return showing the use tax due thereon allocable to each county. (4) Sales to Operators Not Furnishing Resale Certificates. Persons making sales of tangible personal property of a kind the gross receipts from the retail sale of which are taxable, to operators of vending machines to be resold through such machines, must notify this board of the name and address of each operator who fails to furnish a valid resale certificate. In the event such persons fail to so notify the board, or desire to assume tax liability for the operations of particular vending machines, then, pursuant to Revenue and Taxation Code Section 6015, they are required to return the tax to the state, measured by the receipts from the retail sale of the property. (b) Application of Tax. (1) In General. Persons operating vending machines dispensing tangible personal property of a kind the gross receipts from the retail sale of which are subject to tax must report and pay to the state the tax upon gross receipts from all sales of such property made through such machines. Sales of tangible personal property through vending machines are presumed to be made on a tax-included basis. Gross receipts from retail sales of tangible personal property through the vending machines are total receipts less the amount of sales tax reimbursement included therein. (A) Photocopies. Tax applies to the gross receipts from sales of photocopies through coin- or card-operated copy machines. However, library districts, municipal libraries, county libraries, or any vendor making sales pursuant to a contract with a library district, municipal library, or county library are consumers of photocopies sold at retail through a coin- or card-operated copy machine located at a library facility. (B) Sales by Parent-Teacher Associations. Parent-teacher associations or equivalent associations under Regulation 1597(f) (18 CCR 1597(f)), are consumers of tangible personal property dispensed through vending machines and are not required to hold seller's permits by reason of such activities. (C) Sales by Nonprofit, Charitable, or Education Organizations. Nonprofit, charitable, or education organizations dispensing tangible personal property for 15 cents or less through a vending machine are the consumers of such property and are not required to hold a seller's permit by reason of such activities. (D) Sales of Water. Sales of purified drinking water through vending machines where the water enters the machine through local supply lines and is dispensed into the customer's own containers are exempt from the tax under Revenue and Taxation Code Section 6353. (2) Food Products. (A) Effective January 1, 1986, tax applies to the gross receipts from the retail sale of food products, including candy and confectionery, dispensed through a vending machine at retail for more than 15 cents unless otherwise exempted as provided below. Since sales through vending machines are presumed to be made on a tax-included basis, total receipts from the taxable retail sale of food products through vending machines should be adjusted to compensate for the sales tax included therein. The term "food products" does not include carbonated beverages. A vending machine operator is a consumer of, and not a retailer of, food products, including candy and confectionery, dispensed through a vending machine at retail for 15 cents or less, effective January 1, 1986. Tax is measured by the sale price to the vending machine operator of such items unless otherwise exempt. If the property sold to the operator is an exempt food product or a nonreturnable container, no tax is payable regardless of the nature of the product when dispensed through the vending machine, and regardless of whether facilities for consumption are furnished at locations of the vending machines. For the purposes of this subdivision, the term "candy and confectionery" includes candy-coated gum products. (B) Operative January 1, 1988, tax does not apply to the sales, and the vending machine operator is the consumer, of any food products, including candy and confectionery other than beverages or hot prepared food products, sold through a coin-operated bulk vending machine if the amount of each sale is twenty-five cents ($0.25) or less. For purposes of this regulation, "bulk vending machine" means a vending machine containing unsorted food products, including candy and confectionery, which, upon insertion of a coin, dispenses those products in approximately equal portions, at random, and without selection by the customer. For the purposes of this subdivision, the term "candy and confectionery" includes candy-coated gum products. (C) Beginning January 1, 1988, a partial exemption from the tax is allowed any retailer who receives gross receipts through vending machines from the sale of cold food products, hot coffee, hot tea and hot chocolate which are subject to the tax. The following percentages of the gross receipts from the sales of such products are subject to the tax: 77% for the calendar year 1988, 55% for the calendar year 1989, and 33% thereafter. This partial exemption does not apply to sales of hot prepared food products (except hot coffee, hot tea and hot chocolate) and receipts from such sales may not be included in the computation of the exemption. "Gross receipts from the sale of cold food products, hot coffee, hot tea and hot chocolate" represents total receipts after adjusting for sales tax included. Therefore, in order to determine taxable receipts, an adjustment must be made to compensate for sales tax included in total receipts. Following is an example of the computation using the 7 1/4 percent rate: Total receipts from sales of cold food products, hot coffee, hot tea and hot chocolate through vending machines........................ $10,000.00 Factor.......................................... 32.2289% Taxable receipts................................ $3,222.89 Tax rate........................................ 7.25% Tax included.................................... $233.66 Exempt receipts................................. $6,543.45 Proof: $10,000 - 233.66 = $9,766.34 $9,766.34 x 33% = 3,222.89 Gross receipts from the sale of cold food products, hot coffee, hot tea and hot chocolate subject to the tax may be calculated for the year 1990 and forward using the following percentages for the tax rates indicated: TAX RATE PERCENTAGE TAX RATE PERCENTAGE 6.00% 32.3593% 7.50% 32.2030% 6.50% 32.3070% 7.625% 32.1900% 6.625% 32.2940% 7.75% 32.1771% 6.75% 32.2809% 7.875% 32.1641% 6.875% 32.2679% 8.00% 32.1512% 7.00% 32.2549% 8.125% 32.1383% 7.125% 32.2419% 8.25% 32.1254% 7.25% 32.2289% 8.375% 32.1125% 7.375% 32.2160% 8.50% 32.0996% To compute the cold food factor for other tax rates the formula is as follows: Cold food factor percentage = 100 /[3.0303 + tax rate (decimal form)] Example: Cold food factor at 7.25% = 100/(3.0303 + .0725) = 100/3.1028 = 32.2289% (D) Tax does not apply to sales of any food products, whether sold through a vending machine or otherwise, to students of a school by public or private schools, school districts, student organizations, or any blind person (as defined in Section 19153 of the Welfare and Institutions Code) operating a restaurant or vending stand in an educational institution under Article 5 (commencing with Section 19625) of Chapter 6 of Part 2 of Division 10 of the Welfare and Institutions Code. (3) Definitions. (A) Food Products. For the period July 15, 1991 through November 30, 1992, the term "food products" does not include snack foods (as defined in Regulation 1602 (18 CCR1602), "Food Products"), nonmedicated gum, candy, and confectionery. Sales during this period of such items through vending machines are subject to the tax unless exempted under subdivisions (b)(1) and (b)(2) above. (B) Nonprofit Organizations. Nonprofit organizations include any group, association, or corporation which is formed for charitable, religious, scientific, social, literary, educational, recreational, benevolent or any other purpose, provided that no part of the net earnings of such organization inures to the benefit of any member, shareholder, director, officer, or any person having a personal and private interest in the activities of the organization. Examples of this type of organization are museums, veterans organizations, youth sportsmanship organizations, clubs such as the Kiwanis Club, fraternal societies, orders or associations operating under the lodge system such as the Loyal Order of the Moose, and student organizations. (C) Charitable Organizations. Charitable organizations include any group, association, or corporation created for or devoted to charitable purposes, the net earnings of which are used solely for charitable purposes such as the relief of poverty, the advancement of education, the advancement of religion, the promotion of health and the promotion of government. Examples of this type of organization are libraries, museums, hospitals, senior citizen community centers, thrift shops, and organizations such as the Salvation Army and Goodwill. (D) Education Organizations. Education organizations include any profit or nonprofit group, association, or corporation which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its education activities are regularly carried on. Examples of such organizations are primary and secondary schools, colleges, professional and trade schools, whether public, private, nonprofit or profit making. (4) Resale and Exemption Certificates. (A) Vendors of Items for 15 Cents or Less Only. A purchaser who sells the property purchased only through vending machines for 15 cents or less may give an exemption certificate with respect to the purchase of nonreturnable containers, but may not give a resale certificate with respect to the purchase of any other property. The supplier is responsible for payment of sales tax on the gross receipts from the sales to the purchaser of property, the sale of which is subject to tax. (B) Vendors of Items for 15 Cents or Less and Over 15 Cents. A purchaser who holds a valid seller's permit and who sells the property purchased only through vending machines both at prices of 15 cents or less and at prices of more than 15 cents may give a resale certificate with respect to the purchases of such property. (C) Vendors Selling Both Through Vending Machines and Otherwise. A purchaser who holds a valid seller's permit and who sells the property purchased both through vending machines and other than through vending machines may give a resale certificate with respect to the purchases of such property. (D) Vendors Not Segregating Purchases. A purchaser who does not wish to segregate the purchases of property which is sold through vending machines for 15 cents or less from purchases of like property which is otherwise sold, may reimburse his or her vendor for sales tax measured by the retail selling price of all such property provided the vendor is authorized to report and pay the tax to the state in the manner provided by Section 6015. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6015, 6066-6068, 6353, 6359, 6359.2, 6359.4, 6359.45, 6363, 6364 and 6370, Revenue and Taxation Code; andAuthority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6015, 6066-6068, 6353, 6359, 6359.2, 6359.4, 6359.45, 6363, 6364 and 6370, Revenue and Taxation Code; andCanteen Corporation v. State Board of Equalization(1985), 174 Cal. App. 3d 952. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1583. Modular Systems Furniture. Modular systems furniture is tangible personal property, whether or not affixed to realty. A contract to sell and install modular systems furniture is a contract for the sale of tangible personal property and is not a construction contract. Persons who contract to sell and install modular systems furniture are retailers of the items which they sell and install, and tax applies to the entire contract price less those charges excludable from gross receipts or sales price pursuant to Sections 6011 and 6012 of the Revenue and Taxation Code. Retailers who claim a deduction for such charges should maintain complete and detailed records to support the amounts claimed. Such records should include, but not be limited to, a separate accounting of charges for installation labor, such as labor to affix, bolt, fasten, or hardwire panels to realty and labor to fasten or affix fully constructed components to fully constructed panel systems or other components. Charges for fabrication labor, such as labor to attach, assemble, connect, construct, or fabricate panel systems or components, labor to attach or connect one panel to another to form workstations or cubicles, and labor to construct or fabricate the individual panels, components, or accessories are subject to tax. For contracts to sell and install modular systems entered into on or after October 1, 1999, ten percent (10%) of the total contract price, excluding charges attributable to freestanding desks, credenzas, lateral files, bookcases, worktables, returns, convergents, corner units, storage towers, chairs, footrests, and other property not attached to panels, other components, or realty, but including all other charges, will be presumed to be a charge for labor to install or apply the property sold. Retailers may claim the ten percent (10%) labor deduction in lieu of separately accounting for the actual installation charges incurred. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6011, 6012, 6015, 6016 and 7053, Revenue and Taxation Code. ARTICLE 6. SPECIFIC BUSINESS ENGAGED IN RETAILING s 1584. Membership Fees. (a) Application of Tax. (1) In General. Membership fees related to the anticipated retail sale of tangible personal property are includible in taxable gross receipts when either (A) the retailer sells its products only to members and the membership fee exceeds a nominal amount, or (B) regardless of the amount of the membership fee, the retailer sells its products for a lower price to a person who has paid the membership fee than to a person who has not paid the fee. (2) The membership fees described in subdivision (a)(1)(A) or (a)(1)(B) are part of the gross receipts of the person selling tangible personal property to a member. It is immaterial that the person who sold the membership is not the person who sells the tangible personal property to a member. Any sale of a membership described in subdivision (a)(1)(A) or (a)(1)(B) is regarded as related to the retail sale by the retailer selling tangible personal property to a member, not by the person selling the membership, measured by the amounts received by the person selling the membership. (3) Incidental Sales. Charges for memberships not related to anticipated retail transactions are not subject to tax. For example, when a country club or similar organization charges fees (dues) to members and provides substantial service benefits, e.g., the use of golfing, tennis and swimming facilities, the membership fees are not related to sales even though the organization may establish minimum meal and drink purchase requirements for its members. (4) Consumer Cooperatives. Initial or periodic membership fees received by consumer cooperatives, as defined in section 6011.1 and 6012.1 of the Revenue and Taxation Code, are not subject to tax. (b) Nominal Amount. (1) For purposes of this regulation, beginning January 1, 2006, the term "nominal amount" means an amount totaling $50 or less per year subject to increase as provided in subdivision (b)(2). For periods from January 1, 2001 through December 31, 2005, the term "nominal amount" for purposes of this regulation means an amount totaling $45 or less per year. For periods prior to January 1, 2001, the term "nominal amount" for purposes of this regulation meant an amount totaling $40 or less per year. Amounts received for memberships which are in conjunction with a basic membership (add-ons) are not considered a part of the basic membership fee in determining the nominal amount of the basic membership. Additional cards issued under the same membership number are sales of separate memberships. (2) During September in the year 2000, and every five years thereafter, the threshold for the nominal amount will be adjusted effective the following January 1, rounded to the nearest $5, to reflect changes in the California Consumer Price Index (CCPI) whenever that change is more than 5 percent higher than any previous adjustment. For purposes of computing the CCPI increase, the June 30 CCPI index of the computation year will be compared with the June 30 CCPI index of the computation year which resulted in an adjusted nominal amount. For example, for the January 1, 2011 adjustment computation, the CCPI index on June 30, 2010, will be compared with the CCPI index on June 30, 2005. If no adjustment is made at that time, the next comparison will be of the CCPI index on June 30, 2015 with the CCPI index on June 30, 2005. (c) Operative Date. The provisions of this regulation are operative January 1, 1996. (Also See Article 25) Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011.1, 6012 and 6012.1, Revenue and Taxation Code. s 1585. Cellular Telephones, Pagers, and Other Wireless Telecommunication Devices. (a) Definitions. (1) Wireless Telecommunication Device. A portable communication device such as a wireless telephone or pager requiring activation by a wireless telecommunications service provider or seller of utility services in order to send, receive, or send and receive transmissions via a network of wireless transmitters throughout multiple service areas, or otherwise. The term includes devices based on analog technology and devices based on digital technology. (2) Wireless Telecommunications Service Provider. A utility regulated by the Public Utilities Commission or the Federal Communications Commission which offers or provides wireless communication or paging services. (3) Bundled Transaction. The retail sale of a wireless telecommunication device which contractually requires the retailer's customer to activate or contract with a wireless telecommunications service provider for utility service for a period greater than one month as a condition of that sale. A transaction is a bundled transaction within the meaning of this regulation without regard to the method in which the price is stated to the customer. Also, it is immaterial whether the wireless telecommunication device and utility service are sold for a single price or are separately itemized in the context of a sale or on a sales invoice. A transaction is a bundled transaction if goods and services are sold as a single package, whether wireless telecommunication service is supplied to the customer by the retailer or by an independent service supplier. In such transactions, wireless devices may be sold at a "discounted" price, as an inducement for the customer to enter into an extended service contract. The fact that a wireless telecommunication device, such as a PCS (Personal Communication Service) telephone, may, because of its technological specifications, be subject to activation with only one service supplier, does not alone mean that the sale of the device will be treated as a bundled transaction. (4) Unbundled Sales Price. The price at which the retailer has sold specific wireless telecommunication devices to customers who are not required to activate or contract for utility service with the retailer or with an independent wireless telecommunications service provider for utility service as a condition of that sale. If the retailer cannot establish an unbundled sales price to the satisfaction of the Board based upon its own sales records, the unbundled sales price of the device shall equal the fair retail selling price of that device. If tax is reported and paid on an amount equal to the cost of the device plus a markup on cost of at least 18 percent, such amount shall be regarded as the fair retail selling price of the device. The unbundled sales price of an obsolete wireless telecommunication device shall equal the actual selling price of that device. (b) Application of Tax. (1) In General. Tax applies to the gross receipts from the retail sale of a wireless telecommunication device. The retailer of the wireless telecommunication device is required to report and pay the tax. (2) Unbundled Transactions. Tax applies to the gross receipts from the retail sale of a wireless telecommunication device prior to October 1, 1995, or sold in a transaction not described in subdivisions (a)(3), (b)(5), or (b)(6), measured by the actual gross receipts received by the retailer from the end-use customer from the sale of that device. (3) Bundled Transactions. Tax applies to the gross receipts from the retail sale of a wireless telecommunication device sold in a bundled transaction, measured by the unbundled sales price of that device. Tax applies to the unbundled sales price whether the wireless telecommunication device and utility service are sold for a single price or are separately itemized in the context of a sale or on a sales invoice. The retailer of the wireless telecommunication device is required to report and pay tax measured by the unbundled sales price of the device and may collect tax or tax reimbursement from its customer measured by the unbundled sales price. Tax does not apply to the charges in excess of the unbundled sales price made for telecommunication services. (4) Activation Fees. Tax does not apply to a one-time charge for activating a new wireless telecommunication device with, or on behalf of, a wireless telecommunications service provider where the charge is separately stated and is not for the electronic or physical modification of the device in order for it to function within a wireless telecommunications service provider's service network. A one-time charge for activating a wireless telecommunication device is subject to tax if the activation consists of the physical or electronic modification or fabrication of a wireless telecommunication device in order for the device to function within a wireless telecommunications service provider's service network. The person collecting this fee is required to report and pay tax on that amount. Any subsequent charge for the physical or electronic modification or fabrication of that device which changes the customer's telephone number or which allows that customer to utilize a different wireless telecommunications service provider is subject to tax as set forth in Regulation 1546 (18 CCR 1546). For purposes of this subdivision, "physical or electronic modification or fabrication of a wireless telecommunication device" does not include the manual input of activation information into the device solely by means of the device's own numeric or function keys, nor does it include the remote electronic input of activation information into the device. (5) Consignment Transactions and Sale or Return Transactions. In transactions of this type, a service provider furnishes an inventory of wireless telecommunication devices to an independent retailer without charge or at a nominal price. The independent retailer sells the devices to end-use customers, retaining the proceeds of sale. The end-use customer must contract for wireless service for a period greater than one month with the wireless service provider or, if the end-use customer does not enter such an extended service contract, the end-use customer is required to pay additional service consideration for the device to the service provider. Typically, a credit card imprint is taken by the retailer, to the benefit of the service provider, at the time of the sale, to guarantee payment of the additional consideration. This is a bundled transaction in which the measure of tax is the unbundled sales price. The service provider may collect sales tax reimbursement from the end-use customer. The nominal amount collected from the end-use customer is in the nature of a commission and is not subject to tax. The person providing the device to the end-use customer may not collect sales tax reimbursement from the end-use customer. (6) Sales at Less than 50 Percent of Cost. Operative January 1, 1999, except with respect to transfers described in (b)(5), any person making any sale, whether at retail or for resale, in a bundled transaction or otherwise, of a wireless telecommunication device at a price, measured by the actual sales price in an unbundled transaction or the unbundled sales price, as determined under this regulation, in a bundled transaction, less than 50 percent of cost, must report and pay use tax measured by the cost to it of the device. If the sale at less than 50 percent of cost is a retail sale, sales tax does not apply to that retail sale. The person making the sale of the device is the consumer of the device for sales and use tax purposes and may not collect tax reimbursement from its customer. Likewise, persons who sell devices for resale at less than 50 percent of cost are consumers. They must report and pay use tax measured by the cost to them of the device. In this case, any subsequent retail sale of the device is subject to sales tax unless that sale is at less than 50 percent of cost. Sales tax reimbursement may be collected from the end-use customer based upon the retail selling price of the device to the end-use customer. This subdivision shall not, however, be applicable in any instance involving the sale of a functionally or economically obsolete wireless telecommunication device.] (c) Bad Debt Deductions. (1) In General. The provisions of Regulation 1642, "Bad Debts" (18 CCR 1642), apply to retailers making sales of wireless telecommunication devices to subdivision (b)(1). (2) Charge-Backs to the Retailer. Retailers reporting tax measured by the unbundled sales price of a wireless telecommunication device may take a bad debt deduction pursuant to Regulation 1642 when a payment or rebate from a wireless telecommunications service provider is charged-back to the retailer based on a customer's termination of its contract with the wireless telecommunications service provider before the date specified in the utility service contract. The amount of bad debt deduction claimed by a retailer may not exceed the difference between the gross receipts on which tax was reported and paid by the retailer, and the total amount collected and retained by the retailer from the sale of the wireless telecommunication device excluding any amounts collected from the customer as tax or tax reimbursement. Any tax or tax reimbursement collected by the retailer on the amount of bad debt deduction claimed by the retailer constitutes excess tax reimbursement and must be returned to the customer or paid to the Board unless the customer and retailer agree that this amount may be applied toward the amounts owed by the customer on the debt. The customer and retailer will be regarded as having agreed to the application of any excess tax reimbursement to the customer's debt where the retailer's books reflect both the debt owned by the customer and the corresponding credit for excess tax reimbursement. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6011, 6012 and 6055, Revenue and Taxation Code. s 1586. Works of Art and Museum Pieces for Public Display. (a) General. (1) Original Work of Art. Tangible personal property which is an original work of art and which is purchased by or for donation to certain public or nonprofit organizations for the purpose of display to the public in museums or public places is exempt from the sales and use taxes under certain conditions. (2) Museum Pieces. Tangible personal property purchased by certain organizations to replace museum pieces which were destroyed by a calamity are exempt from the sales and use taxes under certain conditions. (b) Definitions. (1) "Original Work of Art" for purposes of this regulation means tangible personal property which has been created as a unique object intended to provide aesthetic pleasure to the beholder and/or to express the emotions of the artist. The form in which an original work of art is presented includes but is not limited to: (A) visual art, e.g., a drawing, painting, mural, fresco, sculpture, mosaic, film, or photograph, a work of calligraphy, a work of graphic art (an etching, lithograph, offset print, silk screen, or a work of graphic art of like nature), (B) crafts, e.g., crafts in clay, textile, fiber, wood, metal, plastic, glass, and like materials, or (C) mixed media, e.g., a collage, assemblage, or any combination of the foregoing art media. (2) "Museum" for purposes of this regulation means a place specifically designated for display of artifacts or objects of art which either: (A) has a significant portion of its display space open to the public without charge during its normal operating hours; (B) has its entire display space open to the public without charge for at least six of its normal operating hours during each month of operation; or (C) has its entire display space open without charge to a segment of the student or adult population for educational purposes. (c) Application of Tax. (1) Original Works of Art. (A) Tax does not apply to the sale or use of original works of art which are purchased by: 1. this state, or any city, county, city and county, or other local governmental entity in this state; 2. any nonprofit organization which operates a public museum under contract for such governmental entity; 3. any nonprofit organization qualifying for exemption from state income tax pursuant to Section 23701d of the Revenue and Taxation Code. The works of art must be purchased for display in a museum either operated by the purchaser or by another nonprofit organization which qualifies for exemption pursuant to Section 23701d. The museum in which the art is displayed must be open to the public regularly for not less than 20 hours per week and for not less than 35 weeks of the calendar year; or 4. any person for donation to the above governmental entities or nonprofit organizations. To qualify for exemption from the tax under this subparagraph, donated works of art must be delivered by the retailer of the art directly to the donee pursuant to the instructions of the buyer-donor. Written evidence of transfer of title to the works of art from the buyer-donor to the donee must be maintained by the retailer and the buyer-donor to support the exemption. (B) The exemption provided by paragraph (c)(1) applies only to original works of art which are purchased to become part of the permanent collection of any of the following: 1. a museum; 2. a nonprofit corporation which (1) has qualified for exemption from the state income tax pursuant to Revenue and Taxation Code Section 23701d, (2) regularly loans not less than 85 percent of the value of its collection of works of art to one or more museums, and (3) is required by its articles of incorporation to loan its works of art and is otherwise prohibited by its articles from making any private use of its works of art. The works of art for which the exemption is claimed pursuant to this subparagraph must be placed on display at a museum in California for not less than 24 months during the three-year period commencing from the date of purchase; or 3. Operative January 1, 1988, this state and any city, county, city and county, or other local governmental entity in this state for display to the public in buildings, parks, plazas, or other places which are open to the public without charge for not less than 20 hours per week and for not less than 35 weeks of the calendar year. (2) Museum Pieces. (A) Tangible personal property is exempt from the sales and use tax if purchased to replace destroyed objects of a museum's permanent collection when such property is purchased by: 1. a nonprofit museum regularly open to the public and operated by or for a local or state government entity, 2. a nonprofit museum regularly open to the public and operated by a nonprofit organization which has qualified for exemption from the state income tax pursuant to Section 27301d of the Revenue and Taxation Code, or 3. operative January 1, 1988, this state or any local governmental entity in this state as part of a public art collection for display in a space which is open to the public without charge. (B) To qualify for the exemption, the property must be purchased and used exclusively for display purposes. However, the property purchased does not need to be similar in character to the property it is replacing. The exemption does not extend to display cases, shelving, lamps, lighting fixtures, or other items of tangible personal property utilized in the operations of the museum. The purchased property must be: 1. purchased to replace property which has been physically destroyed by fire, flood, earthquake, or other calamity, 2. purchased within three years from the date of the calamity, and 3. the aggregate amount of property purchased must not exceed the value of the property destroyed on the date the calamity occurred. (d) Records. Records must be maintained to substantiate any claim of exemption pursuant to this regulation. Such records must include, but are not limited to, documents indicating the name of the purchaser, the date of purchase, the purchase price, the date the property was first brought into this state (if applicable), and the dates and locations the work of art was on display at a museum. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6365 and 6366.3, Revenue and Taxation Code. s 1587. Animal Life, Feed, Drugs and Medicines. (a) Animal Life. Tax does not apply to sales of any form of animal life of a kind the products of which ordinarily constitute food for human consumption (food animals), as for example, cattle, sheep, swine, baby chicks, hatching eggs, fish, and bees. Operative January 1, 1993, food animals include ostriches. Operative January 1, 1996, food animals include emus. Operative January 1, 2000, the term "food animals" includes any form of animal life classified by the California Department of Food and Agriculture, by regulation, as livestock or poultry intended for human consumption under Sections 18848 and 25408 of the California Food and Agricultural Code. Tax shall not apply to sales of such newly defined food animals on or after the date the related California Food and Agricultural regulation is effective. The term "food animals" does not include any forms of animal life which are commonly kept as pets or companions, the sale of which for food is prohibited by Penal Code Section 598b, nor does it include any horse, the sale of which for human consumption is prohibited by Penal Code Section 598c. For example, cats, dogs, horses, mink, and canaries are not food animals. (b) Feed. (1) Definition. The term "feed" as used herein includes cod-liver oil, salt, bone meal, calcium carbonate, double purpose limestone granulars and oyster shells, but does not include sand, charcoal, granite grit, sulphur and medicines. It also includes any item which is purchased for use as an ingredient of a product which would constitute a feed were the product itself sold. (2) Application of Tax. (A) In General. Tax does not apply to sales of feed for food animals or for any non-food animals which are to be sold in the regular course of business. (B) Cellulose Casings. Tax does not apply to the sale or use of cellulose casings used in the manufacture and production of processed meat products which are ultimately resold as, or incorporated into, feed for food animals or non-food animals which are to be sold in the regular course of business. (C) Medicated Feed. Tax does not apply to the sale of medicated feed, the primary purpose of which is prevention and control of disease of food animals, or of non-food animals which are to be sold in the regular course of business. Tax also does not apply to sales of the particular ingredients purchased from different sellers by a purchaser who mixes them for feeding to such animal life in such proportions that the product is an exempt medicated feed rather than a drug. (c) Drugs or Medicines. (1) Definitions. The term "drugs or medicines, the primary purpose of which is the prevention and control of disease," as used herein, means and includes any livestock drug approved by the United States Food & Drug Administration, which are defined and registered pursuant to California Food & Agricultural Code Sections 14202, 14206, and 14281. The term also includes vitamins as well as insecticides which are labeled for livestock use and which are administered directly to the livestock. The term includes, but is not limited to, legend drugs, pills and capsules, liquid medications, injected drugs, ointments, vaccines, intravenous fluids, and medicated soaps. "Livestock" includes poultry. "Livestock drug" means any drug, combination of drugs, proprietary medicine, or combination of drugs and other ingredients which is prepared for administration to livestock. On or after January 1, 1997, the term "drugs and medicines" also includes oxygen administered to food animals, as provided in (c)(2)(A) below. (2) Application of Tax. (A) Oxygen. On or after January 1, 1997, tax does not apply to the sale or use of oxygen administered to food animals for the primary purpose of preventing or controlling disease, including oxygen injected into ponds or tanks that house or contain aquatic species raised, kept, or used as food for human consumption. However, tax does apply to the sale or use of oxygen administered to nonfood animals whether or not the animals are being held for sale in the regular course of business. (B) Administered Directly. Prior to January 1, 1997, except as provided in Regulation 1506 (18 CCR 1506), subdivision (h), dealing with licensed veterinarians, tax applies to the sale or use of drugs or medicines as defined in subdivision (c)(1) which are administered directly to animal life. Operative January 1, 1997, tax does not apply to the sale or use of drugs or medicines as defined in subdivision (c)(1) which are administered directly (e.g., orally, hypodermically, or topically or externally as injections, implants, drenches, repellents, or pour-ons) to food animals. The sale or use of drugs or medicines as defined in subdivision (c)(1) administered directly to non-food animals are subject to tax regardless that such animals are being held for sale in the regular course of business. (C) Mixed With Feed or Drinking Water. Prior to April 1, 1996, tax applies to the sale or use of drugs or medicines as defined in subdivision (c)(1) administered to animal life as an additive to feed (except as provided in (b)(2)(B) above) or to drinking water. Operative April 1, 1996, tax does not apply to the sale or use of such drugs or medicines administered as an additive to, or component of, feed or drinking water for food animals or for nonfood animals being held for sale in the regular course of business. (d) Exemption Certificates. (1) Feed. Sellers of feed should secure feed exemption certificates with respect to sales of feed of a kind customarily used both to feed food animals and to feed non-food animals which is purchased for food animals, and with respect to sales of all feed which is purchased for non-food animals beings held for sale in the regular course of business. The following form of certificate is suggested: "I hereby certify that all of the feed which I shall purchase from ________________________________________________________________ ________________________________________________________________ will be purchased for use as feed for animals or for non-food animals which are being held for sale in the regular course of business. This certificate shall be considered a part of each order which I give unless such order shall otherwise specify. This certificate shall be good until revoked in writing. Signature ______________________________________________________ Address ________________________________________________________ Occupation _____________________________________________________ Seller's Permit No. (if any) _________________________________" Sellers of feed need not secure feed exemption certificates with respect to sales of feed of a kind ordinarily used only in the production of meat, dairy or poultry products for human consumption or with respect to sales in small units (two standard stacks of grain or less and/or four bales of hay or less) of feed of a kind customarily used either for food production or other purposes (feeding work stock), or with respect to sales of feed that is specifically labeled by the manufacturer for food animals. In the absence of evidence to the contrary, it will be presumed that all such feed are to be used in producing meat, dairy or poultry products for human consumption. (2) Drugs or Medicines. (A) Administered Directly. Operative January 1, 1997, persons who buy drugs or medicines as defined in subdivision (c)(1), which will be administered directly (e.g., orally, hypodermically, or topically or externally as injections, implants, drenches, repellents, or pour-ons) to food animals, should give the vendor an exemption certificate similar to the example in subdivision (d)(2)(C) below. (B) To be Mixed With Feed or Drinking Water. Operative April 1, 1996, persons who buy drugs or medicines as defined in subdivision (c)(1) to be mixed with feed or drinking water, for food animals or of non-food animals being held for sale in the regular course of business, should give the vendor an exemption certificate similar to the example in subdivision (d)(2)(C) below. (C) Sellers of drugs or medicines to be mixed with feed or drinking water for food animals or for non-food animals being held for sale in the regular course of business, to be administered directly to a food animal, or, if oxygen, administered to a food animal such as by pumping or injecting the oxygen into the animal's living environment should request a certificate similar to the following from the buyer: "I hereby certify that the drugs or medicines which I shall purchase from _______________________________________________________ ________________________________________________________________ will be purchased [ ] as an additive to feed or drinking water for food animals or for non-food animals being held for sale in the regular course of business, [ ] for administration directly to a food animal, or [ ] for oxygen administered to a food animal. This certificate shall be considered a part of each order which I give unless such order shall otherwise specify. This certificate shall be good until revoked in writing. Signature ______________________________________________________ Address ________________________________________________________ Occupation _____________________________________________________ Seller's Permit No. (if any) _________________________________" (3) Invoices Related to Exemption Certificates. Exemption certificates should be complete with the information specified in the above forms, including the names and addresses of the purchasers, in order to constitute adequate support for exemptions claimed by sellers. In addition, the invoices on sales claimed as exempt should specify the names of the purchasers in order to relate them to exemption certificates. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6018.1, 6358 and 6358.4, Revenue and Taxation Code. s 1588. Seeds, Plants and Fertilizer. (a) Seeds and Plants. Tax does not apply to sales of seeds, annual plants, and operative January 1, 1999, non-annual plants, the products of which ordinarily constitute food for human consumption or the products of which are to be sold in the regular course of the purchaser's business including fruit trees, berry vines, and grape rootlings or rootstock, or cuttings of every variety. Tax does not apply to sales of seed, the products of which will be used as feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption or the products of which are to be sold in the regular course of the purchaser's business. (b) Fertilizer. (1) Definition. The term "fertilizer" includes commercial fertilizers, agricultural minerals, and manure. The terms "commercial fertilizers" and "agricultural minerals" as used herein are defined in Sections 14522 (commercial fertilizer) and 14512 (agricultural minerals) of the Food and Agricultural Code. "Manure" means the excreta of any domestic animal or domestic fowl which is not artificially mixed with any material except a material which has been used for bedding, sanitary, or feeding purposes for such an animal or fowl or for the preservation of the manure. The term "fertilizer" does not include "soil amendments" or "auxiliary soil and plant substances" as these terms are defined (with the exception noted below) in Sections 14552 (soil amendments) and 14513 (auxiliary soil and plant substances) of the Food and Agricultural Code. For purposes of this regulation, "manures sold without guarantees for plant nutrients" as described in Section 14552 of the Food and Agricultural Code are not soil amendments. (2) Application of Tax. Tax does not apply to sales of fertilizer to be applied to land (including foliar application) the products of which are to be: (a) used as food for human consumption, (b) used as feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, or (c) sold in the regular course of the purchaser's business. When insecticides are mixed with fertilizer and the mixture sold, that portion of the total price allocable to the fertilizer may be excluded from the measure of the tax if the mixed product is applied to land (including foliar application) the products of which are to be: (a) used as food for human consumption, (b) used as feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, or (c) sold in the regular course of the purchaser's business. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6358, Revenue and Taxation Code. s 1589. Containers and Labels. (a) Definitions. The term "containers" as used herein means the articles in or on which tangible personal property is placed for shipment and delivery such as wrapping materials, bags, cans, twines, gummed tapes, barrels, boxes, bottles, drums, carboys, cartons, sacks, pallets and materials from which such containers are manufactured. The term "returnable containers" as used herein means containers of a kind customarily returned or resold by the buyers of the contents for re-use by the packers, bottlers or sellers of the commodities contained therein. A container, title to which is retained by the seller or for which a deposit is taken by such seller, is a returnable container. A container used for shipment or delivery of food for human consumption is not customarily returned by the buyer when: 1. The container is sold together with the contents; 2. No deposit is charged on the container; 3. Title to the container is not retained; 4. There is no obligation to repurchase the container; 5. The container is of the type that is fungible; and 6. The container is repurchased without regard to whether it is the same container originally sold. Example: A tomato paste processor purchased a new or used container. The processor fills the container with tomato paste or other processed food. The tomato paste, together with the container, is sold to a spaghetti sauce manufacturer. No deposit is charged on the container, title to the container is not retained, and there is no obligation to repurchase the container. The container is of a type that is fungible. The spaghetti sauce manufacturer sells the container to a warehouse or a food processor who in turn sells containers that may or may not include the original container to a tomato paste processor that may or may not be the original purchaser. This container is not customarily returned by the buyer. Examples of returnable containers are: registered dairy products containers, steel drums, certain types of beer and soft drink bottles, wine barrels, chemical carboys, and gas cylinders. All other containers are "nonreturnable containers." Examples of nonreturnable containers are: wrapping and packing materials, paper bags, twine, cartons, cans, medicine and distilled spirits bottles. The term "deposit" as used herein means an amount charged to the purchaser of the contents of the container with the understanding that such amount will be repaid when the container or a similar container is delivered to the seller. The term "deposit" as used herein does not include amounts representing redemption or recycling values of beverage containers pursuant to division 12.1 (commencing with Section 14500) of the Public Resources Code whether or not such amounts are separately stated to the purchaser of the contents of the container. (b) Application of Tax. (1) Containers. Tax does not apply to the sale of, and the storage, use, or other consumption of: (A) Nonreturnable containers when sold or leased without the contents to persons who place the contents in the container and sell the contents together with the container. (B) Nonreturnable containers when sold without the contents to persons who place food products for human consumption in the containers for subsequent sale. (C) Returnable containers when sold with the contents in connection with a retail sale of the contents, or when resold for refilling. In the case of a lease of a returnable container that is a continuing sale, the lessor's first lease of the container for filling is taxable for the full term of the lease or thirty (30) days whichever is greater. The lessor's subsequent lease of the container for refilling for sale with the contents is not taxable. (D) All containers when sold or leased with the contents, if the sales price of the contents is not required to be included in the measure of the sales tax or the use tax. (E) Operative April 1, 2000, all containers when sold or leased without the contents to persons who place food products for human consumption in the containers for shipment, provided the food products will be sold. The exemption applies without regard to whether the food products are sold in the same container or not, or whether the food products are remanufactured or repackaged prior to their sale. Tax applies to all other sales of containers except sales for the purpose of resale to other sellers of containers who purchase them for resale without the contents. Operative April 1, 1998, tax does not apply to the sale or to the storage, use, or other consumption of any container used to collect or store human whole blood, plasma, blood products, or blood derivatives held for medical purposes, including, but not limited to, blood collection units and blood pack units. Deposits as defined herein are not taxable. (2) Labels. Tax does not apply to sales of labels or nameplates if: (A) The purchaser affixes them to property to be sold and sells them along with and as a part of such property, as, for example, sales of nameplates of manufacturers or producers which are permanently affixed to each unit of products sold, such as automobiles and machinery. (B) The purchaser affixes them to nonreturnable containers of property to be sold, or to returnable containers of such property if a new label is affixed to the container each time it is refilled. Examples are sales of labels to be affixed to fruit boxes, cans, bottles and packing cases, to growers, packers, bottlers and others who place the contents in the containers. (c) Particular Applications. (1) Price Tags. Tax applies to sales of such items as price tags, shipping tags and advertising matter used in connection with the sale of property or enclosed with the property sold. (2) Feed Analysis Tags. Tax does not apply to sales of feed analysis tags to be attached to containers of feeds and sold along with the container and contents. (3) Feed Bags. Feed bags sold to feed dealers who place feed in the bags and sell the feed together with the bags are nonreturnable containers, [FN1] and the sale of such bags to feed dealers is not taxable. It is immaterial whether the bags are made of burlap, cotton, paper, or other material, or whether there is a brand name or dealer's name imprinted on the bags. If, however, any feed dealer charges a deposit to customers to secure the return of the bags, or otherwise requires his customers to return the bags to him, the bags become returnable containers and tax applies to the sale of the bags to the feed dealer. (4) Gift Wrapping. Tax applies to the entire charge for "gift wrapping," (i.e., furnishing the materials and labor required to wrap an item for a customer so as to be suitable for use by him as a gift), whether or not the person who does the gift wrapping is the seller of the contents. If the person who does the gift wrapping is the seller of the contents, the gift wrapping is considered sold together with the contents, whether or not a separate charge is made for the gift wrapping. The person who does the gift wrapping may purchase the materials free of tax for resale. However, tax does not apply to charges for gift wrapping exempt food products sold by the person who does the gift wrapping, unless the value of the gift wrapping exceeds the value of the food products. --------- % n1Theconclusionthatfeed bags are nonreturnable containers resulted from a statewide survey made by the board with the cooperation of the California Grain, and Feed Association, which showed that substantially less than 50 percent of the feed bags are returned to the feed dealers by their customers for re-use. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6008, 6009, 6012, 6364 and 6364.5, Revenue and Taxation Code.%nAuthoritycited:Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6008, 6009, 6012, 6364 and 6364.5, Revenue and Taxation Code. Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6008, 6009, 6012, 6364 and 6364.5, Revenue and Taxation Code. s 1590. Newspapers and Periodicals. (a) Definitions. (1) "Newspaper." The term "newspaper" as used herein conforms to the definition of a newspaper as set forth in a ruling of the United States Treasury Department published in the Federal Register, December 29, 1960. Under this definition, the term is limited to those publications which are commonly understood to be newspapers and which are printed and distributed periodically at daily, weekly, or other short intervals for the dissemination of news of a general character and of a general interest. The term does not include handbills, circulars, flyers, or the like, unless distributed as a part of a publication which constitutes a newspaper within the meaning of this subparagraph. Neither does the term include any publication which is issued to supply information on certain subjects of interest to particular groups, unless such publication otherwise qualifies as a newspaper within the meaning of this subparagraph. For purposes of this subparagraph, advertising is not considered to be news of a general character and of a general interest. (2) "Periodical." The term "periodical" as used herein is limited to those publications which appear at stated intervals, each issue of which contains news or information of general interest to the public, or to some particular organization or group of persons. Each issue must bear a relationship to prior or subsequent issues in respect to continuity of literary character or similarity of subject matter, and there must be some connection between the different issues of the series in the nature of the articles appearing in them. [FNa1] Each issue must be sufficiently similar in style and format to make it evident that it is one of a series. An annual report of a corporation which is substantially different in style and format from the corporation's quarterly reports is not part of a series with the quarterly reports. The term "periodical" does not include books complete in themselves, even those that are issued at stated intervals, for example, books sold by the Book-of-the-Month Club or similar organizations, so-called "pocket books," a new one of which may be issued once a month or some other interval, or so-called "one-shot" magazines that have no literary or subject matter connection or continuity between prior or subsequent issues. The term does not include catalogs, programs, score-cards, handbills, price lists, order forms or maps. Neither does it include shopping guides or other publications of which the advertising portion, including product publicity, exceeds 90 percent of the printed area of the entire issue in more than one-half of the issues during any 12-month period. (3) "Ingredient or Component Part of a Newspaper or Periodical." The term "ingredient or component part of a newspaper or periodical" includes only those items that become physically incorporated into the publication and not those which are merely consumed or used in the production of the publication. For example, newsprint and ink are ingredients of a newspaper; however, a photograph does not become an ingredient or component part of a newspaper or periodical merely because the image of the photograph is reproduced in the publication. Handbills, circulars, flyers, order forms, reply envelopes, maps or the like are considered as component parts of a newspaper or periodical when attached to or inserted in and distributed with the newspaper or periodical. (4) "Publisher." "Publisher" means and includes any person who owns the rights to produce, market, and distribute printed literature and information. (5) "Distributor." "Distributor" means any person who acquires newspapers or periodicals for subsequent distribution to retailers or newspaper carriers. (6) "Newspaper Carrier." "Newspaper carrier" means any person who acquires newspapers from a publisher or distributor to deliver to consumers. The term includes a hawker. A "hawker" is an individual who sells single copies of newspapers to passersby on a street corner or other trafficked area. "Newspaper carrier" does not include persons selling newspaper or periodicals from a fixed place of business. (7) "Third Party Retailer." "Third party retailer" means and includes any person who sells at retail subscriptions to newspapers and periodicals who is not the publisher of the newspapers or periodicals. Typically, third party retailers solicit subscriptions in a single offering for a large number of different publications, require that payment be made to the account of the third party retailer, and undertake to resolve subscription problems. The term includes persons commonly known as direct mail, school, paid during service, cash, catalog, and telephone agents. "Third party retailer" does not include persons who solicit renewals of subscriptions on behalf of individual publishers. (b) Application of Tax. (1) In General. Effective July 15, 1991, the sale of newspapers and periodicals, including sales by third party retailers, is subject to tax unless otherwise exempt. Tax does not apply to sales of tangible personal property to persons who purchase the property for incorporation as a component part of a newspaper or periodical which will be sold notwithstanding that the purchaser is not the seller of the newspaper or periodical. See Regulation 1574 (18 CCR 1574) for the application of tax to sales through vending machines and Regulation 1628 (18 CCR 1628) for the application of tax to transportation charges. (2) Distributions of Newspapers and Periodicals Without Charge. Effective October 2, 1991, tax does not apply to the sale or use of tangible personal property which becomes an ingredient or component part of a copy of a newspaper or periodical regularly issued at average intervals not exceeding three months when that copy of such newspaper or periodical is distributed without charge, nor does tax apply to such distribution. Newspapers and periodicals distributed on a voluntary pay basis shall be considered as distributed without charge. Newspapers and periodicals are distributed on a voluntary pay basis when payment is requested from the consumer but is not required. (3) Subscriptions. The sale or use of newspapers and periodicals is exempt from tax during the term of a prepaid subscription if the purchaser ordered and paid for the subscription prior to July 15, 1991. Effective November 1, 1992, tax does not apply to the sale or use of a periodical, including a newspaper, which appear at least four, but not more than 60 times each year, which is sold by subscription, and which is delivered by mail or common carrier. For example, a daily newspaper is not a periodical for the purposes of this subdivision (b)(3). Tax does not apply to the sale or use of tangible personal property which becomes an ingredient or component part of such a periodical. Sales tax reimbursement collected on the sale of a periodical subscription prior to the November 1, 1992 effective date of the exemption for the sale of issues delivered on or after November 1, 1992 constitutes excess tax reimbursement. The retailer must refund the tax reimbursement to the customer or pay it to the state in accordance with subdivision (b) of Regulation 1700 (18 CCR 1700). Each delivery of a newspaper or periodical pursuant to a subscription sale is a separate sale transaction. When the sale is subject to tax, the retailer must report and pay the tax based upon the reporting period within which the delivery is made. The subscription price shall be prorated over the term of the subscription period. (4) Membership Organizations. Generally, tax applies to sales of newspapers and periodicals by membership organizations. If the price is separately stated, tax applies to that amount. If the price is not separately stated, the measure of tax is the fair retail selling price of the publication. The application of tax to distributions of newspapers and periodicals by nonprofit organizations is provided at subdivision (b)(5). The application of tax to sales of periodicals by subscription is provided at subdivision (b)(3). (5) Nonprofit Organizations. (A) Internal Revenue Code Section 501(c)(3) Organizations. Effective November 1, 1991, until October 31, 1992, tax does not apply to the sale or use of any newspaper or periodical distributed by an organization that qualifies for tax exempt status under section 501(c)(3) of the Internal Revenue Code, nor tangible personal property which becomes an ingredient or component part of any such newspaper or periodical, only as to issues distributed under either of the following circumstances: 1. The issues are distributed to the organization's members in consideration of the organization's membership fee; or 2. The issues are of a newspaper or periodical which neither receives revenue from, nor accepts, any commercial advertising. Effective November 1, 1992, the exemption is applicable only as to a newspaper or periodical regularly issued at average intervals not exceeding three months. For purposes of this subdivision, any governmental entity established and administered for the purposes provided in Internal Revenue Code Section 501(c)(3) shall be considered to be an organization that qualifies for tax exempt status under that section. (B) Other Nonprofit Organizations. Effective November 1, 1991, tax does not apply to the sale or use of any newspaper or periodical distributed by a nonprofit organization, nor tangible personal property that becomes an ingredient or component part of or any such newspaper or periodical, only as to issues distributed pursuant to both of the following requirements: 1. The issues are distributed to the organization's members in consideration, in whole, or in part, of the organization's membership fee; 2. The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than ten percent of the membership fee attributable to the period for which the newspaper or periodical is distributed, whether the publication is printed within or without this state. The cost of printing shall be determined as follows. The cost of printing includes costs of tangible personal property purchased to become an ingredient or component part of the newspaper or periodical (e.g., ink and paper) and costs of labor to print the newspaper or periodical. The cost of printing does not include costs not attributable to actual printing, such as costs of special printing aids, typography, and preparation of layouts. If the organization contracts with an outside printer to print the newspaper or periodical, the organization shall obtain and retain documentation segregating the costs of printing from the printer's other charges. If the organization is the printer of the newspaper or periodical, the cost of printing includes the aggregate of the cost of tangible personal property purchased to become an ingredient or component part of the newspaper or periodical; labor of printing, including fringe benefits and payroll taxes; and other costs attributable to the actual printing of the newspaper or periodical. If an organization has published the newspaper or periodical for a period exceeding twelve months and the method of printing has not changed, the organization may elect to consider the cost of printing for a reporting period to be equal to the amount paid or incurred for the same reporting period for the previous fiscal or calendar year. (6) Newspaper Carriers. A newspaper carrier is not a retailer. The publisher or distributor for whom the carrier delivers is the retailer of the newspapers delivered. The publisher or distributor shall report and pay tax measured by the price charged to the customer by the carrier. (7) Consumption of Property. Tax applies to the sale to or use by a newspaper or periodical publisher of tangible personal property consumed in the manufacturing process. Tax does not apply to the cost of tangible personal property lost or wasted in the manufacturing process when that property was purchased for the purpose of incorporation into a newspaper or periodical to be sold or to be distributed in accordance with subdivision (b)(2). (8) Fixed Price Contracts. The sale or use of newspapers and periodicals is exempt from tax during the term of a prepaid subscription if the purchaser ordered and paid for the subscription prior to July 15, 1991. (9) School Catalogs and Yearbooks. Public or private schools, county offices of education, school districts, or student organizations are the consumers of catalogs and yearbooks prepared for or by them, and tax does not apply to their receipts from the distribution of the publications to students. Tax applies to charges for the preparation of such publications made to public or private schools, county offices of education, school districts, or student organizations by printers, engravers, photographers and the like. (c) Exemption Certificates. Any seller claiming a transaction as exempt from sales tax pursuant to Revenue and Taxation Code sections 6362.7 or 6362.8 should timely obtain an exemption certificate in writing from the purchaser. The exemption certificate will be considered timely if obtained by the seller at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property. (1) Certificate A. Certificate to be used for purchases of tangible personal property for incorporation into newspapers or periodicals for sale in accordance with subdivisions (b)(1) or (b)(3), above. (2) Certificate B. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed without charge in accordance with subdivision (b)(2), above. (3) Certificate C. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed by organizations which qualify for tax-exempt status under Internal Revenue Code section 501(c)(3) in accordance with subdivision (b)(5)(A), above. (4) Certificate D. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed by nonprofit organizations in accordance with subdivision (b)(5)(B), above. Certificate A California Sales Tax Exemption Certificate Sales of tangible personal property for incorporation into a newspaper or periodical for sale ___________________________________ (Name of Purchaser) ___________________________________ (Address of Purchaser) I HEREBY CERTIFY: Initial one of [___] That I hold valid seller's permit the following: No. __ issued pursuant to the Sales and Use Tax Law. [___] That I do not hold a seller's permit issued pursuant to the Sales and Use Tax Law. I do not sell any tangible personal property for which a permit is required. I further certify that the tangible personal property described herein which I shall purchase from _______________________________________________ (Name of Vendor) will become a component part of the newspaper or periodical [FNa1] ________________________________________________________________ and sold as a component part of the application. I understand that in the event any such property is sold or used other than as specified above or used other than for retention, demonstration, or display while holding it for sale in the regular course of business, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. Description of the property to be purchased: ___________________________________________________________________________________________________ Date: __________, 19___ ____________________________________________ (Signature of Purchaser or Authorized Agent) ____________________________________________ (Title) [FNa1] Insert name and type of newspaper or periodical Certificate B California Sales Tax Exemption Certificate Sales of tangible personal property which becomes an ingredient or component part of newspapers or periodicals that are distributed without charge _______________________________________ (Name of Purchaser) _______________________________________ (Address of Purchaser) I HEREBY CERTIFY: Initial one of [___] That I hold valid seller's permit the following: No. __ issued pursuant to the Sales and Use Tax Law. [___] That I do not hold a seller's permit issued pursuant to the Sales and Use Tax Law. I do not sell any tangible personal property for which a permit is required. I further certify that I am engaged in the business of publishing [FNa1] _______________________________________________________________ which is regularly issued at average intervals not exceeding three months and distributed without charge by me. The tangible personal property described herein which I shall purchase from ______________________________________________________________________________________ (Name of Vendor) will become a component part of the publication listed above. I understand that if I use any of the property purchased for any other purpose I am required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. Description of property to be purchased: ___________________________________________________________________________________________________________________ Date __________, 19___ _____________________________________________ (Signature of Purchaser or Authorized Agent) _____________________________________________ (Title) [FNa1] Insert name and type of newspaper or periodical Certificate C California Sales Tax Exemption Certificate Sales of tangible personal property that becomes an ingredient or component of newspapers or periodicals that are distributed by organizations which qualify for tax-exempt status under Internal Revenue Code section 501(c)(3) _______________________________________________________________ (Name of Purchaser) _______________________________________________________________ (Address of Purchaser) I HEREBY CERTIFY: Initial [___] That the purchaser holds valid the following seller's permit one of No. __ issued pursuant to the Sales and Use Tax Law. [___] That the purchaser does not hold a permit issued pursuant to the Sales and Use Tax Law. The purchaser does not sell any tangible personal property for which a permit is required. I further certify that the purchaser is an organization that qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and is engaged in the business of selling or publishing [FNa1] ___________________________________________ The tangible personal property described herein which I shall purchase from ___________________________________________ (Name of Vendor) will be resold in the form of tangible personal property or will become a component part of a newspaper or periodical distributed by the organization and (check one or both): [___] The organization will distribute the newspaper or periodical to the members of the organization in consideration of payment of the organization's membership fee or to the organization's contributors. [___] The publication does not receive revenue from or accept any commercial advertising. I understand that in the event any such property is sold or used other than as specified above or used other than for retention, demonstration, or display while holding it for sale in the regular course of business, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. Description of the property to be purchased: ________________________________ __________ __________ Date: __________, 19_____ __________________________________________ (Signature of Purchaser or Authorized Agent) __________________________________________ (Title) [FNa1] Insert name and type of newspaper or periodical Certificate D California Sales Tax Exemption Certificate Sales of tangible personal property which becomes an ingredient or component part of newspapers or periodicals that are distributed by nonprofit organizations _______________________________________________________________ (Name of Purchaser) _______________________________________________________________ (Address of Purchaser) I HEREBY CERTIFY: Initial [___] That the purchaser holds valid the one of following seller's permit No. __ issued pursuant to the Sales and Use Tax Law. [___] That the purchaser does not hold a permit issued pursuant to the Sales and Use Tax Law. The purchaser does not sell any tangible personal property for which a permit is required. I further certify that the purchaser is a nonprofit organization which is engaged in business of selling or publishing [FNa1] ______________________________________________________ The tangible personal property described herein which I shall purchase from _______________________________________________________ (Name of Vendor) will be resold by the organization in the form of tangible personal property or will become a component part of a newspaper or periodical distributed by the organization and both of the following apply: (A) Distribution will be to any member of the nonprofit organization in consideration, in whole or in part, of payment of the organization's membership fee. (B) The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than 10 percent of the membership fee attributable to the period for which the newspaper or periodical is distributed. I understand that in the event any of such property is sold or used other than as specified above or used other than retention, demonstration, or display while holding it for sale in the regular course of business, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. Description of property to be purchased: ___________________________________________ ________________________________________________________________ ________________________________________________________________ Date: __________, 19_____ _________________________________________ (Signature of Purchaser or Authorized Agent) __________________________________________ (Title) [FNa1] Insert name and type of newspaper or periodical [FN1] This definition is based upon Business Statistics Organization Inc. v . Joseph, 299 N.Y. 443, 87 N.E. 2d 505, and Houghton v. Payne, 194 U. S. 88, 48 L.Ed. 888. Note: Authority cited: Section 7051, Revenue and Taxation Code; Reference: Sections 6005, 6006, 6007, 6010, 6015, 6361.5, 6362.3, 6362.7 and 6362.8, Revenue and Taxation Code. s 1591. Medicines and Medical Devices. (a) Definitions. (1) Administer. "Administer" means the direct application of a drug or device to the body of a patient or research subject by injection, inhalation, ingestion, or other means. (2) Dispense. "Dispense" means the furnishing of drugs or devices upon a prescription from a physician, dentist, optometrist, or podiatrist. Dispense also means and refers to the furnishing of drugs or devices directly to a patient by a physician, dentist, optometrist, or podiatrist acting within the scope of his or her practice. (3) Furnish. "Furnish" means to supply by any means, by sale or otherwise. (4) Health Facility. "Health Facility" as used herein has the meaning ascribed to the term in Section 1250 of the Health and Safety Code, which provides that: "As used in this chapter 'health facility' means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer. . . ." (5) Pharmacist. "Pharmacist" means a person to whom a license has been issued by the California State Board of Pharmacy, under the provisions of Section 4200 of the Business & Professions Code, except as specifically provided otherwise in Chapter 9 of the Pharmacy Law." (6) Pharmacy. "Pharmacy" means an area, place, or premises licensed by the California State Board of Pharmacy in which the profession of pharmacy is practiced and where prescriptions are compounded. Pharmacy includes, but is not limited to, any area, place, or premises described in a license issued by the California State Board of Pharmacy wherein controlled substances, dangerous drugs, or dangerous devices are stored, possessed, prepared, manufactured, derived, compounded, or repackaged, and from which the controlled substances, dangerous drugs, or dangerous devices are furnished, sold, or dispensed at retail. Pharmacy shall not include any area specifically excluded by paragraph (b) of Section 4037 of the Business and Professions Code. (7) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this stateand given individually for the person or persons for whom ordered. The order must include all of the following: (A) The name or names and address of the patient or patients. (B) The name and quantity of the drug or device prescribed and the directions for use. (C) The date of issue. (D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed. (E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients. (F) If in writing, signed by the prescriber issuing the order. (8) Physicians, Dentists, Optometrists, and Podiatrists. "Physicians," "dentists," "optometrists," and "podiatrists" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to Section 2065 of the Business & Professions Code, when acting within the scope of that section. (9) Medicines. "Medicines" means: (A) Except where taxable for all uses as provided in subdivision (c), any product fully implanted or injected in the human body, or any drug or any biologic, when such are approved by the U.S. Food and Drug Administration to diagnose, cure, mitigate, treat or prevent disease, illness or medical condition regardless of ultimate use, or (B) Any substance or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease and which is commonly recognized as a substance or preparation intended for that use. The term medicines also includes certain articles, devices, and appliances as described in subdivision (b) of this regulation. (b) "Medicines." In addition to the definition set forth in subdivision (a)(9) of this section, the term "medicines" means and includes the following items: (1) Preparations and Similar Substances. Preparations and similar substances intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease and which are commonly recognized as a substance or preparation intended for such use qualify as medicines. Tax does not apply to the sale or use of such medicines sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). "Preparations and similar substances" include, but are not limited to, drugs such as penicillin, and other antibiotics, "dangerous drugs" (drugs that require dispensing only on prescription); alcohol (70% solution) and isopropyl; aspirin; baby lotion, oil, and powder; enema preparations; hydrogen peroxide; lubricating jelly; medicated skin creams; oral contraceptives; measles and other types of vaccines; topical creams and ointments; and sterile nonpyrogenic distilled water. Preparations and similar substances applied to the human body in the diagnosis, cure, mitigation, treatment, or prevention of disease qualify as medicines. "Preparations and similar substances" also include Total Parenteral Nutrition (also called TPN), Intradialytic Parenteral Nutrition (also called IDPN), and food provided by way of enteral feeding, except when the TPN, IDPN, or food provided by enteral feeding qualifies as a meal under Regulation 1503. For purposes of this regulation, TPN, IDPN, and enteral feeding are means of providing complete nutrition to the patient; TPN and IDPN are provided in the form of a collection of glucose, amino acids, vitamins, minerals, and lipids, TPN being administered intravenously to a patient who is unable to digest food through the gastrointestinal tract and IDPN being administered to hemodialysis patients as an integral part of the hemodialysis treatment; enteral feeding is the feeding of the patient directly into the gastrointestinal tract. (2) Permanently Implanted Articles. Articles permanently implanted in the human body to assist the functioning of, as distinguished from replacing all or any part of, any natural organ, artery, vein or limb and which remain or dissolve in the body qualify as medicines. An article is considered to be permanently implanted if its removal is not otherwise anticipated. Tax does not apply to the sale or use of articles permanently implanted in the human body to assist the functioning of any natural organ, artery, vein or limb and which remain or dissolve in the body when such articles are sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Permanently implanted articles include, but are not limited to, permanently implanted artificial sphincters; bone screws and bone pins; dental implant systems including dental bone screws and abutments; permanently implanted catheters; permanently implanted hydrocephalus devices and their implanted pressure regulating components; implanted defibrillators and implanted leads; pacemakers; tendon implants; testicular gel implants; and ear implants. Sutures are also included whether or not they are permanently implanted. A non-returnable, nonreusable needle fused or prethreaded to a suture is regarded as part of the suture. Implantable articles that do not qualify as "permanently" implanted medicines include, but are not limited to, Chemoport implantable fluid systems; Port-a-Cath systems used for drug infusion purposes; disposable urethral catheters; temporary myocardial pacing leads used during surgery and recovery; and defibrillator programmer and high voltage stimulator used with an implanted defibrillator. The sale or use of these items is subject to tax. (3) Artificial Limbs and Eyes. Artificial limbs and eyes, or their replacement parts, including stump socks and stockings worn with artificial legs and intraocular lenses for human beings, qualify as medicines as provided by Revenue and Taxation Code section 6369(c)(5). Tax does not apply to the sale or use of these items when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). (4) Orthotic Devices. Orthotic devices and their replacement parts, designed to be worn on the person of the user as a brace, support or correction for the body structure are medicines as provided under Revenue and Taxation Code section 6369(c)(3). The sale or use of orthotic devices and their replacement parts is not subject to tax when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Orthotic devices and their replacement parts do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription provided the devices are furnished pursuant to a written order of a physician or podiatrist. For the purposes of this regulation, orthotic devices furnished pursuant to a written order of a physician or podiatrist by, but not limited to, medical device retailers, clinics, physical therapists, device suppliers, intermediate care facilities, or other such persons, are deemed to be dispensed on prescription within the meaning of subdivision (d)(1). Orthotic devices worn on the body of the person include, but are not limited to, abdominal binders and supports, ace bandages, ankle braces, anti-embolism stockings, athletic supporters (only for patients recovering from rectal or genital surgery), casts, and cast components, cervical supports, neck collars, cervical traction devices, clavicular splints, post-surgical corsets, elbow supports, head halters, pelvic traction devices, post-operative knee immobilizers and braces, legging orthoses, rib belts and immobilizers, rupture holders, sacral belts, sacro-lumbar back braces, shoulder immobilizers, slings, stump shrinkers, sternum supports, support hose (and garter belts used to hold them in place), thumb and finger splints, trusses, and wrist and arm braces. All of the above must be worn on the body of the person and act as a brace, support or correction for body structure to qualify as a medicine. If any part of the orthotic device is not worn on the person, the device is not a medicine for the purposes of this regulation. Orthopedic shoes and supportive devices for the foot do not qualify as medicines unless they are an integral part of a leg brace or artificial leg or are custom-made biomechanical foot orthoses. "Custom-made biomechanical foot orthosis" means a device that is made on a positive model of the individual patient's foot. The model may be individually constructed from suitable model material such as plaster of Paris, stone, or wax, and may be manually constructed or fabricated using electronic technology. "Custom-made biomechanical foot orthosis" do not include: (A) any pre-made or pre-molded foot orthosis or shoe insert even if it has been modified or customized for an individual patient by the practitioner regardless of the method of modification; (B) any foot orthosis fabricated directly on the patient's foot regardless of the method and materials used and regardless of its individual character; or (C) any foot orthosis fabricated inside of the patient's shoe regardless of the method of manufacture and materials used and regardless of its individual character. (5) Prosthetic Devices. Prosthetic devices and their replacement parts designed to be worn on or in the patient to replace or assist the functioning of a natural part of the human body are medicines as provided under Revenue and Taxation Code section 6369(c)(4). The sale or use of prosthetic devices and their replacement parts is not subject to tax when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Prosthetic devices and their replacement parts do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription provided the devices are furnished pursuant to a written order of a physician or podiatrist. For the purposes of this regulation, prosthetic devices furnished pursuant to a written order of a physician or podiatrist by, but not limited to, medical device retailers, clinics, physical therapists, device suppliers, intermediate care facilities, or other such persons, are deemed to be dispensed on prescription within the meaning of subdivision (d)(1). For purposes of this regulation only, prosthetic devices include bags and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense enteral feeding to the patient, including: gastrostomy tubes (also called G tubes) which are used to deliver the nutrition directly into the stomach; jejunostomy tubes (also called J tubes) which are used to deliver the nutrition directly into the intestinal tract; and nasogastric tubes (also called NG tubes) which are used to deliver the nutrition directly through the nasal passage to the stomach. For purposes of this regulation only, prosthetic devices also include needles, syringes, cannulas, bags, and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense TPN or IDPN to the patient, provided each of these items is used primarily to dispense the TPN or IDPN. Prosthetic devices that are considered medicines when worn on or in the patient include, but are not limited to, acetabular cups, atrial valves, breast tissue expanders and tissue expanders, cervical cuffs, dacron grafts, heart valves, orbital implant, nerve cups, rhinoplasty prosthesis, neuromuscular electrical stimulators, transcutaneous nerve stimulators, urinary incontinent devices, and wigs and hairpieces prescribed by a physician or podiatrist. Prosthetic devices that do not qualify as medicines include, but are not limited to, air compression pumps and pneumatic garments; noninvasive, temporary pace makers; and vacuum/constriction devices used to treat male impotency; auditory, ophthalmic and ocular devices or appliances; and dental prosthetic devices and materials such as dentures, removable or fixed bridges, crowns, caps, inlays, artificial teeth, and other dental prosthetic materials and devices. Sales of such items are subject to tax in the same manner as any other sale of tangible personal property. (6) Drug Infusion Devices. Programmable drug infusion devices to be worn on or implanted in the human body which automatically cause the infusion of measured quantities of a drug on an intermittent or continuous basis at variable dose rates and at high or low fluid volume into the body of the wearer of the device qualify as medicines under Revenue and Taxation Code section 6369(c)(6). The sale or use of the qualifying infusion device is not subject to tax when the device is sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). (c) Exclusions from the Definition of "Medicines." Except as otherwise provided in subdivision (b), the following items are specifically excluded from the definition of medicines. Sales of these items are subject to tax in the same manner as any other sale of tangible personal property. (1) Orthodontic, prosthetic (except as described in subdivision (b)(5)), auditory, ophthalmic or ocular devices or appliances. (2) Articles which are in the nature of splints, bandages, pads, compresses, supports, dressings, instruments, apparatus, contrivances, appliances, devices or other mechanical, electronic, optical or physical equipment or article or the component parts and accessories thereof. "Medicines" does not include arch supports, cervical pillows, exercise weights (boots or belts), hospital beds, orthopedic shoes and supportive devices (unless an integral part of a leg brace or artificial leg), plastazote inserts, plastazote shoes, plastic shoes (custom or ready-made), sacro-ease seats, shoe modifications, spenco inserts, traction units (other than those fully worn on the patient), thermophore pads, nor foot orthoses. (3) Any alcoholic beverage the manufacture, sale, purchase, possession or transportation of which is licensed and regulated by the Alcoholic Beverage Control Act (division 9, commencing with Section 23000, of the Business and Professions Code). (d) Application of Tax - In General Tax applies to retail sales, including over-the-counter sales of drugs and medicines, and other tangible personal property by pharmacists and others. However, tax does not apply to the sale or use of medicines when sold or furnished under one of the following conditions: (1) prescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a pharmacist in accordance with law, or (2) furnished by a licensed physician, dentist or podiatrist to his or her own patient for treatment of the patient, or (3) furnished by a health facility for treatment of any person pursuant to the order of a licensed physician, dentist or podiatrist, or (4) sold to a licensed physician, dentist, podiatrist or health facility for the treatment of a human being, or (5) sold to this state or any political subdivision or municipal corporation thereof, for use in the treatment of a human being; or furnished for the treatment of a human being by a medical facility or clinic maintained by this state or any political subdivision or municipal corporation thereof, or (6) effective January 1, 1995, furnished by a pharmaceutical manufacturer or distributor without charge to a licensed physician, surgeon, dentist, podiatrist, or health facility for the treatment of a human being, or to an institution of higher education for instruction or research. Such medicine must be of a type that can be dispensed only: (a) for the treatment of a human being, and (b) pursuant to prescriptions issued by persons authorized to prescribe medicines. The exemption provided by this subdivision applies to the constituent elements and ingredients used to produce the medicines and to the tangible personal property used to package such medicines. (e) Specific Tax Applications. (1) Prescriptions. No person other than a licensed physician, dentist, optometrist or podiatrist is authorized to prescribe or write a prescription for the treatment of a human being. Tax does not apply to the sale or use of medicines prescribed by a licensed physician, dentist, optometrist, or podiatrist for the treatment of a human being and dispensed on prescription filled by a pharmacist. (2) Licensed Physician, Dentist or Podiatrist. Tax does not apply to a specific charge made by a licensed physician, dentist or podiatrist to his or her own patient for medicines furnished for the treatment of the patient. Tax also does not apply to sales of medicines to licensed physicians, dentists or podiatrists for the treatment of a human being regardless of whether the licensed physician, dentist or podiatrist makes a specific charge to his or her patient for the medicines furnished. (3) Health Facility. Tax does not apply to sales of medicines by a health facility (as defined in subdivision (a)(4)) for the treatment of any person pursuant to the order of a licensed physician, dentist or podiatrist. Tax does not apply to sales of medicines to a health facility for the treatment of a human being regardless of whether or not a specific charge is made for the medicines. (4) Pharmaceutical Manufacturer or Distributor. Tax does not apply to the storage, use or consumption of medicines furnished by a pharmaceutical manufacturer or distributor without charge to a licensed physician, surgeon, dentist, podiatrist, or health facility for the treatment of a human being or furnished without charge to an institution of higher education for instruction or research provided the medicines furnished are of a type that can be dispensed only (1) on prescription by persons authorized to prescribe and (2) for the treatment of a human being. The exemption from tax includes the costs of the materials used to package the "sample" medicines, such as bottles, boxes, blister packs, patches impregnated with medicines, or pre-filled syringes, and the elements and ingredients used to produce the "samples" whether or not such items are purchased under a resale certificate in this state or outside this state. When a pre-filled syringe or other such delivery device is used to package and contain a sample medicine (i.e., pre-filled with the medicine) as well as to inject or otherwise administer the medicine to the patient, the exemption from tax will not be lost due to the fact that the device is used for a dual purpose. However, the use of empty syringes or other such delivery devices, furnished to the licensed physician separately or included in the packages with the medicines, is subject to tax. This exemption applies in the same manner to the use of clinical trial medicines during the United States Food and Drug Administration's drug development and approval process. "Clinical trial medicines" are substances or preparations approved as "Investigational New Drugs" by the United States Food and Drug Administration intended for treatment of, and application to, the human body, which are furnished by a pharmaceutical developer, manufacturer, or distributor to a licensed physician and subsequently dispensed, furnished, or administered pursuant to the order of the licensed physician. "Clinical trial medicines" do not include placebos. Placebos are not used for the treatment of a human being and, as such, do not qualify for the exemption provided under this subdivision. Thus, the use of placebos is subject to tax. (5) Antimicrobial Agents Used by Hospital Personnel. Tax does not apply to the sale or use of substances or preparations, such as antiseptic cleansers or scrubs, when such substances or preparations qualify as medicines and are used by hospital personnel on the patient or by hospital personnel on their own bodies to benefit the patient, and which constitute a critical component of the patient's treatment. Qualifying medicines used on the bodies of hospital personnel include antimicrobial agents used for preoperative scrubbing or hand cleansing prior to any patient contact such as Accent Plus Skin Cleanser; Accent Plus Perinal Cleanser; Bacti-Stat; Betadine; and Medi-Scrub. However, antimicrobial agents such as Accent Plus 1 Skin Lotion; Accent Plus 2 Body Massage; Accent Plus 2 Skin Creme; and Accent Plus Total Body Shampoo applied to the body of hospital personnel are not considered used in the treatment of the patient and the sale or use of these products is subject to tax. (6) Vitamins, Minerals, Herbs, and Other Such Supplements. In general, sales of vitamins, minerals, herbs and other such supplements are subject to tax. However, when vitamins, minerals, herbs and other such supplements are used in the cure, mitigation, treatment or prevention of disease, and are commonly recognized as a substance or preparation intended for such use, they will qualify as medicines for the purposes of Revenue and Taxation Code section 6369. As such, their sale or use is not subject to tax when sold or furnished under one of the conditions in subdivision (d)(1) through (d)(6). (7) Diagnostic Substances, Test Kits, and Equipment. Tax applies to the sale or use of diagnostic substances applied to samples of cells, tissues, organs, or bodily fluids and waste after such samples have been removed, withdrawn, or eliminated from the human body. Diagnostic substances are applied to the samples outside the living body ( "in vitro") in an artificial environment. They are not administered in the living body ( "in vivo"). As the substances are not applied internally or externally to the body of the patient, they do not qualify as medicines under Revenue and Taxation Code section 6369. Except as provided in Regulation 1591.1(b)(4), tax applies to the sale or use of test kits and equipment used to analyze, monitor, or test samples of cells, tissues, organs and blood, saliva, or other bodily fluids. Such items do not qualify as medicines regardless of whether they are prescribed for an individual by a person authorized to prescribe and dispensed pursuant to a prescription. (f) Insurance Payments (1) Medical Insurance and Medi-Cal. The exemption of retail sales of medicines is not affected by the fact that charges to the person for whom the medicine is furnished may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer. (2) Medicare (A) Medicare Part A. Tax does not apply to the sale of items to a person insured pursuant to Part A of the Medicare Act as such sales are considered exempt sales to the United States Government. Under Part A, the healthcare provider has a contract with the United States Government to provide certain services. Therefore, sales of medicines, devices, appliances, and supplies in which payment is made under Part A qualify as exempt sales to the United States Government. (B) Medicare Part B. Tax applies to sales of items to a person in which payment is made pursuant to Part B of the Medicare Act. Sales made under Part B do not qualify as exempt sales to the United States Government even though the patient may assign the claim for reimbursement to the seller and payment is made by a carrier administering Medicare claims under contract with the United States Government. Under Part B, the seller does not have a contract with the United States Government. The contract is between the patient and the United States Government. Unless the sale is otherwise non-taxable (such as a sale of a medicine under subdivision (d)), the sale is subject to tax. (3) Employer Medical Contracts. Certain employers have contracted with their employees to provide the latter with medical, surgical and hospital benefits in a hospital operated by or under contract with the employer for a fixed charge. Usually the charge is by payroll deduction. These contracts are not insurance plans; rather, they are agreements to furnish specified benefits under stated conditions, one of which may be that no charge is to be made to the employee for prescribed medicines. The agreements may provide for making a charge for medicines furnished to out-patients but not to in-patients. This in no way affects the exemption of sales of medicines. (g) Records. Any pharmacy whether in a health facility or not must keep records in support of all deductions claimed on account of medicines. Section 4081 of the Business and Professions Code requires that all prescriptions filled shall be kept on file and open for inspection by duly constituted authorities. Pursuant to Section 4081 of the Business and Professions Code, physicians and surgeons and podiatrists must keep accurate records of drugs furnished by them. Any deduction on account of sales of medicines shall be supported by appropriate records. (1) The following written information constitutes acceptable documentation for retailers in those cases where sales are made of supplies which are "deemed to be dispensed on prescription" within the meaning of Section 6369: Name of purchaser Name of doctor Date of sale Item sold The sale price (2) "Double Deduction" Unauthorized. The law does not, of course, permit a double deduction for sales of exempt medicines. For example, if an exemption is claimed on account of a sale of a prescription medicine, no additional deduction for the same sale may be taken as a sale to the United States Government under the Medicare Program. (3) Persons making purchases of items in which their sale or use is not taxable under this regulation should give their suppliers an exemption certificate pursuant to Regulation 1667. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006 and 6369, Revenue and Taxation Code. s 1591.1. Specific Medical Devices, Appliances, and Related Supplies. (a) Definitions. (1) Physicians, Dentists, Optometrists, and Podiatrists. "Physicians," "dentists," "optometrists," and "podiatrists" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to Section 2065 of the Business & Professions Code, when acting within the scope of that section. (2) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following: (A) The name or names and address of the patient or patients. (B) The name and quantity of the drug or device prescribed and the directions for use. (C) The date of issue. (D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed. (E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients. (F) If in writing, signed by the prescriber issuing the order. (b) Specific Applications. (1) Hemodialysis Products. Tax does not apply to the sale or use of hemodialysis products supplied on order of a licensed physician and surgeon to a patient by a pharmacist or by a manufacturer, wholesaler, or other supplier authorized by Section 4054 or 4059 of the Business and Professions Code to distribute such products directly to the patient. (2) Mammary Prostheses and Ostomy Appliances and Related Supplies. Tax does not apply to the sale or use of mammary prostheses and ostomy appliances and related supplies required as a result of any surgical procedure by which an artificial opening is created in the human body for the elimination of natural waste when sold or furnished under one of the conditions provided in Regulation 1591 subdivision (d)(1) through (d)(6). The mammary prostheses devices and ostomy appliances and related supplies do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription as long as they are furnished pursuant to a written order of a person authorized to prescribe. Ostomy appliances and related supplies must be used in postoperative situations or sold as an accommodation to patients following surgery in order to qualify as medicines. When used as an adjunct to surgical procedures, the sale or use of these items is subject to tax unless the appliances remain in the patient for postoperative purposes. Qualifying mammary prostheses and qualifying ostomy appliances and related supplies include, but are not limited to, bras to hold a mammary prosthesis in place, filler pads, lymphedema arm sleeves, adhesive spray and remover: catheters used as a result of an artificial opening created in the human body; colostomy bags; deodorant used on the person of the user; karaya rings; antacid used externally as a skin ointment; skin gel; nonallergic paper tape and gauze; skin bond cement; tincture of benzoin applied topically as a protective; urinary drainage appliances; closed stoma bags; drainable stoma bags; loop ostomy supplies and tubing; and endotracheal and tracheotomy tubes and tracheostomy tubes used for the evacuation of metabolic waste when used post-operatively or for home care. (3) Kidney Dialysis Machines. The term "ostomy appliances" and "related supplies" includes kidney dialysis machines, replacement parts for the kidney dialysis machines, and the catheters, dialysis fluid additives, volumetric infusion pumps, tubing, blood sets, fistula sets, and shunts used in conjunction with such machines. In order to qualify as a "related supply," an item must be a necessary and integral part of the machine itself, or a substance or preparation intended for external or internal application to the human body of the patient undergoing dialysis. (4) Catheters. Generally, sales of catheters are subject to tax in the same manner as other sales of tangible personal property. However, sales of the following types of catheters are not subject to tax. (A) Intra-aortic balloon pump catheters and coronary angioplasty balloon catheters. However, sales of related supplies are subject to tax. The term "related supplies" includes, but is not limited to, coronary guiding catheters, coronary guide wires, guide wire introducers, sheath introducer systems, torquing devices, hemostatic valves, inflation devices, and syringes. (B) Catheters which are permanently implanted in the human body and assist the functioning of a natural organ, artery, vein, or limb and remain or dissolve in the body. (C) Catheters used for drainage purposes through which an artificial opening is created in the human body. Such catheters qualify as ostomy materials and related supplies. (D) Catheters or similar types of devices used for drainage purposes through natural openings in the human body to assist or replace the functioning of a natural part of the human body. Such catheters are designed to be worn on or in the body of the user and qualify as prosthetic devices. (5) Insulin and Insulin Syringes. "Insulin" and "insulin syringes" furnished by a pharmacist to a person for treatment of diabetes as directed by a physician shall be deemed to be dispensed on prescription within the meaning of Revenue and Taxation Code section 6369(e). As such, the sale or use of insulin and insulin syringes furnished by a pharmacist to a person for treatment of diabetes, as directed by a physician, is exempt from tax. Glucose test strips and skin puncture lancets furnished by a registered pharmacist that are used by a diabetic patient to determine his or her own blood sugar level and the necessity for and amount of insulin and/or other diabetic control medication needed to treat the disease in accordance with a physician's instructions are an integral and necessary active part of the use of insulin and insulin syringes or other anti-diabetic medications and, accordingly, are not subject to sale or use tax pursuant to subsection (e) of Revenue and Taxation Code section 6369. These medical supplies are not medicines and their sale or use does not qualify for tax exemption under subsections (a) or (b) of Revenue and Taxation Code section 6369. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6369 and 6369.1, Revenue and Taxation Code. s 1591.2. Wheelchairs, Crutches, Canes, and Walkers. (a) Definitions. (1) Physician. For purposes of this regulation, "physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California, the Osteopathic Medical Board of California, or the California Board of Podiatric Medicine. Physician, as defined, includes doctors of medicines (MD), doctors of osteopathy (DO), and doctors of podiatric medicine (DPM). (2) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following: (A) The name or names and address of the patient or patients. (B) The name and quantity of the drug or device prescribed and the directions for use. (C) The date of issue. (D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed. (E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients. (F) If in writing, signed by the prescriber issuing the order. (3) Health Facility. "Health Facility" as used herein has the meaning ascribed to the term in Section 1250 of the Health and Safety Code, which provides that: "As used in this chapter 'health facility' means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer...." (b) Tax Application. Tax does not apply to the sale or use, including leases that are continuing sales and purchases, of wheelchairs; crutches; canes; quad canes; white canes used by the legally blind; walkers; and replacement parts for these devices when sold to an individual for the personal use of that individual as directed by a licensed physician. Electric three-wheel scooters that are similar in both design and function to a conventional electric wheelchair, qualify as a wheelchair for the purposes of Revenue and Taxation Code section 6369.2. When the scooters are sold or leased to an individual for the personal use of that individual as directed by a licensed physician their sale or use qualifies for an exemption from tax. "Replacement parts" include, but are not limited to, batteries for electric wheelchairs; belts and cushions sold to replace or supplement the basic items originally sold with wheelchairs, lap boards and trays attached to wheelchairs and considered a part of the wheelchair; and rubber tips, wheels, and other such items prescribed for an individual to replace an original component of the device sold. "Replacement parts" do not include items such as mechanical devices that aid the patient in eating or writing unless the items are part of the device itself, or restraints or other such items sold to an individual, but which do not become a part of the wheelchair or other such prescribed device. (c) Sales to Health Facilities. Sales, or leases that are continuing sales and purchases, of wheelchairs, crutches, canes, and walkers to hospitals or other health facilities for use by patients while at the facilities are subject to tax. Such sales or leases are not considered sold to an individual for the individual's personal use as directed by a physician. However, when wheelchairs, crutches, canes, and walkers are ordered by a hospital or health facility on behalf of a specific patient, as directed by a physician, the items may be considered to be purchased by an individual for his or her own personal use as required under Revenue and Taxation Code section 6369.2 and, therefore, the sale will qualify for exemption from tax. (d) Sales to Insured Persons. The exemption for qualifying retail sales of wheelchairs, crutches, canes, quad canes, white canes used by the legally blind, walkers, and replacement parts for these devices is not affected by the fact that charges to the individual to whom such items are sold, may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6369 and 6369.2, Revenue and Taxation Code. s 1591.3. Vehicles for Physically Handicapped Persons. (a) Definitions. (1) Physically Handicapped Persons. For purposes of this regulation, "physically handicapped" persons include disabled persons described in Vehicle Code Section 5007 as qualified for special parking privileges. (2) Vehicle. For purposes of this regulation, "vehicle" includes all devices that qualify under Vehicle Code Section 670 as "vehicles" including, but not limited to, automobiles, vans, trucks, mobilehomes and trailercoaches. "Vehicles" qualifying under this regulation mean and include: (A) Vehicles which are owned and operated by physically handicapped persons and, (B) Vehicles which are used in the public or private transport of physically handicapped persons and which would otherwise qualify for a distinguishing license plate pursuant to Vehicle Code Section 5007 if the vehicle were registered to the physically handicapped person or persons. (b) Application of Tax. Tax does not apply to the sale or use of items and materials used to modify a vehicle for physically handicapped persons when such items are necessary to enable the vehicle to be used to transport a physically handicapped person or persons. Tax does not apply whether the property is installed by the retailer or is sold for installation by other persons. However, sales or purchases of tools and supplies used in modifying the vehicle and which are not incorporated into, attached to, or installed on the vehicle are subject to tax. Items and materials considered necessary to enable a vehicle to be used to transport a physically handicapped person include, but are not limited to, an interlock system; upper torso restraint; an airbag of a unique type to raise or lower the vehicle for loading or unloading; running boards on lower side of vehicle; a bolt cam used to restrain a wheelchair inside a van; seat belts; a tire carrier to hold a spare and which is installed within reach of a handicapped person; AC lights to illuminate the ramp or elevator area; hardware for privacy curtains; air compressor for use with medical equipment; a 12-volt receptacle to supply power to medical equipment; a 4-point tie down system to restrain a wheelchair; and an allocable portion(s) of the various interior packages, interior materials, and conversions necessary to modify the vehicle for transport of physically handicapped persons. Items and materials that are generally not considered necessary to enable a vehicle to be used to transport a physically handicapped person include, but are not limited to, an upper torso durable pad (unless part of the restraint); portable ramps (telescopic); air conditioners (unless necessary for the transport of certain types of disabled persons); a fire extinguisher; a CB radio (unless shown to be necessary to the transport of certain types of disable persons); leather seat covers; extra windows and their accessories; upgrades to the interior (upgrade to leather seats); and an engine cover. The sale or use of such items, whether installed on a vehicle to be used for transport of physically handicapped persons or not, are generally subject to tax. (c) Sales of Modified Vehicles. Tax does not apply to the gross receipts attributable to the portion of a vehicle that has been modified to enable the vehicle to be used to transport a physically handicapped person or persons when the modified vehicle is sold to a physically handicapped person, as defined. (d) Repairs to Modified Vehicles. Tax does not apply to the sale or use of items and materials used to repair the modified portion (the portion that contains equipment previously used to modify the vehicle) of a vehicle used to transport a physically handicapped person or persons. Once installed, such "repair parts" qualify as items and materials used to modify a vehicle in order for the vehicle to be used to transport a physically handicapped person or persons. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6369 and 6369.4, Revenue and Taxation Code. s 1591.4. Medical Oxygen Delivery Systems. (a) Definitions. (1) Physician. "Physicians" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to Section 2065 of the Business & Professions Code, when acting within the scope of that section. (2) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following: (A) The name or names and address of the patient or patients. (B) The name and quantity of the drug or device prescribed and the directions for use. (C) The date of issue. (D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed. (E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients. (F) If in writing, signed by the prescriber issuing the order. (3) Health Facility. "Health Facility" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer. (4) Medical Oxygen Delivery System. A system used to administer oxygen directly into the lungs of the patient for the relief of conditions in which the human body experiences an abnormal deficiency or inadequate supply of oxygen. Devices that only assist the patient in breathing, but do not deliver air or oxygen directly into the lungs of the patient, do not qualify as medical oxygen delivery systems. (b) Tax Application. (1) Medical Oxygen Delivery Systems. Tax does not apply to the sale or use of medical oxygen delivery systems when sold, leased or rented to an individual for the personal use of that individual as directed by a licensed physician. Medical oxygen delivery systems include, but are not limited to, liquid oxygen containers, high-pressure cylinders, regulators, oxygen concentrators, tubes, masks and related items necessary for the delivery of oxygen to the patient. The term also includes repair and replacement parts for use in such a system. (2) Ventilators and Other Respiratory Equipment. For the purposes of this regulation, ventilators that produce a form of controlled respiration in which compressed air is delivered under positive pressure into the patient's airways qualify for the exemption provided under Section 6369.5 for medical oxygen delivery systems. Pressure ventilators and volume ventilators provide assisted respiration and intensive positive pressure in which compressed air, a component of which is oxygen, is administered into the breathing systems of patients to help them breathe. The sale or use of ventilators, as described, is exempt from tax when sold or leased to an individual for the personal use of that individual as directed by a physician. Respiratory equipment that induces air into the lungs of a patient, through the application of pressure to the chest area, also qualifies for the exemption provided for medical oxygen delivery systems, regardless of whether the pressure applied is negative pressure or positive pressure. The sale or use of respiratory equipment, as described, is exempt from tax when sold or leased to an individual for the personal use of that individual as directed by a physician. Included within the scope of the exemption are exsufflation belts, iron lungs, chest shells, pulmo wraps, and the pumps and regulators necessary for the operation of the listed equipment. (c) Sales to Health Facilities and Health Care Providers. Sales of medical oxygen delivery systems are exempt when sold to an individual for his or her own use under the direction of a licensed physician. Sales of medical oxygen delivery systems to hospitals, immediate care facilities, physicians, or other health care providers for use on their premises are subject to tax in the same manner as other sales of tangible personal property. A rental or lease of a medical oxygen delivery system to a health facility qualifies for an exemption from tax when the facility intends to lease or rent the system to an individual for the personal use of that individual as directed by a licensed physician and the system is then leased or rented as intended. However, the transaction between the health facility and the individual must constitute an actual lease or rental. When the patient's use of the medical delivery system is limited to the health facility's premises, the direction and control of the equipment does not transfer to the patient. Therefore, an actual lease or rental of the system to the patient does not occur even when a separate billing is made to the patient for the use of the system. As such, the lease or rental of the system to the health facility does not qualify for the exemption provided under Section 6369.5. (d) Sales of Medical Oxygen. Medical oxygen and other gases sold to a licensed physician and surgeon, podiatrist, dentist, or health facility for treatment of human beings are considered medicines. Therefore, their sale or use is not subject to tax when (1) furnished by a licensed physician and surgeon, podiatrist, or dentist to his or her own patient or (2) furnished by the health facility pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist. Medical oxygen sold by distributors of compressed gases to an individual for use as part of the individual's treatment, pursuant to a physician's prescription, is regarded as a medicine furnished by a licensed physician to his or her own patient for treatment of the patient as provided by Regulation 1591(b)(2). Sales of medical oxygen to individuals under the "Casey Bill" (i.e., the retailer bills the service acting as a fiscal agent for the State of California) are regarded as sales of medicines to this State for use in the treatment of human beings as provided by Regulation 1591(b)(5). Therefore, sales of medical oxygen by distributors, under these conditions, are not subject to tax whether or not the distributor is a medical supply house. (e) Sales to Insured Persons. The exemption for qualifying retail sales of oxygen delivery systems and replacement parts is not affected by the fact that charges to the individual for whom such items are sold, leased, or rented may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6369 and 6369.5, Revenue and Taxation Code. s 1592. Eyeglasses and Other Ophthalmic Materials. (a) Physicians and Surgeons and Optometrists. (1) In General. A physician and surgeon or optometrist is the consumer of ophthalmic materials including eyeglasses, frames, and lenses used or furnished in the performance of his/her professional services in the diagnosis, treatment or correction of conditions of the human eye. Tax applies with respect to the sale of such materials to physicians and surgeons and optometrists. (2) Filling Prescription of Another Physician and Surgeon or Optometrist. When an optometrist fills a prescription prepared by another optometrist or by a physician and surgeon, the optometrist who fills the prescription is the consumer of the glasses, frames, and other materials and tax applies with respect to the sale of such materials to him/her. (3) Replacement Lenses and Frames. A physician and surgeon or optometrist is also the consumer of lenses and frames furnished to patients as duplications or replacements of parts of eyeglasses or contact lenses which were previously prescribed for the patient pursuant to an eye examination, and tax applies to the sale thereof to him/her. (4) Plano Lenses or Sunglasses (Without Correction). When plano lenses and frames or plano sunglasses, including clip-on sunglasses, are furnished by a physician and surgeon or optometrist pursuant to a prescription for a particular class of plano or for the treatment or correction of conditions of the human eye following, and as a result of, a diagnosis made by him/her in an examination and refraction he/she is the consumer of the plano lenses and frames or sunglasses, and tax applies with respect to the sale thereof to him/her. In all other instances the physician and surgeon or optometrist is the retailer of such lenses and frames or sunglasses, and tax applies to the gross receipts from such a retail sale. (b) Dispensing Opticians. (1) In General. A registered dispensing optician is the consumer of ophthalmic materials including eyeglasses, frames, and lenses dispensed pursuant to a prescription prepared by a physician and surgeon or optometrist. Tax applies with respect to the sale of such materials to the dispensing optician. (2) Replacement Lenses and Frames. A dispensing optician is also the consumer of lenses and frames furnished as duplications or replacements of parts of eyeglasses or contact lenses which were previously prescribed by a physician and surgeon or optometrist. (3) Plano Lenses or Sunglasses (Without Correction). When plano lenses and frames or plano sunglasses, including clip-on sunglasses, are dispensed pursuant to a prescription prepared by a physician and surgeon or optometrist for a particular class of plano, the dispensing optician is the consumer of the lenses and frames or sunglasses, and tax applies to the sale thereof to him/her. In all other instances the dispensing optician is the retailer of such lenses and frames or sunglasses, and tax applies to the gross receipts from such a retail sale. (c) Pharmacists. (1) In General. Operative January 1, 1998, a licensed pharmacist is the consumer of replacement contact lenses dispensed pursuant to a prescription prepared by a physician or optometrist. Tax applies with respect to the sale of such contact lenses to the pharmacist. (2) Replacement Contact Lenses. For purposes of this subdivision, "replacement contact lenses" means soft contact lenses that require no fitting or adjustment, and that are dispensed as packaged and sealed by the manufacturer. (d) Definition of Prescription. For the purposes of this regulation a "prescription" means a written formula for ophthalmic lenses or contact lenses prepared by a physician and surgeon or optometrist. With respect to plano lenses and frames or sunglasses without correction, prescription means a written order for a distinctive type or class of plano identified by numbers or symbols descriptive of a specific tint, color or characteristic. The prescription shall bear the name and address of the prescriber, the name and address of the patient, and the date of issue. Pursuant to section 4124 of the Business and Professions Code, with respect to replacement contact lenses dispensed under subdivision (c) above, in addition to the above requirements, operative January 1, 1998, a prescription must: (1) Include the state license number of the prescribing practitioner, (2) Explicitly state an expiration date of not more than one year from the date of the last prescribing examination, and (3) Explicitly state that the prescription is for contact lenses and include the lens brand name, type, and tint, including all specifications necessary for the ordering of lenses. Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6006 and 6018, Revenue and Taxation Code. s 1593. Aircraft and Aircraft Parts. (a) Definitions. (1) "Aircraft." As used herein, the term "aircraft" means any contrivance designed for powered navigation in the air except a rocket or missile. (2) "Common Carrier." As used herein, the term "common carrier" means any person who engages in the business of transporting persons or property for hire or compensation and who offers his or her services indiscriminately to the public or to some portion of the public. (3) "Component Part." As used in subdivision (b)(2), the term "component part" means an item incorporated by securing to the aircraft in compliance with Federal Aviation Administration (FAA) requirements, or United States military equivalent, related to the maintenance, repair, overhaul, or improvement of the aircraft which part is essentially associated with the functional aspects of the aircraft, including those related to safety and air worthiness. (A) Examples of property which are component parts are engines, passenger seats, and landing gear; items replaced, repaired, or overhauled according to manufacturer service bulletins; items required by air worthiness directives issued by the FAA; life limited parts; and cargo and baggage containers which are designed to be secured, and which are secured, to the aircraft during flight. (B) Examples of property which are not component parts are general expense items or comfort-related items such as attendant carts, blankets, pillows, or serving utensils. (b) Application of Tax. (1) Aircraft. Tax does not apply to the sale of and the storage, use, or other consumption of aircraft sold, leased, or sold to persons for the purpose of leasing, to: (A) a person who operates the aircraft as a common carrier of persons or property, provided: 1. the person operates the aircraft under authority of the laws of this state, of the United States, or of any foreign government, and 2. the person's use of the aircraft as a common carrier is authorized or permitted by the person's governmental authority to operate the aircraft; (B) a foreign government for use of the aircraft by that government outside of California; or, (C) a nonresident of California who will not use the aircraft in this state other than to remove the aircraft from California. (2) Aircraft Parts. (A) When tangible personal property becomes a component part of an aircraft described in subdivision (b)(1) as a result of the maintenance, repair, overhaul, or improvement of that aircraft in compliance with FAA requirements, or United States military equivalent, the charges for such tangible personal property, as well as for labor and services rendered with respect to that maintenance, repair, overhaul, or improvement are exempt from tax provided the aircraft will continue to be used in a manner described in subdivision (b)(1). (B) The exemption described in subdivision (b)(2)(A) applies with respect to tangible personal property purchased and placed in inventory with the intent to thereafter remove the property from inventory and incorporate it as a component part of an aircraft under the conditions specified in subdivision (b)(2)(A), provided the property is so incorporated into a qualifying aircraft. If instead the property is removed from inventory for use in some other manner, the purchaser owes the applicable sales or use tax at that time. (C) The exemption described in subdivision (b)(2)(A) shall apply only under the following circumstances: 1. the tangible personal property which becomes a component part of the aircraft is purchased on or after October 1, 1996; or, 2. the tangible personal property which becomes a component part of the aircraft was purchased prior to October 1, 1996, but the property first enters California on or after October 1, 1996. (c) Use of Aircraft. (1) Common Carriers. In determining whether a purchaser or lessee of an aircraft is using that aircraft as a common carrier of persons or property, only that use of the aircraft by the carrier during the first 12 consecutive months commencing with the first operational use of the aircraft will be considered. This test period does not include, and is extended by, the amount of time, prior to the first use of the aircraft as a common carrier, during which the aircraft is in the physical possession of a repair station certified by the FAA or a manufacturer's maintenance facility undergoing modification, repair, or replacement. The period of this extension/exclusion shall not exceed 12 months. If the purchaser does not own the aircraft for 12 consecutive months commencing with the first operational use, as may be extended as provided herein, then only the period of time commencing with the first operational use that the purchaser owns the aircraft will be considered. (A) "Operational use" means the actual time during which the aircraft is operated in powered navigation in the air. Operational use includes positioning or repositioning aircraft by flying the aircraft from one point to another ( "ferry flights") except when such flights are solely for purposes of having the aircraft repaired. Ferry flights solely for the purpose of transporting the aircraft to a repair location, or solely to return from a repair location, are not operational use, nor are test flights as described in subdivision (d)(2) or personnel training as described in subdivision (d)(4). (B) If the aircraft is used as a common carrier for more than one-half of the operational use during the test period, the carrier's principal use of the aircraft will be deemed to be that of a common carrier except as provided in subdivisions (c)(1)(D) and (c)(1)(E). Each flight of the aircraft is examined separately for purposes of determining common carrier use. For these purposes, a flight is the powered navigation of the aircraft from one location on the ground or water to the first point on the ground or water at which the aircraft lands. (C) A flight qualifies as a common carrier use of the aircraft for purposes of the exemption only if the flight is authorized or permitted by the governmental authority under which the aircraft is operated and involves the transportation of persons or property. Where the aircraft does not itself transport the person or property to a location on the ground (or water), the flight does not qualify as a common carrier flight for purposes of the exemption. 1. Following are examples of flights that do not qualify as common carrier use: a. Student instruction or training flights. b. Flights to position or reposition aircraft by flying the aircraft from one point to another ( "ferry flights"). c. Aerial work such as crop dusting, seeding, spraying, bird chasing, towing of banners and gliders, and fire fighting by dropping water or flame retardant. d. Aerial photography or surveying, and powerline and pipeline patrol, without regard to whether the flight carries persons or property while the pilot or other crew member engages in the photography, surveying, or patrol. e. Helicopter operations to perform construction or repair work, or in the lumber industry to reposition fallen lumber within the same general location. f. Flights carrying persons or property for the purpose of parachute jumps or air drops. g. Flights for the purpose of search and rescue, without regard to whether the flight carries persons or property while the search and rescue operation is conducted. 2. Following are examples of flights that do qualify as common carrier use when such services are offered indiscriminately to the public or to some portion of the public, provided the flights are authorized or permitted by the governmental authority under which the aircraft is operated: a. Flights whose purpose is to transport persons or property from the location on the ground or water at which the aircraft takes off to another point on the ground or water at which the aircraft lands, including flights to transport fire fighting personnel, search and rescue personnel, construction workers, and equipment during fire fighting, search and rescue, and construction operations. b. Sightseeing flights, even if they begin and end at the same airport, area of land, or water that was used for takeoff. c. Helicopter flights to move large equipment from one location to another where the transportation is the purpose for the flight. For example, a flight with the purpose of moving a large air conditioning unit from a storage facility to the work site could qualify as common carrier use, but a flight with the purpose of positioning the air conditioning unit while it is being attached to the real property would not qualify as a common carrier use even if the positioning occurred as part of the flight moving the unit from the storage facility to the work site. d. Flights to transport injured persons to medical facilities. (D) With respect to aircraft sold during the period from January 1, 1987 through December 31, 1996, it shall be presumed that a person is not using the aircraft as a common carrier of persons or property if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed ten percent (10%) of the purchase cost of the aircraft to him or her, or twenty-five thousand dollars ($25,000), whichever is less. With respect to aircraft sold on or after January 1, 1997, it shall be presumed that a person is not using the aircraft as a common carrier of persons or property if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed 20 percent of the purchase cost of the aircraft to him or her, or fifty thousand dollars ($50,000), whichever is less. These presumptions may be rebutted by contrary evidence satisfactory to the board showing that the person is using the aircraft principally as a common carrier of persons or property for hire. (E) With respect to aircraft leased, or sold for the purpose of leasing, during the period from January 1, 1987 through December 31, 1996, it shall be presumed that the aircraft is not used as a common carrier of persons or property if the lessor's yearly gross receipts from the lease of that aircraft to persons for use as common carriers of persons or property do not exceed ten percent (10%) of the cost of the aircraft to the lessor, or twenty-five thousand dollars ($25,000), whichever is less. With respect to aircraft leased, or sold for the purpose of leasing, on or after January 1, 1997, it shall be presumed that the aircraft is not regularly used as a common carrier of persons or property if the lessor's yearly gross receipts from the lease of that aircraft to persons for use as a common carrier of persons or property do not exceed 20 percent of the cost of the aircraft to the lessor, or fifty thousand dollars ($50,000), whichever is less. These presumptions may be rebutted by contrary evidence satisfactory to the board showing that the aircraft is used principally as a common carrier of persons or property for hire. (F) For purposes of subdivisions (c)(1)(D) and (c)(1)(E), "gross receipts" do not include compensation paid by the owner or lessor of the aircraft or by related parties for use of the aircraft as a common carrier. "Related parties" include the owner's or lessor's immediate family, entities in which the owner or lessor, or the immediate family of the owner or lessor, hold one-half or more interest, and employees of the owner or lessor while on company business. (G) For purposes of subdivisions (c)(1)(D) and (c)(1)(E), "contrary evidence" includes sworn oral or written testimony that is offered to prove that a person is engaged in the business as a common carrier. Such testimony would include evidence that a person was engaged in the business as a common carrier but was unable to meet the minimum yearly gross receipts requirements because the aircraft was unfit to fly. (2) Foreign Governments. A foreign government will be deemed to have acquired an aircraft for use outside of California if the aircraft is promptly removed from the state and the foreign government as owner or lessee does not return the aircraft to this state within 12 months after its removal from this state. (3) Nonresidents. A nonresident will be considered as not using the aircraft other than to remove the aircraft from California if the aircraft is promptly removed from the state and is not returned to California within 12 months after its removal from this state. (d) Activities Not Affecting Exemption. (1) Repair or Warranty Service. The exemptions described by subdivision (b) will not be affected if the aircraft is returned to California within the 12- month period solely for repair or service covered by warranty. (2) Test Flights. Test flights made for the purpose of determining whether an aircraft will fly in accordance with specifications, or whether the aircraft is in proper operating condition in all its parts, do not constitute use or consumption of the aircraft or its component parts which would disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b) of this regulation whether such flights occur before or after the sale and delivery of the aircraft. This conclusion is unaffected by the circumstance that personnel of the vendor or vendee, government officials, or other observers may be on board in the aircraft during test flights. (3) Modification, Repair, or Replacement. The work of modification, repair, or replacement performed on an aircraft following its delivery and preparatory to its intended use, which is performed prior to the aircraft's being placed in regular operation by a common carrier, or in the case of a foreign government or nonresident prior to the aircraft's removal from the State of California, will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b). For purposes of this subdivision, flights for the sole purpose of positioning the aircraft at the modification, repair, or replacement facility will be considered a nonoperational use of the aircraft. (4) Personnel Training. The operation of an aircraft in this state for the purpose of training pilots or other personnel of the aircraft's operator in the proper operation and maintenance of that particular aircraft will not disqualify the sale and use of that aircraft or its component parts from the exemptions described in subdivision (b) whether such operation occurs before or after the sale and delivery of the aircraft, provided the training period is no longer than is reasonably required for that purpose. For purposes of this subdivision, personnel training includes only such training as is necessary to familiarize the personnel with the operation of the subject aircraft. Examples of the type of activities that are not personnel training for purposes of this subdivision, and instead which are operational use, include training for a higher crew member certificate, proficiency or recurrency flights, and flight testing to observe the crew member's ability to satisfactorily perform procedures and maneuvers during the test flight. (5) Nonrevenue Operations. (A) The operation of an aircraft for a short period for the transportation of nonrevenue passengers or property by a common carrier for the purpose of advancing the purchaser's interests incidental to its business as a common carrier prior to placing the aircraft in regular operation will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b). (B) The use of an aircraft following its delivery to a foreign government or nonresident to transport the personnel or property of such foreign government or nonresident during the aircraft's prompt removal from this state will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b). (e) Aircraft and Aircraft Parts Exemption Certificate. The law provides that for the purposes of the proper administration of the sales and use tax and to prevent the evasion of tax, it shall be presumed that all sales are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale of aircraft or aircraft parts as defined in subdivision (a) by establishing to the satisfaction of the Board that the gross receipts or sales price from the sale are not subject to the tax or by taking an aircraft or aircraft parts exemption certificate substantially in the form set forth below. The certificate shall relieve the seller from liability for the sales tax or for use tax collection only if it is taken timely and in good faith. For special provisions affecting aircraft, see Regulation 1610 (18 CCR 1610), "Vehicles, Vessels and Aircraft". AIRCRAFT OR AIRCRAFT PARTS EXEMPTION CERTIFICATE I HEREBY CERTIFY: That the aircraft identified below will be used [ ] Principally as a common carrier [FNa1] of persons or property under authority of the laws of California, of the United States, or of any foreign government; or [ ] Outside California by a foreign government; or [ ] Outside California by a nonresident of California which aircraft was not used in this state other than the removal from California. That the purchase of all tangible personal property which I shall purchase from __________ __________ is exempt from tax under section 6366 or 6366.1 of the Revenue and Taxation Code and Regulation 1593. The identification numbers of all aircraft purchased under this certificate are listed below. Until this certificate is revoked in writing, all other property purchased from the seller consists of tangible personal property to become a component part of aircraft in the course of repair, maintenance, overhaul, or improvement of same in compliance with Federal Aviation Administration requirements, or United States military equivalent, which aircraft will be used by the purchaser or the purchaser's lessee in a manner qualifying for exemption under section 6366 or 6366.1 and under Regulation 1593. (The purchaser issuing this certificate can revoke it as to a particular purchase by clearly indicating on a purchase order than the purchase is not exempt under either section 6366 or 6366.1 or under Regulation 1593.) I UNDERSTAND that in the event any such property is used in any manner other than as specified above, I am required by the Sales and Use Tax Law to report and pay any applicable sales or use tax. [FNa1] NOTE: Revenue and Taxation Code section 6366 creates a rebuttable presumption that an aircraft is not principally used as a common carrier if the owner's or lessor's annual gross receipts from such operations do not exceed 20 percent of the purchase price of the aircraft or fifty thousand dollars ($50,000), whichever is less. Amounts received for use of the aircraft as a common carrier from the owner or lessor of the aircraft or related parties or employees of the owner or lessor, are excluded from gross receipts for purposes of this presumption. Identification Numbers of Aircraft Purchased under this Certificate: __________ __________ __________ __________ __________ __________ Date Certificate Given _________ Purchaser _____________________________ (Company Name) Address _______________________________ Signature _____________________________ (Signature of Authorized Persons) ______________________________________ (Print or Type Name) Title _________________________________ (Owner, Partner, Purchasing Agent, etc.) Seller's Permit No. (if any) ____________________ Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6091, 6366, 6336.1 and 6421, Revenue and Taxation Code. s 1594. Watercraft. (a) General Exemptions. Tax does not apply to the sale of nor to the storage, use, or other consumption of watercraft which are used, leased to a lessee for use, or sold to persons for leasing to lessees for use either in interstate or foreign commerce, in commercial deep sea fishing, or in transporting persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state. (1) Interstate or Foreign Commerce. Tax does not apply if the watercraft for which the exemption is claimed is used either exclusively in interstate or foreign commerce involving the transportation of persons or property for hire or both in interstate or foreign commerce and in intrastate commerce provided the principal use of the watercraft is transportation for hire in interstate or foreign commerce. The exemption may apply to watercraft which operates between termini within the state, such as ferry boats or barges operating entirely within the state if they are principally used to transport interstate passengers or cargo and tugs that operate entirely within the state and are principally used to convoy or aid the departure or arrival of vessels to or from points outside the state. (A) The tax applies with respect to watercraft making voyages both in interstate or foreign commerce and voyages that are exclusively in intrastate commerce where the principal use of the watercraft is in intrastate commerce. (B) With respect to watercraft sold on or after January 1, 1987, it shall be presumed that the watercraft is not regularly used in the transportation for hire of property or persons if the annual gross receipts from such use of the watercraft do not exceed ten percent (10%) of the cost of the watercraft to the person using it, or twenty-five thousand dollars ($25,000), whichever is less. (C) With respect to watercraft leased on or after January 1, 1987, it shall be presumed that the watercraft is not regularly used in the transportation for hire of property or persons, if the annual gross receipts of the lessor from the lease of the watercraft to persons using it in this manner do not exceed ten percent (10%) of the cost of the watercraft to the lessor, or twenty-five thousand dollars ($25,000), whichever is less. (D) The presumptions explained in subdivisions (B) and (C) above may be rebutted by contrary evidence satisfactory to the board showing that the watercraft is regularly used in the transportation for hire of property or persons. (E) When determining whether watercraft is regularly used by the owner or lessee in the transportation for hire of property or persons, the first 12- month period after the first functional use of the watercraft shall be used. Gross receipts from the transportation for hire of property or persons, whether in interstate or foreign commerce or in intrastate commerce, may be used to meet the minimum gross receipts requirements stipulated in subdivisions (B) and (C) above. (2) Commercial Deep Sea Fishing. Tax does not apply if the watercraft for which the exemption is claimed is used in commercial deep sea fishing operations outside the territorial waters of this state by persons who are regularly engaged in commercial deep sea fishing if the principal use of the watercraft occurs outside the territorial waters of this state. It shall be rebuttably presumed that "persons who are regularly engaged in commercial deep sea fishing" do not include persons who have gross receipts from commercial deep sea fishing operations that total less than $20,000 a year with respect to watercraft sold on or after July 29, 1991, and $5,000 a year with respect to watercraft sold during the period January 1, 1980 through July 28, 1991. When determining whether a person has less than the minimum amount of $5,000 or $20,000 (as applicable) in gross receipts from commercial deep sea fishing operations, the first 12-month period after the first functional use of the watercraft shall be used if the person purchasing the watercraft was not engaged in commercial deep sea fishing at the time of purchase. If the person purchasing the watercraft is already engaged in commercial deep sea fishing operations, the person will not be considered to be regularly engaged in the business of commercial deep sea fishing unless receipts from commercial deep sea fishing operations aggregate at least the minimum amount during any consecutive 12-month period which includes the first operational use of the watercraft as to which exemption is claimed. Fish receipts from either commercial deep sea fishing within the territorial waters of this state or from commercial deep sea fishing outside the waters of California may be used to meet the minimum fish receipts requirements. The tax applies with respect to watercraft used in commercial deep sea fishing operations if the principal use occurs within the territorial waters of this state. (3) Transporting Persons or Property to Vessels or Offshore Drilling Platforms. Tax does not apply if the watercraft is used in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state provided that the watercraft is functionally used 80 percent or more of the time in such transportation activities. (b) Use of Watercraft. (1) Interstate or Foreign Commerce. In addition to the requirement that the watercraft be regularly used in the transportation for hire of property and persons, the watercraft for which the exemption is claimed must actually be used principally in interstate or foreign commerce. In determining whether a purchaser or a lessee of a watercraft is using that watercraft in interstate or foreign commerce, only that use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered. (2) Commercial Deep Sea Fishing In addition to the requirement that the watercraft be used by persons who are regularly engaged in commercial deep sea fishing, the watercraft as to which exemption is claimed must itself actually be used principally in commercial deep sea fishing operations outside the territorial waters of this state. In determining whether a buyer or a lessee of a watercraft is using that watercraft in commercial deep sea fishing operations outside the territorial waters of this state, only that use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered. (3) Transporting Persons or Property to Vessels or Offshore Drilling Platforms. In determining whether a purchaser or a lessee of a watercraft is using that watercraft in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state, only that functional use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered. (4) For purposes of this regulation: (A) "Principal use" means more than one-half of the operational use during the test period. (B) "Operational use" or "functional use" means the actual time during which the watercraft is operated and shall not include storage, modification, repair, or replacement. (c) Component Parts of Watercraft. The tax does not apply with respect to tangible personal property becoming a component part of watercraft, exempt under subdivision (a) of this regulation, in the course of constructing, repairing, cleaning, altering or improving that watercraft. (1) Items Included. To be considered a "component part" of a watercraft for purposes of the exemption the property must be an integral part of the watercraft, affixed or attached thereto in a substantial manner when in use. The following examples are illustrative only, and do not constitute a complete list: The hull and all affixed property constituting an integral part thereof. All property affixed or attached to the structure of the watercraft used while thus affixed or attached for navigation or operation, such as: radio transmitters, receivers and other radio equipment, radar equipment, intercommunication systems, winches, anchors, lifeboats, engines, generators, switch-gear, compasses, indicators, levers, control and signal systems, lamps, chains and cables. All property affixed or attached to the structure of the watercraft used while thus affixed or attached for the comfort or convenience of the passengers and crew, such as: built-in bunks, furniture attached by bolts, screws or otherwise, including counters, shelves, stools, railing, stairs, partitions, doors, windows, window shades and curtains, awnings, hardware, stoves, sinks and other plumbing fixtures, and paint. (2) Items Excluded. Property is not considered a component part of a watercraft for purposes of the exemption if it is a kind commonly treated as expense items and is not affixed or attached to the watercraft in a substantial manner when in use. The following examples are illustrative only, and do not constitute a complete list: Portable equipment, furniture, devices and other property, such as; chairs, deck chairs, table or floor radios, table or floor lamps, dishes and other utensils, tables, bedding, linen, mattresses, cots, athletic or recreational equipment (not affixed or attached), pictures, fire extinguishers (portable), tools, brooms, mops, rags, towels, oil, grease, soap, cleaning materials and other consumable supplies. (d) Watercraft Exemption Certificate. The law provides that for the purposes of the proper administration of the sales and use tax and to prevent the evasion of the sales tax it shall be presumed that all gross receipts are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale of watercraft or component parts of watercraft by establishing to the satisfaction of the Board that the gross receipts from the sale are not subject to the tax or by timely taking a watercraft exemption certificate substantially in the form set forth below. The certificate shall relieve the seller from liability for the sales tax only if it is taken in good faith. For special provisions affecting watercraft, see Regulation 1610 (18 CCR 1610), "Vehicles, Vessels and Aircraft". WATERCRAFT EXEMPTION CERTIFICATE I HEREBY CERTIFY: That the watercraft identified below is used ( ) In the transportation by water of persons or property for hire in interstate or foreign commerce [FNa1]; ( ) In commercial deep sea fishing operations outside the territorial waters of this state [FNa1]; ( ) In transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state; That all tangible personal property which I shall purchase from described on purchase orders, or invoices, as tax exempt under Section 6368 of the Sales and Use Tax Law and Regulation 1594 consists of watercraft or tangible personal property becoming a component part of watercraft in the course of constructing, repairing, cleaning, altering, or improving the same, which watercraft will be used principally in the operation checked above. ________ [FNa1] Revenue and Taxation Code section 6368(b) creates a rebuttable presumption that you are not regularly engaged in commercial deep sea fishing if your gross receipts from such operations are less than twenty thousand dollars ($20,000) a year. Revenue and Taxation Code section 6368(c) creates a rebuttable presumption that the watercraft is not regularly used in interstate or foreign commerce if your yearly gross receipts from such operations do not exceed 10 percent of the cost of the watercraft or twenty-five thousand dollars ($25,000), whichever is less. Date Certificate Given _________________________________________ Purchaser ______________________________________________________ (Company Name) Address ________________________________________________________ Signed By ______________________________________________________ (Signature of Authorized Person) ________________________________________________________________ (Print or Type Name) Title __________________________________________________________ (Owner, Partner, Purchasing Agent, etc.) Seller's Permit No. (if any) ___________________________________ and/or Fish and Game License No. _______________________________ Names of Watercraft for which certifying purchaser will be making purchases: _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6368, 6368.1 and 6421, Revenue and Taxation Code. s 1595. Occasional Sales -Sale of a Business -Business Reorganization. (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. (b) Sale or Reorganization of All or Part of a Business. (1) General. In general, when a person sells a business which is required to hold a seller's permit, tax applies to the gross receipts from the retail sale of tangible personal property held or used by that business in the course of its activities requiring the holding of the seller's permit. The gross receipts from the sale of the business include all consideration received by the transferor, including cash, notes, and any other property as well as any indebtedness assumed by the transferee. It is irrelevant that the indebtedness assumed may have arisen solely in connection with the transferor's acquisition of the tangible personal property transferred, the other property transferred, or some combination thereof. That is, the transferor is selling a business, and all consideration received is for that business. The measure of tax is the price agreed to by the parties. In the absence of an agreement as to the price of the tangible personal property, the gross receipts from that sale is allocated among the taxable portion and the nontaxable portion by dividing the selling price of the tangible personal property acquired by the purchaser for use rather than resale by the selling price of the entire business sold, and then multiplying that amount by the total gross receipts (i.e., all consideration) received for the business. Book value will be regarded as establishing the price of properties sold. (See Regulation 1610 for special rules applicable to sales of vehicles, vessels, and aircraft.) (2) Transfers of Substantially All Property Without Substantial Change in Ownership. Tax does not apply to a transfer of all or substantially all the property held or used by a person in the course of activities for which the person 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 after the transfer the real or ultimate ownership of the property is substantially similar to that which existed before such transfer. "Substantially all the property" means 80 percent or more of all the tangible personal property held or used by the person in the course of activities requiring the holding of a seller's permit, including tangible personal property located outside of this state. If a person engages in two or more separate selling activities requiring the holding of a seller's permit, for each of which the person 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, a transfer of 80 percent or more of the tangible personal property held or used in the combined activities must be made in order to qualify for the exemption described in this paragraph. If a person simultaneously transfers all or substantially all of its assets to more than one entity, the transfer will qualify for the exemption if the ownership remains substantially similar. Stockholders, bondholders, partners, or other persons holding an ownership interest rather than a security interest in the corporation or other entity are regarded as having the real or ultimate ownership of the property of the corporation or other entity. 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: Interest in Interest in Interests Common Transferor Transferee Before and After Stockholders Corporation Corporation Transfer A 40% 33 1/3% 33 1/3% B 40% 33 1/3% 33 1/3% C 20 1/3% 20% ----------- ----------- ---------------- 100% 100% 86 2/3% ----------- ----------- ---------------- (3) Statutory Merger. A transfer pursuant to a statutory merger is not a sale but is instead a transfer by operation of law. Thus, tax does not apply to a transfer of property of a constituent corporation to a surviving corporation or new corporation pursuant to a statutory merger under sections 6010-6022, 1100-1305, or 15678.1-15678.9 of the California Corporations Code or similar laws of this state or other states. The surviving corporation stands in the place of each constituent corporation (including the disappearing corporation(s)). As a result, if property acquired by the surviving corporation in the merger had been purchased and held by the constituent corporation for resale, then the surviving corporation must report and pay use tax on the constituent corporation's purchase price if it makes any use of such resale property, just as the constituent corporation would have owed such tax if it had used the property. Similarly, if the constituent corporation had avoided paying tax measured by the purchase price of mobile transportation equipment by making a timely election to report tax on the fair rental value, the surviving corporation must continue to report tax measured by the fair rental value on its leases of the mobile transportation equipment; if the surviving corporation makes any use of that mobile transportation equipment other than leasing it to another person, the surviving corporation must report tax on the purchase price paid by the constituent corporation. (4) Contribution to Commencing Corporation, Limited Liability Company, Partnership, or Joint Venture. The transfer of tangible personal property to a commencing corporation, commencing limited liability company, commencing partnership, or commencing joint venture in exchange solely for first issue stock of the commencing corporation or an interest in the commencing limited liability company, partnership, or joint venture is not a sale since the interest received by the transferor is not regarded as having measurable value at the time of the transfer. The transferor is the consumer of such property. However, such a transfer is a sale if the transferor receives any consideration, such as cash, notes, or an assumption of indebtedness (whether or not the transferor retains any joint liability with respect to the indebtedness assumed by the transferee), and tax applies to that sale unless it otherwise qualifies for exemption. For purposes of determining the measure of tax from the sale, it is irrelevant that any of the transferor's indebtedness assumed by the transferee may have arisen solely in connection with the transferor's acquisition of the tangible personal property transferred, the other property transferred, or some combination thereof. The gross receipts from that sale is allocated among the taxable portion and the nontaxable portion by dividing the selling price of the tangible personal property transferred to the purchaser for use rather than for resale by the selling price of all property transferred and then multiplying that amount by the total gross receipts (i.e., all consideration) received by the transferor. 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. (5) Dissolution of Corporation. A distribution of assets, including tangible personal property, by a corporation upon its dissolution to its stockholders in accordance with their ownership interests is a liquidating dividend and is not a sale when no consideration is received by the corporation other than the stockholders' return of stock certificates for purposes of cancellation. The corporation is the consumer of such property and no tax applies with respect to the transfer provided the corporation'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 stockholders, tax applies measured by that consideration. (6) Dissolution of Limited Liability Company. A distribution of assets, including tangible personal property, by a limited liability company upon its dissolution to its members (i.e., persons holding membership interests and persons holding economic interests) in accordance with their ownership interests is a liquidating dividend and is not a sale when no consideration is received by the limited liability company other than cancellation of the members' interests. The limited liability company is the consumer of such property and no tax applies with respect to the transfer provided the limited liability company'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 members, tax applies measured by that consideration. (7) Dissolution of Partnership. A partnership is a person for sales and use tax purposes. (Revenue and Taxation Code Section 6005.) However, a partnership is defined for general law purposes as an association of two or more persons to carry on as co-owners a business for profit. (Corporations Code Section 15006.) Dissolution of a partnership is caused by withdrawal of a partner or admission of a new partner, unless otherwise provided in an agreement in writing signed by all the partners, including any such withdrawing partner or any such newly admitted partner before such withdrawal or admission. (Corporations Code Section 15031(7).) 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. (8) Dissolution of Joint Venture. For purposes of this paragraph, a joint venture is an undertaking by two or more persons jointly to carry out a single enterprise for profit. The rules applicable to a partnership's liquidating dividends apply to a joint venture's liquidating dividends. The distribution of assets by a joint venture will be regarded as a liquidating dividend, subject to the rules set forth for partnerships, provided at least 80 percent of the purpose of the joint venture has been completed at the time of the distribution. The distribution of the assets of a joint venture prior to 80 percent completion of the purpose of the joint venture cannot qualify as a liquidating dividend and is a sale transaction subject to tax. (9) Sale Following Liquidation. Except as provided in subdivision (c), the transferee's sale of assets acquired in a transfer qualifying as a liquidating dividend, as discussed in this regulation, would be an exempt occasional sale if the property is not sold as part of an activity requiring the holding of a seller's permit and is not one of a series of sales requiring the holding of a seller's permit. (c) Vehicles, Mobilehomes, Commercial Coaches, Vessels, and Aircraft. There is no occasional sale exemption for the sale or use of vehicles required to be registered with the Department of Motor Vehicles, or off-highway vehicles subject to identification under Division 16.5 of the Vehicle Code, mobilehomes and commercial coaches required to be registered with the Department of Housing and Community Development, vessels, or aircraft, as defined by the law and in Regulation 1610 (18 CCR 1610) or in Regulation 1610.2 (18 CCR 1610.2), except when such property is included in a transfer of all or substantially all the property held or used in the course of business activities of the person selling the property and the real or ultimate ownership of the property is substantially similar to that which existed before such transfer. The rules set forth in subdivision (b)(2) of this regulation are applicable in determining under this paragraph whether a transfer is of substantially all the property and whether the ownership is substantially similar. (d) Manufacturers and Wholesalers. A manufacturer, wholesaler, or other person in the business of making sales for resale of tangible personal property of a kind the retail sale of which is taxable, whether or not the property is ever sold at retail or is suitable for sale at retail, is liable for tax measured by receipts from any of the person's retail sales of tangible personal property. (e) Producers of Hay. A producer of hay is required to hold a seller's permit by reason of the producer's sales of hay, regardless of whether the hay is sold for resale or at retail, and regardless of whether the hay sold at retail constitutes feed for any form of animal life of a kind the products of which ordinarily constitute food for human consumption, unless, operative April 1, 1996, the producer is a grower who produces hay for sale only to beef cattle feedlots or dairies or is a grower who sells exclusively through a farmer-owned cooperative. 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: (1) The sale is not one of three or more sales of tangible personal property (other than hay) for substantial amounts in any period of 12 months. (2) The sale is not one of a substantial number of sales of tangible personal property (other than hay) for relatively small amounts in any period of 12 months. (3) The tangible personal property was not also held or used in the course of an activity (other than the production of hay) for which a seller's permit is required, or would be required if the activity were conducted in this state. 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. s 1596. Buildings and Other Property Affixed to Realty. (a) Buildings and Minerals. The transfer of buildings or minerals or the like affixed to land is taxable as a sale of personal property if, pursuant to the contract or agreement of sale, the buildings or minerals or the like are to be severed by the seller thereof. If, pursuant to the contract or agreement of sale, such buildings or minerals or the like are to be severed by the purchaser thereof, such a transfer is not taxable as a sale of personal property. The gross receipts from the sale of or the storage, use, or other consumption in this state of any used mobilehome the initial retail sale of which qualified for the 60 percent exclusion provided for by Revenue and Taxation Code Section 6012.8 for the period January 1, 1980 to June 30, 1980, inclusive, is exempt from the sales and use tax. Operative July 1, 1980, the gross receipts from the sale of, and the storage, use, or other consumption in this state of any used mobilehome subject to local property taxation is exempt from the sales and use tax. The exemptions for sales of used mobilehomes does not extend to accessories or other items as defined in Regulation 1610(b)(3)(B)(1) that are not an integral part of the mobilehome at the time of sale. (b) Timber. The transfer of timber to be severed is taxable as a sale of personal property, regardless of whether the timber is to be severed by the seller or by the purchaser thereof. (c) Fixtures, Machinery and Equipment, and Draperies Affixed to Real Property. The transfer "in place" of affixed fixtures, machinery and equipment, or draperies is taxable as a sale of personal property when removal of the fixtures, machinery or equipment, or draperies by the seller or purchaser is contemplated by the contract of sale. The transfer "in place" of affixed fixtures, machinery and equipment, or draperies owned by a lessee of land or buildings to which those items are affixed, is also taxable as a sale of personal property when the lessee-seller has the present right to remove the items either as trade fixtures under Section 1019 of the Civil Code or under the express terms of the lease. The measure of tax with respect to the sale of fixtures, machinery and equipment, or draperies does not include any value attributable to their attachment to real property, even though such value might be included in the agreed price. In the absence of evidence requiring a different method of computation, when the agreed price includes the value attributable to the attachment of the items, the measure of tax will be determined by applying to the agreed price that percentage which the original cost of the property bears to the total of that cost and the cost of attachment, i.e., cost of items ------------------------------x agreed price = measure of tax. cost of items + cost of attachment Note: Leased property affixed to realty as tangible personal property when lessor has right to remove, see regulation 2060. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference Sections 6006, 6010, 6012.2, 6012.8 6012.9, 6016, 6016.3, 6276, 6276.1 and 6379, Revenue and Taxation Code. s 1597. Property Transferred or Sold by Certain Nonprofit Organizations. (a) In General. Sections 6359.3, 6360, 6361, 6361.1 and 6370 of the Revenue and Taxation Code provide that certain organizations are consumers and not retailers of specified kinds of tangible personal property under certain conditions. The subsections which follow describe the organizations and the kind of tangible personal property involved. (b) Flags Sold by Nonprofit Veterans' Organizations. Any nonprofit veterans' organization is a consumer of and shall not be considered a retailer of flags of the United States which it sells where the profits are used solely and exclusively in furtherance of the purpose of the organization. (c) Prisoners of War Bracelets Transferred by Charitable Organizations. Any charitable organization qualifying for the welfare exemption from property taxation under section 214 of the Revenue and Taxation Code is the consumer of bracelets designed to commemorate American prisoners of war, which it distributes, whether or not a contribution is made to such organization, where the profits are used solely and exclusively in furtherance of the purposes of such organization. (d) Handcrafted or Artistic Tangible Personal Property Sold by Certain Qualified Organizations. Any organization which is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code (26 U.S.C.A.); which, as its primary purpose, provides services to individuals with developmental disabilities or, effective August 3, 1995, to children with severe emotional disturbances, and which does not discriminate on the basis of race, sex, nationality, or religion is the consumer and not the retailer of any tangible personal property sold by them if all of the following conditions are met: (1) The tangible personal property is of a handcrafted or artistic nature and is designed, created, or made by individuals with developmental disabilities or, effective August 3, 1995, by children with severe emotional disturbances, who are members of, or receive services from, the qualified organization. (2) The price of each item of tangible personal property sold does not exceed twenty dollars ($20), or ten dollars ($10) if sold prior to August 3, 1995. (3) The qualified organization's sales are made on an irregular or intermittent basis. (4) The qualified organization's profits from the sales are used exclusively in furtherance of the purposes of the organization. (e) Food Products, Nonalcoholic Beverages and Other Tangible Personal Property Sold by Nonprofit Youth Organizations. (1) A qualified youth organization is the consumer and not the retailer of food products, nonalcoholic beverages, and tangible personal property created by members of the organization, which are sold on an irregular or intermittent basis provided the profits from such sales are used solely and exclusively in the furtherance of the purpose of the organization. (A) "Qualified youth organization" means and includes: 1. any nonprofit organization which qualifies for tax-exempt status under section 501(c) of the Internal Revenue Code (26 U.S.C.A .); which provides a supervised program of competitive sports for youth or promotes good citizenship in youth as its primary purpose; and which does not discriminate on the basis of race, sex, nationality, or religion, or 2. any youth group or club sponsored by or affiliated with a qualified educational institution, including but not limited to any student activity group, e.g., debating team, swimming team, band, or choir. (B) "Qualified educational institution" means and includes: 1. any public elementary, secondary, or vocation-technical school which provides education for either kindergarten; grades 1 through 12, inclusive; or college or university undergraduate programs, or any part thereof, or 2. any nonprofit private school which provides education programs for either kindergarten; grades 1 through 12, inclusive; or college or university undergraduate programs, or any part thereof. Nonprofit private school educational programs must meet the requirements of the State Department of Education and must satisfy the requirements of state and local laws governing private educational institutions in effect on January 1, 1990. The term does not include a nonprofit private school which otherwise qualifies but which discriminates on the basis of race, sex, nationality, or religion. For example, a youth group sponsored by a private school which has enrollment open only to females is not a "qualified youth organization." (C) "Irregular or intermittent" is defined to mean sales made at particular events, such as fairs, galas, parades, scout-a-ramas, games, and similar activities, which are not conducted on a regularly scheduled basis. Sales made at refreshment stands or booths at scheduled events of organized youth sports leagues are considered made on an "irregular or intermittent" basis; however, sales made in storefront or mobile retail outlets which ordinarily require local business licenses do not qualify. (2) The following organizations are "qualified youth organizations" and are consumers, not retailers, of tangible personal property under the circumstances described in paragraph (e)(1): Little League, Bobby Sox, Boy Scouts, Cub Scouts, Girl Scouts, Campfire, Inc., formerly Campfire Girls, Young Men's Christian Association, Young Women's Christian Association, Future Farmers of America, Future Homemakers of America, 4-H Clubs, Distributive Education Clubs of America, Future Business Leaders of America, Vocational Industrial Clubs of America, Collegiate Young Farmers, Boys' Clubs, Girls' Clubs, Special Olympics, Inc., American Youth Soccer Organization, California Youth Soccer Association, North, California Youth Soccer Association, South, and Pop Warner Football. (f) Tangible Personal Property Sold by Certain Nonprofit Organizations. The following organizations are consumers and not retailers of any tangible personal property sold by them if the profits from such sales are used exclusively in the furtherance of the purposes of the organization: (1) Nonprofit parent-teacher associations chartered by the California Congress of Parents, Teachers, and Students, Incorporated, and equivalent organizations performing the same type of service for public or private schools and authorized to operate within the school by the governing authority of the school. (2) Nonprofit associations commonly called Friends of the Library, and equivalent organizations performing auxiliary services to any library district, municipal library, or county library in the state, which are authorized to operate within the library by the governing authority of the library. (3) Nonprofit parent cooperative nursery schools. (g) Resale Certificates: Obligations of Persons Who Sell to Consumers. An organization classed as a consumer under this regulation may not give a resale certificate with respect to the property it transfers. All persons, other than organizations classed as consumers, who make sales of tangible personal property not otherwise exempt, should report tax on their sales unless the purchasers furnish resale certificates which can be accepted in good faith. It will be presumed that all sales of tangible personal property not otherwise exempt, by organizations not classed as consumers, for delivery in this state to purchasers who do not furnish resale certificates which the seller accepts in good faith are subject to sales tax or that the seller is obligated to collect use tax from the purchasers. (h) Taxable Sales of Tangible Personal Property by or Through Nonprofit Organizations. A nonprofit organization is treated as a consumer of tangible personal property it may sell under circumstances described in subdivisions (d), (e) and (f) of this regulation. In other cases, a nonprofit organization is regarded as a retailer of property it sells to consumers, or it is regarded as an agent of the companies which furnish the property to it for delivery to consumers. When a nonprofit organization solicits orders, collects payments, and distributes tangible personal property for a supplier, it is considered to be the agent of that supplier. Accordingly, the supplier, not the organization, is the retailer of the merchandise sold. This is true unless documentation establishes that the nonprofit organization is buying and selling for its own account. The nonprofit organization is presumed to be buying and selling on its own account if all of the following factors are present: 1) the organization solicits the orders from the public in its own name; 2) the organization collects the sale price from the customer in its own name; 3) the organization is responsible for and pays the supplier for the merchandise; and 4) the contract between the organization and the supplier clearly identifies the fact the organization and the supplier clearly identifies the fact the organization will purchase and resell the products to its customers. If it is selling for its own account, the nonprofit organization will be required to obtain a permit and will be considered the retailer, unless the supplier has been classified by the Board as a retailer under Revenue and Taxation Code Section 6015 or the nonprofit organization is classified under subdivisions (d), (e) and (f) of this regulation. If the supplier is a 6015 retailer, the supplier must pay the tax and the organization does not need a seller's permit. The measure of tax is the amount charged to the consumer. When this price is unknown by the supplier, tax will apply to the suggested retail selling price. If the nonprofit organization is classified as a consumer under subdivisions (d), (e) and (f) of this regulation, the supplier will calculate tax measured by the selling price to the nonprofit organization. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6359.3, 6360, 6361, 6361.1 and 6370, Revenue and Taxation Code; and Scholastic Book Clubs, Inc. v. State Board of Equalization (1989) 207 Cal. App. 3d 734. s 1598. Motor Vehicle and Aircraft Fuels. (a) In General. Sales tax or use tax applies to the sale or use of fuel for propelling motor vehicles or aircraft or for other purposes, except as stated below. (b) Exceptions. (1) Neither the sales tax nor the use tax applies to the sale or use of motor vehicle fuel used in propelling aircraft, the distribution of which in this state is subject to the tax imposed by Part 2 (commencing with Section 7301) of Division 2 of the Revenue and Taxation Code. This type of fuel includes gasoline and similar fuels but does not include aircraft jet fuel. (See subdivision (g) for requirements for supporting aircraft fuel exemptions.) (2) Neither the sales tax nor the use tax applies to the sale or use of aircraft fuel sold to an air common carrier for immediate consumption or shipment in its business as an air common carrier on a flight whose final destination is a foreign destination (see Regulation 1621, Sales to Common Carriers). (c) Measure of Tax. (1) The measure of tax includes: (A) The tax imposed by the United States upon importers or producers of gasoline, diesel, and jet fuel, except as provided in (c)(2)(D) and (c)(2)(E), (B) The tax imposed upon distributors of gasoline and similar fuels by the State of California pursuant to Part 2 of Division 2 of the Revenue and Taxation Code, and which has not been refunded, and (C) The tax imposed by the State of California on aircraft jet fuel pursuant to Chapter 2.5 of Part 2 of Division 2 of the Revenue and Taxation Code. (2) The measure of tax does not include: (A) The use fuel tax, including the annual flat rate fuel tax, imposed by the State of California pursuant to Part 3 of Division 2 of the Revenue and Taxation Code on the following fuels: 1. Compressed natural gas. 2. Liquid natural gas. 3. Liquefied petroleum gas. 4. Ethanol or methanol containing not more than 15 percent gasoline or diesel fuel. 5. All other fuels not taxed under Parts 2 or 31 of Division 2 of the Revenue and Taxation Code. (B) The diesel fuel tax, imposed by the State of California pursuant to Part 31 of Division 2 of the Revenue and Taxation Code. (C) The federal retailer's excise taxes on: 1. Gasoline used as a fuel in noncommercial aircraft. 2. Jet fuel used as a fuel in noncommercial aircraft. 3. Diesel fuel. 4. Special motor fuels. (D) Prior to July 1, 1995, the federal excise tax imposed pursuant to Section 4091 of the Internal Revenue Code with respect to diesel fuel and jet fuel for which the purchaser certifies that he or she is entitled to either a direct refund or credit against his or her income tax for the federal excise tax paid. (See subdivision (h) for requirements for supporting claimed exclusions.) (E) Beginning July 1, 1995, the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, and jet fuels for which the purchaser certifies that he or she is entitled to either a direct refund or credit against his or her income tax for the federal excise tax paid. (See subdivision (h) for requirements for supporting claimed exclusions.) (F) Beginning January 1, 2001, the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, and jet fuels for which the purchaser provides a valid certificate pursuant to subdivision (i). (d) Sales of Motor Vehicle Fuel on Sales Tax-Included Basis. Sales tax reimbursement will be deemed included in the total price per gallon of gasoline dispensed through an apparatus on which there is a price per gallon display including all taxes as required by Business and Professions Code Section 13470. Sales tax reimbursement will be deemed included in the total price per gallon of other motor vehicle fuel if the retailer posts on the premises a notice reading substantially as follows: "The price per gallon of all motor vehicle fuel includes reimbursement for applicable sales taxes computed to the nearest mill." Following are examples of prices computed on a tax-included basis: (A) Sales price per gallon of gasoline net of all taxes..... $1.153 Federal excise tax [FNa1] .............................. .184 State excise tax [FNa1] ................................ .180 _______ Total $1.517 [FNa1] Sales tax reimbursement computed at 7 1/4% [FNa1] of $1.517 ............................................. .110 _______ Total tax-included price per gallon .................... $1.627 (B) Sales price per gallon of diesel fuel net of all taxes [FNa1] ............................... $1.103 Federal excise tax [FNa1] .............................. .244 Total $1.347 [FNa1] Sales tax reimbursement computed at 7 1/4% [FNa1] of $1.347 ............................... .098 State excise tax [FNa1] ................................ .180 _______ Total tax-included price per gallon .................... $1.625 [FNa1] The rates used are for purposes of this example only. The rates in effect at the time of the sale and at the place where the business is located must be used in computing the tax-included selling price of fuel. (e) Application of Sales or Use Tax to Fuel Furnished With Leased Vehicles or Aircraft. The lessor is the retailer of fuel furnished to a lessee of a vehicle or an aircraft if the sales price of the fuel is separately stated from the rental charge for the vehicle or aircraft. The lessor is also the retailer of fuel furnished to a lessee under a lease which is a "sale" or "purchase" (see Regulations 1660 and 1661) and under which the rental charge includes fuel for the operation of the vehicle or aircraft (such arrangements are sometimes called "wet rentals"). The lessor may purchase such fuel for resale. The lessor is the consumer of fuel furnished to a lessee of a vehicle or an aircraft under a lease which is not a "sale" or "purchase" (see Regulations 1660 and 1661) and under which the rental charge includes fuel for the operation of the vehicle or aircraft. If a lessor of mobile transportation equipment elects under Regulation 1661 to report and pay use tax measured by the "fair rental value" of the mobile transportation equipment leased, the "fair rental value" does not include the sale price to the lessor of fuel which is furnished under the lease to the lessee. (f) Refunds of Excise Tax (1) Federal Excise Taxes. The refund of the federal excise tax on gasoline, diesel, or jet fuel (either by direct refund or as a credit against income tax) is an adjustment to the sales price of the gasoline, diesel, or jet fuel. Accordingly, the retailer who paid the sales tax or the purchaser who paid use tax measured by the sales price of the gasoline, diesel, or jet fuel which included that federal excise tax may file with the Board a claim for refund of tax measured by the amount of the federal excise tax so refunded or credited. The claim must be supported by proof of the exempt use of the gasoline, diesel, or jet fuel and of the refund or credit of the federal excise tax to the purchaser. (2) Sales or Use Tax Refunds. If the sales or use tax refund is made to a person other than the consumer, the person receiving the refund must pay it to the consumer. (g) Supporting Data for Aircraft Fuel Exemptions. Sellers of motor vehicle fuel which, at the time of sale, is exempt from sales and use tax under subdivision (b)(1), shall secure and retain documentary evidence to support their exempt sales. (1) The exemption with respect to motor vehicle fuel sold and delivered directly into the fuel supply tank of aircraft may be supported either by a properly completed sales invoice or an aircraft fuel exemption certificate in the form prescribed in subdivision (g)(2). If a sales invoice is used, it must show the purchaser's name and address, the aircraft identification number, the number of gallons sold, the price per gallon, the amount of sale, the date of sale, and the name and address of the seller. (2) The exemption with respect to retail sales of motor vehicle fuel delivered into the purchaser's storage facilities or receptacles other than the fuel tanks of aircraft, for use in propelling aircraft shall be supported by an aircraft fuel exemption certificate and an invoice. An exemption certificate in substantially the following form and signed by the purchaser shall be retained by the seller as evidence to support such exempt sales. The exemption certificate will be valid until revoked in writing by the purchaser. Exemption Certificate for Motor Vehicle Fuel for Propelling Aircraft This certificate may be issued by a purchaser for purchases of motor vehicle fuel (other than aircraft jet fuel) for use in propelling aircraft. I HEREBY CERTIFY: That I am the owner or operator of the aircraft identified below; that the motor vehicle fuel which I shall purchase from__________________________________________________________, will be used in propelling aircraft: and that the distribution of this fuel is subject to the tax imposed by the Motor Vehicle Fuel License Tax Law (Revenue and Taxation Code section 7301 et seq.) and not subject to refund. In the event that any of this motor vehicle fuel is used for purposes other than propelling aircraft, it is understood that I am required by the Sales and Use Tax Law to report and pay tax measured by the purchase price of such fuel. This certificate is valid until revoked in writing by the purchaser. Purchaser: __________ __________ __________ __________ (Company Name) Address: __________ __________ __________ __________ Phone Number: __________ __________ __________ __________ Signature: __________ Date: __________ __________ __________ (Signature of Authorized Agent) Title: __________ __________ __________ __________ (Owner, Partner, Purchasing Agent, etc.) Seller's Permit No. (if any): __________ __________ __________ __________ Identification Numbers of Aircraft Owned or Operated __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ (h) Certificate for Exclusion of Federal Excise Taxes from Measure of Tax. Sellers of gasoline, diesel or jet fuel for which the purchaser claims exclusion from the measure of tax under subdivision (c)(2)(D) or (c)(2)(E) shall secure from the purchaser and retain a certificate in substantially the form prescribed in subdivision (h)(1). (1) The certificate prescribed below shall relieve the seller from liability for any tax due only if it is timely taken in good faith. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of property to the purchaser. The certificate will be valid until revoked in writing by the purchaser. Certificate for the Exclusion of Sales and Use Tax on Federal Excise Taxes This certificate may be issued by a purchaser whose entire fuel purchase is entitled to a direct refund or credit for the federal excise taxes for income tax purposes. This certificate entitles the seller to exclude the amount of federal excise taxes imposed on fuel purchases from the measure of sales and use tax. I HEREBY CERTIFY: That I am entitled to either a direct refund or credit against my income tax for the federal excise tax paid pursuant to Internal Revenue Code Section 4081 or 4091 for the gasoline/diesel/jet fuel I shall purchase from __________ __________ __________. In the event the fuel is not used in a manner which entitles me to a direct refund or credit against my income tax or if I do not receive such refund or credit, it is understood I am required by the Sales and Use Tax Law to report and pay tax measured by the amount of federal excise tax paid to the extent the seller has not remitted sales or use tax measured by that amount. This certificate is valid until revoked in writing by the purchaser. Purchaser: __________ __________ __________ __________ (Company Name) Address: __________ __________ __________ __________ Phone Number: __________ __________ __________ __________ Signature: __________ Date: __________ __________ __________ (Signature of Authorized Agent) Title: __________ __________ __________ __________ (Owner, Partner, Purchasing Agent, etc.) Seller's Permit No. (if any): __________ __________ __________ __________ (2) Any person, including any officer or employee of a corporation who gives the certificate described in subdivision (h)(1) and who knows at the time of purchase that he or she is not entitled to either a direct refund or credit against his or her income tax is liable to the state for the amount of sales or use tax that would be due had he or she not given the certificate. In addition to the tax, interest, and other penalties, the person is liable for a penalty of 10 percent of the tax or five hundred dollars ($500), whichever is greater, for purchases made for personal gain or to evade payment of taxes. (i) Alternate Certificate for Exclusion of Federal Excise Taxes from Measure of Tax. On and after January 1, 2001, a purchaser of gasoline, diesel, or jet fuel who is qualified under subdivision (i)(1) may issue a certificate in substantially the form set forth in subdivision (i)(3) to the seller of that fuel. A seller who takes and retains such certificate shall be relieved of liability for tax due measured by the federal excise taxes imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code on the fuel sold under the certificate, provided the certificate is timely taken in good faith. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of property to the purchaser. The certificate will be valid until revoked in writing by the purchaser. (1) A purchaser is qualified and may issue a certificate under subdivision (i) if satisfying all the following requirements: (A) The purchaser was entitled to either a direct refund or credit against his or her income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of all the purchaser's purchases of gasoline, diesel, and jet fuel during the prior calendar year on an aggregate basis. A purchaser who was entitled to a direct refund or credit against his or her income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of that purchaser's purchases of one type of fuel, e.g., diesel, but not more than 50 percent of all that purchaser's purchases of gasoline, diesel, and jet fuel on an aggregate basis is not a qualified purchaser, and may not issue a certificate under this subdivision, for any of that purchaser's purchases of fuel. (B) The purchaser's business remains substantially the same as during the prior calendar year whereby the purchaser reasonably expects to be entitled to either a direct refund or credit against his or her income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of the purchaser's purchases of gasoline, diesel, and jet fuel on an aggregate basis. (C) The purchaser holds a valid California seller's permit. (2) With respect to any fuel purchased under the certificate which is used in a manner whereby the purchaser is not entitled to a direct refund or credit against his or her income tax of the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code, the purchaser is liable for use tax on the amount of that federal excise tax. The purchaser must report and pay such use tax with the purchaser's return for the period in which the fuel was used. A certificate may not be issued under this subdivision when the purchaser knows that all of the fuel that would be purchased under the certificate will be used in a manner whereby the purchaser is not entitled to a direct refund or credit against his or her income tax of the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code. (3) A certificate issued under this subdivision shall be in substantially the following form: Revenue and Taxation Code Section 6245.5 Certificate for the Exclusion of Sales and Use Tax on Federal Excise Taxes This certificate may be issued for purchases of gasoline, diesel, or jet fuel by a purchaser who meets all the required conditions. This certificate entitles the seller to exclude the amount of federal excise taxes imposed on such fuel purchases from the measure of sales and use tax. I HEREBY CERTIFY that I satisfy all of the following conditions: 1. I was entitled to either a direct refund or credit against my income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of my purchases of gasoline, diesel, and jet fuel on an aggregate basis during the prior calendar year. 2. My business remains substantially the same as during the prior calender year such that I reasonably expect to be entitled to either a direct refund or credit against my income tax for the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for more than 50 percent of my purchases of gasoline, diesel, or jet fuel on an aggregate basis. 3. I hold a valid California seller's permit, the number for which is set forth below. With respect to any fuel that is not used in a manner which entitles me to a direct refund or credit against my income tax of the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code, or if I do not receive such refund or credit, I will report and pay tax, measured by the amount of the federal excise tax that had been paid in connection with that fuel, with my return for the period on which the fuel is used. This certificate is valid until revoked in writing by the purchaser. Purchaser: __________ __________ __________ __________ (Company Name) Address: __________ __________ __________ __________ Signature: __________ Date: __________ __________ __________ (Signature of Authorized Agent) Phone Number: __________ __________ __________ __________ Title: __________ __________ __________ __________ (Owner, Partner, Purchasing Agent, etc.) Seller's Permit No. (if any): __________ __________ __________ __________ Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011, 6012, 6245.5, 6357, 6357.5, 6385 and 6423, Revenue and Taxation Code. s 1598.1. Diesel Fuel Prepayment Exemption. (a) Definitions. (1) "Bulk deliveries" mean transfers of diesel fuel into storage tanks holding 500 gallons or more. (2) "Cardlock, keylock, or other unattended mechanism" means an unattended, completely automated fueling station at which a purchaser obtains diesel fuel through use of a coded card or key and an access code. Charges for sales of diesel fuel to customers are usually consolidated at a central location and periodically invoiced to the purchaser. (3) A "diesel fuel consumer" or "diesel fuel consumers" mean a person or persons that use diesel fuel in a manner that qualifies for the partial sales and use tax exemption set forth in Revenue and Taxation Code section 6357.1 and Regulation 1533.2,Diesel Fuel Used in Farming Activities or Food Processing. (4) "Diesel fuel," for purposes of the imposition of the prepayment of sales tax, is defined in Revenue and Taxation Code section 6480(c) (by reference to Revenue and Taxation Code section 60022) and means any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle. A liquid meets this requirement if, without further processing or blending, the liquid has practical and commercial fitness for use in the engine of a diesel-powered highway vehicle. However, a liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the engine of a diesel-powered highway vehicle. Diesel fuel does not include gasoline, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, or alcohol. Diesel fuel does not include the water in a diesel fuel and water emulsion of two immiscible liquids of diesel fuel and water, which emulsion contains an additive that causes the water droplets to remain suspended within the diesel fuel, provided the diesel fuel emulsion meets standards set by the California Air Resources Board. (5) "Qualified retailer" means a person who meets the requirements of subdivisions (b)(1) through (b)(5). (6) "Seller" means either the supplier or the wholesaler, as those terms are defined in Revenue and Taxation Code section 6480(c), that sells diesel fuel to a qualified retailer. (7) "Total taxable sales" means the gross receipts from the sale of tangible personal property subject to tax, including sales of diesel fuel. (b) Application of Tax. Commencing on and after October 9, 2002, a seller of diesel fuel is not required to collect the prepayment of sales tax on that percentage of diesel fuel specified in the retailer's diesel fuel prepayment exemption certificate that is otherwise required by Revenue and Taxation Code section 6480.1, provided the diesel fuel is sold to a retailer who: (1) Will resell the diesel fuel in the ordinary course of business, (2) Issues a diesel fuel prepayment exemption certificate to the seller as set forth in subdivision (c), (3) Sells diesel fuel to a diesel fuel consumer, (4) During the calendar year immediately preceding any purchases of diesel fuel, sold diesel fuel to diesel fuel consumers in which the gross receipts from such sales exceeded 25 percent of that retailer's total taxable sales, and (5) Sold more than 50% of its diesel fuel through bulk deliveries or through a cardlock, keylock, or other unattended mechanism, or both. For purposes of calculating the percentages set forth in subdivision (b)(4) above, the numerator shall be the sum total of amounts entered on Form BOE 401GS line 10(e)(4) (Amount Subject to the Diesel Fuel Used in Farming and Food Processing Exemption) for each return filed during the preceding calendar year and the denominator shall be the sum total of amounts entered on line 14(a) (Transactions Subject to County Tax) for each return filed during the preceding calendar year. (c) Prepayment Exemption Certificate. (1) In General. A seller of diesel fuel who takes a diesel fuel prepayment exemption certificate timely and in good faith, as defined in subdivision (c)(5), from a qualified retailer, is relieved from the liability for the sales tax prepayment subject to the exemption under this regulation, or the duty of collecting the sales tax prepayment subject to exemption under this regulation. A diesel fuel prepayment exemption certificate will be considered timely if it is taken any time before the seller bills the qualified retailer for the diesel fuel, any time within the seller's normal billing or payment cycle, or any time at or prior to delivery of the diesel fuel to the qualified retailer. A diesel fuel prepayment exemption certificate which is not taken timely will not relieve the seller of the liability for the sales tax prepayment excluded by the exemption; however, the seller may present satisfactory evidence to the Board that the seller sold the diesel fuel to a qualified retailer. A diesel fuel prepayment exemption under this part shall not be allowed unless the seller claims the exemption on its sales and use tax return for the reporting period during which the transaction subject to the diesel fuel prepayment exemption occurred. The diesel fuel prepayment exemption certificate form set forth in the Appendix may be used to claim the diesel fuel prepayment exemption. (2) Blanket Prepayment Exemption Certificate. In lieu of requiring a diesel fuel prepayment exemption certificate for each transaction, a qualified retailer may issue a blanket diesel fuel prepayment exemption certificate. The diesel fuel prepayment exemption certificate form set forth in the Appendix may be used as a blanket diesel fuel prepayment exemption certificate. The diesel fuel prepayment exemption certificate in the Appendix may also be used as a specific diesel fuel prepayment exemption certificate if the qualified retailer provides the purchase order or sales invoice number and a precise description of the property being purchased. A blanket diesel fuel prepayment exemption certificate is only valid during the calendar year in which it is provided to the seller. (3) Form of Prepayment Exemption Certificate. Any document, such as a letter or purchase order, timely provided by the qualified retailer to the seller will be regarded as a diesel fuel prepayment exemption certificate with respect to the sale of diesel fuel if it contains all of the following essential elements: (A) The signature of the qualified retailer, qualified retailer's employee, or authorized representative of the qualified retailer. (B) The name, address and telephone number of the qualified retailer. (C) The number of the seller's permit held by the qualified retailer. (D) A statement setting forth the requirements of subdivisions (b)(1) through (b)(5). (E) A statement of what percentage of total diesel fuel purchases will be resold to diesel fuel consumers. (F) Date of execution of document. (4) Retention and Availability of Prepayment Exemption Certificates. A seller must retain each diesel fuel prepayment exemption certificate received from a qualified retailer who purchases diesel fuel for resale to diesel fuel consumers for a period of not less than four years from the date on which the qualified retailer claims an exemption for sales tax prepayment based on the diesel fuel prepayment exemption certificate. The Board may require, within 45 days of the Board's request, sellers to provide the Board access to any and all diesel fuel prepayment exemption certificates, or copies thereof, accepted for the purposes of supporting the diesel fuel prepayment exemption. (5) Good Faith. A seller will be presumed to have taken a diesel fuel prepayment exemption certificate in good faith in the absence of evidence to the contrary. However, a diesel fuel prepayment exemption certificate cannot be accepted in good faith where the seller has knowledge that the diesel fuel will not be sold to a retailer who meets the requirements of subdivisions (b)(1) through (b)(5), will not otherwise be used by diesel fuel consumers, or that the percentage listed on the exemption certificate for sales tax prepayment is inaccurate. A blanket diesel fuel prepayment exemption certificate utilized for sales occurring in a subsequent calendar year in which the blanket diesel fuel prepayment exemption certificate was initially provided to the seller is not accepted in good faith for sales occurring in that subsequent calendar year. (d) Retailer's Liability for the Payment of Tax. (1) A qualified retailer providing a diesel fuel prepayment exemption certificate pursuant to subdivision (c) is liable for the taxes imposed by the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, and the tax that is imposed under Revenue and Taxation Code section 6051.2 or 6201.2, or under section 35 of article XIII of the California Constitution on the sale of diesel fuel to diesel fuel consumers. (2) A qualified retailer providing a diesel fuel prepayment exemption certificate pursuant to subdivision (c) is liable for sales tax on any portion of the gross receipts derived from the sale of diesel fuel that is not sold to diesel fuel consumers. (3) A qualified retailer that is liable for the tax under the provisions of subdivisions (d)(1) or (d)(2) shall report and pay that tax with the sales and use tax return filed for the reporting period during which the qualified retailer sells the diesel fuel. (e) Improper Use of Prepayment Exemption Certificate. Any person who gives a diesel fuel prepayment exemption certificate pursuant to this regulation for the purpose of evading the prepayment of sales tax on sales of diesel fuel that he or she knows at the time of sale do not qualify for the diesel fuel prepayment exemption is guilty of a misdemeanor punishable as provided in Revenue and Taxation Code section 7153. In addition, such person shall be liable to the state for a penalty of one thousand dollars ($1,000) for each diesel fuel prepayment exemption certificate issued for personal gain or to evade the prepayment of sales tax. (f) Records. Adequate and complete records must be maintained by the seller and qualified retailer as evidence that the diesel fuel qualifies for the diesel fuel prepayment exemption. (g) Operative Date. This regulation is operative as of October 9, 2002. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6357.1, 6480, 6480.1 and 6480.3, Revenue and Taxation Code. s 1598.5. Organic Fuels and Waste Byproducts Used for Fuel Purposes. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6358.1, Revenue and Taxation Code. s 1599. Coins and Bullion. (a) General. (1) Sales of Coins. The transfer of coins for use solely as a medium of exchange, i.e., as legal tender, is not subject to tax even though the transferee pays an amount exceeding the face amount. For example, tax does not apply to a transaction whereby a coin changer returns only 95 cents on a dollar. On the other hand, tax does apply to sales of coins as collector's items or as an investment, except as otherwise specified in this regulation. (2) Sales of Gold or Silver Bullion. Tax applies to sales of gold or silver bullion except as provided in subdivision (a)(3) below. (3) Sales in Bulk of Monetized Bullion, Nonmonetized Gold or Silver Bullion, and Numismatic Coins. Sales in bulk of "monetized bullion," nonmonetized gold or silver bullion, and numismatic coins which sales are substantially equivalent to transactions in securities or commodities through a national securities or commodities exchange, are exempt from both the sales tax and the use tax. The exemption for sales in bulk of nonmonetized gold or silver bullion and numismatic coins is effective with respect to sales occurring on and after January 1, 1986. "Monetized bullion" means coins or other forms of money manufactured of gold, silver, or other metal and heretofore, now, or hereafter used as a medium of exchange under the laws of this state, the United States, or any foreign nation. The medium of exchange must have had a legal status equivalent to legal tender. Effective September 28, 1983, "monetized bullion" includes gold medallions struck under authority of the American Arts Gold Medallion Act (Title IV of Public Law 95-630). Nonmonetized bullion means gold or silver which has been smelted or refined and has a value dependent primarily upon its gold or silver content and not upon its form. Neither the sales tax nor the use tax applies to sales of "monetized bullion," nonmonetized gold or silver bullion, and numismatic coins provided the following conditions are met: (A) The sale is in bulk amount. A sale in bulk occurs if the total market value of the monetized bullion, nonmonetized gold or silver bullion, and numismatic coins sold in a single transaction is $1,000 or more or is equal to or exceeds the adjusted amount as computed by Revenue and Taxation Code Section 6355. For purposes of this regulation, market value means sales price as defined in Section 6011 of the Sales and Use Tax Law. (B) The sale is by or through a person registered pursuant to the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) or not required to be registered under the Commodity Exchange Act. (4) Sales of Commemorative "California Gold" Medallions. Effective September 27, 1985, tax does not apply to the sale of or the storage, use, or other consumption in this state of commemorative "California Gold" medallions produced and sold in accordance with Chapter 25 (commencing with Section 7551) of Division 7 of Title 1 of the Government Code. (b) Application of Tax to Specific Types of Transactions. (1) Options to Buy. "Options to buy" are contracts in which the seller agrees to sell specified property, usually at a predetermined price, while the buyer obtains the right but not the duty to purchase the property. Accordingly, the "buyer" has the option to purchase the property but may decide not to purchase without breaching the contract. A sale happens if the buyer exercises his or her option to purchase the property and tax applies at the time the option is exercised unless the sale is otherwise exempt. On the other hand, if the option is not exercised, no sale happens and no tax applies. (2) Options to Sell. "Options to sell" are contracts in which the buyer agrees to buy specified property, usually at a predetermined price, while the seller obtains the right but not the duty to sell the property. A sale happens if the option is exercised and tax applies unless otherwise exempt. (3) Future Sales and Purchases. A contract to sell and buy goods in the future obligates the seller to sell and the buyer to buy goods at a particular time in the future. The price of the goods is usually set at the time of contracting, but neither the title nor possession of the goods is then transferred. If the title (or the possession in lieu of title) is later transferred, the sale happens, and tax applies unless the sale is otherwise exempt. However, the seller and the buyer or their assignees may agree to cancel the contract before performance. If they do so, no sale happens and no tax applies. "Future" sales do not include present sales of tangible personal property for future delivery. (4) Present Sales for Future Delivery. A present sale for future delivery is a contract in which the title is intended to pass from seller to buyer at the time the contract is entered but the seller is not obligated to deliver possession of the goods until some future date. The sale happens when title passes and tax applies unless the sale is otherwise exempt. (5) Credit Transactions. When a consumer makes a down payment and enters a contract for the purchase of coins, the parties may regard it as a credit transaction. But the sale may or may not happen at the time the "credit" is extended. In some instances, the buyer receives a loan of the balance of the purchase price, and the title to the coins is transferred to the buyer. But the creditor, who may be the buyer's broker or the seller, retains possession of the property owned by the buyer as collateral for the loan to him or her. The buyer's creditor has the power to sell the buyer's property and pay off the loan if the market price of the property falls and approaches the amount of the loan. Often the broker or seller has power to repledge the property to his or her creditor to secure a loan to him or her. In any event a sale of tangible personal property to the consumer happens and tax applies unless otherwise exempt. These transactions are usually referred to as "margin" or "margined" purchases. In other instances, the contract conditions the passage of title to the goods to the buyer on his or her payment of the full purchase price (conditional sales contract). The seller does not deliver possession of the goods until the payment of the full purchase price. Under this arrangement neither title nor possession in lieu of title can pass until full payment, and so a sale cannot happen until then. The seller and the buyer can agree to cancel the contract before title passes to the buyer and so no sale may ever happen under the contract. But if the title does pass after full payment, the sale happens and tax applies unless otherwise exempt. Because the seller may hold goods for the buyer, and the market price of the goods may fluctuate, the seller may regard the contract as an extension of credit to the buyer or may refer to the transaction as a "margin" or "margined" purchase. Other "credit" arrangements are possible. Each transaction must be examined to determine if or when a sale or purchase happened. (6) Fees. "Fees" charged by a seller for services in connection with the sale of coins, silver and gold bullion, or other precious metals are a part of the sales price of the property with the exception of insurance, interest, finance and carrying charges as provided in Regulation 1641 (18 CCR 1641) with respect to credit sales. (7) Interstate Sales. The same rules with respect to interstate sales that are applicable to sales and purchases of other tangible personal property also apply to sales of coins, silver and gold bullion, and other precious metals. (c) Purchase of Coins and Bullion as Investment. Purchases of coins and bullion as investments are purchases at retail. It is immaterial that a gain, benefit, or advantage may not be realized until the resale of the coins and bullion. A resale certificate may not be issued for purchases for this purpose. A person purporting to hold coins or bullion solely for resale in the regular course of business must be able to prove that they actively engage in business as a seller of coins and bullion. The following are some examples of relevant evidence: (1) The number, scope, and character of the person's purchases and sales of coins or bullion. (2) Evidence of the person's continuing efforts to advertise and sell coins or bullion. (3) Evidence that the person held out to the public that they were engaged in business as a seller of coins or bullion at an identified place of business. (4) The manner in which income from transactions in coins or bullion was reported by that person for income tax purposes. (5) Whether a local business license was issued to that person to engage in sales of coins or bullion. Sellers' permits may be held only by persons actively engaging in the business of selling tangible personal property. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6008, 6009, 6011, 6354 and 6355, Revenue and Taxation Code. s 1602. Food Products. (a) In General. Tax does not apply to sales of food products for human consumption except as provided in Regulations 1503, 1574, and 1603. (Grocers, in particular, should note that tax applies to sales of "hot prepared food products" as provided in Regulation 1603(e).) (1) "Food products" include cereal and cereal products, including malt and malt extracts, milk and milk products, including ice cream, ice milk and ice cream and ice milk novelties, sherbets, imitation ice cream and imitation ice milk, dried milk products, sugar of milk, milk shakes, malted milks, and any other similar type beverages composed at least in part of milk or a milk product and requiring the use of milk or a milk product in their preparation, oleomargarine, meat and meat products, fish and fish products, eggs and egg products, vegetables and vegetable products, including dehydrated vegetables, fruit and fruit products, spices and salt, coffee and coffee substitutes, tea, cocoa and cocoa products, sugar and sugar products, baby foods, bakery products, marshmallows, baking powder, baking soda, cream of tartar, coconut, flavoring extracts, flour, gelatine, jelly powders, mustard, nuts, peanut butter, sauces, soups, syrups (for use as an ingredient of, or upon, food products as defined herein), yeast cakes, olive oil, bouillon cubes, meat extracts, popcorn, honey, jams, jellies, certo, mayonnaise, and flavored ice products, including popsicles and snow cones. "Food products" include candy, confectionery, chewing gum, and snack foods except as provided in subdivisions (a)(3) and (a)(4) below. (2) "Food products" include all fruit juices, vegetable juices, and other beverages, whether liquid or frozen, including all beverages composed in part of fruit or vegetable juice and concentrates, powders, or other bases for such beverages, and noncarbonated and noneffervescent bottled water [intended for human consumption regardless of the method of delivery]. "Food products" does not include carbonated or effervescent bottled waters, spirituous, malt or vinous liquors, or carbonated beverages. For the period July 15, 1991 through November 30, 1992, "food products" does not include noncarbonated and noneffervescent bottled water. Sales of purified drinking water through vending machines or outlets in retail stores where the water enters the machine or outlet through local supply lines and is dispensed into the customer's own containers are exempt under Revenue and Taxation Code section 6353. Tax does not apply to sales of water in bulk quantities of 50 gallons or more to an individual for use in a residence when that residence is not serviced by lines, mains or pipes. (3) For the period July 15, 1991 through November 30, 1992, "food products" do not include nonmedicated chewing gum and breath mints. (4) "Food products" do not include medicines, cough drops, mineral oils, cigarettes, cigars, tobacco, coloring extract, ice, and dog, cat, bird and other animal foods, and for the period July 15, 1991 through November 30, 1992, candy, confectionery, and snack foods. 1. "Snack foods" does not include doughnuts, breads, pastry and other bakery products (other than cookies, crackers, snack cakes and pies). 2. "Snack foods" does not include nuts or nut meats, seeds, or dried fruit snacks. 3. "Snack foods" does not include beef jerky and similar dried meat products, natural pork skins, hot dogs, franks, weiners, sausages, canned meat products, or sandwich meats whether sliced or unsliced. 4. "Soda crackers" are a thin, crisp saltine wafer or biscuit made with flour, yeast, water, shortening, salt, and soda. The term does not include such bakery items which are chemically leavened or contain one or more flavoring agents, for example, honey, sugar, or molasses. The term also does not include panned butter, malt, milk, fat sprayed, cheese, and pilot bread crackers. (B) "Snack foods" means items which are sold in a condition suitable for immediate consumption without further processing such as cooking, heating, or thawing. 1. "Fabricated snacks" means snacks made from components, including food components, which are processed and formed. "Fabricated snacks" includes, but is not limited to, such items as grain cakes, shoestring potato snacks, food bars or squares, and extruded snacks. The term does not include "meal replacement bars" which supply, per serving (as defined by the manufacturer), at least 250 calories and 25% of the U.S. RDA of vitamins and minerals (as established by regulations of the United States Food and Drug Administration). 2. "Extruded snacks" includes, but is not limited to, curls, puffs, twists, balls, filled snacks, and pellet-based snacks. (C) "Snack cakes or pies" means cakes or pies which are baked or fried in individual serving sizes or cut and pre-wrapped or pre-packaged for subsequent sale in individual serving sizes, whether sold individually or packaged together. A package of single-serving items is subject to tax. The term does not include whole cakes or pies nor does it include a slice of pie or cake which is not pre-wrapped or pre-packaged at the time of sale. (D) "Granola snacks" means granola bars and squares but does not include granola sold in bulk, cereals, and trail mixes. (E) Candy and Confectionery. For the period July 15, 1991 through November 30, 1992, tax applies to sales of candy and confectionery, which includes chocolate-coated nuts, candied fruits, crystallized fruits and glace fruits. (5) "Food products" do not include any product for human consumption in liquid, powdered, granular, tablet, capsule, lozenge, or pill form (A) which is described on its package or label as a food supplement, food adjunct, dietary supplement, or dietary adjunct, and to any such product (B) which is prescribed or designed to remedy specific dietary deficiencies or to increase or decrease generally one or more of the following areas of human nutrition: 1. Vitamins 2. Proteins 3. Minerals 4. Caloric intake In determining whether a product falls within category (B), it is important whether the manufacturer has specially mixed or compounded ingredients for the purpose of providing a high nutritional source. For example, protein supplements and vitamin pills are taxable as food supplements. Other items, such as cod liver oil, halibut liver oil, and wheat germ oil, are considered dietary supplements and thus subject to tax even though not specially compounded. However, unusual foods such as brewer's yeast, wheat germ and seaweed are not subject to tax except when their label states they are a food supplement or the equivalent. Finally, the compounding of nutritional elements in items traditionally accepted as food does not make them taxable, e.g., vitamin-enriched milk and high protein flour. Tax, however, does not apply to any such products which either are exempted by Revenue and Taxation Code Section 6369, respecting prescription medicines, or are complete dietary foods providing the user in the recommended daily dosage with substantial amounts of vitamins, proteins, minerals and foods providing adequate caloric intake. An example of the latter is a food daily providing the user with the following: 1. 70 grams of high quality protein 2. 900 calories 3. Minimum daily requirements as established by the regulations of the Federal Food and Drug Administration of the following vitamins: A, B1, C, D, Riboflavin, and Niacin or Niacinamide; and following minerals: Calcium, Phosphorus, Iron and Iodine. (b) Sales of Combination Packages. When a package contains both food products (e.g., dried fruit) and nonfood products (e.g., wine, or toys) the application of tax depends upon the essential character of the complete package. If more than 10 percent of the retail value of the complete package, exclusive of the container, represents the value of the nonfood merchandise, a segregation must be made and the tax measured by the retail selling price of such nonfood merchandise. (c) Sales of Non-Edible Decorations. When the sale of a cake or other bakery good for a single price includes non-edible decorations, the application of tax depends upon the value of the non-edible merchandise versus the value of the cake or bakery good. If more than 50 percent of the total retail value of the cake or bakery good represents the value of non-edible decorations, a segregation must be made and the tax measured by the retail selling price of such non-edible decorations. If the price of the non-edible decoration is separately stated, then tax applies to such charge. (d) Food Products Processed by the Consumer. A commodity included in the term "food products" under Revenue and Taxation Code Section 6359 may be sold to a consumer to be processed and incorporated into a product which is for human consumption but which is excluded from the term "food products." For example, grapes may be sold to be used in making wine for consumption and not for resale. If the commodity sold to the consumer is included in the term "food products" and if the product into which it is incorporated is for human consumption, the sale of the commodity is within the exemption provided by this section. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6353 and 6359, Revenue and Taxation Code; and Article XIII, Section 34, California Constitution. s 1602.5. Reporting Methods for Grocers. (a) Food Products Exemption -In General. Tax does not apply to sales of food products for human consumption. Accurate and complete records of all purchases and sales of tangible personal property must be kept to verify all exemptions claimed as sales of exempt food products. In preparing returns, grocers may use any method of determining the amount of their sales of exempt food products which does not result in an overstatement of the exemption. Grocers must be prepared to demonstrate by records which can be verified by audit that the method used properly reflects their sales of exempt food products. (b) Reporting Methods. (1) Purchase-Ratio Method. One method which may be used is the purchase-ratio method sometimes referred to as the "grocer's formula." Under this method, grocers may claim as sales of exempt food products that proportion of their total gross receipts from the sale of "grocery items" that the amount of their purchases of exempt food products bears to their total purchases of grocery items. If the grocer elects to use the purchase-ratio method of reporting, the following criteria should be followed: (A) The purchase-ratio method may be used only by grocers and only with respect to sales of "grocery items." (B) Grocers selling clothes, furniture, hardware, farm implements, distilled spirits, drug sundries, cosmetics, body deodorants, sporting goods, auto parts, cameras, electrical supplies, appliances, books, pottery, dishes, film, flower and garden seeds, nursery stock, fertilizers, flowers, fuel and lubricants, glassware, stationery supplies, pet supplies (other than pet food), school supplies, silverware, sun glasses, toys and other similar property should not include the purchases and sales of such items in the purchase-ratio method. These items are referred to as "nongrocery taxable" items. When the purchase-ratio method is used for reporting purposes and sales of nongrocery taxable items are computed by the retail extension or markup method, the computation of nongrocery taxable sales should include adjustments for beginning and ending inventories of these items and may include adjustments for shrinkage as specified in (d) below. (C) Grocers selling gasoline, feed for farm animals, farm fertilizers or who operate a snack bar or restaurant, or sell hot prepared food should not include the purchases and sales of such items or operations in the purchase-ratio method. (D) The purchases and sales of meat, fruit, produce, delicatessen (except hot prepared food or food sold for immediate consumption at facilities provided by the grocer), beverage (except distilled spirits in the liquor department) and bakery departments must be included in the purchase-ratio method if these departments are operated by the grocer. (E) The records should be complete and adequate and all sales and purchases should be properly accounted for in the records. All purchases of exempt food products, grocery taxable items and nongrocery taxable items should be segregated into their respective classifications. (F) The following definitions apply to the purchase-ratio method: 1. "Exempt food products" means those items generally described as food products in Section 6359 and Regulation 1602. If grocers are uncertain as to the classification of any product, they should contact the nearest board office. 2. "Total gross receipts from the sale of grocery items" means the total amount of the sales price of all exempt food products and taxable grocery items, including sales tax reimbursement, amounts receivable from manufacturers, or others, for coupons (excluding any handling allowances) redeemed by customers, and the face value of federal food stamps. The term does not include receipts from sales of those items described in (b)(1)(B), above, which are commonly referred to as "nongrocery taxable items," or from those sales described in (b)(1)(C), above (gasoline, snack bar, etc.). It does not include amounts which represent "deposits," as defined in Regulation 1589, e.g., bottle deposits. When deposits are not segregated, it will be presumed, and in the absence of evidence to the contrary, that the total deposits received are equal to the deposits refunded. 3. "Grocery items" means exempt food products and taxable items other than those generally classified under (b)(1)(B) and (b)(1)(C), above. 4. "Purchases" means the actual amount which a grocer is required to pay to the suppliers of merchandise, net of any cash discounts, volume rebates or quantity discounts and promotional allowances. The term does not include the cost of transportation, processing, manufacturing, warehousing, and other costs, if these operations are self-performed. It does not include the cost of operating supplies such as wrapping materials, paper bags, string, or similar items. It does not include amounts which represent "deposits," as defined in Regulation 1589, e.g., bottle deposits (see (b)(1)(F)2., above). If deposits are not segregated, it will be presumed, in the absence of evidence to the contrary, that the amount deposited with the supplier is equal to the credit received for bottles returned by the grocer. A. As used herein, the term "cash discount" means a reduction from the invoice price which is allowed the grocer for prompt payment. B. As used herein, the term "volume rebate or quantity discount" means an allowance or reduction of the price for volume purchases based on the number of units purchased or sold. Such rebates or discounts normally are obtained without any specific contractual obligation upon the part of the grocer to advertise or otherwise promote sales of the products purchased. The term does not include patronage dividends distributed to members by nonprofit cooperatives pursuant to Section 12805 of the Corporations Code, or rebates which constitute a distribution of profits to members or stockholders. C. As used herein, the term "promotional allowance" means an allowance in the nature of a reduction of the price to the grocer, based on the number of units sold or purchased during a promotional period. The allowance is directly related to units sold or purchased although some additional promotional expense may be incurred by the grocer. Normally, grocers would feature the product in their advertising, although they may or may not be contractually obligated to do so. The retail price of the product may or may not be lowered during a promotional period. The term does not include display or other merchandising plan allowances or payments which are based on agreements to provide shelf space for a price not related to volume of purchases, or cooperative advertising allowances which are based on a national line rate for advertising and are not directly related to volume of purchases and sales. Cooperative advertising allowances are intended to reimburse grocers for a portion of their advertising costs for a particular product or products. (G) Sales tax reimbursement collected in accordance with Regulation 1700 which is included in total sales is an allowable deduction. An example of the computation of the purchase-ratio method which provides for an adjustment for sales tax included follows:- 1. Taxable grocery purchases .................................. $40,000 2. Add sales tax adjustment (6% [FNa1] x Item 1)............... 24,000 3. Adjusted taxable grocery purchases (Item 1 + Item 2)........................................... 42,400 4. Exempt food products purchases.............................. 130,000 5. Total grocery purchases including sales tax (Item 3 + Item 4)........................................... 172,400 6. Exempt food products ratio (Item 4 divided by Item 5).................................. 75.41% 7. Total sales including sales tax............................. 254,088 8. Nongrocery taxable sales including sales tax (if such sales are not accurately segregated, mark up nongrocery taxable cost of goods sold to compute sales -add 6% [FNa1] sales tax to total) [FNa1] .... 31,500 9. Grocery sales including sales tax (Item 7 - Item 8) 10. Exempt food products sales (Item 6 x Item 9)............... 167,854 11. Sales of taxable items including sales tax (Item 7 - Item 10)......................................... 86,234 12. Less taxable items purchased with food stamps (2% of total food stamps redeemed for period, e.g., 2% x $100,000)....................................... 2,000 13. Taxable Measure including sales tax (Item 11 - Item 12)........................................ 84,234 14. Sales tax included (6/106 [FNa1] x Item 13)................ 4,768 15. Measure of tax (Item 13 - Item 14)......................... 79,466 16. Sales tax payable (6% [FNa1] x Item 15).................... 4,768 (2) Modified Purchase-Ratio Method. Any grocer who does not follow the procedure outlined in (b)(1), above, but reports on a purchase-ratio basis of some type is using a modified version of the purchase-ratio method. For example, grocers who include self-performed processing, manufacturing, warehousing or transportation costs in the purchase-ratio formula are using a modified version. Grocers using such a modified version must establish that their modified version does not result in an overstatement of their food products exemption. They may demonstrate the adequacy of their modified method by extending taxable purchases, adjusted for inventories, to retail for a representative period or computing taxable sales by marking up taxable purchases, adjusted for inventories, for a representative period. Grocers must retain adequate records which may be verified by audit, documenting the modified purchase-ratio method used. Grocers contemplating use of a modified purchase-ratio reporting method are urged to notify the board of such intentions and to submit such methods to the nearest board office for review prior to use of such methods. Grocers submitting proposed modified purchase-ratio reporting methods meeting board approval will be furnished written notice indicating the period within which such modified methods are authorized for use. (3) Retail Inventory Method and Markup Method. Grocers who engage in manufacturing, processing, warehousing or transporting their own products may prefer to use a retail or markup method of reporting. These methods are described below: (A) Retail Inventory Method. 1. The opening inventory is extended to retail and segregated as to exempt food products and taxable merchandise. 2. As invoices for merchandise are received, they are extended to retail and segregated as to exempt food products and taxable merchandise. 3. The ending inventory at retail is segregated as to exempt food products and taxable merchandise. 4. The total of segregated amounts determined in 1 and 2 less 3 represent anticipated exempt and taxable sales. 5. The segregated amounts determined in 4 are adjusted for net markons, net markdowns, and shrinkage to determine realized exempt and taxable sales. 6. Physical inventories are taken periodically to adjust book inventories. (B) Cost Plus Markup Method -Taxable Merchandise. 1. The cost of all taxable merchandise is marked up to anticipated selling prices at the time of purchase. Records are kept of net markons, net markdowns, and shrinkage for all taxable merchandise. Such records are used to adjust the anticipated selling price to the realized price. Inventory adjustments are required unless the inventory of taxable merchandise at the beginning and ending of reporting periods is substantially constant. Returns should reflect as taxable sales the realized selling price of all taxable merchandise during a reporting period (anticipated sales price on purchases adjusted for inventory changes and other adjustments of the types mentioned). 2. If the grocer elects to use the cost plus markup method of reporting, the following criteria should be followed: A. Markup factor percentages [FN1] applicable to taxable merchandise should be determined by a shelf test sample of representative purchases, covering a minimum purchasing cycle of one month within a three-year period, segregated by commodity groupings, i.e., beer, wine, carbonated beverages, tobacco and related products, paper products, pet food, soap, detergents, etc. The markup factor percentages determined for commodity groupings should be applied to the cost of sales of the respective commodities for the reporting period to determine taxable sales. In order to insure that markup factor percentages typical of the total business are determined, grocers who conduct multistore operations should include purchases from several representative stores in the shelf test sample of markup factor percentages. B. As an alternative procedure to A., above, the overall average markup factor percentage for all taxable commodity groupings may be used to determine taxable sales for the reporting period. This markup factor percentage is applied to the overall cost of taxable sales for the reporting period. The overall average markup factor percentage should be determined as follows: a. Determine markup factor percentages by commodity groupings based on shelf tests covering a minimum purchasing cycle of one month within a three-year period. b. Determine cost of sales, segregated by commodity groupings, for a representative one-year period. c. Apply markup factor percentages (Step a) to the cost of sales of the respective commodity groupings (Step b) to determine anticipated sales by commodity groupings and in total. d. Divide total anticipated sales (Step c) by the respective total cost of sales to determine the overall average markup factor percentage. C. In calculating markup factor percentages, appropriate consideration should be given to markon and markdown price adjustments, quantity price adjustments such as on cigarettes sold by the carton, liquor sold by the case and other selling price adjustments. Quantity and other price adjustments may be determined by a limited test of sales of a representative period or by sales experience of a representative store within the operating entity. D. The computation of taxable sales for the reporting period should be based on cost of sales for the period. If for any particular reporting period or periods, cost of sales is not determinable because actual physical inventories are unknown and inventories remain substantially constant, the computation of taxable sales may be based on purchases for the period. However, if inventories are not substantially constant, adjustments for physical inventories should be taken into consideration in one of the reporting periods occurring within the accounting year. E. Shrinkage should be adjusted as specified in (d) below. F. Taxable markup factor percentages based on shelf test samples will generally be considered valid for reporting purposes for a period of three years, provided business operations remain substantially the same. A substantial change in business operations will be considered as having occurred when there is a significant change in pricing practices, commodities handled, commodity mix, locations operated, sources of supply, or other circumstances affecting the nature of the business. G. Grocers contemplating use of the cost plus markup method of reporting are urged to notify the board of such intentions and to submit a general outline of proposed markup procedures to the nearest board office for review prior to use of such procedures. Grocers submitting proposed markup procedures meeting board approval will be furnished written notice indicating the period within which such procedures are authorized for use. (4) Electronic Scanning Systems. The use of a scanning system is another acceptable reporting method for grocers. Electronic scanning systems utilize electronic scanners and central computers to automatically compile and record taxable and nontaxable sales, sales tax, and related data from scanning of products imprinted with the Universal Product Code. It is the grocer's responsibility to establish the propriety of reported amounts. Grocers must ensure that proper controls are maintained for monitoring and verifying the accuracy of the scanning results and tax returns. Adequate documentation must be retained which may be verified by audit, including all scanning programs relating to product identity, price, sales tax code, program changes and corrections to the programs. Records which clearly show a segregation of taxable and nontaxable merchandise purchases would provide an additional source from which the scanning accuracy may be monitored or verified. Grocers contemplating use of electronic scanning system results as a reporting method are required to notify the board of such intentions and to submit a general outline of the proposed procedures to the board for review and approval prior to adoption of such method for reporting purposes. Grocers submitting proposed scanning system procedures meeting board approval will be furnished written notice indicating the period within which such procedures are authorized for use. (c) Food Stamps. Tangible personal property eligible to be purchased with federal food stamps and so purchased is exempt from the tax. Grocers who receive gross receipts in the form of federal food stamp coupons in payment for such tangible personal property which normally is subject to the tax, e.g., nonalcoholic carbonated beverages, may deduct on each sales tax return an amount equal to two percent (2%) of the total amount of food stamps redeemed during the period for which the return is filed. Effective January 1, 1993, grocers may claim amounts in excess of two percent whenever the following computation results in a greater percentage: total purchases of taxable items eligible to be purchased with federal food stamps divided by an amount equal to the total of the exempt food product purchases as defined in subdivision (b)(1)(F)1 plus the purchases of taxable items eligible to be purchased with federal food stamps. For example, for a reporting period, if the total purchases of carbonated beverages equals $5,000 and the total purchases of exempt food products equals $130,000, a percentage of 3.7% ($5,000 P $135,000) may be used in computing the allowable food stamp deduction for that period. This deduction may be taken in lieu of accounting separately for such sales. (d) Shrinkage. As used herein, the term "shrinkage" means unaccounted for losses due to spoilage, breakage, pilferage, etc. Grocers who incur such losses, may, for reporting purposes, adjust for such losses as follows: (1) An adjustment of up to 1 percent of the cost of taxable merchandise may be taken into consideration when the retail inventory or markup method is used for reporting purposes. (2) An adjustment of up to 3 percent of the cost of nongrocery taxable items may be taken into consideration when the purchase-ratio method is used for reporting purposes and sales of nongrocery taxable items are computed by the retail extension or markup method. The adjustment is limited to an overall 1 percent of taxable purchases when other than the purchase-ratio method is used for reporting purposes. Losses in excess of the above are allowable when supported by records which show that a greater loss is sustained. (e) List of Methods Not Exhaustive. The methods by which grocers may determine their sales of exempt food products are not limited to the methods described above. Grocers may use any method which they can support as properly reflecting their exempt food sales. As is the case for all exemptions, it is the grocer's responsibility to establish the propriety of the amount of the claimed exemption. (f) Audits. Taxpayers using one of the approved methods of reporting described in this regulation will normally be audited by application of the same approved procedure in the audit to verify the accuracy of claimed deductions. However, determinations may be imposed or refunds granted if the board, upon audit of the retailer's accounts and records, determines that the returns did not accurately disclose the amount of tax due. [FNa1] Use applicable tax rate -tax rate of 6% used for illustration purposes. [FNaa1] Adjust for shrinkage if applicable -see paragraph (d). [FN1] Markup factor percentage is the markup + 100%. When applied to cost, it computes the selling price. For example, an item costing $1.00 and selling at a 25% markup will have a markup factor of 125%. The markup factor (125%) when applied to $1.00 cost results in a $1.25 selling price. Note: Authority cited: Sections 7051 and 7051.5, Revenue and Taxation Code. Reference: Sections 6359 and 6373, Revenue and Taxation Code. s 1603. Taxable Sales of Food Products. (a) Restaurants, Hotels, Boarding Houses, Soda Fountains, and Similar Establishments. (1) Definitions. (A) Boarding House. The term "boarding house" as used in this regulation means any establishment regularly serving meals, on the average to five or more paying guests. The term includes a "guest home," "residential care home," "halfway house," and any other establishment providing room and board or board only, which is not an institution as defined in Regulation 1503 and section 6363.6 of the Revenue and Taxation Code. The fact that guests may be recipients of welfare funds does not affect the application of tax. A person or establishment furnishing meals on the average to fewer than five paying guests during the calendar quarter is not considered to be engaged in the business of selling meals at retail. (B) American Plan Hotel. The term "American Plan Hotel" as used in this regulation means a hotel which charges guests a fixed sum by the day, week, or other period for room and meals combined. (C) Complimentary Food and Beverages. As used in this subdivision (a), the term "complimentary food and beverages" means food and beverages (including alcoholic and non-alcoholic beverages) which are provided to transient guests on a complimentary basis and: 1. There is no segregation between the charges for rooms and the charges for the food and beverages on the guests' bills, and 2. The guests are not given an option to refuse the food and beverages in return for a discounted room rental. (D) Average Retail Value of Complimentary Food and Beverages. The term "average retail value of complimentary food and beverages" (ARV) as used in this regulation means the total amount of the costs of the complimentary food and beverages for the preceding calendar year marked-up one hundred percent (100%) and divided by the number of rooms rented for that year. Costs of complimentary food and beverages include charges for delivery to the lodging establishment but exclude discounts taken and sales tax reimbursement paid to vendors. The 100% markup factor includes the cost of food preparation labor by hotel employees, the fair rental value of hotel facilities used to prepare or serve the food and beverages, and profit. (E) Average Daily Rate. The term "average daily rate" (ADR) as used in this regulation means the gross room revenue for the preceding calendar year divided by the number of rooms rented for that year. "Gross room revenue" means and includes the full charge to the hotel customers but excludes separately stated occupancy taxes, revenue from contract and group rentals which do not qualify for complimentary food and beverages, and revenue from special packages (e.g., New Year's Eve packages which include food and beverages as well as guest room accommodations), unless it can be documented that the retail value of the food and beverages provided as a part of the special package is 10% or less of the total package charge as provided in subdivision (a)(2)(B). "Number of rooms rented for that year" means the total number of times all rooms have been rented on a nightly basis provided the revenue for those rooms is included in the "gross room revenue". For example, if a room is rented out for three consecutive nights by one guest, that room will be counted as rented three times when computing the ADR. (2) Application Of Tax. (A) In General. Tax applies to sales of meals or hot prepared food products (see (e) below) furnished by restaurants, concessionaires, hotels, boarding houses, soda fountains, and similar establishments whether served on or off the premises. In the case of American Plan hotels, special packages offered by hotels, e.g., a New Year's Eve package as described in subdivision (a)(1)(E), and boarding houses, a reasonable segregation must be made between the charges for rooms and the charges for the meals, hot prepared food products, and beverages. Charges by hotels or boarding houses for delivering meals or hot prepared food products to, or serving them in, the rooms of guests are includable in the measure of tax on the sales of the meals or hot prepared food products whether or not the charges are separately stated. (Caterers, see (h) below.) Sales of meals or hot prepared food products by restaurants, concessionaires, hotels, boarding houses, soda fountains, and similar establishments to persons such as event planners, party coordinators, or fundraisers, which buy and sell on their own account, are sales for resale for which a resale certificate may be accepted (see subdivision (h)(3)(C)2.) Souffle cups, straws, paper napkins, toothpicks and like items that are not of a reusable character which are furnished with meals or hot prepared food products are sold with the meals or hot prepared food products. Sales of such items for such purpose to persons engaged in the business of selling meals or hot prepared food products are, accordingly, sales for resale. (B) Complimentary Food and Beverages. Lodging establishments which furnish, prepare, or serve complimentary food and beverages to guests in connection with the rental of rooms are consumers and not retailers of such food and beverages when the retail value of the complimentary food and beverages is "incidental" to the room rental service regardless of where within the hotel premises the complimentary food and beverages are served. For complimentary food and beverages to qualify as "incidental" for the current calendar year, the average retail value of the complimentary food and beverages (ARV) furnished for the preceding calendar year must be equal to or less than 10% of the average daily rate (ADR) for that year. If a hotel provides guests with coupons or similar documents which may be exchanged for complimentary food and beverages in an area of the hotel where food and beverages are sold on a regular basis to the general public (e.g., a restaurant), the hotel will be considered the consumer and not the retailer of such food and beverages if the coupons or similar documents are non-transferable and the guest is specifically identified by name. If the coupons or similar documents are transferable or the guest is not specifically identified, food and beverages provided will be considered sold to the guest at the fair retail value of similar food and beverages sold to the general public. In the case of coupons redeemed by guests at restaurants not operated by the lodging establishment, the hotel will be considered the consumer of food and beverages provided to the hotel's guests and tax will apply to the charge by the restaurant to the hotel. Lodging establishments are retailers of food and beverages which do not qualify as "incidental" and tax applies as provided in subdivision (a)(2)(A) above. Amounts paid by guests for food and beverages in excess of a complimentary allowance are gross receipts subject to the tax. Lodging establishments are retailers of otherwise complimentary food and beverages sold to non-guests. In the case of hotels with concierge floor, club level or similar programs, the formula set forth above shall be applied separately with respect to the complimentary food and beverages furnished to guests who participate in the concierge, club or similar program. That is, the concierge, club or similar program will be deemed to be an independent hotel separate and apart from the hotel in which it is operated. The ADR and the retail value of complimentary food and beverages per occupied room will be computed separately with respect to the guest room accommodations entitled to the privileges and amenities involved in the concierge, club or similar program. The following example illustrates the steps in determining whether the food and beverages are complimentary: FORMULA: ARV/ADR3 < or = 10% Average Daily Rate (ADR): Room Revenue $9,108,000 Rooms Rented 74,607 ADR ($9,108,000/74,607) $122.08 Average Retail Value of Complimentary Food and Beverages (ARV): Complimentary Food Cost $169,057 Complimentary Beverage Cost 52,513 Total $221,570 Add 100% Markup 221,570 Average Retail Value $443,140 ARV per occupied room ($443,140/74,607) $5.94 Application of Formula: $5.94/$122.08 = 4.87% In the above example, the average retail value of the complimentary food and beverages per occupied room for the preceding calendar year is equal to or less than 10% of the average daily rate. Therefore, under the provisions of this subdivision (a)(2)(B), the complimentary food and beverages provided to guests for the current calendar year qualify as "incidental". The lodging establishment is the consumer and not the retailer of such food and beverages. This computation must be made annually. When a lodging establishment consists of more than one location, the operations of each location will be considered separately in determining if that location's complimentary food and beverages qualify as incidental. (C) "Free" Meals. When a restaurant agrees to furnish a "free" meal to a customer who purchases another meal and presents a coupon or card, which the customer previously had purchased directly from the restaurant or through a sales promotional agency having a contract with the restaurant to redeem the coupons or cards, the restaurant is regarded as selling two meals for the price of one, plus any additional compensation from the agency or from its own sales of coupons. Any such additional compensation is a part of its taxable gross receipts for the period in which the meals are served. Tax applies only to the price of the paid meal plus any such additional compensation. (b) "Drive-Ins." Tax applies to sales of food products ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the "drive-in" establishment, even though such products are sold on a "take out" or "to go" order and are actually packaged or wrapped and taken from the premises of the retailer. Food products when sold in bulk, i.e., in quantities or in a form not suitable for consumption on the retailer's premises, are not regarded as ordinarily sold for immediate consumption on or near the location at which parking facilities are provided by the retailer. Accordingly, with the exception of sales of hot prepared food products (see (e) below) and sales of cold food under the 80-80 rule (see (c) below), sales of ice cream, doughnuts, and other individual food items in quantities obviously not intended for consumption on the retailer's premises, without eating utensils, trays, or dishes and not consumed on the retailer's premises, are exempt from tax. Any retailer claiming a deduction on account of food sales of this type must support the deduction by complete and detailed records. [FN1] (c) Cold Food Sold on a "Take-Out" Order. (1) General. (A) Seller Meeting Criteria of 80-80 Rule. When a seller meets both criteria of the 80-80 rule as explained in subdivision (c)(3) below, tax applies to sales of cold food products (including sales for a separate price of hot bakery goods and hot beverages such as coffee) in a form suitable for consumption on the seller's premises even though such food products are sold on a "take-out" or "to go" order. Sales of cold food products which are suitable for consumption on the seller's premises are subject to the tax no matter how great the quantity purchased, e.g., 40 one-half pint containers of milk. Except as provided elsewhere in this regulation, tax does not apply to sales of food products which are furnished in a form not suitable for consumption on the seller's premises. Operative April 1, 1996, although a seller may meet both criteria of the 80-80 rule, he or she may elect to separately account for the sale of "take-out" or "to go" orders of cold food products which are in a form suitable for consumption on the seller's premises. The gross receipts from the sale of those food products shall be exempt from the tax provided the seller keeps a separate accounting of these transactions in his or her records. Tax will remain applicable to the sale of food products as provided in subdivisions (a), (b), (e), or (f) of this regulation. Failure to maintain the required separate accounting and documentation claimed as exempt under this subdivision will revoke the seller's election under this subdivision. (B) Seller Not Meeting Criteria of 80-80 Rule. When a seller does not meet both criteria of the 80-80 rule as explained in subdivision (c)(3) below, tax does not apply to sales of cold food products (including sales for a separate price of hot bakery goods and hot beverages such as coffee) when sold on a "take-out" or "to go" order. (2) Definitions. (A) For purposes of this subdivision (c), the term "suitable for consumption on the seller's premises" means food products furnished: 1. In a form which requires no further processing by the purchaser, including but not limited to cooking, heating, thawing, or slicing, and 2. In a size which ordinarily may be immediately consumed by one person such as a large milk shake, a pint of ice cream, a pint of milk, or a slice of pie. Cold food products (excluding milk shakes and similar milk products) furnished in containers larger in size than a pint are considered to be in a form not suitable for immediate consumption. Pieces of candy sold in bulk quantities of one pound or greater are deemed to be sold in a form not suitable for consumption on the seller's premises. The term does not include cold food products which obviously would not be consumed on the premises of the seller, e.g., a cold party tray or a whole cold chicken. (B) For purposes of this subdivision (c), the term "seller's premises" means the individual location at which a sale takes place rather than the aggregate of all locations of the seller. For example, if a seller operates several drive-in and fast food restaurants, the operations of each location stand alone and are considered separately in determining if the sales of food products at each location meet the criteria of the 80-80 rule. When two or more food-selling activities are conducted by the same person at the same location, the operations of all food related activities will be considered in determining if the sales of food products meet the criteria of the 80-80 rule. For example, if a seller operates a grocery store and a restaurant with no physical separation other than separate cash registers, the grocery store operations will be included in determining if the sales of food products meet the criteria of the 80-80 rule. When there is a physical separation where customers of one operation may not pass freely into the other operation, e.g., separate rooms with separate entrances but a common kitchen, each operation will be considered separately for purposes of this subdivision (c). (3) 80-80 Rule. Tax applies under this subdivision (c) only if the seller meets bothof the following criteria: (A) More than 80 percent of the seller's gross receipts are from the sale of food products, and (B) More than 80 percent of the seller's retail sales of food products are taxable as provided in subdivisions (a), (b), (e), and (f) of this regulation. Sales of alcoholic beverages, carbonated beverages, or cold food to go not suitable for immediate consumption should not be included in this computation. Any seller meeting both of these criteria and claiming a deduction for the sale of cold food products in a form not suitable for consumption on the seller's premises must support the deduction by complete and detailed records of such sales made. (d) Places Where Admission Is Charged. (1) General. Tax applies to sales of food products when sold within, and for consumption within, a place the entrance to which is subject to an admission charge, during the period when the sales are made, except for national and state parks and monuments, and marinas, campgrounds, and recreational vehicle parks. (2) Definitions. (A) "Place" means an area the exterior boundaries of which are defined by walls, fences or otherwise in such a manner that the area readily can be recognized and distinguished from adjoining or surrounding property. Examples include buildings, fenced enclosures and areas delimited by posted signs. (B) "Within a place" means inside the door, gate, turnstile, or other point at which the customer must pay an admission charge or present evidence, such as a ticket, that an admission charge has been paid. Adjacent to, or in close proximity to, a place is not within a place. (C) "Admission charge" means any consideration required to be paid in money or otherwise, for admittance to a place. "Admission charge" does not include: 1. Membership dues in a club or other organization entitling the member to, among other things, entrance to a place maintained by the club or organization, such as a fenced area containing a club house, tennis courts, and a swimming pool. Where a guest is admitted to such a place only when accompanied by or vouched for by a member of the club or organization, any charge made to the guest for use of facilities in the place is not an admission charge. 2. A charge for a student body card entitling the student to, among other things, entrance to a place, such as entrance to a school auditorium at which a dance is held. 3. A charge for the use of facilities within a place to which no entrance charge is made to spectators. For example, green fees paid for the privilege of playing a golf course, a charge made to swimmers for the use of a pool within a place, or a charge made for the use of lanes in a public bowling place. (D) "National and state parks and monuments" means those which are part of the National Park System or the State Park System. The phrase does not include parks and monuments not within either of those systems, such as city, county, regional, district or private parks. (3) Presumption That Food Is Sold for Consumption Within a Place . When food products are sold within a place the entrance to which is subject to an admission charge, it will be presumed, in the absence of evidence to the contrary, that the food products are sold for consumption within the place. Obtaining and retaining evidence in support of the claimed tax exemption is the responsibility of the retailer. Such evidence may consist, for example, of proof that the sales were of canned jams, cake mixes, spices, cooking chocolate, or other items in a form in which it is unlikely that such items would be consumed within the place where sold. (4) Food Sold to Students. The exemption otherwise granted by Section 6363 does not apply to sales of food products to students when sold within, and for consumption within, a place the entrance to which is subject to an admission charge, and such sales are subject to tax except as provided in (p) of this regulation. For example, when food products are sold by a student organization to students or to both students and nonstudents within a place the entrance to which is subject to an admission charge, such as a place where school athletic events are held, the sales to both students and nonstudents are taxable. (e) Hot Prepared Food Products. (1) General. Tax applies to all sales of hot prepared food products unless otherwise exempt. "Hot prepared food products" means those products, items, or components which have been prepared for sale in a heated condition and which are sold at any temperature which is higher than the air temperature of the room or place where they are sold. The mere heating of a food product constitutes preparation of a hot prepared food product, e.g., grilling a sandwich, dipping a sandwich bun in hot gravy, using infra-red lights, steam tables, etc.. If the sale is intended to be of a hot food product, such sale is of a hot food product regardless of cooling which incidentally occurs. For example, the sale of a toasted sandwich intended to be in a heated condition when sold, such as a fried ham sandwich on toast, is a sale of a hot prepared food product even though it may have cooled due to delay. On the other hand, the sale of a toasted sandwich which is not intended to be in a heated condition when sold, such as a cold tuna sandwich on toast, is not a sale of a hot prepared food product. When a single price has been established for a combination of hot and cold food items, such as a meal or dinner which includes cold components or side items, tax applies to the entire established price regardless of itemization on the sales check. The inclusion of any hot food product in an otherwise cold combination of food products sold for a single established price, results in the tax applying to the entire established price, e.g., hot coffee served with a meal consisting of cold food products, when the coffee is included in the established price of the meal. If a single price for the combination of hot and cold food items is listed on a menu, wall sign or is otherwise advertised, a single price has been established . Except as otherwise provided in (b), (c), (d) or (f) of this regulation, or in Regulation 1574, tax does not apply to the sale for a separate price of bakery goods, beverages classed as food products, or cold or frozen food products. Hot bakery goods and hot beverages such as coffee are hot prepared food products but their sale for a separate price is exempt unless taxable as provided in (b), (c), (d) or (f) of this regulation, or in Regulation 1574. Tax does apply if a hot beverage and a bakery product or cold food product are sold as a combination for a single price. Hot soup, bouillon, or consomme is a hot prepared food product, which is not a beverage. (2) Air Carriers Engaged in Interstate or Foreign Commerce. Tax does not apply to the sale, storage, use, or other consumption of hot prepared food products sold by caterers or other vendors to air carriers engaged in interstate or foreign commerce for consumption by passengers on such air carriers, nor to the sale, storage, use, or other consumption of hot prepared food products sold or served to passengers by air carriers engaged in interstate or foreign commerce for consumption by passengers on such air carriers. "Air carriers" are persons or firms in the business of transporting persons or property for hire or compensation, and include both common and contract carriers. "Passengers" do not include crew members. Any caterer or other vendor claiming the exemption must support it with an exemption certificate from the air carrier substantially in the form prescribed in Appendix A of this regulation. (f) Food for Consumption at Facilities Provided by the Retailer. Tax applies to sales of sandwiches, ice cream, and other foods sold in a form for consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware provided by the retailer or by a person with whom the retailer contracts to furnish, prepare, or serve food products to others. A passenger's seat aboard a train, or a spectator's seat at a game, show, or similar event is not a "chair" within the meaning of this regulation. Accordingly, except as otherwise provided in (c), (d), and (e) above, tax does not apply to the sale of cold sandwiches, ice cream, or other food products sold by vendors passing among the passengers or spectators where the food products are not "for consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware provided by the retailer." (g) Tips and Service Charges. No employer shall collect, take, or receive any gratuity or a part thereof, paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of such gratuity, or require an employee to credit the amount, or any part thereof, of such gratuity against and as a part of the wages due the employee from the employer. (Labor Code section 351.) If this prohibition is violated, any amount of such gratuities received by the employer will be considered a part of the gross receipts of the employer and subject to the tax. Amounts designated as service charges, added to the price of meals, are a part of the selling price of the meals and, accordingly, must be included in the retailer's gross receipts subject to tax even though such service charges are made in lieu of tips and are paid over by the retailer to employees. (h) Caterers. (1) Definition. The term "caterer" as used in this regulation means a person engaged in the business of serving meals, food, or drinks on the premises of the customer, or on premises supplied by the customer, including premises leased by the customer from a person other than the caterer, but does not include employees hired by the customer by the hour or day. (2) Sales to Caterers. A caterer generally is considered to be the consumer of tangible personal property normally used in the furnishing and serving of meals, food or drinks, except for separately stated charges by the caterer for the lease of tangible personal property or tangible personal property regarded as being sold with meals, food or drinks such as disposable plates, napkins, utensils, glasses, cups, stemware, place mats, trays, covers and toothpicks. (3) Sales by Caterers. (A) Caterer as Retailer. Tax applies to the entire charge made by caterers for serving meals, food, and drinks, inclusive of charges for food, the use of dishes, silverware, glasses, chairs, tables, etc., used in connection with serving meals, and for the labor of serving the meals, whether performed by the caterer, the caterer's employees or subcontractors. Tax applies to charges made by caterers for preparing and serving meals and drinks even though the food is not provided by the caterers. Tax applies to charges made by caterers for hot prepared food products as in (e) above whether or not served by the caterers. A caterer who separately states or itemizes charges for the lease of tangible personal property regardless of the use of the property will be deemed to be the lessor of such property. Tax applies in accordance with Regulation 1660 Leases of Tangible Personal Property - In General. Tax does not apply to charges made by caterers for the rental of dishes, silverware, glasses, etc., purchased by the caterer with tax paid on the purchase price if no food is provided or served by the caterers in connection with such rental. (B) Caterers as Lessors of Property Unrelated to the Serving or Furnishing of Meals, Food, or Drinks by a Caterer. 1. When a caterer who is furnishing or serving meals, food, or drinks also rents or leases from a third party tangible personal property which the caterer does not use himself or herself and the property is not customarily provided or used within the catering industry in connection with the furnishing and serving of food or drinks, such as decorative props related solely to optional entertainment, special lighting for guest speakers, sound or video systems, dance floors, stages, etc., he or she is a lessor of such property. In such instance, tax applies to the lease in accordance with Regulation 1660. 2. When a person who in other instances is a caterer does not furnish or serve any meals, food, or drinks to a customer, but rents or leases from a third party tangible personal property such as dishes, linen, silverware and glasses, etc., for purposes of providing it to his or her customer, he or she is not acting as a caterer within the meaning of this regulation, but solely as a lessor of tangible personal property. In such instances tax applies to the lease in accordance with Regulation 1660. (C) Caterers Planning, Designing and Coordinating Events. 1. Tax applies to charges by a caterer for event planning, design, coordination, and/or supervision if they are made in connection with the furnishing of meals, food, or drinks for the event. Tax does not apply to separately stated charges for services unrelated to the furnishing and serving of meals, food, or drinks, such as optional entertainment or any staff who do not directly participate in the preparation, furnishing, or serving of meals, food, or drinks, e.g., coat-check clerks, parking attendants, security guards, etc. 2. When a caterer sells meals, food, or drinks, and the serving of them, to other persons such as event planners, party coordinators, or fundraisers, who buy and sell the same on their own account or for their own sake, it is a sale for resale for which the caterer may accept a resale certificate. However, a caterer may only claim the sale as a resale if the caterer obtains a resale certificate in compliance with Regulation 1668. A person is buying or selling for his or her own account, or own sake, when such person has his or her own contract with a customer to sell the meals, food, or drinks to the customer, and is not merely acting on behalf of the caterer. 3. When a caterer sells meals, food or drinks and the serving of them to other persons who charge a fee for their service unrelated to the taxable sale, the separately stated fee is not subject to tax . (D) Sales of Meals by Caterers to Social Clubs, Fraternal Organizations. Sales of meals to social clubs and fraternal organizations, as those terms are defined in subdivision (i) below, by caterers are sales for resale if such social clubs and fraternal organizations are the retailers of the meals subject to tax under subdivision (i) and give valid resale certificates therefor. (E) Tips, Gratuities, or Service Charges. An optional tip or gratuity is not subject to tax. A mandatory tip, gratuity, or service charge is included in taxable gross receipts. A tip, gratuity, or service charge negotiated in advance of an event between the caterer and the customer is mandatory even though the amount of percentage is negotiated. A tip, gratuity, or service charge itemized on an invoice or billing by a caterer is not optional even if the invoice or billing itemizes with a notation such as "optional gratuity." A gratuity is optional only if it is voluntarily added by the customer. Examples of mandatory tips, gratuities, or service charges include: "A 15% gratuity [or service charge] will be added to parties of 8 or more." "Suggested gratuity 15%," itemized on the invoice or bill by the caterer. Tips, gratuities, and service charges are further discussed in subdivision (g). (4) Premises. General. Separately stated charges for the lease of premises on which meals, food, or drinks are served, are nontaxable leases of real property. Where a charge for leased premises is a guarantee against a minimum purchase of meals, food or drinks, the charge for the guarantee is gross receipts subject to tax. Where a person contracts to provide both premises and meals, food or drinks, the charge for the meals, food or drinks must be reasonable in order for the charge for the premises to be non taxable. (5) Private Chefs. A private chef is generally not an employee of the customer, but an independent contractor who pays his or her own social security, and federal and state income taxes. Such a private chef, who prepares and serves meals, food and drinks in the home of his or her customer is a caterer under this regulation. (i) Social Clubs and Fraternal Organizations. "Social Clubs and Fraternal Organizations" as used herein include any corporation, partnership, association or group or combination acting as a unit, such as service clubs, lodges, and community, country, and athletic clubs. The tax applies to receipts from the furnishing of meals, food, and drink by social clubs and fraternal organizations unless furnished: (1) exclusively to members; and also, (2) less frequently than once a week. Both these requirements must be met. If the club or organization furnishes meals, food or drink to nonmembers, all receipts from the furnishing of meals, food or drink are subject to tax whether furnished to members or nonmembers, including receipts on occasions when furnished exclusively to members. Meals, food or drink paid for by members are considered furnished to them even though consumed by guests who are not members. (j) Student Meals. (1) Definitions. (A) "Food Products". As used herein, the term "food products" as defined in Regulation 1602 (18 CCR 1602) includes food furnished, prepared, or served for consumption at tables, chairs, or counters, or from trays, glasses, dishes, or other tableware provided by the retailer or by a person with whom the retailer contracts to furnish, prepare or serve food to others. (B) "Meals". As used herein, the term "meals" includes both food and nonfood products which are sold to students for an established single price at a time set aside for meals. If a single price for the combination of a nonfood product and a food product is listed on a menu or on a sign, a single price has been established. The term "meals" does not include nonfood products which are sold to students for a separate price and tax applies to the sales of such products. Examples of nonfood products are: carbonated beverages and beer. For the purpose of this regulation, products sold at a time designated as a "nutrition break", "recess", or similar break, will not be considered "meals". (2) Application of Tax. (A) Sales by Schools, School Districts and Student Organizations. Sales of meals or food products for human consumption to students of a school by public or private schools, school districts, and student organizations are exempt from tax, except as otherwise provided in (d)(4) above. (B) Sales by Parent-Teacher Associations. Tax does not apply to the sale of, nor the storage, use or other consumption in this state of, meals and food products for human consumption furnished or served to the students of a school by parent-teacher associations. Parent-teacher associations qualifying under Regulation 1597 as consumers are not retailers of tangible personal property, which they sell. Accordingly, tax does apply to the sale to such associations of nonfood items such as carbonated beverages, containers, straws and napkins. (C) Sales by Blind Vendors. Tax does not apply to the sale of meals or food products for human consumption to students of a school by any blind person (as defined in section 19153 of the Welfare and Institutions Code) operating a restaurant or vending stand in an educational institution under article 5 of chapter 6 of part 2 of division 10 of the Welfare and Institutions Code, except as otherwise provided in (d)(4) above. (D) Sales by Caterers. The application of tax to sales by caterers in general is explained in subdivision (h) above. However, tax does not apply to the sale by caterers of meals or food products for human consumption to students of a school, if all the following criteria are met: 1. The premises used by the caterer to serve the lunches to the students are used by the school for other purposes, such as sporting events and other school activities, during the remainder of the day; 2. The fixtures and equipment used by the caterer are owned and maintained by the school; and 3. The students purchasing the meals cannot distinguish the caterer from the employees of the school. (k) Employees' Meals. (1) In General. Any employer or employee organization that is in the business of selling meals, e.g., a restaurant, hotel, club, or association, must include its receipts from the sales of meals to employees, along with its receipts from sales to other purchasers of meals, in the amount upon which it computes its sales tax liability. An employer or an employee organization selling meals only to employees becomes a retailer of meals and liable for sales tax upon its receipts from sales of meals if it sells meals to an average number of five or more employees during the calendar quarter. (2) Specific Charge. The tax applies only if a specific charge is made to employees for the meals. Tax does not apply to cash paid an employee in lieu of meals. A specific charge is made for meals if: (A) Employee pays cash for meals consumed. (B) Value of meals is deducted from employee's wages. (C) Employee receives meals in lieu of cash to bring compensation up to legal minimum wage. (D) Employee has the option to receive cash for meals not consumed. (3) No Specific Charge. If an employer makes no specific charge for meals consumed by employees, the employer is the consumer of the food products and the non-food products, which are furnished to the employees as a part of the meals. In the absence of any of the conditions under (k) (2) a specific charge is not made if: (A) A value is assigned to meals as a means of reporting the fair market value of employees' meals pursuant to state and federal laws or regulations or union contracts. (B) Employees who do not consume available meals have no recourse on their employer for additional cash wages. (C) Meals are generally available to employees, but the duties of certain employees exclude them from receiving the meals and are paid cash in lieu thereof. (4) Meals Credited Toward Minimum Wage. If an employee receives meals in lieu of cash to bring his or her compensation up to the legal minimum wage, the amount by which the minimum wage exceeds the amount otherwise paid to the employee is includable in the employer's taxable gross receipts up to the value of the meals credited toward the minimum wage. For example, if the minimum rate for an eight-hour day is $46.00, and the employee received $43.90 in cash, and a lunch is received which is credited toward the minimum wage in the maximum allowable amount of $2.10, the employer has received gross receipts in the amount of $2.10 for the lunch. (5) Tax Reimbursement. If a separately stated amount for tax reimbursement is not added to the price of meals sold to employees for which a specific charge is made, the specific charge will be regarded as being a tax-included charge for the meals. (l) Religious Organizations. Tax does not apply to the sales of, and the storage, use or other consumption in this state of, meals and food products for human consumption furnished or served by any religious organization at a social or other gathering conducted by it or under its auspices, if the purpose in furnishing or serving the meals and food products is to obtain revenue for the functions and activities of the organization and the revenue obtained from furnishing or serving the meals and food products is actually used in carrying on such functions and activities. For the purposes of this regulation, "religious organization" means any organization the property of which is exempt from taxation pursuant to subdivision (f) of section 3 of article XIII of the State Constitution. (m) Institutions. Tax does not apply to the sale of, nor the storage, use, or other consumption in this state of, meals and food products for human consumption furnished or served to and consumed by patients or residents of an "institution" as defined in Regulation 1503. Tax, however, does apply to the sale of meals and food products by an institution to persons other than patients or residents of the institution. (n) Meal Programs for Low-Income Elderly Persons. Tax does not apply to the sale of, and the storage, use or other consumption in this state of, meals and food products for human consumption furnished or served to low-income elderly persons at or below cost by a nonprofit organization or governmental agency under a program funded by this state or the United States for such purposes. (o) Food Products, Nonalcoholic Beverages and Other Tangible Personal Property Transferred by Nonprofit Youth Organizations. See Regulation 1597 for application of tax on food products, nonalcoholic beverages and other tangible personal property transferred by nonprofit youth organizations. (p) Nonprofit Parent-Teacher Associations. Nonprofit parent-teacher associations and equivalent organizations qualifying under Regulation 1597 are consumers and not retailers of tangible personal property, which they sell. (q) Meals and Food Products Served to Condominium Residents. Tax does not apply to the sale of and the storage, use, or other consumption in this state of meals and food products for human consumption furnished to and consumed by persons 62 years of age or older residing in a condominium and who own equal shares in a common kitchen facility; provided, that the meals and food products are served to such persons on a regular basis. This exemption is applicable only to sales of meals and food products for human consumption prepared and served at the common kitchen facility of the condominium. Tax applies to sales to persons less than 62 years of age. (r) Veteran's Organization. Beginning April 1, 2004, tax does not apply to the sale of, and the storage, use or other consumption in this state of, meals and food products for human consumption furnished or served by any nonprofit veteran's organization at a social or other gathering conducted by it or under its auspices, if the purpose in furnishing or serving the meals and food products is to obtain revenue for the functions and activities of the organization and the revenue obtained from furnishing or serving the meals and food products is actually used in carrying on those functions and activities. (s) Food Stamp Coupons. Tax does not apply to tangible personal property which is eligible to be purchased with federal food stamp coupons acquired pursuant to the Food Stamp Act of 1977 and so purchased. When payment is made in the form of both food stamps and cash, the amount of the food stamp coupons must be applied first to tangible personal property normally subject to the tax, e.g., nonalcoholic carbonated beverages. Retailers are prohibited from adding any amount designated as sales tax, use tax, or sales tax reimbursement to sales of tangible personal property purchased with food stamp coupons. (See paragraph (c) of Regulation 1602.5 for special reporting provisions by grocers.) (t) Honor System Snack Sales. An "honor system snack sale" means a system where customers take snacks from a box or tray and pay by depositing money in a container provided by the seller. Snacks sold through such a system may be subject to tax depending upon where the sale takes place. Sales of such snacks are taxable when sold at or near a lunchroom, break room, or other facility that provides tables and chairs, and it is contemplated that the food sold will normally be consumed at such facilities. Honor system snack sales do not include hotel room mini-bars or snack baskets. __________ 1 The records acceptable in support of such a deduction are: (a) A sales ticket prepared for each transaction claimed as being tax exempt showing: (1) Date of the sale, (2) The kind of merchandise sold, (3) The quantity of each kind of merchandise sold, (4) The price of each kind of merchandise sold, (5) The total price of merchandise sold, (6) A statement to the effect that the merchandise purchased is not to be consumed on or near the location at which parking facilities are provided by the retailer, and (b) A daily sales record kept in sufficient detail to permit verification by audit that all gross receipts from sales have been accounted for and that all sales claimed as being tax exempt are included therein. Appendix A California Sales Tax Exemption Certificate Supporting Exemption Under Section 6359.1 The undersigned certifies that it is an air carrier engaged in interstate or foreign commerce and that the hot prepared food products purchased from ________________ will be consumed by passengers on its flights. The undersigned further certifies that it understands and agrees that if the property purchased under this certificate is used by the purchaser for any purpose other than that specified above, the purchaser shall be liable for sales tax as if it were a retailer making a retail sale of the property at the time of such use, and the sales price of the property to it shall be deemed the gross receipts from such sale. Date Certificate Given __________ Purchasing Air Carrier __________ (company name) Address __________ Signed By __________ (signature of authorized person) __________ (print or type name) Title __________ (owner, partner, purchasing agent, etc.) Seller's Permit No. (if any) __________ Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6012, 6359, 6359.1, 6359.45, 6361, 6363, 6363.5, 6363.6, 6363.8, 6370, 6373, 6374 and 6376.5, Revenue and Taxation Code. Food Products Generally, see Regulation 1602. Alcoholic Beverages, tax reimbursements when served with, see Regulation 1700. "Free" meals with purchased meals, see Regulation 1670. Meals served to patients and inmates of an institution, see Regulation 1503. Vending Machines, when considered selling meals, see Regulation 1574. Meals at summer camps, see Regulation 1506(e). Parent-Teacher associations as consumers, see Regulation 1597. s 1610. Vehicles, Vessels and Aircraft. (a) Definitions. For purposes of this regulation the following definitions govern: (1) "Vehicle." "Vehicle" means: (A) Any device by which any person or property may be propelled, moved or drawn upon a highway, excepting a device moved by human power or used exclusively upon stationary rails or tracks and excepting a device that is not required to be registered under the Vehicle Code. "Vehicle" does not include a mobilehome or commercial coach required to be registered under the Health and Safety Code. "Vehicle" includes trailer coaches which are required to be registered with the Department of Motor Vehicles. (B) Off-highway motor vehicles subject to identification under Division 16.5 (commencing with section 38000) of the Vehicle Code. "Vehicle" does not include automatic bale wagon. (2) "Vessel." "Vessel" means any boat, ship, barge, craft, or floating thing designed for navigation in the water, except: (A) A seaplane. (B) A watercraft specifically designed to operate on a permanently fixed course, the movement of which is restricted to or guided on such permanently fixed course by means of a mechanical device on a fixed track or arm to which the watercraft is attached or by which the watercraft is controlled, or by means of a mechanical device attached to the watercraft itself. (C) A watercraft of a type designed to be propelled solely by oars or paddles. (D) A watercraft eight feet or less in length of a type designed to be propelled by sail. A motor or other component of a vessel shall be deemed to be a part of the vessel when sold therewith. (3) "Aircraft." "Aircraft" means any contrivance designed for powered navigation in the air, except a rocket or a missile. "Aircraft" includes an airframe or a fuselage even without an engine. (b) Application of Tax. (1) Sales tax does not apply to: (A) Sales of vehicles other than off-highway vehicles subject to identification under Division 16.5 of the Vehicle Code, when the retailer is not licensed or certificated pursuant to the Vehicle Code as a manufacturer, dealer, dismantler, or lessor-retailer, subject to the provisions of section 11615.5 of the Vehicle Code, [FN1] or (B) Sales of off-highway vehicles subject to identification under Division 16.5 of the Vehicle Code when the retailer is not licensed or certificated pursuant to the Vehicle Code as a manufacturer, dealer, dismantler, or lessor-retailer, subject to the provisions of section 11615.5 of the Vehicle Code, [FN1] nor required to hold a seller's permit by reason of the number, scope and character of the person's sales of such off-highway vehicles, or (C) Sales of vessels and aircraft by a person not required to hold a seller's permit by reason of the number, scope, and character of the person's sales of such vessels or aircraft, as the case may be. Except as otherwise provided herein, the purchaser must pay use tax measured by the sales price of the property to the purchaser. (2) Neither sales tax nor use tax applies to the sale or use of: (A) Vehicles, vessels, and aircraft sold by the parent, grandparent, grandchild, child, or spouse of the purchaser, or by the brother or sister of the purchaser if both are under the age of 18 and are related by blood or adoption, where the seller is not engaged in the business of selling the type of property for which the exemption is claimed. Claimants of this exemption must submit satisfactory evidence of relationship. (B) Vehicles purchased out of state by a member of the armed services on active duty and delivered to the service member out of state if the purchase is made prior to the effective date of discharge from the service and the service member's intention to use the vehicle in California results from official transfer orders to California and not from the service member's own independent determination. The service member will be considered to have made an independent determination to use the vehicle in California if the contract to purchase the vehicle is made after the service member receives official transfer orders to California or if at the time the contract to purchase the vehicle is made the service member arranges to take receipt of the vehicle in California. (C) Vehicles, vessels, and aircraft when included in any transfer of all or substantially all of the property held or used in the course of business activities of the transferor and when after the transfer the real and ultimate ownership remains substantially similar. (D) Operative January 1, 1990, a new, noncommercial motor vehicle manufactured in the United States and sold to a resident of a foreign country who arranges for the purchase through an authorized vehicle dealer in the foreign country prior to arriving in the United States, if: 1. the purchaser is issued an in-transit permit by the California Department of Motor Vehicles pursuant to section 6700.1 of the Vehicle Code, and 2. prior to or at the end of 30 consecutive days from the first date of operation under the in-transit permit, the motor vehicle is delivered or shipped to a point outside the United States by the retailer, by means of: a. facilities operated by the retailer, or b. a carrier, forwarding agent, export packer, customs broker or other person engaged in the business of preparing property for export, or arranging for its export. As used herein, the term "carrier" means a person or firm regularly engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. Retailers must obtain and retain evidence of export to support deductions taken under this section. Examples of evidence of export of vehicles which are driven to a foreign country by employees of the retailer include but are not limited to, employees' expense claims, fuel purchase receipts, and motel receipts. Examples of evidence to support deductions for exports by other than the retailers' facilities include but are not limited to, bills of lading and import documents of a foreign country. If a vehicle is not removed from this country as required above, the retailer will be subject to payment of the sales tax as well as fees and penalties as specified in section 6700.1(a) of the Vehicle Code. Section 6700.1(i) of the Vehicle Code provides that if the conditions of the in-transit permit are not met, the manufacturer of the new motor vehicle sold to a foreign purchaser under the above conditions will reimburse the retailer for an amount equal to the sales tax and registration fees and penalties paid by the retailer. Such amounts received by the retailer from the manufacturer of the vehicle are not considered part of the gross receipts from the sale of the vehicle. (c) Payment of Tax by Purchaser. (1) Vehicles. Purchasers of vehicles, including off-highway vehicles subject to identification under Division 16.5 of the Vehicle Code, the sales of which are exempt from sales tax under (b)(1), above, shall pay tax to the Department of Motor Vehicles, acting for and on behalf of the Board, at the time of making application for registration or identification, except: (A) When the applicant establishes that the tax is inapplicable under the general exemptions in (b)(2) above. (B) When the applicant furnishes to the Department of Motor Vehicles a use tax exemption or tax clearance certificate issued by the Board. A purchaser may pay the use tax and penalty, if any, to the Department of Motor Vehicles so as to secure immediate action upon the purchaser's application for registration or identification and thereafter apply through the Department of Motor Vehicles to the Board for a refund of the amount so paid. Except when a vehicle, required to be registered under the Vehicle Code is purchased outside this state from a manufacturer or a vehicle dealer, whenever the purchaser of such a vehicle is required to pay use tax to the Department of Motor Vehicles, the sales price shall be presumed to be an amount equal to the market value of the vehicle at the time of the purchase as that value is determined to measure vehicle license fees imposed under part 5 of division 2 of the Revenue and Taxation Code, multiplied by a factor of 1.2 for a noncommercial vehicle, including a passenger vehicle, as defined in section 465 of the Vehicle Code; or by a factor of 1.8 for a commercial vehicle as defined in section 260 of the Vehicle Code. Commercial motor vehicles under 6,001 pounds unladen weight and commercial trailers under 2,000 pounds unladen weight shall be treated as noncommercial vehicles for the purposes of this regulation. The presumption may be rebutted by evidence which establishes that the sales price was other than such amount. The measure of tax on the purchase of an off-highway vehicle subject to identification under Division 16.5 of the Vehicle Code is the sales price. The measure of tax on a purchase of a vehicle from a bona fide dealer outside this state is the sales price and is payable to the Department of Motor Vehicles. If the purchaser of a vehicle makes an application to the Department of Motor Vehicles which is not timely, and is subject to penalty because of delinquency in effecting registration or identification or transfer of registration or identification of the vehicle, the purchaser then becomes liable also for penalty as specified in section 6591 of the Revenue and Taxation Code, but no interest shall accrue. If the purchaser of a vehicle does not make application to the Department of Motor Vehicles,or does not pay the amount of use tax due, or files a return with the Board under section 6455 of the Revenue and Taxation Code which is not timely, interest and penalties shall apply with respect to the unpaid amount as provided in Chapter 5 (commencing with section 6451) of the Revenue and Taxation Code. Any purchaser of a vehicle who registers it outside the state for the purpose of evading the payment of taxes due shall be liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vehicle. (2) Vessels and Aircraft. (A) Aircraft and Documented Vessels. Except as provided in subdivision (c)(2)(C), purchasers of aircraft or documented vessels from any person other than a person required to hold a seller's permit by reason of the number, scope, and character of the person's sales of documented vessels or of aircraft, as the case may be and not otherwise specifically exempt shall report and pay tax to the Board. A documented vessel means a vessel which is required to be documented by the United States Coast Guard and for which the United States Coast Guard has issued a valid marine certificate. A purchaser who holds a seller's permit, or to whom a consumer's use tax account number has been assigned, must include the tax in the purchaser's return for the period in which the aircraft or documented vessel was purchased. A purchaser who does not hold a seller's permit, or to whom a consumer's use tax number has not been assigned, shall make a return and pay use tax, measured by the sales price of the vessel or aircraft, on or before the last day of the calendar month next succeeding the month in which a return form is mailed to the purchaser, or the last day of the twelfth month following the month during which the vessel or aircraft was purchased, whichever period expires the earlier. Any purchaser of a vessel or aircraft who registers it outside the state for the purpose of evading the payment of taxes due shall be liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vessel or aircraft. (B) Undocumented Vessels. Any vessel which is not required to have, and does not have a valid marine certificate issued by the United States Coast Guard is an undocumented vessel. Purchasers of undocumented vessels, the sales of which are exempt from sales tax under (b)(1) above, shall pay the use tax to the Department of Motor Vehicles, acting for, and on behalf of, the Board pursuant to section 9928 of the Vehicle Code, at the time of making application for registration except: 1. When the applicant establishes that the tax is inapplicable under the general exemptions in (b)(2)(A) and (b)(2)(C) above. 2. When the applicant furnishes to the Department of Motor Vehicles a certificate of use tax exemption or tax clearance certificate issued by the Board. 3. When, operative January 1, 1996, the applicant has proof of payment of sales or use tax to a broker under the provisions of subdivision (c)(2)(C). If at the time of registration the purchaser does not have the necessary documentation to establish that tax does not apply but wants to secure immediate action upon his or her application for registration, the purchaser will be required to pay the tax to the Department of Motor Vehicles. If the purchaser can thereafter establish that no tax was applicable, he or she may file with the Board a claim for refund of the tax paid to the Department of Motor Vehicles. If the purchaser makes an application to the Department of Motor Vehicles which is not timely, and is subject to penalty because of delinquency in effecting registration or transfer of registration of the undocumented vessel, he or she then becomes liable also for penalty as specified in Section 6591 of the Revenue and Taxation Code, but no interest shall accrue. If the purchaser does not make application to either department, or does not pay the amount of use tax due, or files a return with the Board under section 6455 of the Revenue and Taxation Code which is not timely, interest and penalties shall apply with respect to the unpaid amount as provided in Chapter 5 (commencing with section 6451) of the Revenue and Taxation Code. Any purchaser of a vessel who registers it outside the state for the purpose of evading the taxes due shall be liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vessel. (C) Vessels and Aircraft Purchased Through Brokers. Notwithstanding any other provision, when a person purchases a vessel or aircraft, on or after January 1, 1996, from another person through a broker, the purchaser is relieved from the liability for use tax on the transaction only to the extent that he or she: 1. has paid an amount as sales or use tax to the broker, and 2. has obtained and retained a receipt from the broker showing the payment of such tax. The purchaser is relieved from liability only to the extent of the amount paid, and for which a receipt is provided, but remains liable for any amount of tax later determined to be due. An amount designated as sales or use tax collected by the broker from the purchaser constitutes a debt owed by the broker to the state and the broker shall be liable for that amount as if he or she were a retailer engaged in business in this state required to collect that amount as use tax from the purchaser. (d) Leased Vehicles. (See Regulation 1661 (18 CCR 1661) for application of tax to leases of mobile transportation equipment.) (1) Lease of Vehicles. The general rules respecting the application of tax to leases apply to leases of vehicles, subject to the following special requirements in the case of vehicles: If under a lease or rental arrangement a vehicle is to be registered in the name of the lessee only, the lessor may not elect to pay the tax measured by the rental receipts. Under these circumstances, use tax will be collected at the time of registration or transfer of registration to the lessee unless the transfer of registration to the lessee is by a certificated dealer, dismantler, manufacturer, or lessor-retailer, using a Report of Sale, in which case the sales tax will be applicable measured by the sales price to the lessor. If the certificated dealer, dismantler, manufacturer, or lessor-retailer is also the lessor, use tax will be applicable measured by the sales price to the lessor, and must be paid by the lessor to the Board. The following examples illustrate applications of the foregoing provisions and are conditions under which tax may not be paid on rental receipts. (A) A certificated dealer sells a vehicle to a lessor who is not a certificated dealer, dismantler, manufacturer, or lessor-retailer. The sale is reported to the Department of Motor Vehicles by the dealer and the vehicle is registered in the name of a lessee only. Sales tax is applicable measured by the selling price to the lessor. (B) A certificated dealer is also a lessor and registers a vehicle in the name of the lessee only. Use tax is applicable measured by the cost of the vehicle to the dealer-lessor. (C) A lessor who is not a certificated dealer, dismantler, manufacturer, or lessor-retailer leases a vehicle and has it registered in the name of the lessee only. 1. Use tax is applicable if the vehicle was purchased from a bona fide dealer outside this state. The measure of tax is the sales price of the vehicle to the lessor and it is payable by the lessor to the Department of Motor Vehicles. 2. Use tax is applicable if the vehicle was purchased from a person who is not a certificated California dealer, manufacturer, dismantler, lessor-retailer, or a bona fide out-of-state dealer. The measure of tax is the sales price of the vehicle to the lessor and, in the absence of evidence to the contrary, the sales price will be presumed to be an amount determined as in paragraph 3 of (c)(1) above. Lessors who own vehicles registered in the names of lessees only may have the registration changed to show either the lessor or the lessor and lessee relationship on the registration card. Where this is done, they may continue to pay tax measured by the rental receipts. Insofar as the registration is not made pursuant to a retail sale, the change may be made without incurring use tax liability on the transfer of registration. Transfers, however, will be subject to transfer fees imposed by the Department of Motor Vehicles. Lessors who change the registration should notify dealers from whom they purchase the vehicles and to whom they gave resale certificates that the registrations have been changed. (2) Transfer of a Vehicle to a Lessee by a Lessor -Presumption. It will be presumed that a transfer of a vehicle to a lessee by a lessor, as defined in section 372 of the Vehicle Code, was a sale for resale if the lessee transfers title and registration to a third party within 10 days from the date the lessee acquired title from the lessor at the expiration or termination of a lease. The presumption may be rebutted by evidence that the sale was not for resale prior to use. "Transfer of title and registration" occurs, for purposes of this regulation, when the lessee endorses the certificate of ownership. (e) Out-of-State Purchases of Vehicles, Vessels, and Aircraft. Regarding the applicability of tax to the out-of-state purchase of a vehicle, vessel, or aircraft, see subdivision (b) of Regulation 1620 (18 CCR 1620). [FN_________1] Section 11615.5 of the Vehicle Code requires a licensed lessor-retailer to pay sales tax with respect to the retail sale of a motor vehicle, except a sale to the lessee of the vehicle, if the lessor-retailer files a report of sale with the Department of Motor Vehicles. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6202, 6271-6294, 6366.2, 6422.1, 6451, 6455, 6485.1, 6514.1 and 6591, Revenue and Taxation Code. s 1610.2. Mobilehomes and Commercial Coaches. (a) Definitions. For purposes of this regulation, the following definitions govern: (1) "Mobilehome" means a structure transportable in one or more sections, designed and equipped to contain not more than two dwelling units to be used with or without a foundation system. A "dwelling unit" consists of one or more habitable rooms which are designed to be occupied by one family with facilities for living, sleeping, cooking, eating, and sanitation. "Mobilehome" does not include a recreational vehicle, commercial coach, or factory built housing as defined in Section 19971 of the Health and Safety Code. (2) "Commercial Coach" means a structure transportable in one or more sections, designed and equipped for human occupancy for industrial, professional, or commercial purposes, which is required to be moved under permit, and shall include a trailer coach. "Trailer coach" means a vehicle, other than a motor vehicle, designed for human habitation, or human occupancy for industrial, professional, or commercial purposes, for carrying property on its own structure, and for being drawn by a motor vehicle. (3) "Used Mobilehome" means a mobilehome that was previously sold and registered or titled with the Department of Housing and Community Development, or with an appropriate agency or authority, or any other state, District of Columbia, territory or possession of the United States or a foreign state, province, or country. (4) "Current Recognized Value Guide" means (1) the Kelley Blue Book Manufactured Housing and Mobilehome Guide or (2) the National Automobile Dealer Associations's (NADA) Mobilehome Manufactured Housing Appraisal Guide, which is the current guide for the period in which the sale, storage, use or other consumption occurs. (b) Basic Application of Tax. (1) General Exemptions. (A) Sales Tax. Sales tax does not apply to sales of mobilehomes or commercial coaches required to be annually registered under the Health and Safety Code when the retailer (as defined in Revenue and Taxation Code Section 6275) is not licensed pursuant to the Health and Safety Code as a manufacturer, manufacturer branch, dealer, dealer branch, distributor, distributor branch, representative, or representative branch. Generally, where sales tax does not apply to the sale, unless the transaction is also exempt from the use tax as provided in subdivision (b)(1)(B) below, use tax applies to the purchase of the mobilehome or commercial coach. The purchaser is required to pay the use tax to the Department of Housing and Community Development at the time of making application for registration. (For explanation regarding payment of tax by purchaser, see subdivision (c) below.) (B) Sales and Use Tax. Neither sales tax nor use tax applies to the sale or use of: 1. Mobilehomes and commercial coaches sold by the parent, grandparent, child, grandchild, or spouse of the purchaser, or by the brother or sister of the purchaser if both are under the age of 18 and are related by blood or adoption, where the seller is not engaged in the business of selling the type of property for which the exemption is claimed. Claimants of this exemption must submit satisfactory evidence of relationship. 2. Mobilehomes and commercial coaches when included in any transfer of all or substantially all of the property held or used in the course of business activities of the transferor and when after the transfer the real and ultimate ownership remains substantially similar. 3. Used mobilehomes which are subject to property tax pursuant to Part 13 (commencing with Section 5800) of Division 1 of the Revenue and Taxation Code at the time of sale. (2) Fees. The "gross receipts" from the retailer's sale of a mobilehome and the "sales price" of a mobilehome stored, used, or otherwise consumed in this State does not include separately stated escrow fees or registration fees charged in connection with the sale of any mobilehome. (3) New Mobilehomes. (A) In General. Generally, unless the transaction qualifies as a sale for occupancy as a residence, or is otherwise exempt, tax applies to the gross receipts from the sale of a new mobilehome to the same extent as sales of other tangible personal property. See subdivision (b)(3)(B) below for special rules applicable to sales of new mobilehomes for occupancy as residences. (B) Mobilehomes Sold for Occupancy as a Residence. A mobilehome dealer is the "retailer-consumer" of any new mobilehome sold to the customer for occupancy as a residence if the transaction would otherwise have been subject to the sales tax and the mobilehome is thereafter subject to local property taxation. For a description of the conditions under which a mobilehome dealer may tender a resale certificate to a supplier, see Regulation 1668(h). 1. Measure of Tax. The retailer-consumer is required to declare and pay tax at 75 percent of the retailer-consumer's purchase price for the period in which the qualifying sale is made to a customer. A qualifying sale is one in which the customer certifies to the retailer-consumer at the time of sale that the mobilehome is being acquired for occupancy as a residence. The retailer-consumer is not authorized to separately bill the customer for tax reimbursement. The applicable percentage of the purchase price applies to all items which the retailer-consumer has purchased and affixed as an integral part of the mobilehome prior to sale, or pursuant to the contract of sale, such as carpeting, wall paneling, room partitions, and built-in appliances. Operative January 1, 1985, for purposes of this regulation, draperies and freestanding refrigerators and ranges shall be considered an integral part of a mobilehome. If these items are not included in the price of the mobilehome when acquired by the retailer-consumer, they must be included when computing the total amount subject to tax. The retailer-consumer's purchase price of these items also must include any labor charges for affixing the property when the labor is performed by other than the retailer-consumer. A mobilehome dealer is the retailer of certain other items which are not an integral part of the mobilehome, such as furniture. The mobilehome dealer is also the retailer of mobilehome accessories, such as window awnings, skirting, and air conditioning units, provided these items are not affixed to a mobilehome situated on a permanent foundation or directly affixed to realty. Tax is due on the entire retail selling price to the customer. 2. Certification of Exemption. If a purchaser certifies in writing at the time of the sale that the mobilehome will be used in a manner or for a purpose entitling the retailer to report tax on the transaction based on 75 percent of the retailer's purchase price and subsequently uses the property in some other manner or for some other purpose not qualifying for the exemption, then the purchaser shall be liable for payment of tax measured by the entire sales price or gross receipts from the sale less an amount of equal to 75 percent of the sales price or gross receipts from the sale of the mobilehome to the retailer. The following is a form of certification approved by the Board. CERTIFICATION OF EXEMPTION MOBILEHOME RESIDENCE PURCHASE I hereby certify that the mobilehome that I (name of purchaser) am purchasing from (name of retailer-consumer) is being purchased for occupancy as a residence and that it will only be used for this purpose. I further certify and agree that if the property purchased under authority of this certificate is used for any other purpose, I shall be liable for payment of tax measured by the entire sales price or gross receipts from the sale to me less an amount equal to 75 percent of the sales price or gross receipts from the sale of the mobilehome to the retailer. Date Certificate Given: Signed By: (name of purchaser) Capacity: Description of Property: 3. Determining the Date of Sale. Generally the tax applies upon the date of the sale of the property to the buyer. A sale takes place on the date of actual transfer of title to the property to the retailer-consumer's customer or at the time possession is transferred to the purchaser where title is retained by the retailer-consumer solely as security for the payment of the purchase price. Transactions involving installations by dealers upon permanent foundation systems are subject to tax upon installation. For purpose of such a transaction, installation shall be considered to be complete upon the date of delivery of possession of the mobilehome to the buyer or upon the date of close of escrow for the sale, whichever event first occurs. 4. Equivalent Measure of Tax for Direct Sales by a Manufacturer. A manufacturer is the "retailer-consumer" of any new mobilehome which he sells directly to a customer for occupancy as a residence and is required to declare and pay tax measured by an amount equal to 75 percent of the sales price or gross receipts from the sale at which a similar mobilehome ready for installation would be sold by the manufacturer to a retailer-consumer in this state. 5. Purchase of a Mobilehome from a Retailer at an Out-of-State Location. If the out-of-state retailer is engaged in business in this state within the meaning of Revenue and Taxation Code Section 6203, the out-of-state retailer is a retailer-consumer with respect to its qualifying sales of new mobilehomes and must report and pay tax as provided in subdivision (b)(3)(B)(1). If the out-of-state retailer is not engaged in business in this state, then the purchaser must report and pay use tax measured by 75 percent of the out-of-state retailer's purchase price of any new mobilehome as set forth in subdivision (b)(3)(B)(1) of this regulation. In the absence of satisfactory evidence of the out-of-state vendor's purchase price, it shall be presumed that the measure of use tax for the transaction is an amount equivalent to 60 percent of the sales price of the mobilehome to the purchaser, provided the vendor is not the manufacturer of the mobilehome. If the out-of-state vendor is the manufacturer, tax will apply as provided in subdivision (b)(3)(B)(4) above. (4) Used Mobilehomes. (A) In General. Tax applies to the "gross receipts" from the sale of a used mobilehome and the "sales price" of a used mobilehome stored, used, or otherwise consumed in this State if, at the time of sale or use, the mobilehome is subject to annual license fees under the Health and Safety Code. Tax does not apply to the sale of a used mobilehome if, at the time of sale, the mobilehome is subject to property tax pursuant to Part 13 of Division 1 of the Revenue ad Taxation Code commencing with Section 5800; however, if, subsequent to the time of sale, the mobilehome is removed from the property tax rolls and reinstated under the annual license fee system, then tax applies in the same manner as if the mobilehome had been subject to the annual license fees at the time of sale. Where a dealer, who is acting on its own account and not as a broker, sells a used mobilehome, the dealer is a retailer and tax applies to the retail sales price of the used mobilehome including separately stated charges for awnings, skirting, and other items of tangible personal property sold with the used mobilehome provided these items are not affixed to a mobilehome situated on a permanent foundation or directly affixed to realty. However, if a used mobilehome is sold in-place by a dealer, any separately stated values of existing real property improvements such as cement and landscaping or separately stated in-place location value are not subject to tax. (B) Special Application of Tax to Certain Transactions Involving Used Mobilehomes. 1. Application of Tax for the Period January 1, 1983 through December 31, 1984. From January 1, 1983, to December 31, 1984, inclusive, "gross receipts" from the retail sale of, and "sales price" of a used mobilehome, sold or stored, used, or otherwise consumed in this state, means the retail value of the used mobilehome as determined in accordance with a current recognized value guide, whenever the registered or legal owner sells a used mobilehome through a person licensed under the Health and Safety Code as a dealer and not on the dealer's own account or through a licensed real estate broker acting pursuant to Section 10131.6 of the Business and Professions Code. 2. Application of Tax for the Period January 1, 1985 through December 31, 1985. From January 1, 1985 through December 31, 1985, inclusive, "ross receipts" from the retail sale of, and "sales price" of a used mobilehome, sold or stored, used, or otherwise consumed in this state, means the retail value of the used mobilehome as determined in accordance with a current recognized value guide, whenever the sale is: a. Through a person licensed under the Health and Safety Code as a dealer and not on the dealer's own account; or b. Through a licensed real estate broker acting pursuant to Section 10131.6 of the Business and Professions Code; or c. Whenever a purchaser of a used mobilehome is required to pay the use tax to the Department of Housing and Community Development. If the value guide does not specify the age, model, and manufacturer of a used mobilehome or if the actual sales price of a used mobilehome is less than the current value specified in the value guide, the "sales price" shall be based on the actual sales price of the mobilehome as evidenced by the purchase documents. If the total contract price includes charges for accessories or other items which are not an integral part of the mobilehome, such as in-place location value, landscaping, or furnishings, and the actual sales price of the used mobilehome is not segregated in the purchase documents, the "actual sales price" of the used mobilehome for purposes of determining the "sales price" under the provisions of the preceding paragraph shall be either the total contract price or the value specified in the value guide, whichever is lower. However, if the value of the used mobilehome is not specified in the value guide, then the "actual sales price" of the mobilehome included within the total contract price shall be determined by the Board based on information available to it. 3. Application of Tax For Periods On and After January 1, 1986. Effective January 1, 1986, "gross receipts" from the retail sale of, and "sale price" of a used mobilehome, sold or stored, used, or otherwise consumed in this state, means the retail value of the used mobilehome as determined in accordance with a current recognized value guide, whenever the sale is: a. Through a person licensed under the Health and Safety Code as a dealer and not on the dealer's own account; or b. Through a licensed real estate broker acting pursuant to Section 101231.6 of the Business and Professions Code; or c. Whenever a purchaser of a used mobilehome is required to pay the use tax to the Department of Housing and Community Development. If the value guide does not specify the model or manufacturer of a used mobilehome, the value of the used mobilehome shall be established by reference to the highest value in the value guide according to age and size or the actual sales price, whichever is less. If the actual sales price of a used mobilehome is less than the current value specified in the value guide, the sales price shall be based on the actual sales price of the mobilehome as evidenced by the purchase documents. "Actual sales price" means the total contract price, including, but not limited to, the value of the mobilehome, in-place location, awning, skirting, carport, patio, landscaping, shrubs, unattached furnishings, or other items not part of the mobilehome, and documentation fees. (c) Payment of Tax by Purchaser. Purchasers of mobilehomes and commercial coaches required to be registered annually under the Health and Safety Code, the sales of which are exempt from sales tax under subdivision (b)(1)(A) above, shall pay tax to the Department of Housing and Community Development, acting for and on behalf of the Board, at the time of making application for registration except: (1) When the applicant establishes that the tax is inapplicable under the general exemption in subdivision (b)(1)(B) above; or (2) When the applicant furnishes to the Department of Housing and Community Development a use tax exemption or tax clearance certificate issued by the Board. A purchaser may pay the use tax and penalty, if any, to the Department of Housing and Community Development so as to secure immediate action upon the application for registration and thereafter apply to the Board for a refund of the amount so paid. Whenever the purchaser of a commercial coach is required to pay use tax to the Department of Housing and Community Development, the sales price shall be presumed to be an amount equal to the market value of the property at the time of the purchase as that value is determined to measure the license fees imposed under Chapter 8 (commencing with Section 18075) of Part 2, Division 13, of the Health and Safety Code, multiplied by a factor of 1.8. The presumption may be rebutted by evidence which establishes that the sales price was other than such amount. This provision does not apply to commercial coaches required to be registered annually under the Health and Safety Code which are purchased outside this state from a manufacturer or dealer. The measure of tax of a purchase of a commercial coach from a bona-fide dealer outside this state is the sales price and the tax is payable to the Department of Housing and Community Development. Whenever the purchaser of a mobilehome is required to pay use tax to the Department of Housing and Community Development, the measure of tax shall be determined in accordance with subdivision (b)(3) or (b)(4) of this regulation, whichever is applicable. If the purchaser of a mobilehome or commercial coach makes n application to the Department of Housing and Community Development which is not timely, and is subject to penalty because of delinquency in effecting registration or transfer of registration of the property, the purchaser then becomes liable also for penalty specified in Section 6591 of the Revenue and Taxation Code, but no interest shall accrue. If the purchaser of a mobilehome or commercial coach does not make application to the Department of Housing and Community Development, or does not pay the amount of use tax due, or files a return with the Board under Section 6455 of the Revenue and Taxation Code which is not timely, interest and penalties shall apply with respect to the unpaid amount as provided in Chapter 5 (commencing with Section 6451) of Part 1, Division 2, of the Revenue and Taxation Code. (d) Real Property Improvements on or to Mobilehomes or Commercial Coaches. A person who both furnishes and affixes accessories or other items as improvements or additions to land, or to a mobilehome, or a commercial coach, which rests on a permanent foundation, is a construction contractor. The application of tax to construction contracts is explained in Regulation 1521, Construction Contractors. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6012.2, 6012.9, 6275-6293, 6379 and 6422.1, Revenue and Taxation Code.Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6012.2, 6012.9, 6275-6293, 6379 and 6422.1, Revenue and Taxation Code. (Also See Article 28) s 1614. Sales to the United States and Its Instrumentalities. (a) Generally. Sales tax does not apply to sales to: (1) The United States or its unincorporated agencies and instrumentalities. (2) Any incorporated agency or instrumentality of the United States wholly owned by either the United States, or by a corporation wholly owned by the United States. (3) The American National Red Cross, its chapters and branches. (4) Incorporated federal instrumentalities not wholly owned by the United States, unless federal law permits taxing the instrumentality. Examples of incorporated federal instrumentalities exempt from tax are federal reserve banks, federal credit unions, federal land banks, and federal home loan banks. Application of the use tax to the storage, use, or other consumption of tangible personal property by agencies or instrumentalities of the United States is prohibited unless federal law permits taxing the agency or instrumentality. Where payment for tangible personal property sold or consumed in this state is made partly by the United States or its instrumentalities and partly by nonexempt persons, the payment is exempt to the extent of the United States' or its instrumentality's share provided it is made directly to the vendor by the United States or its instrumentality. If the nonexempt party makes full payment and then seeks reimbursement from the United States or its instrumentality, the entire amount is taxable even though the United States or its instrumentality may reimburse the party in full or in part. (b) Army and Air Force Exchange Services, Navy Exchanges, Coast Guard Exchanges, Open Messes, and Officers' Messes. Army and air force exchange services, navy exchanges, coast guard exchanges, open messes, and officers' messes, established pursuant to regulations of the appropriate branch of the armed services are instrumentalities of the United States, and tax does not apply to sales to these organizations. Tax applies to sales to persons in the armed services of the United States, notwithstanding the circumstance that the merchandise may be billed through any army or air force exchange service, navy exchange, coast guard exchange, or similar organization. (c) Company and Other Unit Funds. Tax does not apply to sales to the armed services of merchandise purchased with unit and similar funds (company, troop, hospital, recreation, welfare, etc.) where the expenditures are made in accordance with appropriate regulations of the armed services for the general benefit of armed services personnel. (d) Civilian Welfare Funds. Civilian welfare funds are established and administered under armed services regulations under which post restaurants are also administered. Both are nonappropriated fund activities and are unincorporated governmental instrumentalities. Accordingly, sales tax does not apply to sales made to such organizations properly conducted and operated at military installations in this state in accordance with appropriate regulations. Any seller to such organizations claiming a transaction as exempt from sales tax must obtain from the purchaser a certificate similar to the following: This is to certify that the ____________________________ located (Name of Fund) at __________________________________ is a nonappropriated fund (Name of Installation) activity located at a military installation of the United States in the State of California and is conducted and operated in accordance with armed services regulations established for such activities. As such, sales to this nonappropriated civilian welfare fund are exempt from California state and state-administered local sales taxes. ___________________________________________________ Signature of Commanding Officer or Representative ___________________________________________________ Print or Type Name ___________________________________________________ Rank ___________________________________________________ Date (e) The Selective Service System. Tax does not apply to receipts from sales to State Procurement Officers for selective service authorized by selective service regulations. (f) Medicare Program. Tax does not apply to the sale of items to a person insured pursuant to Part A of the Medicare Act as such sales are considered exempt sales to the United States. Tax applies to the sale of an item to a person insured pursuant to Part B of the Medicare Act even though the person assigns the claim for reimbursement to the retailer and the retailer files the claim with, and is paid by, a carrier administering medicare claims under contract with the United States. (g) Supporting Documents. Any seller claiming a transaction as exempt from tax under Section 6381 must obtain from the purchaser, and retain, a government purchase order or documents demonstrating direct payment by the United States to support the claim. Note:Construction contractors generally, see Regulation 1521. Motion pictures produced for United States Government, see Regulation 1529. United States contractors, see Regulation 1615. Leases and rentals in general, see Regulation 1660. Diamond National Corp., et al. v. State Board of Equalization ________ US ________. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6381 and 6381.5, Revenue and Taxation Code. s 1615. United States Contractors. Note: Authority cited: Section 6384, Revenue and Taxation Code; Section 9 of Chapter 681, Statutes of 1941. Additional authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6010, 6012, 6015, 6016.3, 6016.5, 6054.5, 6055, 6203.5, Revenue and Taxation Code. s 1616. Federal Areas. (a) In General. Tax applies to the sale or use of tangible personal property upon federal areas to the same extent that it applies with respect to sale or use elsewhere within this state. (b) Alcoholic Beverages. Manufacturers, wholesalers and rectifiers who deliver or cause to be delivered alcoholic beverages to persons on federal reservations shall pay the state retailer sales tax on the selling price of such alcoholic beverages so delivered, except when such deliveries are made to persons or organizations which are instrumentalities of the Federal Government or persons or organizations which purchase for resale. Sales to officers' and non-commissioned officers' clubs and messes may be made without sales tax when the purchasing organizations have been authorized, under appropriate regulations and control instructions, duly prescribed and issued, to sell alcoholic beverages to authorized purchasers. [FN1] (c) Sales Through Vending Machines. Sales through vending machines located on Army, Navy, or Air Force installations are taxable unless the sales are made by operators who lease the machines to exchanges of the Army, Air Force, Navy, or Marine Corps, or other instrumentalities of the United States, including Post Restaurants and Navy Civilian Cafeteria Associations, which acquire title to and sell the merchandise through the machines to authorized purchasers. For the exemption to apply, the contracts between the operators and the United States instrumentalities and the conduct of the parties must make it clear that the instrumentalities acquire title to the merchandise and sell it through machines leased from the operators to authorized purchasers. (d) Indian Reservations. (1) In General. Except as provided in this regulation, tax applies to the sale or use of tangible personal property upon Indian reservations to the same extent that it applies with respect to sale or use elsewhere within this state. (2) Definitions. For purposes of this regulation "Indian" means any person of Indian descent who is entitled to receive services as an Indian from the United States Department of the Interior. Indian organizations are entitled to the same exemption as a Indians. "Indian organization" includes Indian tribes and tribal organizations and also includes partnerships all of whose members are Indians. The term includes corporations organized under tribal authority and wholly owned by Indians. The term excludes other corporations, including other corporations wholly owned by Indians. "Reservation" includes reservations, rancherias, and any land held by the United States in trust for any Indian tribe or individual Indian. (3) Sales by On-Reservation Retailers. (A) Sales by Indians. 1. Sales by Indians to Indians who reside on a reservation. Sales tax does not apply to sales of tangible personal property made to Indians by Indian retailers negotiated at places of business located on Indian reservations if the purchaser resides on a reservation and if the property is delivered to the purchaser on a reservation. The purchaser is required to pay use tax only if, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation. 2. Sales by Indians to non-Indians and Indians who do not reside on a reservation. Sales tax does not apply to sales of tangible personal property by Indian retailers made to non-Indians and Indians who do not reside on a reservation when the sales are negotiated at places of business located on Indian reservations if the property is delivered to the purchaser on the reservation. Except as exempted below, Indian retailers are required to collect use tax from such purchasers and must register with the Board for that purpose. Indian retailers selling meals, food or beverages at eating and drinking establishments are not required to collect use tax on the sale of meals, food or beverages that are sold for consumption on an Indian reservation. (B) Sales by non-Indians. 1. Sales by non-Indians to Indians who reside on a reservation. Sales tax does not apply to sales of tangible personal property made to Indians by retailers when the sales are negotiated at places of business located on Indian reservations if the property is delivered to the purchaser on a reservation. The sale is exempt whether the retailer is a federally licensed Indian trader or is not so licensed. The purchaser is required to pay use tax only if, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation. 2. Sales by non-Indians to non-Indians and Indians who do not reside on a reservation. Either sales tax or use tax applies to sales of tangible personal property by non-Indian retailers to non-Indians and Indians who do not reside on a reservation. (C) Resale Certificates. Persons making sales for resale of tangible personal property to retailers conducting business on an Indian reservation should obtain resale certificates from their purchasers. If the purchaser does not have a permit and all the purchaser's sales are exempt under paragraph (d)(3)(A) of this regulation, the purchaser should make an appropriate notation to that effect on the certificate in lieu of a seller's permit number (see Regulation 1668, "Resale Certificates"). (4) Sales by Off-Reservation Retailers. (A) Sales Tax -In General. Sales tax does not apply to sales of tangible personal property made to Indians negotiated at places of business located outside Indian reservations if the property is delivered to the purchaser and ownership to the property transfers to the purchaser on the reservation. Generally ownership to property transfers upon delivery if delivery is made by facilities of the retailer and ownership transfers upon shipment if delivery is made by mail or carrier. Except as otherwise expressly provided herein, the sales tax applies if the property is delivered off the reservation or if the ownership to the property transfers to the purchaser off the reservation. (B) Sales Tax -Permanent Improvements -In General. Sales tax does not apply to a sale to an Indian of tangible personal property (including a trailer coach) to be permanently attached by the purchaser upon the reservation to realty as an improvement if the property is delivered to the Indian on the reservation. A trailer coach will be regarded as having been permanently attached if it is not registered with the Department of Motor Vehicles. Sellers of property to be permanently attached to realty as an improvement should secure exemption certificates from their purchasers (see Regulation 1667, "Exemption Certificates"). (C) Sales Tax -Permanent Improvements -Construction Contractors. 1. Indian contractors. Sales tax does not apply to ales of materials to Indian contractors if the property is delivered to the contractor on a reservation. Sales tax does not apply to sales of fixtures furnished and installed by Indian contractors on Indian reservations. The term "materials" and "fixtures" as used in this paragraph and the following paragraph are as defined in Regulation 1521 "Construction Contractors." 2. Non-Indian contractors. Sales tax applies to sales of materials to non-Indian contractors notwithstanding the delivery of the materials on the reservation and the permanent attachment of the materials to realty. Sales tax does not apply to sales of fixtures furnished and installed by non-Indian contractors on Indian reservations. (D) Use Tax -In General. Except as provided in paragraphs (d)(4)(E) and (d)(4)(F) of this regulation, use tax applies to the use in this state by an Indian purchaser of tangible personal property purchased from an off-reservation retailer for use in this state. (E) Use Tax -Exemption. Use tax does not apply to the use of tangible personal property (including vehicles, vessels, and aircraft) purchased by an Indian from an off-reservation retailer and delivered to the purchaser on a reservation unless, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation. (F) Leases. Neither sales nor use tax applies to leases otherwise taxable as continuing sales or continuing purchases as respects any period of time the leased property is situated on an Indian reservation when the lease is to an Indian who resides upon the reservation. In the absence of evidence to the contrary, it shall be assumed that the use of the property by the lessee occurs on the reservation if the lessor delivers the property to the lessee on the reservation. Tax applies to the use of leased vehicles registered with the Department of Motor Vehicles to the extent that the vehicles are used off the reservation. ______________ [FN1] The following is a summary of the pertinent regulations which have been issued: a) General. Air force regulation 34-57, issued under date of February 9, 1968, army regulation 210-65, issued under date of May 4, 1966, and navy general order No. 15, issued under date of May 5, 1965, authorize the sale and possession of alcoholic beverages at bases and installations subject to certain enumerated restrictions. (b) Air Force. Air force regulation 34-57, paragraph 5, permits commissioned officers' and non-commissioned officers' open messes, subject to regulations established by commanders of major air commands to sell alcoholic beverages to authorized purchasers at bars and cocktail lounges, and provides that commanders will issue detailed control instructions. Paragraphs 8 and 9 require commanders of major air commands to issue regulations relative to package liquor sales and to procurement of alcoholic beverages, respectively. (c) Army. Army regulation 210-65, paragraph 9, provides that major commanders are authorized to permit at installations or activities within their respective commands the dispensing of alcoholic beverages by the drink or bottle. Paragraph 11 of AR 210-65 provides that when authorized by major commanders as prescribed in paragraph 9, AR 210-65, officers' and non-commissioned officers' open messes may, subject to regulations prescribed by the commanding officer of the installation or activity concerned, dispense alcoholic beverages by the drink, and operate a package store. (d) Navy. Navy general order No. 15 provides that commanding officers may permit, subject to detailed alcoholic beverage control instructions, the sale of packaged alcoholic beverages by officers' and noncommissioned officers' clubs and messes and the sale and consumption of alcoholic beverages by the drink in such clubs and messes. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6017, 6021, Revenue and Taxation Code, Public Law No. 817-76th Congress (Buck Act). Vending machines, sales generally, see Regulation 1574. Items dispensed for 10 ¢ or less, see Regulation 1574. Additional reference: Section 6352, Revenue and Taxation Code. s 1617. Federal Taxes. (a) Federal Excise Taxes on Retail Sales. Gross receipts subject to sales tax and the sales price subject to use tax do not include the amount of any federal tax imposed upon or with respect to retail sales whether imposed upon the retailer or upon the consumer and regardless of whether the amount of federal tax is stated to the consumer as a separate charge. Retailers must retain records to show that the amounts deducted as federal tax have been returned to the United States or will be returned to the United States. (b) Other Federal Excise Taxes. (1) Except as indicated in subdivisions (b)(2) and (b)(3), gross receipts subject to sales tax and the sales price subject to use tax include the amount of any federal excise tax included in the prices of the property sold, even though the manufacturer or importer is also the retailer thereof, and it is immaterial whether or not the amount of such tax is stated as a separate charge. (2) Prior to July 1, 1995, gross receipts subject to sales tax and the sales price subject to use tax do not include the amount of the federal excise tax imposed pursuant to section 4091 of the Internal Revenue Code with respect to diesel fuel or jet fuel for which the purchaser obtains either a direct refund or credit against his or her income tax. (3) Beginning July 1, 1995, gross receipts subject to sales tax and the sales price subject to use tax do not include the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, or jet fuel for which the purchaser obtains either a direct refund or credit against his or her income tax. (c) Import Duties. Import duties are imposed by federal statute (19 U.S.C. section 1505(a)) on the importer of record. If the importer of record is a consignee and the consignee is the seller, import duties included in the price of the property sold are subject to sales and use tax. If the importer of record is a consignee and the consignee is the buyer, such duties are excludable from the sales price subject to use tax. (d) Repeal or Reduction of Federal Taxes. (1) In General -Installment Payments. When an article subject to a federal excise tax prior to the date such tax is repealed or reduced is sold under an agreement calling for payment of the sales price in installments, payments made on or after the repeal or reduction date will be considered as if they were made with respect to an article sold on or after the repeal or reduction date if the vendor establishes that the amount of payments due on or after such date were reduced by an amount equal to the tax reduction. (2) Retailers' Excise Taxes Collected After Repeal. Amounts collected by a retailer as federal retailers' excise tax after the tax has been repealed, but neither paid by the retailer to the Internal Revenue Service nor refunded to its customers, constitute gross receipts subject to sales tax. (e) Refunds of Federal Taxes. (1) Repayment by Manufacturer to Retailer. When a manufacturer receives a refund of federal excise tax and repays the amount of the tax to the retailer pursuant to requirements of federal law, the repayment to the retailer will be regarded for sales and use tax purposes as a reduction of the retailer's cost of goods sold. (2) Repayment to Consumer. When a manufacturer receives a refund of federal manufacturers' excise tax and repays the amount of the tax to the consumer either directly or through the retailer pursuant to requirements of federal law, the repayment to the consumer will be regarded for sales and use tax purposes as a price adjustment. Taxable gross receipts of the retailer for the period in which the repayment is made to the consumer will be reduced accordingly, and sales tax previously paid by the retailer on the amount will be refunded to the retailer, provided the amount collected from the consumer as sales tax reimbursement is also refunded to him or her. (3) Refunds on Gasoline, Diesel or Jet Fuel. The refund of the federal excise tax imposed by Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, or jet fuel (either by direct refund or as a credit against income tax) is an adjustment to the sales price of the gasoline, diesel, or jet fuel. Accordingly, the retailer who paid the sales tax or the purchaser who paid use tax measured by the sales price of the gasoline, diesel, or jet fuel may file with the board a claim for refund of tax measured by the amount of the federal excise tax so refunded or credited. The claim must be supported by proof of the exempt use of the gasoline, diesel or jet fuel and of the refund or credit of the federal excise tax to the purchaser. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011, 6012, 6245.5 and 6423, Revenue and Taxation Code; 19 U.S.C Section 1505(a); and 19 CFR Section 141.1(b). s 1618. United States Government Supply Contracts. (a) Definitions. (1) "United States Government supply contract" means a contract with the United States to furnish, or to fabricate and furnish, tangible personal property including ships, aircraft, ordnance, or equipment, whereby title to tangible personal property purchased for use in fulfilling the contract passes to the United States pursuant to the title provisions contained in the contract before the contractor uses the property to perform the function or act for which the property was designed or manufactured. The term "U.S. Government supply contract" does not include contracts to construct improvements on or to real property or to the purchase of tangible personal property for use in fulfilling such contracts. (2) "Direct consumable supplies" means supplies, tools, or equipment consumed in the performance of a contract which are specifically identified to the contract and the actual cost of which is charged as a direct item of cost to the specific contract. "Tools" as used in this definition does not include "special tooling" subject to the provisions of Federal Acquisition Regulation (FAR) 52.245-17 or any regulation(s) which succeeds FAR 52.245-17. (3) "Overhead materials" means supplies consumed in the performance of a contract the cost of which is charged to an overhead expense account and then allocated to various contracts based on generally accepted accounting principles. (b) Application of Tax. Sales to U.S. Government supply contractors of tools, equipment, direct consumable supplies and overhead materials are sales for resale if the United States takes title pursuant to a United States government supply contract prior to any use of the property by the contractor to perform the function or act for which the property was designed or manufactured. Accordingly, tax does not apply to such sales even though the property does not become a component part of the tangible personal property furnished, fabricated, or manufactured by the contractor. If the contractor makes any use of the property to perform the function or act for which the property was designed or manufactured prior to the passage of title to the United States, tax applies to the sales to or to the use by the contractor. Whether title to direct consumable supplies and overhead materials passes to the United States under a United States government supply contract and the time at which title passes will be determined in accordance with the title provisions contained in the contract, if any. In a case where the cost of direct consumable supplies or overhead materials are charged to an expense account which is then allocated to various locations, cost centers or contracts, some of which are engaged in other than United States government cost reimbursement contracts and/or fixed-price contracts with a progress payments clause, it will be considered that title did not pass to the United States prior to use of the property, and tax will apply with respect to the purchase or use of the property charged to the expense account, unless the item is specifically accounted for as being charged to a specific United States government supply contract, pursuant to the terms of which title passes to the United States prior to the use of the item. Property will be considered charged to a specific United States government supply contract when it is allocated pursuant to: (1) accounting standards promulgated by the Cost Accounting Standards Board (Office of Federal Procurement Policy, Office of Management and Budget), if applicable; otherwise, (2) generally accepted accounting principles that are equitable, consistently-applied, and appropriate to the particular circumstances. Direct consumable supplies and overhead materials which may be allocated in this manner include, but are not limited to, property used to repair items of capital equipment when a portion of the contractor's use is properly allocable to its government supply contracts, notwithstanding the fact that title to the property being repaired remains with the contractor. Special Tooling. Effective December 29, 1989, title will generally not pass prior to use by the contractor for special tooling which is subject to the Special Tooling Clauses of Federal Acquisition Regulation (48 CFR) 52.245- 17. Title to such special tooling will pass prior to use by the contractor only if the agreement between the contractor and the United States government contains a custom clause providing for title passage prior to use by the contractor. Therefore, sales of special tooling will generally be subject to tax. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007 and 6381, Revenue and Taxation Code; and Aerospace Corp. v. St. Bd. of Equalization (1990) 218 Cal.App.3d 1300. s 1619. Foreign Consuls. (a) Application of Tax. (1) In General. Neither sales tax nor use tax applies to the sale or use of tangible personal property sold or leased to foreign consular officers, employees, or members of their families, to the extent that such persons have been identified by the U.S. Department of State as exempt from the tax pursuant to treaties or other diplomatic agreements with the United States. Persons identified as exempt from taxation pursuant to treaties or other diplomatic agreements with the United States will be issued a Tax Exemption Card by the U. S. Department of State which identifies the bearer as exempt from tax and which specifies the extent of the exemption. Tax applies to sales of tangible personal property to foreign consular officers, employees, or members of their families, who do not hold a Tax Exemption Card issued by the U. S. Department of State except as provided in subparagraph (a) (2) below. Also, tax applies to sales of tangible personal property to persons holding Tax Exemption Cards where their total purchases in a single transaction do not exceed the minimum level of exemption as specified on the Tax Exemption Card. Sales or use tax applies to the sale or use of tangible personal property sold to nationals of the United States even though such persons may perform consular functions for foreign governments. (2) Vehicles. In addition to the exemption provided in subparagraph (a)(1), the purchase or lease of vehicles on or after the date of assumption of duties by foreign consular officers, employees, or members of their families who do not hold a Personal Tax Exemption Card will be exempt from the sales and use taxes if an identification letter is furnished directly to the retailer by the Office of Foreign Missions, U.S. Department of State (OFM). In the absence of a Mission Tax Exemption Card, the purchase or lease of vehicles on behalf of a mission also will be exempt from the sales and use taxes provided an identification letter is furnished directly to the retailer by OFM. Such letters must confirm the name, exempt status, identification number (if available), and date of assumption of duties of the person seeking the exemption (if applicable) and must be furnished to the retailer at the time of the sale. For purposes of this regulation, "vehicle" is as defined in Section 6272 of the Revenue and Taxation Code. Effective June 1, 2003, the sale or lease of vehicles to foreign consular officers, employees, or members of their families will be exempt from the sales and use tax if: (A) The purchaser provides a valid Tax Exemption Card (Personal or Mission) or a protocol identification card to the retailer; and (B) The retailer contacts and obtains directly from the OFM a letter stating that the vehicle sale or lease to the purchaser is eligible for exemption from tax ( "OFM Eligibility Letter"). (b) Records of Retailers. Invoices or other written evidence of sale must be retained by the retailer to support any deduction claimed on sales tax returns for sales to foreign consuls. The invoices should show the name of the purchaser, the name of the mission, the tax exemption number, the expiration date of the Tax Exemption Card, and the minimum level of exemption specified on the Tax Exemption Card. In addition, to support each transaction claimed as an exempt sale or lease of a vehicle to a foreign diplomat or mission not holding a Tax Exemption Card, the identification letter from the OFM confirming the exempt status of the diplomat must be retained by the retailer. Effective June 1, 2003, in addition to retaining invoices or other written evidence as specified above, the retailer must retain a copy of the Tax Exemption Card (Personal or Mission) or protocol identification card, and the OFM Eligibility Letter to support each transaction claimed as an exempt sale or lease of a vehicle to a foreign consular officer, employee, or member of his or her family. Note: For special provisions affecting record retention, see Regulation 1698. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6272, 6352 and 7053, Revenue and Taxation Code; and Vienna Convention on Diplomatic Relations of April 18, 1961, Article 34 (23 UST 3242) T.I.A.S. No. 7502. s 1620. Interstate and Foreign Commerce. (a) Sales Tax. (1) In General. When a sale occurs in this state, the sales tax, if otherwise applicable, is not rendered inapplicable solely because the sale follows a movement of the property into this state from a point beyond its borders, or precedes a movement of the property from within this state to a point outside its borders. Such movements prevent application of the tax only when conditions exist under which the taxing of the sale, or the gross receipts derived therefrom, is prohibited by the United States Constitution or there exists a statutory exemption. If title to the property sold passes to the purchaser at a point outside this state, or if for any other reason the sale occurs outside this state, the sales tax does not apply, regardless of the extent of the retailer's participation in California in relation to the transaction. The retailer has the burden of proving facts establishing his right to exemption. (2) Sales Following Movement of Property Into State From Point Outside State. (A) From Other States -When Sales Tax Applies. Sales tax applies when the order for the property is sent by the purchaser to, or delivery of the property is made by, any local branch, office, outlet or other place of business of the retailer in this state, or agent or representative operating out of or having any connection with, such local branch, office, outlet or other place of business and the sale occurs in this state. The term "other place of business" as used herein includes the homes of district managers, service representatives, and other resident employees, who perform substantial services in relation to the retailer's functions in this state. It is immaterial that the contract of sale requires or contemplates that the goods will be shipped to the purchaser from a point outside the state. Participation in the transaction in any way by the local office, branch, outlet or other place of business is sufficient to sustain the tax. (B) From Other States -When Sales Tax Does Not Apply. Sales tax does not apply when the order is sent by the purchaser directly to the retailer at a point outside this state, or to an agent of the retailer in this state, and the property is shipped to the purchaser, pursuant to the contract of sale, from a point outside this state directly to the purchaser in this state, or to the retailer's agent in this state for delivery to the purchaser in this state, provided there is no participation whatever in the transaction by any local branch, office, outlet or other place of business of the retailer or by any agent of the retailer having any connection with such branch, office, outlet, or place of business. (C) Imports. Sales tax applies to sales of property imported into this state from another country when the sale occurs after the process of importation has ceased, regardless of whether the property is in its original package, if the transaction is otherwise subject to sales tax under subdivision (a)(2)(A) of this regulation. (3) Sales Preceding Movement of Goods From Within State to Points Outside State. (A) To Other States -When Sales Tax Applies. Except as otherwise provided in (B) below, sales tax applies when the property is delivered to the purchaser or the purchaser's representative in this state, whether or not the disclosed or undisclosed intention of the purchaser is to transport the property to a point outside this state, and whether or not the property is actually so transported. It is immaterial that the contract of sale may have called for the shipment by the retailer of the property to a point outside this state, or that the property was made to specifications for out-of-state jobs, that prices were quoted including transportation charges to out-of-state points, or that the goods are delivered to the purchaser in this state via a route a portion of which is outside this state. Regardless of the documentary evidence held by the retailer (see (3)(D) below) to show delivery of the property was made to a carrier for shipment to a point outside the state, tax will apply if the property is diverted in transit to the purchaser or his representative in this state, or for any other reason it is not delivered outside this state. (B) Shipments Outside the State -When Sales Tax Does Not Apply. Sales tax does not apply when the property pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer, by means of: 1. Facilities operated by the retailer or 2. Delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point. As used herein the term "carrier" means a person or firm regularly engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term "forwarding agent" means a person or firm regularly engaged in the business of preparing property for shipment or arranging for its shipment. An individual or firm not otherwise so engaged does not become a "carrier" or "forwarding agent" within the meaning of this regulation simply by being designated by a purchaser to receive and ship goods to a point outside this state. (This subsection is effective on and after September 19, 1970, with respect to deliveries in California to carriers, etc., hired by the purchasers for shipment to points outside this state that are not in another state or foreign country, e.g., to points in the Pacific Ocean.) (C) Exports. 1. When Sales Tax Applies. Except for certain new motor vehicles delivered to a foreign country pursuant to paragraph (b)(2)(D) of Regulation 1610 (18 CCR 1610), sales tax applies when the property is delivered in this state to the purchaser or the purchaser's representative prior to an irrevocable commitment of the property into the process of exportation. It is immaterial that the disclosed or undisclosed intention of the purchaser is to ship or deliver the property to a foreign country or that the property is actually transported to a foreign country. Sales of property such as fuel oil and other items consumed during a voyage to a foreign country are not exempt even though they are transported out of, and are not returned to this country. It is immaterial that the ship to which the property is delivered is of foreign registry. 2. When Sales Tax Does Not Apply. Sales tax does not apply when the property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer to the foreign county. To be exempt as an export the property must be intended for a destination in a foreign country, it must be irrevocably committed to the exportation process at the time of sale, and must actually be delivered to the foreign country prior to any use of the property. Movement of the property into the process of exportation does not begin until the property has been shipped, or entered with a common carrier for transportation to another country, or has been started upon a continuous route or journey which constitutes the final and certain movement of the property to its foreign destination. There has been an irrevocable commitment of the property to the exportation process when the property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer in a continuous route or journey to the foreign country by means of: a. Facilities operated by the retailer, b. A carrier, forwarding agent, export packer, customs broker or other person engaged in the business of preparing property for export, or arranging for its export, or c. A ship, airplane, or other conveyance furnished by the purchaser for the purpose of carrying the property in a continuous journey to the foreign country, title to and control of the property passing to the purchaser upon delivery. Delivery by the retailer of property into a facility furnished by the purchaser constitutes an irrevocable commitment of the property into the exportation process only in those instances where the means of transportation and character of the property shipped provide certainty that the property is headed for its foreign destination and will not be diverted for domestic use. The following are examples of deliveries by the retailer into facilities furnished by the purchaser which demonstrate an irrevocable commitment of the property into the exportation process: Example 1. Sale of fuel oil delivered into the hold of a vessel provided by the purchaser. The fuel is to be unloaded at the foreign destination. Example 2. Sale of jewelry delivered aboard a scheduled airline with a scheduled departure to a foreign destination. Example 3. Sale of equipment, designed specifically for use in the foreign destination, delivered to a foreign purchaser's aircraft. The foreign purchaser has filed a flight plan showing that the aircraft will be transporting the property on a continuous journey to its foreign destination. The following are examples of sales which do not demonstrate sufficient indicia of an irrevocable commitment to the exportation process and do not qualify as exports: Example 4. Sale of jewelry delivered to a foreign purchaser at the retailer's place of business or to the purchaser or his representative at the airport prior to boarding the plane. The tax applies even though the purchaser may hold tickets for the foreign destination. Example 5. Sale of a television set delivered into the trunk of a passenger vehicle or into the storage area of a pickup truck. Example 6. Sale of equipment delivered to a foreign purchaser's aircraft even though a flight plan had been filed showing that the aircraft was to be flown to a foreign destination. If the equipment sold had been altered or specifically designed for use in the foreign destination, then the combined factors of the character of the property and the means of transportation would provide certainty of export and the sale would qualify as an export as described in (3) above. Export has not begun where property is transported from a point within this state to a warehouse or other collecting point in this state even though it is intended that the property then be transported, and in fact is transported, to another country. Nevertheless, sales of property are exempt if transported under the circumstances described in 2.b. above to a warehouse or other collecting point of a carrier, forwarding agent, export packer, customs broker, or other person engaged in the business of preparing property for export, or arranging for its export. Property is regarded as transported under the circumstances described in 2.b. above, when the property is sold to a purchaser for shipment abroad and is shipped or delivered to a point in this state to a person who is not the purchaser, whether or not that person is a legal entity related to the purchaser, who ships or delivers the property to a foreign destination as provided in paragraph (a)(3)(C)2.b. of this regulation. (D) Proof of Exemption. Bills of lading or other documentary evidence of the delivery of the property to a carrier, customs broker, or forwarding agent for shipment outside this state must be retained by the retailer to support deductions taken under (B) above. Bills of lading, import documents of a foreign country or other documentary evidence of export must be obtained and retained by retailers to support deductions taken under (C) above. (E) Particular Applications. 1. Property Mailed to Persons in the Armed Forces. Tax does not apply to sales of property which is mailed by the retailer, pursuant to the contract of sale, to persons in the armed forces at points outside the United States, notwithstanding the property is addressed in care of the postmaster at a point in this state and forwarded by him to the addressee. When mail is addressed to Army Post Offices (A.P.O.'s) or to Fleet Post Offices (F.P.O.'s) in care of the postmaster, it will be presumed that it is forwarded outside California. The retailer must keep records showing the names and addresses as they appear on the mailed matter and should keep evidence that the mailing was done by him. 2. Property for Defense Purposes Delivered to Offices of the United States. Tax does not apply to sales of property shipped to a point outside this state pursuant to the contract of sale when the property is marked for export and delivered by retailer to the "contracting officer," "officer in charge," "port quartermaster," or other officer of the United States for transportation and delivery to the purchaser at such a point. 3. Airplanes Delivered to Agencies of the United States. Tax does not apply to sales of airplanes and parts and equipment for airplanes transported to a point outside this state pursuant to the contract of sale when such property is delivered to the United States Air Force or any other agency or instrumentality of the United States for transportation and delivery to the purchaser or someone designated by him at that point. 4. Repairers. When repairers of property in California, in fulfillment of their repair contracts with their customers, ship the repaired property to points outside this state by one of the methods set forth under (a)(3)(B) and (C) above, tax does not apply to the sale by the repairer of the repair parts and materials affixed to and becoming a component part of the repaired property so shipped. (b) Use Tax. (1) In General. Use tax applies to the use of any property purchased for storage, use or other consumption and stored, used, or consumed in this state, the sale of which is exempt from sales tax under this regulation. (2) Exceptions. (A) Use tax does not apply to the use of property held or stored in this state for sale in the regular course of business nor to the use of property held for the purposes designated in subparagraph (b)(7), below. (B) Interstate and Foreign Commerce. 1. In General. Use tax does not apply to the use of property purchased for use and used in interstate or foreign commerce prior to its entry into this state, and thereafter used continuously in interstate or foreign commerce both within and without California and not exclusively in California. 2. Intermodal Cargo Containers. Intermodal cargo containers are containers that are used to transport freight during a continuous movement of that freight from the origin shipper to the destination receiver by the use of two or more of the following modes of transportation: railroad, vehicle, or vessel. The use of an intermodal cargo container in California is exempt from tax if the use meets the requirements of subdivision (b)(2)(B)1 of this regulation. An intermodal cargo container is regarded as first used in interstate or foreign commerce prior to its entry into California if the container is loaded with freight outside California and then first enters California during a continuous movement of that freight from the origin shipper to the destination receiver. For purposes of the requirements set forth in subdivision (b)(2)(B)1 of this regulation, an intermodal cargo container is also regarded as first used in interstate or foreign commerce prior to its entry into California if all of the following conditions are satisfied: a. The contract for the sale or lease of the intermodal cargo container requires that the container be used in interstate or foreign commerce and such sales contract or lease contract is entered into prior to the entry of the intermodal cargo container into California; b. The purchaser or lessee transports the intermodal cargo container into California with the specific intent that such intermodal cargo container will then be loaded with freight for transport in a continuous movement to a destination outside California, whether or not the purchaser knows which particular freight will be loaded into the intermodal cargo container at the time the intermodal cargo container first enters California; and c. The intermodal cargo container is, in fact, first loaded with freight for transport in a continuous movement to a destination outside California, and the intermodal cargo container is thereafter used continuously in interstate or foreign commerce both within and without California and not exclusively in California. (C) Use tax does not apply to the use of certain new motor vehicles purchased for subsequent delivery to a foreign country and so delivered pursuant to paragraph (b)(2)(D) of Regulation 1610 (18 CCR 1610). (3) Purchase for Use in this State. Property delivered outside of California to a purchaser known by the retailer to be a resident of California is regarded as having been purchased for use in this state unless a statement in writing, signed by the purchaser or the purchaser's authorized representative, that the property was purchased for use at a designated point or points outside this state is retained by the vendor. Notwithstanding the filing of such a statement, property purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the property is in California. For purposes of this regulation, "functional use" means use for the purposes for which the property was designed. Except as provided in subdivision (b)(5) of this regulation, when property is first functionally used outside of California, the property will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, unless the property is used, stored, or both used and stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state. Except as provided in subdivision (b)(5) of this regulation, prior out-of-state use not exceeding 90 days from the date of purchase to the date of entry into California is of a temporary nature and is not proof of an intent that the property was purchased for use elsewhere. Except as provided in subdivision (b)(5) of this regulation, prior out-of-state use in excess of 90 days from the date of purchase to the date of entry into California, exclusive of any time of shipment to California, or time of storage for shipment to California, will be accepted as proof of an intent that the property was not purchased for use in California. (4) Purchase for Use in this State - vehicles, vessels, and aircraft -90-Day Test (Prior to October 2, 2004, and after June 30, 2007). The provisions of subdivision (b)(4) apply prior to October 2, 2004, and after June 30, 2007. A vehicle, vessel or aircraft purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the vehicle, vessel or aircraft is in California. When the vehicle, vessel or aircraft is first functionally used outside of California, the vehicle, vessel or aircraft will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, exclusive of any time of shipment to California or time of storage for shipment to California, unless: (A) Physically Located Outside California. Use tax will not apply if the vehicle, vessel or aircraft is used, stored, or both used and stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state. (B) Used in Interstate or Foreign Commerce. 1. If the property is a vehicle, use tax will not apply if one-half or more of the miles traveled by the vehicle during the six-month period immediately following its entry into this state are commercial miles traveled in interstate or foreign commerce. 2. If the property is a vessel, use tax will not apply if one-half or more of the nautical miles traveled by the vessel during the six-month period immediately following its entry into the state are commercial miles traveled in interstate or foreign commerce. 3. If the property is an aircraft, use tax will not apply if one-half or more of the flight time traveled by the aircraft during the six-month period immediately following its entry into the state is commercial flight time traveled in interstate or foreign commerce. Such use will be accepted as proof of an intent that the property was not purchased for use in California. For purposes of subdivision (b)(4), the term "commercial" applies to business uses and excludes personal use. However, the term "commercial" is not limited to for-profit businesses. (5) Purchase for Use in this State - Vehicles, Vessels, and Aircraft - 12-Month Test (From October 2, 2004, through June 30, 2007). (A) Purchased for Use in California. Except as provided in subdivision (b)(5)(D) below, the provisions of subdivision (b)(5) apply from October 2, 2004, through June 30, 2007. A vehicle, vessel, or aircraft purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the vehicle, vessel, or aircraft is in California. When a vehicle, vessel, or aircraft is purchased outside of California, is first functionally used outside of California, and is brought into California within 12 months from the date of its purchase, it is rebuttably presumed that the vehicle, vessel, or aircraft was acquired for storage, use, or other consumption in this state and is subject to use tax if any of the following occur: 1. The vehicle, vessel, or aircraft was purchased by a California resident as defined in section 516 of the Vehicle Code, as that section now reads or is hereinafter amended. 2. In the case of a vehicle, the vehicle was subject to registration under Chapter 1 (commencing with section 4000) of Division 3 of the Vehicle Code during the first 12 months of ownership. 3. In the case of a vessel or aircraft, that vessel or aircraft was subject to property tax in this state during the first 12 months of ownership. 4. The vehicle, vessel, or aircraft is used or stored in this state more than one-half of the time during the first 12 months of ownership. (B) Evidence Rebutting Presumption. This presumption may be controverted by documentary evidence that the vehicle, vessel, or aircraft was purchased for use outside of this state during the first 12 months of ownership. This evidence may include, but is not limited to, evidence of registration of that vehicle, vessel, or aircraft, with the proper authority, outside of this state. (C) Used in Interstate of Foreign Commerce. 1. If the property is a vehicle, use tax will not apply if one-half or more of the miles traveled by the vehicle during the six-month period immediately following its entry into this state are commercial miles traveled in interstate or foreign commerce. 2. If the property is a vessel, use tax will not apply if one-half or more of the nautical miles traveled by the vessel during the six-month period immediately following its entry into the state are commercial miles traveled in interstate or foreign commerce. 3. If the property is an aircraft, use tax will not apply if one-half or more of the flight time traveled by the aircraft during the six-month period immediately following its entry into the state is commercial flight time traveled in interstate or foreign commerce. Such use will be accepted as proof of an intent that the property was not purchased for use in California. For purposes of subdivision (b)(5)(C), the term "commercial" applies to business uses and excludes personal use. However, the term "commercial" is not limited to for-profit businesses. (D) Repair, Retrofit, or Modification of Vessels or Aircraft. 1. Subdivision (b)(5)(D) applies to aircraft or vessels brought into this state for the purposes of repair, retrofit, or modification on or after October 1, 2004. 2. Notwithstanding subdivision (b)(5)(A) above, aircraft or vessels brought into this state for the purpose of repair, retrofit, or modification shall not be deemed to be acquired for storage, use, or other consumption in this state. 3. Subdivision (b)(5)(D)2. does not apply if, during the period following the time the aircraft or vessel is brought into this state and ending when the repair, retrofit, or modification of the aircraft or vessel is complete, more than 25 hours of airtime in the case of an airplane or 25 hours of sailing time in the case of a vessel are logged on the aircraft or vessel by the registered owner of that aircraft or vessel or by an authorized agent operating the aircraft or vessel on behalf of the registered owner of the aircraft or vessel. The calculation of airtime or sailing time logged on the aircraft or vessel does not include airtime or sailing time following the completion of the repair, retrofit, or modification of the aircraft or vessel that is logged for the sole purpose of returning or delivering the aircraft or vessel to a point outside of this state. (E) Binding Purchase Contract. Subdivision (b)(5) does not apply to any vehicle, vessel, or aircraft that is either purchased, or is the subject of a binding purchase contract that is entered into, on or before October 1, 2004. (6) Purchase for Use in This State - Locomotives - 90-Day Test. A locomotive purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the locomotive is in California. When the locomotive is first functionally used outside of California, the locomotive will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, exclusive of any time of shipment to California or time of storage for shipment to California, unless: (A) Physically Located Outside California. Use tax will not apply if the locomotive is used, stored, or both used and stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state. (B) Used in Interstate or Foreign Commerce. Use tax will not apply to transactions involving locomotives if one-half or more of the miles traveled by the locomotive during the six-month period immediately following its entry into California are commercial miles traveled in interstate or foreign commerce. Such use will be accepted as proof of an intent that the property was not purchased for use in California. For purposes of subdivision (b)(6), the term "commercial" applies to business uses and excludes personal use. However, the term "commercial" is not limited to for-profit businesses. (7) Examples of Interstate and Foreign Commerce. Examples of what constitutes interstate or foreign commerce include, but are not limited to the following: Example 1. A sightseeing tour bus group (charter) or regularly scheduled bus service (per capita) originates in California and travels to another state or country for a single day or several days, then returns to California where the charter or schedule terminates. Example 2. A charter bus, vessel or aircraft deadheads under contract to another state, picks up the group and operates the charter without entering the state of California, drops the group in the other state, and deadheads back into the State of California. (The charter was quoted round trip.) Example 3. A commercial vehicle deadheads to another state or country or transports property to another state or country and delivers that property within the other state or country or to another state or country. The vehicle then returns to California, either loaded or empty. Example 4. A charter bus group tours under contract to another state or country for a day or several days, drops the passengers in the other state or country, and then deadheads back under contract to its terminal or next assignment. Example 5. Property arriving in California via plane, train, or vessel from another state or country is picked up by a commercial vehicle, vessel or aircraft and transported to another state or country for a day or several days. The commercial vehicle, vessel or aircraft then returns to California, either loaded or empty. Example 6. A sightseeing tour bus group (charter) arriving in California via plane, train, or ship from another state or country is picked up by bus and tours California for a number of days, goes to another state or country for a number of days, and then terminates service either in another state, country, or California. Example 7. Property arriving in California via plane, train, or vessel from another state or country is picked up by a commercial vehicle, vessel or aircraft, which may be operating wholly within California, and transported for further distribution to one or more California locations or to locations in another state or country. The vehicle, vessel or aircraft then returns empty to pick up another load arriving in California via plane, train, or vessel from another state or country. Example 8. A commercial vehicle, vessel, aircraft, or regularly scheduled bus service operating wholly within California is picking up or feeding passengers or property arriving from, or destined to, a state or country other than California to another form of transportation be it plane, train, ship, or bus. (Example: an airport bus service or a bridge carrier for Amtrak.) Example 9. Property is transported by a commercial vehicle, vessel, aircraft, or locomotive from another state or country to California or from California to another state or country. While engaged in this transportation, the commercial vehicle, vessel, aircraft, or locomotive also transports property from one point in California to another. Example 10. A commercial vehicle, vessel, aircraft, or locomotive is dispatched from one location in California to another location in California to pick up property and transport it to another state or country. Example 11. A commercial vehicle, vessel or aircraft, sightseeing tour bus group (charter), or regularly scheduled bus service operating in interstate or foreign commerce experiences a mechanical failure and is replaced by another vehicle, vessel or aircraft. The replacement vehicle, vessel or aircraft is also deemed to be operating in interstate or foreign commerce as a continuation of the original trip. Example 12. A vehicle, vessel, aircraft, or locomotive transports persons or property for commercial purposes (a) from California to another state or country; (b) from another state or country to California; (c) entirely within California, but the vehicle, vessel, aircraft, or locomotive picks up persons or property arriving in California via train, bus, truck, vessel, or aircraft from another state or country and then transports the persons or property in a continuous route or journey to one or more California locations or to locations in another state or country. Example 13. A vessel transports persons or property for commercial purposes (a) from a California port to a port in another state or country; or (b) from a port in another state or country to a port in California. (8) Imports. Use tax applies with respect to purchases of property imported into this state from another country when the use occurs after the process of importation has ceased and when sales tax is not applicable, regardless of whether the property is in its original package. (9) "Storage" and "Use" -Exclusions. "Storage" and "use" do not include the keeping, retaining or exercising any right or power over property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state, or for the purpose of being processed, fabricated or manufactured, into, attached to, or incorporated into, other property to be transported outside the state and thereafter used solely outside the state. The following examples are illustrative of the meaning of the exclusion: Example 1. An engine installed in an aircraft which is flown directly out of the state for use thereafter solely outside the state qualifies for the exclusion. The use of the engine in the transporting process does not constitute a use for purposes of the exclusion. However, if any other use is made of the aircraft during removal from this state, such as carrying passengers or property, the exclusion does not apply. Example 2. An engine installed in a truck which is transported by rail or air directly out of the state for use thereafter solely outside the state qualifies for the exclusion. Example 3. An engine transported outside the state and installed on an aircraft which returns to the state does not qualify for the exclusion. It does not matter whether the use of the aircraft in California is exclusively interstate or intrastate commerce or both. Example 4. An engine transported outside the state and installed on an aircraft which does not return to the state qualifies for the exclusion. (c) Rail Freight Cars. Sales tax does not apply to the sale of, and the use tax does not apply to the storage, use or other consumption in this state of rail freight cars for use in interstate or foreign commerce. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6008, 6009.1, 6051, 6201, 6247, 6248, 6352, 6366.2, 6368.5, 6387 and 6396, Revenue and Taxation Code. s 1620.1. Sales of Certain Vehicles and Trailers for Use in Interstate or Out-of-State Commerce. (a) Definitions (1) Permanent Trailer Identification (PTI) Program. A registration program for commercial trailers as defined in Vehicle Code section 5014.1 administered by the Department of Motor Vehicles (DMV). Assessments made pursuant to the PTI program constitute a flat fee and are not based on the weight of a commercial trailer subject to the PTI program. In lieu of annual registration, DMV assesses a service fee every five (5) years. (2) Purchaser's Agent. For purposes of this regulation, a purchaser's agent means a person authorized by the purchaser of a trailer to act on the purchaser's behalf in providing an exemption certificate from the sales or use tax to the seller of the trailer. To establish that a particular person is acting as the purchaser's agent, the purchaser must: 1) clearly disclose in writing to the seller the purchaser's intent to use an agent in the transaction, including the name of the purchaser's agent, and 2) obtain and retain, prior to the use of the agent, written evidence of the agent's status with the purchaser. An agent may include a registration service company engaged by either the purchaser or dealer who sells trailers. A dealer, manufacturer or remanufacturer may not act as the purchaser's agent with respect to a trailer that it sells or delivers to a purchaser. (3) Remanufacturer and Remanufactured Vehicles. A remanufacturer of vehicles or trailers means a person who is licensed by the DMV pursuant to Vehicle Code section 507.8. A remanufactured vehicle means a vehicle constructed by a remanufacturer and meeting the criteria of Vehicle Code section 507.5. A vehicle purchased from an out-of-state company will qualify as a remanufactured vehicle if the out-of-state company is licensed as a remanufacturer by the appropriate governmental agency in that state and the vehicle meets the criteria established by that state for a remanufactured vehicle. The sale of a used vehicle or trailer alone does not qualify as a sale of a remanufactured vehicle unless the vehicle or trailer otherwise qualifies as a remanufactured vehicle or trailer pursuant to applicable state laws. (4) Single State Registration System (SSRS). A federally regulated program under which states monitor a motor carrier's compliance with federal registration and insurance requirements. Motor carriers generally must register with the state in which they have their principal place of business. In California, the program is administered by the DMV and covers only motor carriers of property. Compliance with the SSRS program requires eligible motor carriers to register annually with the DMV, report the number of vehicles operating in other states participating in the SSRS program, and to pay the requisite fees. "Vehicles" for purposes of SSRS registration means only self-propelled units and not trailers. SSRS filings do not identify individual vehicles. (5) Trailer. For purposes of this regulation, trailer means a new or remanufactured trailer or semi-trailer with an unladen weight of 6,000 pounds or more. Any vehicle not designed for carrying persons or property on its own structure, such as an auxiliary dolly, does not qualify as a trailer for purposes of this regulation. Qualified trailers may be manufactured or remanufactured either inside or outside this state. (6) United States Department of Transportation (USDOT) Number. A number issued by the Federal Motor Carrier Safety Administration (FMCSA) to any motor carrier located in the United States that is engaged in the transportation of property in interstate or foreign commerce. A USDOT number is assigned to a motor carrier and not to the motor carrier's individual vehicles. (7) United States - Federal Maritime Commission (FMC) Number. A number issued by the Federal Maritime Commission to entities operating as common carriers in U.S. foreign commerce. An FMC number is assigned to an ocean carrier and to the ocean carrier's individual trailers. (8) Vehicle. For purposes of this regulation, the term vehicle means a new or remanufactured truck, truck tractor, semitrailer, or trailer with an unladen weight of 6,000 pounds or more; or a new or remanufactured trailer coach, or auxiliary dolly, manufactured or remanufactured in this state and purchased from an out-of-state dealer for delivery in this state. (b) Application of Tax (1) In General. Tax applies to the sale or storage, use, or other consumption of vehicles and trailers in this state except as provided in subdivisions (b)(2) and (b)(3). (2) Exempt Sales of Vehicles for Use in Out-of-State or Foreign Commerce. (A) Notwithstanding subdivision (b)(1), tax does not apply to the sale or storage, use, or other consumption of a vehicle delivered in this state by the vehicle manufacturer or remanufacturer to a purchaser who is not a resident of California for use exclusively in out-of-state or foreign commerce where the purchaser: 1. Purchases the vehicle from a dealer located outside this state, 2. Removes the vehicle from this state within 30 days from and after the date of delivery, 3. Provides a valid affidavit to the manufacturer or remanufacturer, that is accepted by such person in good faith, stating: a. The name and location of the out-of-state dealer from whom the vehicle was purchased, b. The name and location of the in-state manufacturer or remanufacturer that delivered the vehicle to the purchaser and the date of delivery c. That the purchaser is not a resident of California, d. That the vehicle was purchased for use exclusively outside California, e. That the vehicle was removed from this state within 30 days of the delivery date, and f. The date of removal. 4. Provides evidence of out-of-state vehicle registration (state of registration, license plate number and VIN or serial number) to the manufacturer or remanufacturer within 60 days of providing the affidavit to the deliverer. (B) Notwithstanding the forgoing provisions, it is rebuttably presumed that a vehicle registered outside California and apportioned for use within this state is not purchased for use exclusively outside this state. (C) An affidavit for the providing of the information set forth in subdivision (b)(2)(A) is set forth in the Appendix to this regulation. (3) Exempt Sales of Trailers for Use in Interstate, Out-of-State or Foreign Commerce. (A) Notwithstanding the provisions of subdivisions (b)(1) and (b)(2), tax does not apply to the sale or storage, use, or other consumption of a trailer delivered in this state by the manufacturer, remanufacturer or dealer to a purchaser for use exclusively in interstate, out-of-state, or foreign commerce where all the following criteria are met: 1. The trailer is manufactured or remanufactured outside California and is removed from this state within 30 days from and after the date of delivery; or the trailer is manufactured or remanufactured within California and is removed from the state within 75 days from and after the date of delivery, 2. If the trailer is registered outside the state, the purchaser or purchaser's agent provides the delivering manufacturer, remanufacturer, or dealer a copy of the current out-of-state license and registration for the trailer showing the Vehicle Identification Number (VIN) or serial number; or, if the trailer is registered in-state under the PTI program, the purchaser or purchaser's agent provides the delivering manufacturer, remanufacturer, or dealer a copy of the federal document assigning or confirming the purchaser's or lessee's USDOT number, FMC number, or a copy of the current SSRS filing with the DMV. A purchaser or purchaser's agent may not use an FMC number if the purchaser has a current USDOT number. Evidence of registration outside California must be submitted to the dealer, manufacturer, or remanufacturer no later than 60 days after the timely providing of an affidavit described in subdivision (b)(3)(A)3. Evidence of a USDOT number, FMC number, or SSRS filing must be submitted with the affidavit, 3. The purchaser or purchaser's agent provides a valid affidavit to the manufacturer, remanufacturer, or dealer, that is accepted by such person in good faith, stating: a. The name and location of the dealer from whom the trailer was purchased, b. The name and location of the California dealer, manufacturer or remanufacturer that delivered the trailer to the purchaser and the date of delivery, c. That the trailer was purchased for use exclusively outside the state, or exclusively in interstate or foreign commerce, or both, d. That the trailer was removed from the state within the appropriate time periods provided for in subdivision (b)(3)(A)(1), and e. The date of removal. (B) An affidavit for the providing of the information set forth in subdivision (b)(3) to the deliverer is set forth in the Appendix to this regulation. (c) Affidavit. An affidavit is valid where a purchaser or, in the case of a claimed section 6388.5 exemption, a purchaser or purchaser's agent, provides all information required by subdivisions (b)(2) or (b)(3), signs and dates the affidavit, and provides it to the manufacturer or remanufacturer that delivered the vehicle to the purchaser or to the manufacturer, remanufacturer, or dealer that delivered the trailer to the purchaser within 30 days after the vehicle or trailer is removed from the state. For transactions that include the purchase of more than one vehicle or trailer, the purchaser need not file a separate affidavit for each vehicle or trailer, but may instead append a list of the vehicles or trailers included in the transaction, identifying each one by a VIN or serial number. The purchaser must, however, report the date each vehicle or trailer was delivered and the date each was removed from the state and provide current out-of-state license and registration or USDOT number, FMC number, or SSRS filing applicable to each vehicle or trailer, as required by subdivisions (b)(2) and (b)(3). For purposes of this regulation, it is presumed that the person who delivers a vehicle or trailer to the purchaser accepted the affidavit in good faith in the absence of evidence to the contrary. (d) Lessors. The sale of a vehicle or trailer to a lessor qualifies for the exemptions from sales and use tax provided by Revenue and Taxation Code sections 6388 and 6388.5 provided the sale and subsequent use of the vehicle or trailer as leased tangible personal property meets the appropriate criteria detailed in subdivisions (b)(2) and (b)(3). In addition to the information required in these subdivisions, a lessor must provide the name and address of the lessee on the affidavit and, when applicable, documentation showing that the vehicle or trailer was registered outside the state on behalf of the lessor or lessee. If a leased trailer is registered under the PTI program, the lessor must provide the lessee's USDOT number, FMC number, or current SSRS filing. (e) Documentation to be Maintained by Purchasers. Purchasers of vehicles shall maintain internal records documenting that a vehicle qualifying for the Revenue and Taxation Code section 6388 exemption was taken out of California within the time mandated by statute and was used exclusively outside the state. Purchasers of trailers shall maintain internal records documenting that a trailer qualifying for the Revenue and Taxation Code section 6388.5 exemption was taken out of California within the time mandated by statute and was used exclusively in out-of-state, foreign or interstate commerce. A purchaser must provide the supporting documentation to the Board upon request. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6388, 6388.3, 6388.5 and 6421, Revenue and Taxation Code. Appendix Page 1 (Front) Page 2 (Back) s 1620.2. Beverages Sold or Served by Carriers. (a) Definitions. (1) Carrier. "Carrier" means any person or firm who engages in the business of transporting by vehicle, train, vessel, or aircraft persons or property for hire or compensation. The term includes common and contract carriers engaged in intrastate, interstate or foreign commerce. It does not include, however, the National Railroad Passenger Corporation (Amtrack). (2) Trans-State Trip. "Trans-state trip" means the act of crossing California territory or airspace during a continuous journey between points outside this state without stopping or landing in this state. (3) Taxable Beverages. "Taxable beverages" means all beverages sold or served by carriers except beverages described as food products in Section 6359 of the Revenue and Taxation Code and Regulation 1602. (b) Application of Tax. Tax applies to the sale or use of taxable beverages in this state by carriers, except when the sale or use occurs during a trans-state trip. This includes taxable beverages sold or served on a complimentary no charge basis by carriers to passengers or crew. (c) Acquisition of Taxable Beverages. Taxable beverages which will be sold to passengers or crew may be purchased for resale. Beverages which are served only on a complimentary no charge basis may not be purchased for resale. (See Regulation 1668 for provisions regarding the effect and form of resale certificates.) (d) Reporting Methods. (1) General. In reporting taxable measure, a carrier may utilize the California passenger mile method described in (d)(2) or any other reporting method which accurately reports the tax due on taxable beverages sold or used in this state. The carrier must be prepared to demonstrate by records which can be verified by audit that the method used accurately reflects the taxable measure. Carriers contemplating use of other reporting methods are encouraged to submit an outline of the proposed method to the nearest board office for review and formal approval prior to use of the method. (2) California Passenger Miles Method. Under this method, a carrier may report its tax liability from the sale and consumption of taxable beverages in this state by allocating a portion of its total gross receipts and its total cost of taxable beverages served on a complimentary basis to California based on the ratio that its passenger miles in California bears to its total system-wide passenger miles. The ratio of passenger miles in California to total passenger miles may be determined by tests. The test shall be representative of the carrier's operations. Further, new tests should be made when there is any significant change in routes, schedules, or other operating conditions. All detail and test data shall be retained for examination by Board representatives. The California mileage used in computing the ratio should exclude trans-state trip mileage. Air carriers shall make no adjustment for ascent and descent miles unless total system-wide mileage is adjusted for total ascent and descent miles. (A) Determination of Taxable Receipts Under the Passenger Miles Method. In determining taxable receipts under this method, a carrier must apply the ratio to its total gross receipts from the sale of taxable beverages system-wide. As used in this subsection, "total gross receipts" means the total amount of the sales price of all taxable beverages including sales tax reimbursement. Since the taxable receipts determined under this method represents taxable receipts before adjustment for sales tax included therein, taxable receipts may be adjusted to compensate for California sales tax included in total gross receipts. (B) Determination of Cost of Taxable Beverages Consumed Under the Passenger Miles Method. In determining the cost of taxable beverages consumed in this state, a carrier must apply the ratio to its total cost of beverages served on a complimentary basis system-wide. Separate calculations must be made for taxable beverages of a kind which are resold and those of a kind not resold. For example, soft drinks normally are not resold, while beer, wine and liquor normally are resold. 1. Beverages of a Kind Not Generally Resold. The cost of taxable beverages consumed in this state may be determined by applying the passenger miles method to the cost of taxable beverages served on a complimen tary basis system-wide. A credit may be taken for taxable beverages acquired on which California sales tax reimbursement was paid to the vendor. However, the credit may not exceed the total cost of taxable beverages consumed in California as determined by the passenger miles method. 2. Beverages of a Kind Generally Resold. The cost of taxable beverages of a kind normally resold but which are served on a complimentary basis may be determined on the passenger miles method. If the carrier has paid California sales tax reimbursement at the time of acquisition, a credit may be taken for taxable beverages so acquired. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6009, 6051, 6091, 6201, 6352 and 7053, Revenue and Taxation Code. s 1621. Sales to Common Carriers. (a) Definitions. (1) Common Carrier. As used herein the term "common carrier" means any person who engages in the business of transporting persons or property for hire or compensation and who offers these services indiscriminately to the public or to some portion of the public. With respect to water transportation the term includes any vessel engaged, for compensation, in transporting persons or property in interstate or foreign commerce. This includes those vessels commonly called "ocean tramps," "trampers," or "tramp vessels." (2) Foreign Air Carrier. As used herein, the term "foreign air carrier" means any person, not a citizen of the United States, who undertakes, whether directly or indirectly or by lease or any other arrangement, to engage in foreign air transportation. (b) Application of Tax. (1) Common Carriers. The sale of tangible personal property, other than fuel and petroleum products, to common carriers, including foreign air carriers, is exempt from sales tax pursuant to section 6385(a) of the Revenue and Taxation Code when such property is: (A) Shipped by the seller via the facilities of the purchasing carrier under a bill of lading, to an out-of-state point, and (B) Actually transported by the common carrier to the out-of-state destination, pursuant to the bill of lading, over a route the California portion of which the purchasing carrier is authorized to transport cargo under common carrier rights, and (C) Not put to use until after the transportation by the purchasing carrier to the out-of-state destination, and (D) Used by the carrier in the conduct of its business as a common carrier. (2) Foreign Air Carriers. The sale of tangible personal property, other than aircraft fuel and petroleum products, to foreign air carriers is exempt from sales tax pursuant to section 6385(b) of the Revenue and Taxation Code when such property is: (A) Transported by the foreign air carrier to a foreign destination, and (B) Not put to use until after the transportation by the purchasing foreign air carrier to the foreign destination, and (C) Used by the foreign air carrier in the conduct of its business as a common carrier by air of persons or property. (3) Fuel and Petroleum Products. (A) Operative July 15, 1991, sales of fuel and petroleum products delivered to the purchasing carriers in California are subject to sales tax except as provided in paragraph (b)(3)(B) and (b)(3)(C) of this regulation. Sales tax applies notwithstanding the fact that the purchaser may issue a bill of lading to the seller and notwithstanding the fact that the seller may purport to reserve a title to the property until the property arrives at an out-of-state destination. (B) Operative January 1, 1989, the sale, storage, use, or other consumption of, fuel or petroleum products is exempt from sales and use tax pursuant to section 6357.5 of the Revenue and Taxation Code when such property is: 1. sold to an air common carrier which holds a valid seller's permit or which has timely obtained a fuel exemption registration number, 2. for immediate consumption or shipment, and 3. shipped or consumed by the carrier in the conduct of its business as an air common carrier on a flight whose first destination is a foreign destination. Effective January 1, 1993, a flight which has an intermediate stop within the United States will qualify for the exemption if the final destination of that flight is a foreign destination. For the period January 1, 1989 through December 31, 1992, the tax will not apply to the sale or use of fuel or petroleum products which are shipped or consumed on a flight to a foreign destination even though there is an intermediate stop at a point within the United States, provided no cargo, including mail, or passengers are loaded or discharged at such intermediate stop. The tax will not apply if crew members are loaded or discharged at such intermediate stop; however, the tax will apply if other airline personnel flying without charge (deadhead) are loaded or discharged. The tax also will not apply to fuel used on flights which are aborted for emergency purposes if such flights otherwise would have qualified for the exemption. To qualify for the exemption, the sale of the fuel or other petroleum products must be for "immediate consumption or shipment." A "sale" occurs when the purchaser takes either title to or possession of the fuel. "Immediate consumption or shipment" occurs when the delivery of fuel by the seller is directly to an aircraft for consumption in propulsion to a foreign destination or for transportation to a foreign destination and not for storage. Fuel is sold for storage, and not for immediate consumption or shipment, if title to the fuel passes to the purchaser while the fuel remains in storage facilities owned or leased by the seller. Fuel is sold for storage, and not for immediate consumption or shipment, if the fuel is transferred by the seller into a storage facility controlled by or leased to the purchaser or to any third party who takes delivery for the purchaser. Tax applies notwithstanding the contract of sale providing that the seller shall retain title to the fuel until the fuel is loaded onto the aircraft. In such cases, any attempt by the seller to retain title is limited in effect to the reservation of a security interest. To qualify for the exemption, a common carrier which is not otherwise required to hold a valid seller's permit shall be required to register with the Board and obtain a fuel exemption registration number. The fuel exemption registration number will be considered obtained timely if the purchasing carrier receives such registration number from the Board no later than 45 days after taking the fuel on board. In the event that the federal exemption provided in Section 1309 of Title 19 of the United States Code, relating to supplies for certain vessels and aircraft, is repealed, this exemption also is repealed as of that date. (C) For the period January 1, 1993 through December 31, 2002, and for the period April 1, 2004 through December 31, 2013, the sale of fuel and petroleum products is exempt from sales tax pursuant to section 6385(c) of the Revenue and Taxation Code when such property is: 1. Sold to a water common carrier who holds a valid seller's permit or who has timely obtained a fuel exemption registration number, 2. For immediate shipment outside this state, 3. Consumed by the water carrier in the conduct of its business as a common carrier after the first out-of-state destination. The sales tax applies with respect to sales of fuel and petroleum products which will be consumed in a voyage from the California point where the fuel is taken on to the first destination outside of California. For purposes of this subdivision (b)(3)(C), the term "first destination outside of California" means the first point reached outside this state by a water common carrier in the conduct of its business as a common carrier at which cargo or passengers are loaded or discharged, cargo containers are added or removed, fuel is bunkered, or docking fees are charged. The term also includes the entry point of the Panama Canal when the carrier is only transiting the canal in the conduct of its business as a common carrier. To qualify for the exemption, the "sale" of the fuel (or other petroleum product) must be for "immediate shipment". A "sale" occurs when the purchaser takes either title to or possession of the fuel. An "immediate shipment" occurs when the delivery of fuel by the seller is directly to a vessel for transportation outside this state and not for storage. Fuel is sold for storage and not for immediate shipment, if title to the fuel passes to the purchaser while the fuel remains in storage facilities owned or leased by the seller. Fuel is sold for storage, and not for immediate shipment, if the fuel is transferred by the seller into a storage facility controlled by or leased to the purchaser or to any third party who takes delivery for the purchaser. Tax applies notwithstanding the contract of sale provides that the seller shall retain title to the fuel until the fuel is loaded onto the vessel. In such cases, any attempt by the seller to retain title is limited in effect to the reservation of a security interest. Fuel is sold for immediate shipment, and not for storage, if the fuel is transferred by the seller into storage facilities maintained by a third party, the seller has contracted with the third party to store the fuel, and title does not pass to the purchaser until the fuel is loaded onto the vessel. Fuel is sold for immediate shipment, and not for storage, if the fuel is transferred by the seller to storage facilities maintained by a third party, even though the purchaser may have contracted with the third party to store the fuel, if the sale occurs when the fuel is loaded onto the vessel and the seller has the legal obligation to deliver the fuel to the purchaser's vessel. If the obligation of the seller to deliver the fuel is complete upon transfer of the fuel to the third party, then any retention or reservation of title to the fuel after such transfer is limited in effect to a reservation of a security interest, and the fuel will be regarded as having been delivered to the purchaser for storage and not for immediate shipment outside this state. A mere recital in the contract of sale that the delivery will occur at the vessel, or that the seller will retain title to the fuel until delivery at the vessel, is insufficient of itself to establish that delivery of the fuel by the seller is directly into the vessel. In determining whether the delivery occurs at the vessel, and not upon transfer of the fuel to the third party, the board shall consider the following factors: whether the losses during storage are for the account of the seller; whether the seller has the right to remove the fuel from the storage facilities; whether the seller has the duty to remove the fuel from the storage facilities at the seller's expense should the seller's deliveries into the storage facilities exceed specified quantities, and whether the contract between the seller and purchaser is a requirements contract. The presence or absence of one or more factors is not conclusive. A sale of fuel, otherwise qualifying as a sale for immediate shipment under the above rules, will qualify for the exemption even though the fuel is delivered to a fuel truck or barge from which the fuel is delivered directly into the vessel. (c) Proof of Exemption. (1) Common Carrier. Any seller claiming a transaction as exempt from sales tax under section 6385(a) must receive at the time of the transaction, and retain, a properly executed bill of lading, or copy thereof, pursuant to which the goods are shipped. The bill of lading must show the seller as consignor. It must indicate that the described goods are consigned to the common carrier at a specified destination outside this state. Where the form of the transaction is "freight collect," no specific freight charge need be shown on the bill of lading, inasmuch as such charges are not ordinarily shown thereon in "freight collect" transactions. Furthermore, the carrier need not actually collect freight charges from itself. The form and language of the bill of lading should be similar to the form and language normally used where the purchaser and carrier are not the same. A bill of lading will be considered obtained at the time of the transaction if it is received either before the seller bills the purchaser for the property, within the seller's normal billing and payment cycle, or upon delivery of the property to the purchaser. In addition to a bill of lading, the seller must obtain from the purchaser prior to or at the time of the transaction, and retain, a certificate in writing that the property shall be transported and used in the manner described in subdivision (b)(1) of this regulation. The certificate shall be in substantially the same form as Certificate A or B, appearing in the appendix of this regulation. Certificate B may be used when multiple transactions claimed as exempt are made between a seller and a carrier and may be included as part of a transaction by reference to the certificate on the purchase order or other appropriate documentation for each transaction. (2) Foreign Air Carrier. Any seller claiming a transaction as exempt from sales tax pursuant to section 6385(b) of the Revenue and Taxation Code must receive from the purchaser a certificate in writing that the property shall be transported and used in the manner described in section (b)(2) of this regulation. The certificate shall be in substantially the same form as Certificate C, appearing in the appendix to this regulation. Effective January 1, 1990, if a seller does not have a certificate on hand at the time the board requests it be made available for verification of a transaction claimed to be exempt from sales tax, the seller will have 45 calendar days from the date of the board's written request to obtain the certificate from the purchasing foreign air carrier. A "blanket" certificate, i.e., on issued to cover future transactions, may be issued by a foreign air carrier and included as part of a transaction by reference to the certificate on the purchase order or other appropriate documentation for each transaction. The provisions of (c)(3) and (d)(3) of this regulation shall apply with respect to sales of aircraft fuel and petroleum products to foreign air carriers. (3) Fuel and Petroleum Products. Any seller claiming a transaction as exempt from sales tax pursuant to Section 6357.5 or 6385(c) of the Revenue and Taxation Code should timely obtain an exemption certificate in writing from the purchasing common carrier. The exemption certificate will be considered timely if obtained by the seller within the seller's normal billing and payment cycle or within 45 days from the date of delivery, whichever is later. The exemption certificate must show either the purchaser's seller's permit number, or if the purchaser is not required to hold a seller's permit, the purchaser's fuel exemption registration number. The exemption certificate must conform in substance with one of the following, appearing in the appendix to this regulation. (A) Certificate D is to be used for purchases of fuel or petroleum products within Section 6357.5 by air common carriers (including foreign air carriers) operating under authority from the Federal Aviation Administration. One certificate may be provided for each regularly scheduled flight number which has a foreign destination as its final destination. Such certificate will remain valid until revoked in writing. (B) Certificate E is to be used for purchases of fuel or petroleum products within Section 6385(c) by a steamship company which is a common carrier. This includes any vessel engaged, for compensation, in transporting persons or property in interstate or foreign commerce. (d) Effect of Exemption Documents. (1) Common Carriers. Copies of the bill of lading and supporting certificate described in (c)(1) of this regulation, accepted in good faith, constitute prima facie evidence of the facts entitling the seller to the exemption provided under section 6385(a) of the Revenue and Taxation Code. Unless both of these documents are received and retained, the seller is liable for sales tax on the transaction. (2) Foreign Air Carriers. A copy of the exemption certificate described in (c)(2) of this regulation, accepted in good faith, relieves the seller from liability for the sales tax. (3) Fuel and Petroleum Products. A copy of the exemption certificate described in subdivision (c)(3) of this regulation, accepted timely in good faith, shall relieve the seller from liability for the sales tax on fuel and petroleum products delivered by the seller directly into a ship or an aircraft. If the seller does not obtain an exemption certificate, or does not obtain an exemption certificate within the time specified by paragraph (c)(3) of this regulation, the seller will be relieved of liability for the tax only if the seller presents satisfactory evidence that the sale met the requirements of Sections 6357.5 or 6385(c) of the Revenue and Taxation Code, including the requirement that the purchaser held a valid seller's permit at the time of the sale or a fuel exemption number with the Board at the time of sale or within 45 days after taking the fuel on board. (e) Liability of Purchaser. A purchasing common carrier or foreign air carrier who gives a certificate of exemption which entitles the seller to regard the gross receipts from the sale as exempted from sales tax under section 6357.5 or 6385 of the Revenue and Taxation Code, but uses the property in some other manner or for some other purpose, or fails to document the transportation of the property to the first out of state destination, is liable for sales tax under section 6357.5(h) or 6385(k) of the Revenue and Taxation Code. A common carrier or foreign air carrier who gives a certification of exemption which entitles the seller to regard the gross receipts from the sale as exempt from sales tax under section 6357.5 of the Revenue and Taxation Code shall make available to the Board, upon request, records, including, but not limited to, a copy of a log abstract, an air waybill, or a cargo manifest, documenting its consumption or transportation of the fuel or petroleum product to a foreign destination and the amount claimed as exempt. A foreign air carrier, who gives a certificate of exemption which entitles the seller to regard the gross receipts from the sale as exempt from tax under section 6385(b) of the Revenue and Taxation Code must maintain records in this state, such as a copy of a bill of lading, an airway bill or cargo manifest, documenting its transportation of the tangible personal property to a foreign destination and the amount claimed as exempt. A common carrier who gives a certificate of exemption which entitles the seller to regard the gross receipts from the sale as exempt from sales tax under Section 6385(c) of the Revenue and Taxation Code shall make available to the Board, upon request, records, including, but not limited to, a copy of a log abstract or a cargo manifest, documenting its transportation of the fuel or petroleum product to an out-of-state destination and the amount claimed as exempt. A purchaser liable for tax under this paragraph (e) must report and pay the sales tax as if the purchaser were a retailer making a retail sale of the property at the time of the use or failure to provide supporting documentation. If the purchaser does not report and pay tax, the purchaser will be subject to a deficiency determination which will include applicable penalties and interest. CERTIFICATE A CALIFORNIA SALES TAX EXEMPTION CERTIFICATE SUPPORTING BILL OF LADING Sales of tangible personal property free from sales tax under Section 6385(a) of the California Revenue and Taxation Code. This is to certify, that the XYZ Company, the purchaser of the tangible personal property described herein, is a common carrier lawfully authorized and permitted to operate as such under the laws of the United States, having been issued (here insert permit or certificate number) by the (here insert name of agency issuing certificate or permit), that the personal property purchased exempt from sales tax reimbursement is to be shipped by the seller via the purchasing carrier's facilities under a bill of lading from (here insert point of origin) to (here insert point of destination), the out-of-state destination, for use by the XYZ Company in the conduct of its business as a common carrier, and that the XYZ Company is legally authorized to transport cargo under the aforementioned common carrier rights over the routes in or through this state by which it will transport the personal property. This is also to certify that the property purchased will not be used to carry a payload or for any other purpose prior to its delivery at the destination point. Description of property to be purchased: _______________________________________________________________ _______________________________________________________________ Purchaser ___________________________ By __________________________________ Address _____________________________ Date ________________________________ CERTIFICATE B CALIFORNIA BLANKET SALES TAX EXEMPTION CERTIFICATE SUPPORTING BILL OF LADING Sales of tangible personal property free from sales tax under Section 6385(a) of the California Revenue and Taxation Code. _________________________ (Name of Purchaser) _________________________ (Address of Purchaser) This is to certify that the above named company is a common carrier lawfully authorized and permitted to operate as such under the laws of the United States; that the personal property for use in the conduct of our business as a common carrier to be purchased from __________________________________________________is to be shipped by (Name of Vendor) the seller via our facilities under a bill of lading to an out-of-state destination using routes in or through the State of California over which we are legally authorized to transport cargo; that any property purchased from you for which a bill of lading is issued showing __________________________________________________ as shipper and (Name of Vendor) showing an out-of-state destination will not be used to carry a payload or for any other purpose prior to its delivery at the destination point shown on the bill of lading. In the event any of the property purchased is used for any purpose prior to its delivery at the out-of-state destination, it is understood that the purchaser is required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. Description of property to be purchased: _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ Purchaser ___________________________ By __________________________________ Title _______________________________ Date ________________________________ CERTIFICATE C CALIFORNIA SALES TAX EXEMPTION CERTIFICATE Sales of tangible personal property to a foreign air carrier free from sales tax under Section 6385(b) of the California Revenue and Taxation Code. This is to certify that the purchaser of tangible personal property described herein is a foreign air carrier as that term was defined in Section 1301 of Title 49 of the United States Code on January 1, 1980, and that the sale of tangible personal property to the purchaser is exempt from California state and local sales tax. The tangible personal property shall be or has been transported by the purchaser's facilities to a foreign destination for use by the purchaser in the conduct of its business as a common carrier by air of persons or property. In the event any of such property is used for any purpose other than that specified in the certificate, it is understood that the purchaser is required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. Description of property to be purchased: ______________________________________________________________ ______________________________________________________________ Purchaser _____________________________ By ____________________________________ Address _______________________________ Date __________________________________ CERTIFICATE D CALIFORNIA BLANKET SALES TAX EXEMPTION CERTIFICATE SUPPORTING EXEMPT PURCHASES UNDER SECTION 6357.5 - AIR COMMON CARRIERS Sales of aviation fuel or petroleum products to an air common carrier (including a foreign air carrier) free of sales tax under Section 6357.5 of the California Revenue and Taxation Code. 1. Purchasing Common Carrier: __________________________________ 2. Fuel Exemption Registration No. or Seller's Permit No. of Purchaser:________________________ 3. Flight No.:_________________________ 4. Final Destination:___________________________________________ 5. Airport Where Loaded:________________________________________ 6. Description of Property Purchased:___________________________ _____________________________________________________________ 7. Retailer:____________________________________________________ The undersigned certifies that the purchaser of the tangible personal property described above is an air common carrier or foreign air carrier lawfully operating as such, and that the aviation fuel or other petroleum product described above which is purchased exempt from sales tax is to be consumed on a flight to a foreign destination or shipped to a foreign destination for use by said Company in the conduct of its business as an air common carrier, and that the undersigned purchasing carrier is lawfully engaged in transporting persons or cargo as an air common carrier or foreign air carrier operating under authority of the Federal Aviation Administration. In the event any of such property is used for any purpose other than that specified in this certificate, it is understood that the purchaser is required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. To qualify for the exemption a common carrier who is not otherwise required to hold a valid seller's permit must register with the Board and obtain a fuel exemption number no later than 45 days after taking the fuel on board. This certificate will remain valid and in effect until revoked by the purchaser in writing. However, this certificate will not be valid for sales of fuel or other petroleum products loaded onto flights of which the seller is aware the final destination is not a foreign destination. Purchaser:____________________________________ (Company Name) Signed By:______________________________ Date:________________ (Signature of Authorized Agent) Title:________________________________________________________ (Owner, Partner, Purchasing Agent, etc.) CERTIFICATE E EXEMPTION CERTIFICATE SUPPORTING EXEMPT FUEL PURCHASES UNDER SECTION 6385(c) - WATER CARRIERS Sales of petroleum products free of sales tax under Section 6385(c) of the California Revenue and Taxation Code. 1. Purchasing Common Carrier: ________________________________ 2. Fuel Exemption Registration No. or Seller's Permit No. of Purchaser:______________________ 3. Vessel Name:_______________________________________________ 4. Voyage No.:________________________________________________ 5. Port of Loading:___________________________________________ 6. Delivery Date:_____________________________________________ 7. First Out-of-State Destination:____________________________ 8. Retailer of the Petroleum Product:_________________________ 9. [FNa1] Invoice No. of Purchase:____________________________ [FNa1] To be completed by retailer. ANALYSIS Fuel Oil Other Bunker C/ MDO/ Petroleum HFO MGO Products (Metric Tons) (Gallons) 10. Quantity consumed to first out-of-state destination. ______________ _________ 11. Quantity used while in port ______________ _________ 12. Total of Lines 10 and 11 above. ______________ _________ 13. Quantity on board on arrival at port. ______________ _________ 14. Quantity subject to sales tax [Line 12 less Line 13. If Line 13 is more than Line 12, show zero (0).] ______________ _________ 15. Quantity loaded this loading. ______________ _________ 16. Quantity shown on Line 14 above. ______________ _________ 17. Quantity exempt from sales tax (Line 15 less Line 16.) ______________ _________ The undersigned certifies that it is a common carrier lawfully operating as such, and that the fuel oil or other petroleum products purchased exempt from sales tax reimbursement are to be shipped to an out-of-state destination for use by said Company in the conduct of its business as a common carrier, and that the undersigned purchasing carrier is lawfully engaged in transporting cargo as a common carrier over the route in this state by which it will transport the fuel oil or other petroleum products. In the event any of such property is used for any purpose other than that specified in the certificate, it is understood that the purchaser is required by the Sales and Use Tax Law to report and pay tax, measured by the purchase price of such property. To qualify for the exemption, a common carrier who is not otherwise required to hold a valid seller's permit must register with the Board of Equalization and obtain a fuel exemption number no later than 45 days after taking the fuel on board. Purchaser:___________________________________________________ (Company Name) Signed By:________________________________ Date:_____________ (Signature of Authorized Agent) Title:_______________________________________________________ (Owner, Partner, Purchasing Agent, etc.) Note: Authority: Section 7051, Revenue and Taxation Code. Reference: Sections 6357.5 and 6385, Revenue and Taxation Code. s 1628. Transportation Charges. (a) Transportation by Carrier. Except as provided in paragraph (c) below, in the case of a sale, whether by lease or otherwise, tax does not apply to "separately stated" charges for transportation of property from the retailer's place of business or other point from which shipment is made "directly to the purchaser," provided the transportation is by other than facilities of the retailer, i.e., by United States mail, independent contract or common carrier. The place where the sale occurs, i.e., title passes to the customer or the lease begins, is immaterial, except when the property is sold for a delivered price or the transportation is by facilities of the retailer, as explained in (b) below. The amount of transportation charges excluded from the measure of tax shall not exceed the cost of the transportation to the retailer. Transportation charges will be regarded as "separately stated" only if they are separately set forth in the contract for sale or in a document reflecting that contract, issued contemporaneously with the sale, such as the retailer's invoice. The fact that the transportation charges can be computed from the information contained on the face of the invoice or other document will not suffice as a separate statement. If a separately stated charge is made designated "postage and handling" or "shipping and handling" only that portion of the charge which represents actual postage or actual shipment may be excluded from the measure of tax. Such amounts may be excluded from the measure of tax even though such amounts are not affixed to, or noted on, the package. A separately stated charge designated "handling" or "handling charge" is not a separate statement of transportation charges. Tax applies to such charges, notwithstanding the fact that postage or shipment charges may or may not be affixed to or noted on the package. Property will not be considered delivered "directly to the purchaser" if it is shipped to the retailer, to the retailer's agent or representative, or to anyone else acting in the retailer's behalf. Any separately stated charges by the retailer for the transportation of property to, rather than from, the retailer's place of business, or to another point from which the property will then be "delivered directly to the purchaser," are included in the measure of tax. Such charges represent incoming freight and are taxable as part of the cost of the property sold by the retailer. (b) Transportation by Retailer's Facilities or Property Sold for Delivered Price. (1) Definition. "Delivered Price." Property is sold for a delivered price when the price agreed upon in the contract for sale includes whatever cost or charge may be made for transportation of the property directly to the purchaser. A sale for a "guaranteed price" including a separately stated amount for transportation is a sale for a "delivered price." Property is not sold for a delivered price when the price is agreed upon and to this price is added a separately stated amount representing the cost or charge for transportation of the property directly to the purchaser and any increase or decrease in the actual cost of transportation is borne by or credited to the purchaser. (2) In General. Except as provided in paragraph (c) below, when transportation is by facilities of the retailer or the property is sold for a delivered price, tax applies to charges for transportation to the purchaser, unless (A) the transportation charges are separately stated, (B) are for transportation from the retailer's place of business or other point from which shipment is made directly to the purchaser, and (C) the transportation occurs after the sale of the property is made to the purchaser. When the sale occurs before the transportation to the purchaser commences, the tax does not apply to separately stated charges for the transportation. The amount that may be excluded from the measure of the tax cannot exceed a reasonable charge for transportation by facilities of the retailer or the cost of transportation by other than facilities of the retailer. (3) Determination of When Sale Occurs. (A) Security Agreements. When a sale is made pursuant to a security agreement in which the retailer retains the title as security for the payment of the price, the sale occurs when possession of the property is transferred by the retailer to the purchaser or other person at the purchaser's direction. (B) Leases. When the sale is by lease, the sale occurs upon the transfer of possession or granting of the right of possession of the property by the lessor to the lessee or other person at his direction. (C) Sale on Approval. When the sale is on approval, the sale does not occur until the purchaser accepts the property. (D) Other Sales. Unless explicitly agreed that title is to pass at a prior time, the sale occurs at the time and place at which the retailer completes his performance with reference to the physical delivery of the property, even though a document of title is to be delivered at a different time or place. If the contract requires or authorizes the retailer to send the property to the purchaser but does not require him to deliver it at destination, the retailer completes his performance with reference to the physical delivery of the property at the time and place of shipment e.g., delivery of the property to a carrier for delivery by the carrier to the purchaser; but if the contract expressly requires delivery at destination, including cases where one of the terms of the contract is F.O.B. place of destination, the retailer completes his performance with reference to the physical delivery of the property on tender to the purchaser there. When delivery of the property is by facilities of the retailer, title passes when the property is delivered to the purchaser at the destination unless there is an explicit written agreement executed prior to the delivery that title is to pass at some other time. (4) Place of Sale. For the purposes of the state Sales and Use Tax Law (but not for the purposes of the Bradley-Burns Uniform Local Sales and Use Tax Law nor for the purposes of the Transactions and Use Tax Law) the place of the sale or purchase of tangible personal property is the place where the property is physically located at the time the act constituting the sale or purchase takes place. (c) Transportation of Landfill Material. Operative January 1, 1989, tax does not apply to separately stated charges for transportation of landfill material, e.g., sand, dirt or gravel, removed from the ground and transported from the excavation site to a landfill site specified by the purchaser if: (1) the amount of transportation charges excluded from the measure of tax does not exceed a reasonable charge for transportation by facilities of the retailer or the cost of the transportation by other than facilities of the retailer, or (2) the consideration received is solely for the purpose of transporting the material to a specified site and the material is transferred without charge. If such transportation charges are in excess of a reasonable charge for transportation by facilities of the retailer or in excess of the cost of the transportation by other than facilities of the retailer, the provisions of this paragraph will not apply. For purposes of this paragraph, it is immaterial when title passes to the purchaser of the landfill material. Appendix (a) Examples of Contract for Delivered Price. (1) The contract for sale provides for the sale of property for $100 per unit delivered to the purchaser. (2) The contract for sale provides for the sale of property for $100 per unit "which includes cost of delivery at $10 per unit." (3) The contract for sale provides for the sale of property for $100 per unit delivered, freight prepaid. (4) The contract for sale provides for the sale of property for $100 per unit freight collect and allowed. (5) The contract for sale calls for the sale of property for a guaranteed price of $100 consisting of $90 plus $10 freight. (b) Examples of Contracts Which Are Not for a Delivered Price. (1) The contract for sale provides for the sale of property for $100 per unit freight collect. (2) The contract for sale provides for the sale of property for $100 per unit actual freight prepaid and added to the sales price. (c) Examples of Application of Tax. All deliveries are by independent carrier. All billings are in accordance with the terms of the contract. (1) The contract for sale provides for the sale of property for $100 per unit delivered to the purchaser with freight prepaid. Tax applies to sales price of $100 per unit with no deduction for freight charge since the freight charges are not separately stated. The contract is for a delivered price and requires delivery to the purchaser. Title does not pass to the purchaser prior to delivery. (2) Contract for sale provides for the sale of property for $100 per unit. The retailer is required to ship the property to the purchaser freight collect. Tax applies to $100 per unit since the responsibility for the payment of the freight is upon the purchaser, and the seller makes no charge for freight. Since the carrier will bill the purchaser for the actual freight charge, there will be a separate statement of the freight. The property is not sold for a delivered price. (3) The contract for sale provides for the sale of property for $100 per unit freight collect and allowed. The measure of tax is $100 per unit less the amount of the freight paid to the carrier and shown on the payment voucher sent to the retailer by the purchaser. The sale is for a delivered price. Separately stated transportation charges are excludable from the measure of tax since the transportation occurred after the sale of the property. If the contract for sale explicitly provided for passage of title upon delivery to the destination, then the measure of tax would be $100 per unit since the sale was for a delivered price and title did not pass prior to transportation. (4) The contract for sale provides for the sale of property for $100 per unit plus actual freight of $10 per unit. Any increase or decrease in the freight is for the account of the buyer. Tax applies to $100 per unit since the contract is not for a delivered price and shipment is by independent carrier. (5) The contract for sale provides for the sale of property for $100 plus freight of $10, and the seller guarantees the price will not exceed $110. Tax applies to $100 because the sale is for a delivered price and there is no showing that title was to pass upon delivery at the destination. A contract will be construed as a shipment contract unless it expressly requires delivery at destination point. If the contract for sale explicitly provided for passage of title upon delivery to the destination, then the measure of tax would be $110 since the sale was for a delivered price and title did not pass prior to transportation. (6) The contract for sale provides for the sale of property for $100 per unit freight equalized with x city. The invoice shows 10 units at $100 per unit, $1,000, freight from x city $100, total $1,100. Under these circumstances, tax applies to $1,000 since the only separate statement of freight is the freight equalized with x city in the amount of $100. If the actual freight paid to the carrier for the transportation of the property from the retailer's place of business or other point from which shipment is made directly to the purchaser is less than $100, the exclusion will be limited to the amount paid to the carrier. (7) Assuming the same facts as above, except the invoice shows 10 units at $100 per unit, $1,000, freight equalized with x city $100, total $1,100. The invoice also shows the notation, "Actual freight prepaid from point of shipment to destination is $200." The sale is not for a delivered price. On the basis of the above billing, a separate statement of freight is made in the amount of $200. Accordingly, the measure of tax is $1,100 minus $200, or $900. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6010, 6010.5, 6011 and 6012, Revenue and Taxation Code. s 1629. Goods Damaged in Transit. (a) Sales Tax. If damage to goods in transit to the consumer occurs after the "sale" as defined in section 6006 of the Revenue and Taxation Code is made, sales tax applies to the sale. If the damage occurs prior thereto, sales tax applies as follows: (1) If the goods are destroyed, tax does not apply to damages paid the retailer for their destruction. (2) If the goods are not destroyed, and are sold at retail in their damaged condition, tax applies to that portion of the total amount paid to the retailer representing the fair retail value of the goods in their damaged condition. (b) Use Tax. Use tax does not apply with respect to goods destroyed before the purchaser makes any storage or use of the goods. If the goods are damaged but are nevertheless stored or used by the purchaser, tax applies to that portion of the total amount paid to the retailer representing the fair retail value of the goods in their damaged condition. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, Revenue and Taxation Code. s 1630. Packers, Loaders, and Shippers. (a) In General -Definitions. Packers, loaders, and shippers (hereinafter collectively called "shippers") purchase tangible personal property to be used in conditioning the goods to be shipped and to preserve, protect, and contain the goods during transportation. Such property includes, but is not limited to, the following: (1) Property Used to Condition the Goods for Shipment or to Preserve and Protect the Goods During Shipment. bracing materials ice and dry ice car strips miscellaneous pre- cleaning compounds servatives degreasing compounds rust preventing com- derusting compounds pounds dunnage or "loose" salt lumber solvents (except as otherwise tarpaulin (weather specified in (2) below protection) gas (including dispensers) (2) Property Used as Containers or as Parts of Containers of the Goods Shipped. bags gummed tape barrels kegs bottles lumber (including boxes "loose" lumber cans used in the same carboys manner and for the cartons same purpose as crates pallets) cylinders pallets drums sacks excelsior and other strapping packing and crating twine material wrapping paper (3) Property that when Physically Incorporated in the Final Product Being Sold is a Sale for Resale. wax and fungicide post harvest protective shields protective coatings salt, acids & caustics (b) Application of Tax. (1) Property Used to Condition, Preserve or Protect Goods During Shipment. (A) General. Tax applies to sales to shippers of property used in conditioning the goods to be shipped, or to preserve and protect the goods during transportation. It is immaterial whether or not a separate charge or separate billing is made by the shipper for the particular item, that it may not be returned to or reused by the shipper, that the goods are shipped in interstate or foreign commerce, or that the shipper's contract is with the United States. The property is purchased by the shipper for a purpose other than resale, i.e., conditioning the goods, or preserving and protecting the goods during shipment. Thus, the sale to the shipper is a retail sale, even though he or she may not retain title to the property used by him or her. (B) Ice, Carbon Dioxide and Preservatives. 1. Ice. The sale or use of ice or dry ice used in packing and shipping or transporting food products for human consumption is exempt from tax when the food products are shipped or transported in intrastate, interstate or foreign commerce by common carriers, contract carriers, or proprietary carriers. 2. Carbon Dioxide. Operative January 1, 1995, the sale or use of carbon dioxide used in packing and shipping or transporting fruits or vegetables for human consumption is exempt from tax when the fruits or vegetables are shipped or transported in intrastate, interstate, or foreign commerce by common carriers, contract carriers, or proprietary carriers, provided the fruits or vegetables are not sold to the ultimate consumer in the package that contains the carbon dioxide. 3. Preservatives. Tax does not apply to the sale or purchase of preservative products under the following two circumstances: a. The preservative product is included in the shipping container of exempt food products when they serve a beneficial purpose in preserving the food products during shipment or storage. These include moisture-absorbing desiccants, gas-absorbing ethylene sachets, and gas emitting sulfur dioxide pads or similar products. b. The preservative product serves a beneficial purpose in preserving the food product and remains in the packaged food product until opened by the ultimate consumer. This includes nitrogen gas used to maintain an inert atmosphere in packaged food products which remains in the packaged food as a preservative until opened by the consumer; and moisture absorbing desiccants included in individual packages of beef jerky which remain sealed until opened by the consumer. (2) Property Used as Containers or Parts of Containers of Goods Shipped. (A) General. Tax applies to the sale or use of containers or container materials under the provisions of regulation 1589, "Containers and Labels", (18 CCR 1589). However, except as provided in paragraph (b)(2)(C), when the shipper is not the seller of the contents, the sale of the containers or container materials or parts to the shipper is a taxable retail sale unless the shipper expressly contracts with his or her customer for the sale to his or her customer of the container or container material, making a separate charge therefor, with title passing from the shipper to his or her customer before any use of the material is made, and without any understanding or trade custom that the property will be returned to the shipper for reuse. When all of these conditions exist, the shipper may purchase the property for resale by giving a resale certificate to the supplier of the property. The sale of the property by the shipper is taxable unless exempt as a sale to the United States, as a sale in interstate or foreign commerce, or exempt for any other reason. (B) Carbon Dioxide. Operative January 1, 1995, the sale or use of nonreturnable container materials containing carbon dioxide atmosphere is exempt from the tax when used in packing and shipping or transporting fruits or vegetables in intrastate, interstate, or foreign commerce by common carriers, contract carriers, or proprietary carriers, whether or not the shipper is the seller of the fruits or vegetables. (C) Packing Food Products for Human Consumption. Operative April 1, 2000, the sale of, and the storage, use, or other consumption of, all containers is exempt from tax when sold or leased without the contents to persons who place food products for human consumption in the containers for shipment, provided the food products will be sold. The exemption applies without regard to whether the food products are sold in the same container or not, or whether the food products are remanufactured or repackaged prior to their sale. (3) Disposable Temperature Recording Devices. The sale or storage, use or other consumption of a disposable temperature recording device in this state is subject to tax unless an exemption or exclusion from taxation applies. When a shipper of perishable food products purchases for resale a disposable temperature recording device for the sole purpose of shipping the device along with the products it ships, the shipper of the perishable food products does not make a taxable use of the disposable temperature recording device merely by starting the recording device in this state. If, pursuant to a perishable food product shipper's contract with its customer, the shipper provides a recording device along with perishable food products to an out-of-state point, the shipper's sale of the device constitutes an exempt sale in interstate commerce pursuant to Revenue and Taxation Code section 6396. The provisions of this paragraph do not, however, apply to the sale or lease of non-disposable temperature recording devices. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6359.7, 6359.8 and 6364, Revenue and Taxation Code. s 1632. C.O.D. Fees. On and after July 1, 1970, tax applies to any C.O.D. fee paid by the retailer's customer on taxable C.O.D. sales except where the C.O.D. fee is not included in the invoice and the carrier collects it from the retailer's customer and retains it. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011 and 6012, Revenue and Taxation Code. (Also See Article 30) s 1641. Credit Sales and Repossessions. (a) In General. If tangible personal property is sold on credit, either under a security agreement, or otherwise the whole amount of the contract is taxable, unless the retailer keeps adequate and complete records to show separately the sales price of the tangible personal property, and the insurance, interest, finance, and carrying charges made in the contract. If such records are kept by the retailer, the insurance, interest, finance and carrying charges may be excluded from the computation of the tax. (b) Contracts Designated as Leases. If tangible personal property is, for all intents and purposes, sold, but the transaction is designated as a lease or rental for the purpose of retaining title in the seller as security for payment of the purchase price, or for the purpose of avoiding the tax, the transaction is taxable as a sale under a security agreement. (c) Due Date of Tax. The total amount of the tax on the entire sales price in credit transactions is due and payable on the due date of the return to be filed after the close of the reporting period in which the sale is made. No reduction in the amount of tax payable by the retailer is allowable by reason of his transfer at a discount of a sale under security agreements or other evidence of indebtedness. (d) Repossessions. No deduction is allowable in the event that property sold on credit is repossessed except where the entire consideration paid by the purchaser is refunded to him or where a credit for a worthless account is allowable. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6011 and 6012, Revenue and Taxation Code. Bad Debts, see regulations 1642, Returns, defects, replacements, see regulation 1655, Personal Property Leases Generally, see regulation 1660. s 1642. Bad Debts. (a) In General. A retailer is relieved from liability for sales tax (section 6055 of the Revenue and Taxation Code) or from liability to collect use tax (section 6203.5 of the Revenue and Taxation Code) insofar as the measure of the tax is represented by accounts found worthless and charged off for income tax purposes (which include circumstances where the retailer's income is reported on a related person's income tax return and the bad debt is charged off on that return) or, if the retailer is not required to file income tax returns and the retailer's income is not reported on another person's return, charged off in accordance with generally accepted accounting principles. A retailer may claim a bad debt deduction provided that the sales tax, or amount of use tax, was actually paid to the state. This deduction should be taken on the return filed for the period in which the amount was found worthless and charged off for income tax purposes or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting principles. Failure to take the deduction on the proper return will not in itself prevent the allowance of a refund measured by an amount for which a retailer could have taken a timely deduction provided a claim for refund is filed with the board within the limitation periods specified in section 6902 of the Revenue Taxation Code. (b) Amount Subject to Deduction. (1) Taxable Receipts. If the amount of an account found to be worthless and charged off is comprised in part of nontaxable receipts such as interest, insurance, repair, or installation labor and in part of taxable receipts upon which tax has been paid, a bad debt deduction may be claimed only with respect to the unpaid amount upon which tax has been paid. In determining that amount, all payments and credits to the account may be applied ratably against the various elements comprising the amount the purchaser contracted to pay (pro rata method), may be applied as provided in the contract of sale (contract method), or may be applied by another method which reasonably determines the amount of the taxable receipts (alternative method). When claiming a bad debt deduction or refund using an alternative method, the retailer must include a clear explanation of that method along with the claiming of the deduction or refund. After having applied payments and credits using one method and claiming a deduction or refund based on such method, a retailer shall not thereafter reapply the payments or credits using another method with respect to such losses previously claimed. (2) Expenses of Collection. No deduction is allowable for expenses incurred by the retailer in attempting to enforce collection of any account receivable, or for that portion of a debt recovered that is retained by or paid to a third party as compensation for services rendered in collecting the account. (c) Reporting. All retailers must report sales tax liability on an accrual basis. Bad debt deductions will not be disallowed solely for the reason that a retailer is on a cash reporting basis for income tax purposes. (d) Worthless Account Subsequently Collected. If any account found worthless and charged off is thereafter collected by the retailer, in whole or in part, the taxable percentage of the amount so collected shall be included in the first return filed after such collection and tax shall be paid on such amount with the return. The same percentage of the account which the retailer claimed as an allowable bad debt deduction or refund shall be used to determine the taxable percentage of the recovery. The taxable percentage of any amounts received from a third party for the sale of an account after the retailer has found them to be worthless and has claimed a bad debt deduction or refund are regarded as amounts subsequently collected for purposes of this provision, and the retailer must include such amounts in the first return filed after receipt of such amounts and pay tax thereon. (e) Records. In support of deductions or claims for refund for bad debts, retailers must maintain adequate and complete records showing: (1) Date of original sale. (2) Name and address of purchaser. (3) Amount purchaser contracted to pay. (4) Amount on which retailer paid tax. (5) The jurisdiction(s) where the local taxes and, when applicable, district taxes were allocated. (6) All payments or other credits applied to account of purchaser. (7) Evidence that the uncollectible portion of gross receipts on which tax was paid actually has been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed) or, if the retailer is not required to file income tax returns and the retailer's income is not reported on another person's return, charged off in accordance with generally accepted accounting principles. (8) The taxable percentage of the amount charged off as a bad debt properly allocable to the amount on which the retailer reported and paid tax. (See Appendix 1.) (f) Allowable Methods of Computing Loss. (1) In General. When there is a repossession, a bad debt deduction is allowable only to the extent that the retailer sustains a net loss of gross receipts upon which tax has been paid. This will be when the amount of all payments and credits allocated to the purchase price of the merchandise, including the wholesale value of the repossessed article, is less than that price. If the pro rata method is used to apply payments, a retailer incurs an allowable bad debt deduction if the wholesale value of the repossessed merchandise is less than the net contract balance (after excluding unearned insurance and finance charges) at the date of repossession. If the contract method is used to apply payments, a retailer incurs an allowable bad debt deduction if the wholesale value of the repossessed merchandise is less than the net contract balance at the date of repossession. An alternative method of computing a bad debt loss may be used subject to approval by the Board. (2) Method of Computing Loss -Pro Rata Method. (A) Loss Per Records. The loss per records is the bad debt loss the retailer writes off for income tax purposes. An estimate of bad debt losses based in part upon the history of the business or industry averages, may not be used to claim bad debt deductions or refunds for sales and use tax purposes. (B) Taxable Portion of Loss Per Records. Only that portion of a bad debt loss attributable to the amount on which the retailer paid tax may be used to claim a bad debt deduction or refund for sales and use tax purposes. Even an account with all sales subject to tax may include some amounts on which tax was not paid, such as the tax or tax reimbursement charged to the consumer which is included in the account balance. The percentage of loss on which tax was paid for an account which is secured by the merchandise purchased, or which represents a single purchase of a significant amount, should be calculated on an actual basis. The percentage of loss on which tax was paid for accounts involving a large volume of small transactions may be calculated based on an analysis of the composition of the accounts receivable. All accounts of the retailer for which this calculation is made should use the same method of applying payments for the calculation (e.g., use FIFO for all accounts or use LIFO for all accounts). Examples using the pro rata method are attached as Appendices 1 and 2. (3) Method of Computing Loss -Contract Method. The allowable bad debt deduction is calculated by subtracting all payments and credits from the purchase price of the merchandise pursuant to the method of applying payments set forth in the applicable contract(s) with the customer and, to the extent the contract is silent on the method of applying payments, the loan accounting systems used by the retailer in the ordinary course of business, and from that amount subtracting the proceeds of the sale of any repossessed merchandise in accordance with (4) below. (4) Determining the Wholesale Value of Repossessed Merchandise. The wholesale value of repossessed merchandise must be determined in order to calculate the allowable bad debt deduction, if any, for the account. When the retailer sells the repossessed merchandise to a reseller in an arm's length transaction, the amount the retailer receives for the sale, less the direct cost of reconditioning the property prior to that sale and direct auction expenses paid to a third party, is the wholesale value. Otherwise, other sources must be used to determine the wholesale value. In the case of automobiles, industry-recognized price guides are generally the best source of such information. Adjustments should be made to the published wholesale prices in those instances where the automobile is in other than average condition. Establishing the wholesale value of other types of repossessed merchandise such as jewelry, furniture, appliances, etc., presents a more difficult problem if the retailer does not sell the merchandise to a reseller in an arm's length transaction. Each case must be considered on its own merits. Generally, if the retailer places the repossessed property into resale inventory, the retailer should use the amount at which the merchandise is recorded in resale inventory as its wholesale value. This amount should not, however, include any costs of repossessing, reconditioning, or other expense to put the merchandise in saleable condition. (5) Consolidation of Numerous Repossessed Items. Retailers who have several repossessions each reporting period will find it convenient and time saving to consolidate the pertinent data. When this is done, only one calculation for each set of transactions need be made to compute the allowable deduction. The consolidations may be made by using 15-column working paper with one column for each of the elements required to compute the deduction (see Appendix 2). Only those repossessions on which a loss is incurred should be scheduled. The retailer may quickly determine whether a particular transaction should be scheduled by comparing the net payoff with the wholesale value of the merchandise. If the net payoff is greater, a loss has been suffered and the transaction should be scheduled. (g) Bad Debt Losses Other Than Repossessions. Allowable bad debt deductions or refunds also may arise from sales made on an open account or on an unsecured installment basis. The deduction or refund should be computed in substantially the same manner as those involving repossessions (i.e., by prorating all payments or credits between the sales price of the merchandise on which the retailer paid tax and the nontaxable charges or by applying all payments and credits as provided in the contract of sale and, if the contract is silent, the loan accounting systems used by the retailer in the ordinary course of business). No deduction or claim for refund will be allowed in any period subsequent to the period in which a bad debt deduction is taken based on a method of calculating the bad debt deduction different from that originally used in calculating the bad debt deduction. (h) Special Situations. (1) Bad Debt Deductions for Persons Other than the Retailer or Lender. (A) A successor who pays full consideration for receivables acquired from the predecessor is entitled to a bad debt deduction to the same extent that the predecessor would have been entitled had the predecessor continued the business. A "successor" for purposes of this provision is one who is required by Revenue and Taxation Code section 6811 to withhold sufficient of the purchase price of the subject business to cover amounts due from the seller of the business under the Sales and Use Tax Law. A predecessor may not claim a bad debt deduction for any transaction or account for which a successor is entitled to a bad debt deduction under this provision. (B) Except as provided in subdivision (h)(1)(A) and subdivision (i), a purchaser of receivables cannot claim a bad debt deduction or refund for accounts which are not collected. (C) A retailer who sells receivables with recourse so that the retailer will bear any bad debt loss on them is entitled to a bad debt deduction to the same extent as if the receivables had not been sold. The fact that a retailer sells receivables at a discount, however, with or without recourse, does not in itself entitle the retailer to a bad debt deduction to the extent of the discount. (2) Bad Debts of Construction Contractors. A construction contractor who is a consumer of materials or fixtures, or both, under Sales and Use Tax Regulation 1521 cannot claim a bad debt deduction or refund with respect to such materials or fixtures. A United States construction contractor as defined in subdivision (a)(3) of Regulation 1521 is always the consumer of both materials and fixtures, and thus can never claim a bad debt deduction or refund with respect to such materials or fixtures. A construction contractor, other than a United States construction contractor, is generally the consumer of materials, and thus may claim a bad debt deduction with respect to materials only when the contractor is regarded as selling those materials under subdivision (b)(2)(A)2. of Regulation 1521. A construction contractor, other than a United States construction contractor, is the retailer of fixtures and thus may claim a bad debt deduction or refund with respect to its retail sales of such fixtures. A construction contractor incurring a bad debt loss for which it is entitled to a bad debt deduction or refund as just explained must claim the deduction or refund in the same manner as those resulting from other types of taxable retail sales of tangible personal property. (3) Entity Affiliated with Retailer. The provisions of this subdivision (h)(3) apply only with respect to bad debt losses incurred on accounts created as a result of retail sales of tangible personal property for which the retailer remitted California sales or use tax on or after January 1, 2000. (A) If a retailer wishes to assign to a person who is its affiliated entity under section 1504 of Title 26 of the United States Code the right to claim a deduction or refund for the amount of bad debts for which the retailer is otherwise entitled to a deduction or refund, the retailer and the affiliated entity must file an election with the Board prior to the affiliated entity's claiming of any deduction or refund. This election filed with the Board must include all the following elements: 1. The name, address, and seller's permit number of the retailer who reported or will report the tax; and the name, address, and seller's permit number of the affiliated entity of the retailer to whom the assignment is made. 2. A statement clearly specifying that the affiliated entity is entitled to any (and all) deductions or refunds as a result of any bad debt losses charged off on the account(s) covered by the election and the effective date of that election, and a statement that the retailer relinquishes all claims to such deductions or refunds. 3. A list of accounts to which the election pertains. 4. The agreement of the retailer to furnish any and all documentation required by the Board to support the claiming of deductions or refunds by the affiliated entity. 5. The acknowledgement by both the retailer and its affiliated entity that the Board may disclose relevant confidential information to all parties involved in order to support and confirm any deductions or refunds claimed. 6. A statement that the election may not be amended or revoked unless a new election signed by both the retailer and its affiliated entity is filed with the Board. 7. The acknowledgement by the affiliated entity that it cannot further assign the right to claim a deduction or refund for bad debts charged off on the account. 8. The dated signatures of the retailer and its affiliated entity, or their authorized representatives. If a copy of the signed election is filed with the Board rather than the original, the affiliated entity must retain the election with the original signatures. (B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and (i)) includes an entity affiliated with a retailer under section 1504 of Title 26 of the United States Code with respect to those accounts for which the affiliated entity is the person entitled to the bad debt deduction or claim pursuant to an election filed under this subdivision (h)(3). (i) Bad Debts Incurred in Connection with Accounts Held by Lenders. The provisions of this subdivision (i) apply only with respect to bad debt losses incurred on accounts created as a result of retail sales of tangible personal property for which the retailer remitted California sales or use tax on or after January 1, 2000. (1) Lender Defined. A "lender" for purposes of this regulation is defined as any of the following: (A) A person who holds an account which that person purchased without recourse directly from a retailer who reported California sales or use tax with respect to the sales of tangible personal property for which credit was extended under the retail account. (B) A person who holds an account without recourse pursuant to that person's contract directly with a retailer who reported California sales or use tax with respect to the sales of tangible personal property for which credit was extended under the retail account. (C) A person who is either an affiliated corporation (or affiliated entity electing to be taxed as a corporation) under section 1504 of Title 26 of the United States Code or an assignee of a person described in subdivision (i)(1)(A) or (i)(1)(B). A person is a "lender" under this subdivision (i)(1)(C) only if an election is filed under subdivision (i)(4). (2) Conditions to Claiming Deduction or Refund. With respect to an account held by a lender without recourse, a deduction or refund may be claimed for bad debt losses on the account only if all of the following conditions are met: (A) No deduction or refund was previously claimed or allowed on any portion of the account. (B) The account has been found worthless and charged off by the lender for income tax purposes (which include circumstances where the lender's income is reported on a related person's income tax return and the bad debt is charged off on that return) or, if the lender is not required to file income tax returns and the lender's income is not reported on another person's return, charged off in accordance with generally accepted accounting principles. (C) The contract between the retailer and the lender under which the lender has the right to the account contains an irrevocable relinquishment of all rights to the account from the retailer to the lender. (D) The account is for sales for which the retailer remitted California sales or use tax on or after January 1, 2000. (E) The retailer and the lender file an election with the Board which contains the elements specified in subdivision (i)(3) and which designates either the retailer or the lender as the person entitled to claim any deduction or refund under this regulation for tax previously paid by the retailer measured by amount of the account found to be worthless and charged off. No deduction or refund can be claimed until this election is filed with the Board. (3) Election Between Retailer and Lender. (A) In order for the retailer or the lender to claim a deduction or refund for bad debt losses from an account held by the lender without recourse, the retailer and the lender must file an election with the Board designating which of them may claim such deduction or refund. The election may be in any form, including an existing contract between the retailer and the lender, so as long as the election contains the following elements: 1. The name, address, and seller's permit number of the retailer who reported or will report the tax and the name, address, and seller's permit number, if any, of the lender to whom the account(s) is assigned. 2. An agreement that the retailer relinquishes all rights to the account to the lender. 3. A statement clearly specifying whether the retailer or the lender is entitled to claim any (and all) deductions or refunds as a result of any bad debt losses charged off by the lender for the account(s) covered by the election, the effective date of that election, and a statement that the other party relinquishes all rights to claiming such deductions or refunds. 4. A list of accounts to which the election pertains. If the election is a blanket election for all accounts assigned without recourse by the retailer to the lender or all accounts held by the lender without recourse pursuant to the lender's contract directly with the retailer, the election must so state. 5. The agreement of both the retailer and the lender to furnish any and all documentation requested by the Board to support the deductions or refunds claimed. 6. The acknowledgement by both the retailer and the lender that the Board may disclose relevant confidential information to all parties involved in order to support and confirm any deductions or refunds claimed. 7. If the lender is the person entitled to claim any deduction or refund for bad debts on the account, the Certificate of Registration - Lender account number of the lender. If the lender does not yet hold such a registration, the agreement of the lender that it will apply for the Certificate of Registration - Lender no later than on the date the lender first claims a deduction or refund for bad debts charged off on the account. 8. A statement that the election may not be amended or revoked unless a new election signed by both the retailer and the lender is filed with the Board. 9. The date of the election and the signatures of the retailer and the lender, or their authorized representatives. If a copy of the signed election is filed with the Board rather than the original, the person with the right under the election to claim the bad debt deduction or refund must retain the election with the original signatures. An election may be signed in counterparts, and its filing would be regarded as perfected as of the filing of the second signed counterpart, provided each counterpart is identical except for the signature and date of the signature. If copies of the signed counterparts are filed with the Board, the person with the right under the election to the bad debt deduction or refund must retain all counterparts with the original signatures not filed with the Board. (B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and (i)) includes a lender with respect to those accounts for which the lender is the person entitled to the bad debt deduction or claim pursuant to an election filed under this subdivision (i)(3). (4) Election Between Lender and Affiliated Entity or Other Assignee. (A) If a person who is a lender under subdivision (i)(1)(A) or (i)(1)(B) and who has the right to claim any deduction or refund for bad debts the lender charges off on the account wishes to assign to a person who is its affiliated entity under section 1504 of Title 26 of the United States Code or to some other assignee the right to claim any deduction or refund for the amount of bad debts charged off on the account, the lender and the affiliated entity or other assignee must file an election with the Board prior to the affiliated entity's or other assignee's claiming of any deduction or refund. The election filed with the Board may be in any form, but must include all the following elements: 1. The name, address, and seller's permit number of the retailer who reported or will report the tax; the name, address, seller's permit number, if any, and Certificate of Registration - Lender account number, if any, of the lender under subdivision (i)(1)(A) or (i)(1)(B) making the assignment; and the name, address, seller's permit number, if any, and Certificate of Registration - Lender account number, if any, of the person to whom the assignment is made under subdivision (i)(1)(C). 2. A copy of the election between the retailer and the lender under which the lender has the right to any (and all) deductions or refunds as a result of any bad debt losses charged off by the lender on the account(s). If that election has not yet been filed with the Board, then that election must be filed along with the election between the lender and its affiliated entity or other assignee. If the election with the original signature was retained by the lender rather than filing it with the Board, that election must either be filed with the Board or retained by the affiliated entity or other assignee. 3. A statement clearly specifying that the affiliated entity or other assignee is entitled to any (and all) deductions or refunds as a result of any bad debt losses charged off on the account(s) covered by the election and the effective date of that election, and a statement that the lender under subdivision (i)(1)(A) or (i)(1)(B) relinquishes all claims to such deductions or refunds. 4. A list of accounts to which the election pertains. If the election is a blanket election for all accounts held by the lender, the election must so state. 5. The agreement of the lender to furnish any and all documentation required by the Board to support the claiming of deductions or refunds by the affiliated entity or other assignee. 6. The acknowledgement by both the lender and its affiliated entity or other assignee that the Board may disclose relevant confidential information to all parties involved in order to support and confirm any deductions or refunds claimed. 7. If the affiliated entity or other assignee does not yet hold a Certificate of Registration - Lender, the agreement that it will apply for that certificate no later than on the date it first claims a deduction or refund for bad debts charged off on the account. 8. The acknowledgement by the affiliated entity or other assignee that it cannot further assign the right to claim a deduction or refund for bad debts charged off on the account. 9. A statement that the election may not be amended or revoked unless a new election signed by both the lender and the affiliated entity or other assignee is filed with the Board. 10. The date of the election and the signatures of the lender and the affiliated entity or other assignee, or their authorized representatives. If a copy of the signed election is filed with the Board rather than the original, the person with the right under the election to claim the bad debt deduction or refund must retain the election with the original signatures. An election may be signed in counterparts, and its filing would be regarded as perfected as of the filing of the second signed counterpart, provided each counterpart is identical except for the signature and date of the signature. If copies of the signed counterparts are filed with the Board, the person with the right under the election to the bad debt deduction or refund must retain all counterparts with the original signatures not filed with the Board. (B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and (i)) includes an entity affiliated with a lender under section 1504 of Title 26 of the United States Code, or other assignee, with respect to those accounts for which the affiliated entity or other assignee is the person entitled to the bad debt deduction or claim pursuant to an election filed under this subdivision (i)(4). (5) Registration, Returns, Claims for Deduction and Refunds, and Payment of Tax. (A) A retailer who has the right to claim deductions or refunds for bad debts charged off by a lender on an account held by that lender pursuant to an election filed under subdivision (i)(3) shall claim those deductions or refunds under the provisions of this regulation in the same manner as if the retailer held the account itself. (B) Without regard to whether a lender holds a seller's permit for its own sales of tangible personal property, a lender who has the right to claim deductions or refunds for bad debts charged off on accounts pursuant to an election filed under subdivision (i)(3) and, if applicable, subdivision (i)(4), shall register with the Board for a Certificate of Registration - Lender no later than the date on which it first claims such a deduction or refund. (C) A lender who has the right to claim deductions or refunds for bad debts charged off pursuant to an election filed under subdivision (i)(3) and, if applicable, subdivision (i)(4), is entitled to the same amount of deduction or refund, calculated in the same manner under the provisions of this regulation, as if the lender were the retailer who had sold the tangible personal property for which the retailer had reported and paid tax. If the lender has provided the name, address, and seller's permit number of the retailer responsible for paying the tax, in determining whether to grant the lender's claim for deduction or refund, the Board shall regard the retailer as having paid the applicable tax due unless the Board establishes otherwise. (Regardless of the Board's action on the lender's claim for deduction or refund, a retailer who failed to pay the applicable tax due remains liable for that tax.) (D) A lender who claims a deduction or refund for bad debts charged off shall be liable for tax on the taxable percentage of worthless accounts subsequently collected under subdivision (d), including amounts received for the sale of accounts for which the lender has claimed a bad debt deduction or refund. (E) A lender who has a seller's permit for its own sales of tangible personal property may not commingle the claiming of its deductions pursuant to an election under subdivision (i)(3) and, if applicable, subdivision (i)(4), with any bad debt deductions related to its own sales of tangible personal property but must instead report such deductions on a separate return or schedule in the form specified by the Board. If the lender files a schedule attached to its sales and use tax return, it may apply the amount of its deduction calculated on that separate schedule against its liability for sales and use tax. To the extent that the deduction is not fully exhausted when applied to the lender's own sales and use tax liability, the lender may file a claim for refund. (F) The filing by a lender of a claim for deduction or refund for bad debts on accounts covered by this subdivision (i) is not valid if an election pursuant to subdivision (i)(3) and, if applicable, an election pursuant to subdivision (i)(4), has not been filed with the Board. If a lender files a claim for deduction or refund and the applicable election(s) is filed thereafter, the claim for deduction or refund will be regarded as having been filed on the date of the filing of the election(s). (G) A lender holding a Certificate of Registration - Lender shall file a return in a form specified by the Board to report the taxable percentage of recoveries and claim losses on accounts covered by an election pursuant to subdivision (i)(3) and, if applicable, an election pursuant to subdivision (i)(4). This return shall be filed on a quarterly basis unless otherwise specified by the Board. The return shall include the taxable percentage of the amount of any recoveries for which the lender is liable for tax under subdivision (i)(5)(D). The lender may offset the amount of tax for which it would otherwise be entitled to a bad debt refund for the reporting period against the amount of tax for which it is liable for the taxable percentage of recoveries received during that same reporting period. The lender must file a return without regard to whether the lender received any net recoveries of previously claimed bad debts in the filing period. If the lender files a return under a seller's permit it holds for its own sales of tangible personal property, the lender must file a separate schedule to report the taxable percentage of its bad debt recoveries and losses on accounts covered by an election pursuant to subdivision (i)(3) and, if applicable, an election pursuant to subdivision (i)(4), in a form specified by the Board, as an attachment to the lender's sales and use tax return rather than filing a separate return for such recoveries and losses. (H) A lender claiming a deduction or refund for bad debts, or reporting tax on recoveries for accounts for which it previously claimed a bad debt deduction or refund, must properly allocate the local and district taxes. If the transactions were approved by the lender on a transaction-by-transaction basis or the lender has the necessary information to do so, local and district taxes should be allocated on an actual basis. The lender may allocate local and district taxes related to all other accounts on an appropriate basis subject to approval by the Board. Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6055 and 6203.5, Revenue and Taxation Code. Appendix 1 Example of Computing Allowable Bad Debt Deduction for a Repossessed Vehicle Using Pro Rata Method I. Step One. Compute the Repossession Loss Per Records a. Retail sales price $12,000 b. Taxable fees (i.e., doc/smog) 230 c. Total amount subject to tax 12,230 (a+b) d. Sales Tax (6%) 734 (c*.06) e. License Fees 240 f. Other non-taxables 0 g. Total non-taxable charges 974 (d+e+) h. Total sales price 13,204 (c+g) i. Down payment 2,000 j. Balance on contract 11,204 (h-i) k. Finance charges/accrued interest 3,000 l. Total contract value 14,204 (j+k) m. Payments received on contract 2,100 n. Balance on date of repossession 12,104 (l-m) o. Unearned finance charges 2,750 p. Net contract balance 9,354 (n-o) q. Value of repossession 6,000 r. II. Step Two. Compute the Taxable Percentage of Loss. This is done by dividing the total amount subject to tax (line c) by the total sales price (line h). 12,230 / 13,204 = 92.62%. III. Step Three. Compute the Allowable Deduction. This is done by multiplying the taxable percentage of loss (step Two) by the repossession loss per records (step One). 92.62% * 3,354 = $3,106.47 Appendix 2 Consolidation of Allowable Bad Debt Deduction for Multiple Repossessed Vehicles Using Pro Rata Method [Note: The following TABLE/FORM is too wide to be displayed on one screen. You must print it for a meaningful review of its contents. The table has been divided into multiple pieces with each piece containing information to help you assemble a printout of the table. The information for each piece includes: (1) a three line message preceding the tabular data showing by line # and character # the position of the upper left-hand corner of the piece and the position of the piece within the entire table; and (2) a numeric scale following the tabular data displaying the character positions.] ******************************************************************************* ******** This is piece 1. -- It begins at character 1 of table line 1. ******** ******************************************************************************* (A) (B) (C) (D) (E) (F) (G) Date of Sales Sales Total Repos- Price of Tax Licen- Insura- Sales se nce session Car# Mdse A (6%) Fee (Net) Price B ___________________________________ [C*.0- 6] ___________________________________ 09-30-00 507 $ 9,000 $ 540 $160 $200 $ 9,900 10-27-00 521 8,000 480 140 160 8,780 11-04-00 540 6,000 360 110 120 6,590 12-09-00 575 5,000 300 90 1 00 5,490 ___________________________________ Totals $28,000 $1,680 $500 $580 $30,760 (1) (2) [Computation of the Taxable Percentage of Loss: $28,000 $30,760 Computation of Allowable Deduction: 91.03% x $4,670 1...+...10....+...20....+...30....+...40....+...50....+...60....+...70....+.... ******************************************************************************* ******* This is piece 2. -- It begins at character 80 of table line 1. ******** ******************************************************************************* (H) (I) (J) (K) (L) (M) (N) Repos- Finance Net Value of session Down Balance Charges Contract Repos- Loss Per to Payment Finance (Net) C Balance Payments session Records [C...F] [G-H] [I+J] $2,000 $ 7,900 $ 400 $ 8,300 $1,900 $ 5,000 $1,400 1,700 7,080 350 7,430 1,650 4,400 1,380 1,300 5,290 260 5,550 1,250 3,300 1,000 1,100 4,390 200 4,590 1,000 2,700 890 $6,100 $24,660 $1,210 $25,870 $5,800 $15,400 $4,670 (3) 80..+...90....+....0....+...10....+...20....+...30....+...40....+...50... ******************************************************************************* ******* This is piece 3. -- It begins at character 153 of table line 1. ******* ******************************************************************************* [K-L-M] 153...60 ___________________ A Includes taxable amounts, such as doc and smog fees. B Original insurance charge less rebate of unearned premium. C Total finance charges per contract less unearned charges. s 1643. Debit Card Charges. Generally, tax does not apply to automated teller machine (A.T.M.) charges when an access device (commonly known as a debit card or credit card) is issued to make a cash withdrawal from, or to engage in any other transaction that is not subject to tax at, an A.T.M. The transaction is not regarded as a sale of tangible personal property but is a nontaxable financial transaction. Debit cards may also be used by consumers to pay for a retail purchase of tangible personal property. Gross receipts from the retail sale of tangible personal property do not include debit card charges which the retailer may collect from the customer when all of the following apply: (1) the debit card charges are separately stated, (2) the consumer would not incur the charge if he or she did not use the debit card, (3) the fee is not calculated as a percentage of the amount of the purchase, and (4) the charge is reasonably related to the cost of the transaction to the retailer. Under these circumstances, the charge is regarded as a cash access fee and is not subject to tax. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6011 and 6012, Revenue and Taxation Code. s 1654. Barter, Exchange, "Trade-Ins" and Foreign Currency Transactions. (a) Barter and Exchange Generally. The terms "sale" and "purchase" as defined in sections 6011 and 6012 respectively, include exchange and barter, and gross receipts and sales price constituting the measure of tax include the amount allowed by a retailer to his customer for property or services of any kind. Thus, the operator of an "exchange" where customers pay for their purchases of tangible personal property entirely or in part by other property is a retailer and taxable upon his gross receipts, unless his sales are insufficient in number, scope and character to constitute an activity requiring the holding of a seller's permit. (b) Merchandise Traded In. (1) In General. When merchandise is "traded in" on the purchase price of other merchandise, the retailer accepting the trade-in must include in the measure of tax the amount agreed upon between seller and buyer as the allowance for the merchandise traded in. Should, however, the board find that the allowance stated in the agreement is less than the fair market value, it shall be presumed that the allowance actually agreed upon is such market value. (2) Discount and Trade-In Allowance on Same Transaction. Although discounts allowed and taken by purchasers are not a part of taxable gross receipts, if there is a trade-in and also a discount, the contract between seller and buyer must make it clear that the parties contract for both a trade-in allowance and for a discount. Otherwise, the amount of the claimed discount will be considered to be an overallowance, and the total sales price will be subject to tax. (c) Exchange of Commodities. (1) In General. When commodities are exchanged on a weight or volume basis, each party to the exchange is a seller with respect to the property transferred and a purchaser with respect to the property received. Each sale is subject to sales tax unless it is otherwise exempt, such as a sale for resale or a sale in interstate commerce. With respect to each retail sale, sales tax is measured by the fair retail market value of the property received in payment for the property sold. The measure of tax includes all charges made to the purchaser, such as storage and handling charges, not expressly excluded from tax by statute. (2) Determining Fair Retail Market Value. (A) Simultaneous Exchanges. When the properties are transferred simultaneously, the property received must be valued in money on the date and at the place the property is paid and delivered to the retailer. The date of the contract is immaterial. Actual cost of the property to the transferor or book value of the property for accounting purposes are irrelevant. The measure of tax for use tax purposes is the same as for sales tax purposes. (B) Successive Exchanges. When properties are transferred successively, each sale occurs when each property is transferred. Where the obligations of the parties are specified in the contract, the measure of tax for each sale is the fair retail market value of the property on the contract date. The fair retail market value to be used must be the fair retail market value at the place where the property received in payment is delivered to the retailer. Where the obligations of the parties are not specified in the contract but rather are contingent on future events i.e. an output or requirements contract, the measure of tax for each sale is the fair retail market value of the property on the date of sale or on the date property received in payment for the sale is delivered to the retailer, whichever occurs first. The fair retail market value to be used must be the fair retail market value at the place where the property received in payment is delivered to the retailer. (3) Examples. (A) On January 1, Company A and Company B enter into a contract whereby Company A agrees to deliver 1,000,000 barrels of fuel oil to Company B in Los Angeles on February 1 and Company B agrees to deliver 1,000,000 barrels of fuel oil to A in San Francisco on February 1. This is a simultaneous exchange. Company A has made a retail sale of fuel oil to Company B on February 1. The measure of tax is the fair retail market value of the 1,000,000 barrels of fuel oil in San Francisco on February 1. The value must be the fair retail market value at the place where the property is paid and delivered to the retailer, i.e., San Francisco. Company B has made a retail sale of fuel oil to Company A on February 1. The measure of tax is the fair retail market value of the 1,000,000 barrels in Los Angeles on February 1. The measure of tax includes all charges made t the purchaser, such as storage and handling charges, not expressly excluded from tax by statute. (B) On January 1, Company A and Company B enter into a contract whereby Company A is to deliver 1,000,000 barrels to Company B in Los Angeles in February 1 and Company B is to deliver 500,000 barrels in San Francisco on March 1 and 500,000 barrels in Houston, Texas on April 1. This is a successive exchange pursuant to a contract where the obligations of the parties are specific. Company A has made a retail sale of fuel oil to Company B on February 1. The measure of tax is the fair retail market value of the 1,000,000 barrels of fuel oil on January 1 (the contract date). The fair retail market value to be used is the value of 500,000 barrels in Houston and 500,000 barrels in San Francisco on January 1. Company B has made two sales, one on March 1 and the other on April 1. The sale on April 1 is an exempt sale in interstate commerce. The measure of tax on the March 1 sale is the fair retail market value of the 500,000 barrels of fuel oil in Los Angeles on January 1 (the contract date). (C) On January 1, Company A and Company B enter into a contract whereby Company A agrees to deliver excess fuel oil to Company B, as such excesses may develop in the future, in exchange for the return of like quantities of fuel oil at times and places mutually to be agreed upon in the future. Company B delivers 600,000 barrels of fuel oil to Company A in Long Beach on February 1, 200,000 barrels in San Francisco on April 1, and 200,000 barrels in Los Angeles on July 1. Company A delivers 1,000,000 barrels to Company B in Los Angeleson March 1. This is a successive exchange pursuant to an output or requirements contract. The measure of tax is the fair retail market value of the property at the date the property received in payment is delivered to the retailer or the date of sale, whichever occurs first. Company A received an advance payment from Company B of 600,000 barrels delivered in Long Beach on February 1. The payments made by Company B to Company A on April 1 and July 1 are deferred payments on Company A's sale of March 1. The measure of tax with respect to the sale by Company A is the fair retail market value on February 1 of the 600,000 barrels delivered to Company A in Long Beach on that date, plus the fair market retail value on March 1 (date of sale) of the 400,000 barrels to be delivered by Company B in the future at the place where the property is to be delivered. Company B has made three retail sales: one on February 1, one on April 1, and one on July 1. The measure of tax for the February 1 sale is the fair retail market value on February 1 of the 600,000 barrels to be delivered by Company A in the future at the place where the property is to be delivered. This is a sale with deferred payment, and tax must be reported on an accrual basis. The measure of tax for the April 1 sale is the fair retail market value of 200,000 barrels in Los Angeles on March 1. The measure of tax for the July 1 sale is the fair retail market value of 200,000 barrels in Los Angeles on March 1. The sales on April 1 and July 1 were sales with advance payments and must be valued on the date the property received in payment was delivered to the retailer (March 1). (d) Foreign Currency Transactions. If a purchaser or seller enters into a contract where the consideration is set forth in terms of foreign currency, tax is measured in United States dollars based on the conversion rate of the foreign currency to United States dollars on the date of the contract. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6010, 6011, and 6012, Revenue and Taxation Code. Exchange in connection with repairs, see regulation 1546. Occasional Sales-Sale of a Business, see regulation 1595. Reimbursement for tax, effect of collecting, see regulation 1700 (unrevised series 2100). Vehicle Engine Exchanges in lieu of repairs, see regulation 1547. s 1655. Returns, Defects and Replacements. (a) Returned Merchandise. The amount upon which tax is computed does not include the amount charged for merchandise returned by customers if, (1) the full sale price, including that portion designated as "sales tax," is refunded either in cash or credit, and (2) the customer, in order to obtain the refund or credit, is not required to purchase other property at a price greater than the amount charged for the property that is returned. Refund or credit of the entire amount is deemed to be given when the purchase price, less rehandling and restocking costs, is refunded or credited to the customer. The amount withheld for rehandling and restocking may not exceed the actual cost of rehandling and restocking the returned merchandise. However, in lieu of using the actual cost for each transaction, the amount withheld for rehandling and restocking may be a percentage of the sales price determined by the average cost of rehandling and restocking returned merchandise during the previous accounting cycle (generally one year). If the seller elects to withhold rehandling and restocking amounts based on a percentage of sales price, the seller is bound by that election for the entire accounting cycle for which the election is made and must apply that percentage in lieu of actual cost during that period on all returned merchandise transactions for which rehandling and restocking costs are withheld. The amount withheld as rehandling and restocking costs may not include compensation for increased overhead costs because of the return, for refinishing or restoring the property to salable condition where the necessity therefore is occasioned by customer usage, or for any expense prior to the "sale" (i.e., transfer of title, lease, or possession under a conditional sale contract). Sellers must maintain adequate records which may be verified by audit, documenting the percentage used. (b) Defective Merchandise. (1) In General. Amounts credited or refunded by sellers to consumers on account of defects in merchandise sold may be excluded from the amount on which tax is computed. If, however, defective merchandise is accepted as part payment for other merchandise and an additional allowance or credit is given on account of its defective condition, only the amount allowed or credited on account of defects may be excluded from taxable gross receipts. The amount allowed as the "trade-in" value must be included in the measure of tax. (2) Restitution or Replacement Under California Lemon Law. (A) General. Under subdivision (d) of Civil Code section 1793.2, if a manufacturer is unable to service or repair a "new motor vehicle," as that term is defined in subdivision (e)(2) of Civil Code section 1793.22, to conform to the applicable express warranties after a reasonable number of attempts, the manufacturer must either replace the motor vehicle or provide the buyer restitution of the purchase price, less specified amounts, at the buyer's election. (B) Restitution. A manufacturer who pays a buyer restitution pursuant to, and in complete compliance with, subdivision (d)(2) of Civil Code section 1793.2 is entitled to a refund of the amount of sales tax or sales tax reimbursement included in the restitution paid by the manufacturer to the buyer. The manufacturer may file a claim for refund of that amount with the board. The claim must include a statement that the claim is submitted in accordance with the provisions of section 1793.25 of the Civil Code. The manufacturer must submit with the claim documents evidencing that restitution was made pursuant to, and in complete compliance with, subdivision (d)(2) of Civil Code section 1793.2 including: a copy of the original sales agreement between the buyer and the dealer of the non-conforming motor vehicle; copies of documents showing all deductions made in calculating the amount of restitution paid to the buyer along with full explanations for those deductions, including settlement documents and odometer statements; a copy of the title branded "Lemon Law Buyback" for the non-conforming motor vehicle returned by the buyer; and proof that the decal the manufacturer is required to affix to that motor vehicle has been so affixed in accordance with section 11713.12 of the Vehicle Code. The manufacturer must also submit with the claim the seller's permit number of the dealer who made the retail sale of the non-conforming motor vehicle to the buyer, and evidence that the dealer had reported and paid sales tax on the gross receipts from that sale. For purposes of this regulation, the number of attempts made to repair the non-conforming motor vehicle, if any, prior to providing the customer restitution is not relevant for purposes of determining whether restitution has been made pursuant to subdivision (d)(2) of Civil Code section 1793.2. (C) Replacement. For purposes of this regulation, a manufacturer who, pursuant to subdivision (d)(2) of Civil Code section 1793.2, replaces a non-conforming motor vehicle with a new motor vehicle substantially identical to the motor vehicle replaced is replacing the motor vehicle under the terms of the mandatory warranty. No additional tax is due unless the buyer is required to pay an additional amount to receive the replacement motor vehicle, in which case tax is due measured by the amount of that payment. If an amount is refunded to the customer as part of the exchange of the non-conforming motor vehicle for the replacement motor vehicle, then that amount is regarded as restitution for purposes of this regulation if it satisfies the requirements of subdivision (d)(2) of Civil Code section 1793.2. The manufacturer may file a claim for refund under subdivision (b)(2)(B) of this regulation for the amount of sales tax or sales tax reimbursement that is included in the amount of that restitution paid by the manufacturer to the buyer. For purposes of this regulation, the number of attempts made to repair the non-conforming motor vehicle, if any, prior to providing the customer a replacement is not relevant for purposes of determining whether the replacement has been made pursuant to subdivision (d)(2) of Civil Code section 1793.2. (c) Replacement Parts -Warranties. (1) In General -Definitions. "Mandatory Warranty." A warranty is mandatory within the meaning of this regulation when the buyer, as a condition of the sale, is required to purchase the warranty or guaranty contract from the seller. "Optional Warranty." A warranty is optional within the meaning of this regulation when the buyer is not required to purchase the warranty or guaranty contract from the seller, i.e., the buyer is free to contract with anyone he or she chooses. (2) Mandatory Warranties. The sale of tangible personal property includes the furnishing, pursuant to the guaranty provisions of the contract of sale, or mandatory warranty, of replacement parts or materials, and if the property subject to the warranty is sold at retail, the measure of the tax includes any amount charged for the guaranty or warranty, whether or not separately stated. The sale of the replacement parts and materials to the seller furnishing them thereunder is a sale for resale and not taxable. (3) Optional Warranties. The person obligated under an optional warranty contract to furnish parts, materials, and labor necessary to maintain the property is the consumer of the materials and parts furnished and tax applies to the sale of such items to that person. If he or she purchased the property for resale or from outside California, without tax paid on the purchase price, he or she must report and pay tax upon the cost of such property to him or her when he or she appropriates it to the fulfillment of the contract of warranty. (4) Deductibles. A deductible paid by a customer under the terms of a mandatory or optional warranty contract is subject to tax measured by the amount of the deductible allocable to the sale of tangible personal property to the customer. For example, if the itemized sales price of tangible personal property (or the fair retail value if not separately itemized) provided pursuant to a warranty is 50 percent of the total fair retail value of the repairs and the deductible is $100, 50 percent of that deductible, $50, would be allocable to the sale of tangible personal property and would be subject to tax, whether the warranty were optional or mandatory. Unless otherwise stated in the warranty contract, when either an optional or a mandatory warranty provides that the customer will pay a deductible towards repairs and services provided under the warranty, the person providing the warranty contract is liable for any tax or tax reimbursement otherwise payable by the customer with respect to that deductible. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6012, Revenue and Taxation Code; Sections 1793.2-1793.25, Civil Code; and Section 11713.12, Vehicle Code. s 1660. Leases of Tangible Personal Property -In General. (a) Definitions. (1) Lease. The term "lease" includes rental, hire, and license. It includes a contract under which a person secures for a consideration the temporary use of tangible personal property which, although not on his or her premises, is operated by, or under the direction and control of, the person or his or her employees. "Lease," however, does not include a use of tangible personal property for a period of less than one day for a charge of less than twenty dollars ($20) when the privilege to use the property is restricted to use thereof on the premises or at a business location of the grantor of the privilege (see (e) below). (2) Sale Under a Security Agreement. (A) Where a contract designated as a lease binds the "lessee" for a fixed term and the "lessee" is to obtain title at the end of the term upon completion of the required payments or has the option to purchase the property for a nominal amount, the contract will be regarded as a sale under a security agreement from its inception and not as a lease. The option price will be regarded as nominal if it does not exceed $100 or 1 percent of the total contract price, whichever is the lesser amount. (B) In the case of a contract designated as a lease with any state or local government, the governmental agency designated as a lessee shall be treated as bound for a fixed term notwithstanding any right it may have to terminate the contract to the extent that sufficient funds are not appropriated to pay amounts due under the contract. Such transactions are subject to tax as sales under a security agreement at their inception. (3) Sale and Leaseback Transactions. (A) General. Transactions structured as sales and leasebacks will be treated as financing transactions if (1) the "lease" transaction would be regarded as a sale at inception under paragraph (a)(2) of this regulation, (2) the purchaser-lessor does not claim any deduction, credit or exemption with respect to the property for federal or state income tax purposes, and (3) the amount which would be attributable to interest, had the transaction been structured originally as a financing agreement, is not usurious under California law. Transactions treated as financing transactions are not subject to sales or use tax. (B) Special Application. Transactions structured as sales and leasebacks will also be treated as financing transactions if all of the following requirements are met: 1. The initial purchase price of the property has not been completely paid by the seller-lessee to the equipment vendor. 2. The seller-lessee assigns to the purchaser-lessor all of its right, title and interest in the purchase order and invoice with the equipment vendor. 3. The purchaser-lessor pays the balance of the original purchase obligation to the equipment vendor on behalf of the seller-lessee. 4. The purchaser-lessor does not claim any deduction, credit or exemption with respect to the property for federal or state income tax purposes. 5. The amount which would be attributable to interest, had the transaction been structured originally as a financing agreement, is not usurious under California law. 6. The seller-lessee has an option to purchase the property at the end of the lease term, and the option price is fair market value or less. (C) Tax Benefit Transactions. Tax does not apply to sale and leaseback transactions entered into in accordance with former Internal Revenue Code section 168(f)(8), as enacted by the Economic Recovery Tax Act of 1981 (Public Law 97-34). (D) Acquisition Sale and Leaseback Transactions. No sales or use tax applies to the transfer of title to, or the lease of, tangible personal property pursuant to an acquisition sale and leaseback, which is a transaction satisfying all of the following conditions: 1. The seller/lessee has paid California sales tax reimbursement or use tax with respect to that person's purchase of the property. 2. The acquisition sale and leaseback is consummated within 90 days of the seller/lessee's first functional use of the property (this 90 day period does not begin to run until the first functional use of the property; a period of storage after the purchase, but before the first functional use, is not used to calculate the 90 day period). 3. The acquisition sale and leaseback transaction is consummated on or after January 1, 1991. The sale of the property at the end of the lease term is subject to sales or use tax. Any lease of the property by the purchaser/lessor to any person other than the seller/lessee would be subject to use tax measured by rentals payable. A lease to the seller/lessee at the end of the original lease term is subject to use tax measured by rentals payable unless such lease is pursuant to an election to exercise an option to extend the lease term, which option was contained in the original lease agreement. (b) Leases as Sales or Purchases. (1) In General. Any lease of tangible personal property in any manner whatsoever for a consideration is a "sale" as defined in section 6006 of the Revenue and Taxation Code, and a "purchase" as defined in section 6010 of the Revenue and Taxation Code, except a lease of: (A) Motion picture films and video tapes, including television films and video tapes, whether or not they are productions complete in themselves. See, however, subdivision (d)(2) below for application of tax for periods on and after September 1, 1983, to leases of video cassettes, videotapes, and videodiscs for private use under which the lessee or renter does not obtain or acquire the right to license, broadcast, exhibit, or reproduce the video cassette, videotape, or videodisc. (B) Linen supplies and similar articles, including such items as towels, uniforms, coveralls, shop coats, dust cloths, caps and gowns, etc., when an essential part of the lease is the furnishing of the recurring service of laundering or cleaning of the articles leased. (C) Household furnishings with a lease of the living quarters in which they are to be used. The lessor of the household furnishings must also be the lessor of the living quarters. The living quarters must be real property rather than tangible personal property. (D) Mobile transportation equipment for use in transportation of persons or property (see regulation 1661 (18 CCR 1661)). (E) Tangible personal property leased in substantially the same form as acquired by the lessor or leased in substantially the same form as acquired by a transferor as to which the lessor or his or her transferor acquired the property in a transaction that was a retail sale with respect to which the lessor or the transferor has paid sales tax reimbursement or as to which the lessor or the transferor has timely paid use tax measured by the purchase price of the property. As used herein, "transferor" means: 1. A person from whom the lessor acquired the property in a transaction described in section 6006.5(b) of the Revenue and Taxation Code, or 2. A decedent from whom the lessor acquired the property by will or by law of succession. For purposes of 1. above, the transaction will qualify if the property is acquired in a transfer of all or substantially all of the tangible personal property held or used by the transferor in all of his or her activities requiring the holding of a seller's permit or permits or in an activity or activities not requiring the holding of a seller's permit or permits, and the ownership of the tangible personal property is substantially similar after the transfer. (F) Tangible personal property occurring on or after January 1, 1997 described in sections 17053.49 or 23649 of the Revenue and Taxation Code by the manufacturer of that property when leased to a qualified person, as described in sections 17053.49 or 23649 of the Revenue and Taxation Code, in a form not substantially the same as acquired as to which the manufacturer made a timely election to report and pay tax measured by the cost price of that property as defined in section 6244.5 of the Revenue and Taxation Code and Regulation 1525.3. (G) A mobilehome, as defined in sections 18008(a) and 18211 of the Health and Safety Code, other than a mobilehome originally sold new prior to July 1, 1980 and not subject to local property taxation. (2) Leases as Continuing Sales and Purchases. In the case of any lease that is a "sale" and "purchase" under (b)(1) above, the granting of possession by the lessor to the lessee, or to another person at the direction of the lessee, is a continuing sale in this state by the lessor, and the possession of the property by a lessee, or by another person at the direction of the lessee, is a continuing purchase for use in this state by the lessee, as respects any period of time the leased property is situated in this state, irrespective of the time or place of delivery of the property to the lessee or such other persons. The application of tax to such leases is set forth below. (c) General Application of Tax. (1) Nature of Tax. In the case of a lease that is a "sale" and "purchase" the tax is measured by the rentals payable. Generally, the applicable tax is a use tax upon the use in this state of the property by the lessee. The lessor must collect the tax from the lessee at the time rentals are paid by the lessee and give him or her a receipt of the kind called for in Regulation 1686 (18 CCR 1686). The lessee is not relieved from liability for the tax until he or she is given such a receipt or the tax is paid to the state. When the lessee is not subject to use tax (for example, insurance companies), the sales tax applies. The sales tax is upon the lessor and is measured by the rentals payable. Neither the sales tax nor the use tax applies to leases to the United States and its instrumentalities unless federal law permits taxing the instrumentality. For a more complete explanation regarding sales to the United States and its instrumentalities see Regulation 1614 (18 CCR 1614). The "rentals" subject to the tax include any payments required by the lease, including amounts paid for personal property taxes on the leased property, whether assessed directly against the lessee or against the lessor, but does not include amounts paid to the lessor for: (A) Collection costs, including attorney's fees, court costs, repossession charges, and storage fees; but tax does apply to any delinquent rental payments, including those collected by court action; (B) Insuring, repairing or refurbishing the leased property following a default; (C) Cost incurred in defending a court action or paying a tort judgment arising out of the lessee's operation of the leased property, or any premiums paid on insurance policies covering such court actions or tort judgments; (D) Cost incurred in disposing of the leased property at expiration or earlier termination of the lease; (E) Late charges and interest thereon for failing to pay the rentals timely; (F) Separately stated optional insurance charges, maintenance or warranty contracts. (G) Personal property taxes assessed against personal property where a bank or financial corporation is the lessor. (2) Property Leased in Form Acquired. No sales or use tax is due with respect to the rentals charged for tangible personal property leased in substantially the same form as acquired by the lessor, or by his or her transferor, as to which the lessor or transferor has paid sales tax reimbursement or has paid use tax measured by the purchase price. If such tax has not been so paid, and the lessor desires to pay tax measured by the purchase price, it must be reported and paid timely with the return of the lessor for the period during which the property is first placed in rental service. A timely return is a return filed within the time prescribed by sections 6452 or 6455 of the Revenue and Taxation Code, whichever is applicable. (3) Property Purchased Tax Paid. In the case of property ultimately leased in substantially the same form as acquired, payment of tax or tax reimbursement measured by the purchase price at the time the property is acquired constituted an irrevocable election not to pay tax measured by rental receipts. The lessor may not change his or her election by reporting tax on rental receipts and claiming a tax-paid-purchase-resold deduction. (4) Property Acquired in Exempt Transactions. (A) A purchaser of tangible personal property acquired in a transaction defined as an occasional sale in section 6006.5(a) of the Revenue and Taxation Code and leased in substantially the same form as acquired by him or her, may elect to pay use tax measured by the purchase price of the property in lieu of tax measured by rental receipts. (B) A purchaser of tangible personal property acquired in a transaction which qualifies under section 6006.5(b) of the Revenue and Taxation Code and leased in substantially the same form as acquired by his or her transferor may elect to pay use tax measured by his or her transferor's purchase price of the property in lieu of tax on rental receipts. This provision has application where the transferor did not pay tax or tax reimbursement when he or she acquired the property. For purposes of this provision, the transaction will qualify if the property is acquired in a transfer of all or substantially all of the tangible personal property held or used by the transferor in all of his or her activities requiring the holding of a seller's permit or permits or in an activity or activities not requiring the holding of a seller's permit or permits and the ownership of the tangible personal property is substantially similar after the transfer (see also (b)(1)(E) above). (C) The election provided for in subdivisions (c)(4)(A) and (c)(4)(B) above shall be exercised by the lessor in a timely return filed for the period in which the property is first leased by him or her. (5) Property Subleased. Tax does not apply to receipts from subleases of tangible personal property which is leased in substantially the same form as acquired by the prime lessor where the prime lessor has paid sales tax reimbursement or use tax measured by his or her purchase price. Also, tax does not apply to subleases of tangible personal property if the tax is paid on rental receipts derived under the prime lease, or any prior sublease. (6) Use of Property by Lessor. If a lessor, after leasing property and collecting and paying use tax, or paying sales tax, measured by rental receipts, makes any use of the property in this state, other than an incidental use, he or she is liable for use tax measured by the purchase price of the property. He or she may, however, apply as a credit against the tax so computed, the amount of tax previously paid to the Board with respect to rentals of the property. If the credit is less than the tax, he or she must pay the difference with his or her return, but may apply the amount of such payment against his or her liability for tax on subsequent rentals of the property. Effective January 1, 1973, through December 31, 1978, any amount collected as tax or tax reimbursement by the lessor from the lessee on such subsequent rentals will be regarded as excess tax reimbursement to the extent that the lessor is permitted by the foregoing provisions to apply the amount of his or her payment for use tax against his or her liability for tax on subsequent rentals of the property. An incidental use, e.g., a brief loan of property which otherwise is leased by the lessor pursuant to leases which are continuing sales, subjects the lessor to liability for use tax measured by the fair rental value of the property during the period of the incidental use. (See Regulation 1669.5(b)(7) (18 CCR 1669.5(b)(7)).) (7) Options to Purchase. An agreement providing for the lease of tangible personal property and granting the lessee an option to purchase the property results in a sale when the option is exercised. The tax applies to the amount required to be paid by the purchaser upon the exercise of the option. (8) Tax Paid to Another State. A lessor who leases property in substantially the same form as acquired and who has paid a retail sales or use tax, or reimbursement therefor, imposed with respect to that property by any other state, political subdivision thereof or the District of Columbia prior to leasing the property in this state may credit the payment against any use tax imposed on him or her by this state because of such lease. However, to be entitled to the credit the lessor must make a timely election to measure any tax liability for the property by its purchase price, unless the out-of-state tax equals or exceeds the tax imposed on him or her by this state. If the out-of-state tax equals or exceeds the tax imposed on him or her by this state, the lessor will be deemed to have made a timely election and the rental receipts will not be subject to tax provided the property is leased in substantially the same form as acquired. If a timely election is not made, no credit will be allowed because the tax due will be a use tax measured by rental receipts and imposed directly against the lessee, a person other than the one who paid the out-of-state tax or tax reimbursement. If the lessee is not subject to use tax and the lessor does not make a timely election to pay tax measured by his or her purchase price, he or she may not credit the amount of the out-of-state tax against the tax due on the rental receipts because the tax due is a sales tax rather than a use tax. A credit otherwise permitted by the foregoing provisions shall not be allowed against taxes which are measured by periodic payments made under a lease, to the extent that taxes imposed by any other state, political subdivision or the District of Columbia were also measured by periodic payments made under a lease prior to the lease of the property in this state. (9) Assignment of Leases. (A) In General-Status of Assigned Leases. The situations described in (B), (C), and (D) below involve existing leases which are "sales" and "purchases" subject to tax measured by rental payments. When such a lease is assigned, whether or not title to the leased property is transferred, the rental payments remain subject to tax, without any option to measure tax by the purchase price. An assignee-purchaser who uses the property after termination of the lease is subject to use tax measured by the purchase price as provided in (c)(6) above. Generally, when an existing lease that is not a "sale" and "purchase" is assigned, whether or not title to the leased property is transferred, the rental payments are not subject to tax. If title is transferred, tax applies measured by the sales price. For rules relating to the assignment of leases of mobile transportation equipment coming within the exclusions provided in sections 6006(g)(4) and 6010(e)(4) of the Revenue and Taxation Code, see Regulation 1661 (18 CCR 1661) . (B) Assignment of a Right and Creation of a Security Interest. This type of assignment is an assignment by the lessor of the right to receive the rental payments together with the creation of a security interest in the leased property which is designated as such. The assignee has recourse against the assignor. The assignee in this situation does not have the rights of a lessor and is not obligated to collect or pay the tax measured by the rental payments. The lessor remains subject to the obligation of collecting and reporting the tax even if he or she does not receive the rental payments directly from the lessee. The assignee, however, is obligated to remit to the board any amounts paid to him or her by the lessee as tax. If the assignee enforces the security agreement and takes title to the property, the assignee as lessor becomes responsible for collecting and reporting the tax. (C) Assignment of Contract with Transfer of Right, Title, and Interest for Security Purposes. This type of assignment is an assignment by the lessor of the lease contract together with the transfer of the right, title, and interest in the leased property for security purposes. After the termination of the lease, the property usually reverts to the original lessor. The assignment contract may specify that the transfer is for security purposes, or the circumstances may otherwise demonstrate it (e.g., a separate agreement that the property will be returned to the assignor at the termination of the lease). The assignee has recourse against the assignor. In this situation, the assignee has assumed the position of a lessor. He or she is required to hold a seller's permit and is obligated to collect, report and pay the tax to the board. The assignor should obtain a resale certificate, covering the property in question, from the assignee. (D) Assignment of Contract and All Right, Title, and Interest. This type of assignment is an assignment by the lessor of the lease contract together with the transfer of all right, title, and interest in the leased property. The assignment is not for security purposes, and the assignor does not retain any substantial ownership rights in the contract or the property. The assignee has no recourse against the assignor. In this situation, the assignee has assumed the position of a lessor. He or she is required to hold a seller's permit and is obligated to collect, report and pay the tax to the board. The assignor should obtain a resale certificate, covering the property in question, from the assignee. (d) Particular Applications. (1) Portable Toilets. A lease of a portable toilet unit is a sale or purchase and tax applies measured by the lease or rental price regardless of whether the unit is leased in substantially the same form as acquired and regardless of whether sales tax reimbursement or use tax has been paid. Charges for mandatory maintenance or cleaning services of portable toilet units are subject to tax as part of the rental price. Charges for optional maintenance or cleaning services of portable toilet units are not part of the rental price of the portable toilet units and are not subject to tax. Maintenance or cleaning services are mandatory within the meaning of this regulation when the lessee, as a condition of the lease or rental agreement, is required to purchase the maintenance or cleaning service from the lessor. Maintenance or cleaning services are optional within the meaning of this regulation when the lessee is not required to purchase the maintenance or cleaning service from the lessor. Charges for maintenance or cleaning services will be considered mandatory and therefore part of the taxable rental price, unless the lessor provides documentary evidence establishing that such charges are optional. The terms of the lease or rental agreement determine whether the maintenance or service charges are mandatory or optional. In the absence of a lease or rental agreement, or in the absence of language in the lease or rental agreement specifying whether the maintenance or service charges are mandatory or optional, an invoice stating that the maintenance or cleaning charges are optional, and separately stating these charges from the rental charge, will be sufficient to support the exemption from tax. Other documentary evidence may be accepted by the Board to establish that the maintenance or cleaning is performed at the option of the lessee. When the maintenance or cleaning services are subject to tax, the supplies used to perform these services are considered to be sold with the services and may be purchased for resale. When the maintenance or cleaning services are not subject to tax, the provider of these services is the consumer of the supplies, and tax generally applies to the sale to or the use of these supplies by the provider of the maintenance or cleaning services. (2) Video Cassettes, Videotapes, Videodiscs. On and after September 1, 1983, the rental or lease of a video cassette, videotape, or videodisc for private use under which the lessee or renter does not obtain or acquire the right to license, broadcast, exhibit, or reproduce the video cassette, videotape, or videodisc is a sale or purchase and tax applies measured by rental receipts. Tax applies measured by rental receipts regardless of whether the property is leased in substantially the same form as acquired and regardless of whether sales tax reimbursement or use tax has been paid by the lessor with respect to the purchase price of the video cassette, videotape, or videodisc. If the property was rented, leased or otherwise used prior to September 1, 1983, no refund, credit, or offset for any sales tax reimbursement or use tax paid on the purchase price will be allowed against the tax measured by the lease or rental price after September 1, 1983. (3) Lease of an Animal. A lease of any form of animal life of a kind the products of which ordinarily constitute food for human consumption is not subject to tax. (4) Composed Type, Reproduction Proofs, Impressed Mats. Tax does not apply to leases of composed type or reproduction proofs thereof by a typographer to another person for use in the preparation of printed matter or to leases of such reproduction proofs or impressed mats to a printer or publisher for use in printing, except when the reproduction proof is a component part of a "paste-up," "mechanical" or "assembly." (5) Repair Parts. Sales tax does not apply to sales of repair parts to a lessor which are used by him or her in maintaining the leased equipment pursuant to a mandatory maintenance contract where the rental receipts are subject to tax. Such repair parts are regarded as being part of the sale of the leased item and may be purchased for resale. The amount paid by the lessee under the mandatory maintenance contract is regarded as part of the rental payments. (6) Neon Signs. A lease of a neon sign that is personal property is subject to the provisions of the Sales and Use Tax Law as any other lease of personal property. (7) Property Affixed to Realty. For the purpose of this regulation, "tangible personal property" includes any leased fixture affixed to realty if the lessor has the right to remove the fixture upon breach or termination of the lease agreement, unless the lessor of the fixture is also the lessor of the realty to which the fixture is affixed. The term fixture as used herein has the same meaning as the term "fixture" in Regulation 1521 (18 CCR 1521). Leases of structures together with the component parts of such structures, e.g., plumbing fixtures, air conditioners, water heaters, etc., will be treated as leases of real property. Accordingly, tax applies to contracts to construct such structures and the attached components in accordance with Regulation 1521 (18 CCR 1521). On and after September 26, 1989, leases of factory-built school buildings (relocatable classrooms) as defined in paragraph (c)(4)(B) of Regulation 1521 (18 CCR 1521), "Construction Contractors", will be treated as leases of real property with the lessor to the school or school district as the consumer. If the lessor is the manufacturer, tax applies to the manufacturer's costs of all tangible personal property used in constructing the factory-built school building. If the lessor is other than the manufacturer, tax applies to 40% of the sales price of the factory-built school building to such lessor. For purposes of this section, "structure" does not include any prefabricated mobile homes or similar items which are registered with the Department of Motor Vehicles. It also does not include a portable building, such as a shed or kiosk, which is moveable as a unit from its site of installation, unless the building is physically attached to the realty, upon a concrete foundation or otherwise. Such a building resting in place by its own weight, whether upon the ground, a concrete slab, or sills or piers, is not a "structure". A prefabricated or modular building similar in size to, but which is not, a factory-built school building (relocatable classroom) is a "structure" whether the building rests in place by its own weight or is physically attached to realty. Those fixtures which are essential to the structure such as heating and air conditioning units, sinks, toilets, and faucets, which are leased by the lessor of the structure to which they are attached are considered part of the structure and therefore improvements to real property. On the other hand, those fixtures which although being a component part of the structure are leased by other than the lessor of the structure, will be considered tangible personal property. Accordingly, the tax consequences with respect to such fixtures will be the same as with respect to any other lease of tangible personal property. (8) Mobilehomes. (A) The leasing of any mobilehome purchased by a retailer without payment of sales tax reimbursement or use tax and first leased prior to July 1, 1980, is a continuing sale and tax is due measured by the periodic lease payments unless the mobilehome becomes subject to local property taxation, in which event the lease of the property is thereafter exempt from the sales and use tax. (B) The lease of a new mobilehome purchased by a retailer without payment of sales tax reimbursement or use tax and first leased on or after July 1, 1980, is excluded from classification as a continuing sale and the lessor's use of such property by leasing is subject to the use tax. If the use of the property is for occupancy as a residence then the tax is measured by an amount equivalent to 75 percent of the purchase price paid by the lessor's vendor. In the absence of satisfactory evidence of the vendor's purchase price it shall be presumed that the measure of use tax is an amount equivalent to 60 percent of the sales price of the mobilehome to the lessor unless the vendor is also the manufacturer. If such mobilehome is purchased by the lessor from the manufacturer, the measure of the use tax liability is 75 percent of the purchase price of the mobilehome to the lessor. If the use of the property is not for occupancy as a residence, then the tax is measured by the full retail sales price to the lessor. (C) The subsequent lease of a used mobilehome which was first sold new in this state after July 1, 1980, is exempt from the sales and use tax. (e) Grant of Privilege to Use Which is Not a Lease. (1) In General. Certain restricted grants of a privilege to use property are excluded from the term "lease." To fall within the exclusion, the use must be for a period of less than one continuous 24-hour period, the charge must be less than $20, and the use of the property must be restricted to use on the premises or at a business location of the grantor of the privilege to use the property. (2) Definitions. (A) "Grantor of the privilege" means a person who allows another person to use the personal property. (B) "Use" includes the possession of, or the exercise of any right or power over personal property by a grantee of a privilege to use the property. (C) "Premises" or "business location" means a building or specific area owned or leased by a grantor or to which a grantor has an exclusive right of use or a space occupied by the personal property which a grantor allows other persons to use in place. For example: 1. A place in a depot at which a grantor places a coin-operated amusement device pursuant to a contract with the management of the depot. 2. An area in an apartment house or motel where a grantor has a right to place coin-operated washing machines and dryers for use by occupants of the apartment house or motel. 3. A laundromat owned or leased by a person who places therein coin-operated washing machines and dryers for use by customers. 4. A riding stable at which horses are furnished to the public at an hourly rate with a restriction that the horses be ridden within a specific area owned or leased by a grantor of the privilege. The "specific area" might be an enclosed arena or other place the exterior boundaries of which are defined by walls, fences or otherwise in such a manner that the area readily can be recognized and distinguished from adjoining or surrounding property. 5. A golf course owned or leased by a golf club which owns or leases golf carts that it furnishes to persons for use in playing the course, or a golf course under the supervision and control of a golf professional who owns or leases golf carts that he or she furnishes to persons for use in playing the course. (3) Examples of Situations Which Do Not Qualify for Exclusion from the Term "Lease." (A) One of several rental firms permitted by a hospital to do so rents a portable television set and stand to a hospital patient for a charge of $4.00 per day for a period of six days. This situation does not qualify for the exclusion because the period of "use" is not for less than one day, the total rental is not less than $20 and the place of use is not the "premises" or "business location" of the rental firm since it does not have "exclusive right of use" of the hospital as regards the placing of its rental units therein nor is the space regularly occupied by it for use in place. (B) Rental of a canoe for a period of eight hours for a total charge of $4 when the customer will use the canoe on the Russian River. This situation does not qualify for the exclusion because the river is not the premises or business location of the grantor of the privilege. (C) Rental of tools to be used on the premises of the owner of the tools for a period of eight hours invoiced as follows: 1 Portable lamp..... $ 4 1 Wheel pulley...... 4 1 Portable hoist.... 4 1 Sander............ 4 1 Spray gun......... 5 Total rental....... $21 This situation does not qualify for the exclusion because the agreement for rental of the property is a single agreement involving rental charges of $21 and does not meet the requirement that the charge be less than $20. (D) An equipment rental firm rents a cement mixer to a customer who takes the mixer to his or her home and uses it for less than one day. The rental charge is $9. The mixer is of a type which must be firmly "in place" during the cement mixing operation. This situation does not qualify for the exclusion because although the mixer is firmly "in place" during the mixing operation, it is not in a space regularly occupied by it for use in place by customers of the grantor. (4) Application of Tax to Situations Qualifying for Exclusion from the Term "Lease." The grantor of the privilege to use property under the conditions described in (e)(1) above is the consumer of the property. Accordingly, charges by him or her for the privilege to use the property are not subject to tax. Tax applies to the sale of the property to him or her by a retailer or to his or her use of the property, measured by his or her purchase price, when the property is purchased from a retailer in California under a resale certificate or from a retailer at an out-of-state location. If the property is acquired through an "occasional sale" as defined in section 6006.5 of the Revenue and Taxation Code, or other exempt transaction, no tax applies to the acquisition or use of the property by the grantor nor to his or her charges for the privilege to use the property. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6006.1, 6006.3, 6006.5, 6009, 6010, 6010.1, 6010.65, 6010.7, 6011, 6012, 6012.6, 6016.3, 6092.1, 6094, 6094.1, 6243.1, 6244, 6244.5, 6379, 6390, 6391, 6407 and 6457, Revenue and Taxation Code. s 1661. Leases of Mobile Transportation Equipment. (a) Definitions. (1) "Mobile Transportation Equipment". The term "mobile transportation equipment" includes only equipment for use in transporting persons or property for substantial distances, such as railroad cars and locomotives, buses, trucks (except "one-way rental trucks"), truck tractors, truck trailers, dollies, bogies, chassis, reusable cargo shipping containers, aircraft and ships, and tangible personal property which is or becomes a component part of such equipment. The term does not include items of a kind commonly used only in loading or unloading persons or property, or short distance moving within the confines of a limited area, such as a loading dock, warehouse, terminal, bay or airport. Examples of such items are hand dollies, forklift trucks, mine cars, pilot boats, tugboats and lighters, not including, however, lighters or barges specifically designed to be carried regularly aboard vessels for substantial distances. The term does include pickup trucks and tangible personal property which is or becomes a component part of mobile transportation equipment. The following items are specifically excluded from the definition of mobile transportation equipment: (A) Passenger vehicles as defined in section 465 of the California Vehicle Code; (B) Trailers and baggage containers designed for hauling by passenger vehicles; and (C) One-way rental trucks. These vehicles are motor trucks of a kind required to be registered under the Vehicle Code, not exceeding the manufacturer's gross vehicle weight rating of 24,000 pounds, which are principally employed by a person in the rental business in being leased out for short-term periods of not more than thirty-one (31) days to individual customers for one-way or local hauling of personal property of the customers, and which upon acquisition or being employed in this state by the person, are identified to the board by reporting tax measured by rental receipts on a timely return for the first reporting period in which the truck is leased and maintaining records which can be verified by audit of the vehicles as to which such an election has been made. Upon the leasing of such a truck to a customer, the lessor shall make known to the customer the fact that the vehicle is designated as a one-way rental truck and any taxes which are imposed are measured by the rentals. Once a truck is identified to the board as a one-way rental truck, the election may not be revoked with respect to the equipment as to which it is made. However, failure of the lessor to make such a timely election will cause such vehicles to be classified as mobile transportation equipment. (2) "Bogie". The term "bogie" means a vehicle consisting of an axle or axles with wheels and tires with a device mounted on its frame to support a container (van body) as an undercarriage. It acts as wheels for and in conjunction with the container (or van body). Bogies are specifically designed to couple under a container temporarily for highway use, being detachable when not required. Bogies may be designed and constructed so as to allow a sliding movement under a container (or van body) to several positions under the container to adjust to desired axle loading. (3) "Chassis". The term "chassis" means a frame with one or more axles designed to be used in conjunction with and as a temporary support or undercarriage for a container or other van-type box. The chassis and axle or axles may be designed and constructed so as to allow a sliding movement for extending the chassis to allow the carriage of various length bodies or to allow movement of one or more axles to any given position under the container. When operated as a semitrailer, the front portion of the container and chassis is attached to a motor vehicle or dolly. (4) "Dolly". The term "dolly" means a vehicle consisting of a tongue, fifth wheel and axle equipped with wheels and tires to be connected to a semitrailer so as to support the front end of the semitrailer, including a portion of the cargo thereon, but which is not permanently attached to the semitrailer. When coupled to the semitrailer by its fifth wheel (which is mounted on the frame) and to a trailer by the tongue, the semitrailer becomes in effect a "full" trailer. A dolly may also be designed and used as the third or rear axle of a two-axle tractor to act as an additional axle to support a portion of the weight of a towed semitrailer and any load thereon, thus reducing tractor axle loads. Pole, pipe and logging dollies consist of a tongue, bolster and axle or axles equipped with wheels and tires. When connected to a motor vehicle by its tongue, or by the cargo, this type of dolly is used to transport long poles, timbers, logs, pipes or structural materials with the rear end of the cargo resting on the dolly bolster and the front end on the motor vehicle. (5) "Ships". The term "ships" includes vessels, such as trawlers, fishing boats, sailboats, yachts and houseboats, which are 30 feet or more in length. The term does not include vessels less than 30 feet in length. (b) Application of Tax. (1) With respect to leases of mobile transportation equipment, the sale to the lessor is the retail sale and the lessor is the consumer of the equipment. Accordingly, either the sale of the equipment to the lessor or its use in this state may be subject to tax. For example, if a dealer of that mobile transportation equipment makes the sale and delivery within California, the transaction is subject to sales tax unless the lessor makes a timely election to report his or her tax liability measured by the fair rental value as provided in subdivision (b)(2). On the other hand, if the sale and delivery occur outside California and the property is purchased for use in California, use tax will apply measured by the purchase price unless the equipment enters the state in interstate commerce and is used continuously thereafter in interstate commerce, or the lessor makes a timely election to report use tax liability measured by the fair rental value as provided in subdivision (b)(2). If in connection with an assignment of an existing lease of mobile transportation equipment, title to the leased property is transferred to the assignee, the transfer is a sale to the assignee and the assignee is the consumer of the equipment. Application of tax is governed by the rules set forth in this subdivision (b)(1). (2) If the use of mobile transportation equipment purchased without the payment of tax or tax reimbursement on the purchase price is limited to leasing the equipment, the purchaser may elect to pay his or her use tax liability measured by the fair rental value. Such election must be made on or before the due date of a return for either the period in which the equipment is first leased or the period in which the equipment first entered California, whichever is later. The election must be made by reporting tax measured by the fair rental value on a timely return for that period. Tax must thereafter be paid with the return for each reporting period, measured by the fair rental value, whether the equipment is within or without this state.The election may not be revoked with respect to the equipment as to which it is made. Any separately stated amount collected from a lessee by a lessor electing to report use tax measured by fair rental value under the representation by the lessor that the amount is use tax imposed on the customer must be returned to the customer or paid to the Board. A designation by the lessor of a separately stated amount as "use tax," without further explanation, will be regarded as a representation that the amount is use tax imposed on the customer. This election is available to any purchaser who leases mobile transportation equipment, other than a person exempt from use tax, such as under Revenue and Taxation Code section 6352, and such purchaser may properly issue a resale certificate for the limited purpose of reporting use tax liability based on fair rental value. (A) Fair Rental Value. "Fair rental value" means the rentals required by the lease, except where the Board determines the rental receipts are nominal. Fair rental value does not include any payment made by the lessee to reimburse the lessor for the lessor's use tax, whether or not the amount is separately stated, and regardless of how the charge is designated in the lease documentation and invoices. Lump-sum charges to the lessee will be assumed to include reimbursement for the lessor's use tax whether or not any statement to that effect is made to the lessee. For example, assuming a 6 percent tax rate, if the invoice to the lessee states "rental $100, tax reimbursement to the lessor $6," "rental $100, sales and use taxes $6," or similar wording, the fair rental value is $100. If the invoice to the lessee states "rental $106" and makes no reference to reimbursement, the fair rental value is $100 ($106 divided by 1.06). Assuming a 6.5 percent tax rate, the fair rental value is $99.53 ($106 divided by 1.065). Fair rental value includes any deficiency payment required from the lessee on disposition of mobile transportation equipment at the termination of an open-end lease and such payment is subject to tax. Any surplus rentals, however, which are returned to the lessee at the termination of an open-end lease may be deducted from the total fair rental value reported for the period in which the surplus rentals are returned. In the alternative, a refund may be claimed within the applicable statute of limitations period for any tax paid on such surplus rentals. Fair rental value includes any capitalized cost reduction payment, which is a one-time payment by the lessee at the start of the lease to reduce the lessor's investment and the lessee's rentals. The payment may either be reported for the period in which it became due from the lessee or it may be reported in equal increments over the lease term. On early termination of such a lease, any unreported portion of the capitalized cost reduction payment shall be reported for the period in which termination occurred. The term "fair rental value" includes any payments required by the lease, including amounts paid for personal property taxes on the leased property, whether assessed directly against the lessee or against the lessor, but does not include amounts paid to the lessor for: 1. Collection costs, including attorney's fees, court costs, repossession charges, and storage fees; but tax does apply to any delinquent rental payments, including those collected by court action; 2. Insuring, repairing or refurbishing the leased property following a default; 3. Costs incurred in defending a court action or paying a tort judgement arising out of the lessee's operation of the leased property, or any premiums paid on insurance policies covering such court actions or tort judgements; 4. Costs incurred in disposing of the leased property at expiration or earlier termination of the lease; 5. Late charges and interest thereon for failing to pay the rentals timely; 6. Separately stated optional insurance charges, maintenance or warranty contracts. 7. Personal property taxes assessed against personal property where a bank or financial corporation is the lessor. (B) Tax Application. Tax applies to fair rental value for all periods during which the mobile transportation equipment is leased even though the lessee may not make the required rental payments. The lessor must pay tax at the rate in effect at the time the equipment is first leased. The tax rate will remain the same for all periods during which the equipment is leased, including the periods during the first lease of the equipment and all periods during any subsequent leases of the equipment. Tax on fair rental value does not apply either (a) for periods during which the equipment is not leased and is merely held for lease; or (b), for periods after the lessor has formally demanded return of the equipment if the lessee wrongfully retains possession of the property and is not required to make rental payments under the lease. If mobile transportation equipment is sold while subject to an existing lease and the new purchaser elects to pay tax measured by fair rental value, the applicable tax rate during the existing lease and during all subsequent leases is the rate in effect at the time of the sale of the mobile transportation equipment to the new purchaser. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6006.1, 6006.3, 6006.5, 6009, 6010, 6010.1, 6011, 6012, 6016.3, 6023, 6024, 6092.1, 6094, 6243.1, 6244, 6352, 6390, 6391, 6407, 6457, 23154 and 23182, Revenue and Taxation Code; and Article XIII, Section 27, California Constitution. Leases generally, see regulation 1660. s 1667. Exemption Certificates. (a) In General. The law provides that for the purpose of the proper administration of the sales and use tax and to prevent evasion of the sales tax it shall be presumed that all gross receipts are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale by establishing to the satisfaction of the Board that the gross receipts from the sale are not subject to the tax or by timely taking a resale certificate as provided in Regulation 1668 or by taking a certificate as provided in this regulation. (b) Effect. (1) Except as stated hereinafter, a seller is relieved of the liability for sales tax if the purchaser timely certifies in writing to the seller that the property will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sale to be exempted from the sales tax by one or more of the provisions of Chapter 4 (commencing with Section 6351) of the Sales and Use Tax Law. A certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser. The certificate shall relieve the seller from liability for the sales tax only if it is taken in good faith. Invoices on sales claimed by a seller as exempt should specify the names of the purchasers in order to relate them to exemption certificates. (2) Effective January 1, 1990, a certificate of exemption from the sales tax for the sale of tangible personal property, other than fuel or petroleum products, to a foreign air carrier need not be received timely. A seller will be allowed 45 days from the date of the Board's written request to obtain an exemption certificate from the purchasing foreign air carrier as provided in Regulation 1621(c)(2), 18 CCR 1621. (3) If a purchaser certifies in writing to a seller that the property purchased will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sale as exempt from the sales tax and uses the property in some other manner or for some other purpose, the purchaser shall be liable for payment of sales tax as if the purchaser were a retailer making a retail sale of the property at the time of such use and the sales price of the property to the purchaser shall be deemed the gross receipts from such retail sale. The term "use" is the same as defined in Section 6009 of the Sales and Use Tax Law without the exclusion defined in Section 6009.1. (c) Issuance of Certificate. (1) Form of Certificates. Certain other regulations prescribe the form of exemption certificates to be used with respect to several specific kinds of transactions. Where no specific form of certificate is prescribed, the certification must be in writing and include the date; the signature of the purchaser, the purchaser's agent, or the purchaser's employee; the name and address of the purchaser; the number of the purchaser's seller's permit, or if the purchaser is not required to hold a seller's permit, a notation to that effect and the reason; a description of the property purchased under the certificate; and a statement of the manner in which or the purpose for which the property will be used so as to make the sales tax inapplicable to the sale. To relieve the seller from liability for the sales tax, the statement of the manner in which or the purpose for which the property will be used must be one which under the provisions of Chapter 4 (commencing with Section 6351) of the Sales and Use Tax Law does entitle the seller to regard the gross receipts from the sale as exempted from the sales tax. (2) Issuance of Certificates Where Not Appropriate. There are several cases in which certification will not relieve the seller of liability for the sales tax. In such cases, an exemption certificate should not be obtained but rather the facts and documentation of the transaction must support the exemption. For example, a certification to the effect that sales tax does not apply because the property purchased will be exported and shipped out of state, does not relieve the seller of liability for the sales tax. A sale is exempt from sales tax as a sale in interstate or foreign commerce only if the conditions set forth in Regulation 1620 are met, and the seller should obtain the documentation required by that regulation in order to support the exemption. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6385 and 6421, Revenue and Taxation Code. s 1668. Sales for Resale. (a) Resale Certificate. The burden of proving that a sale of tangible personal property is not at retail is upon the seller unless the seller timely takes in good faith a certificate from the purchaser that the property is purchased for resale. If timely taken in proper form as set forth in subdivision (b) and in good faith from a person who is engaged in the business of selling tangible personal property and who holds a California seller's permit as required by Regulation 1699, "Permits," the certificate relieves the seller from liability for the sales tax and the duty of collecting the use tax. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser. A resale certificate remains in effect until revoked in writing. (b) Form of Certificate. (1) Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a resale certificate with respect to the sale of the property described in the document if it contains all of the following essential elements: (A) The signature of the purchaser, purchaser's employee, or authorized representative of the purchaser. (B) The name and address of the purchaser. (C) The number of the seller's permit held by the purchaser. If the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in this State, the purchaser must include on the certificate a sufficient explanation as to the reason the purchaser is not required to hold a California seller's permit in lieu of a seller's permit number. (D) A statement that the property described in the document is purchased for resale. The document must contain the phrase "for resale." The use of phrases such as "nontaxable," "exempt," or similar terminology is not acceptable. The property to be purchased under the certificate must be described either by an itemized list of the particular property to be purchased for resale, or by a general description of the kind of property to be purchased for resale. (E) Date of execution of document. (An otherwise valid resale certificate will not be considered invalid solely on the ground that it is undated.) (2) A document containing the essential elements described in paragraph (1) above is the minimum form which will be regarded as a resale certificate. However, in order to preclude potential controversy, the seller should timely obtain from the purchaser a certificate substantially in the form shown in Appendix A of this regulation. If a purchaser operates an auto body repair and/or paint business, a specific resale certificate in substantially the same form as shown in Appendix B of this regulation should be used, rather than the general resale certificate shown in Appendix A. (3) If a purchaser issues a general (blanket) resale certificate which provides a general description of the items to be purchased, and subsequently issues a purchase order which indicates that the transaction covered by the purchase order is taxable, the resale certificate does not apply with respect to that transaction. However, the purchaser will bear the burden of establishing either that the purchase order was sent to and received by the seller within the seller's billing cycle or prior to delivery of the property to the purchaser (whichever is the later), or that the tax or tax reimbursement was paid to the seller. The purchaser may avoid this burden by using the procedures described in subdivision (b) (4) below. (4) If a purchaser wishes to designate on each purchase order whether the property being purchased is for resale, the seller should obtain a qualified resale certificate, i.e., one that states "see purchase order" in the space provided for a description of the property to be purchased. Each purchase order must then specify whether the property covered by the order is purchased for retail or tax applies to the order. If each purchase order does not so specify, or is not issued timely within the meaning of subdivision (a), it will be assumed that the property covered by that purchase order was purchased for use, and not for resale. If the purchase order includes both items to be resold and items to be used, the purchase order must specify which items are purchased for resale and which items are purchased for use. For example, a purchase order for produced parts for resale and also for tooling used to produce the parts should specify that the parts are purchased for resale and that the sale of the tooling is subject to tax. (5) If the seller does not timely obtain a resale certificate, the fact that the purchaser deletes the tax or tax reimbursement from the seller's billing, provides a seller's permit number to the seller, or informs the seller that the transaction is "not taxable" does not relieve the seller from liability for the tax nor from the burden of proving the sale was for resale. (c) Good Faith. In absence of evidence to the contrary, a seller will be presumed to have taken a resale certificate in good faith if the resale certificate contains the essential elements as described in (b)(1) and otherwise appears to be valid on its face. If the purchaser insists that the purchaser is buying for resale property of a kind not normally resold in the purchaser's business, the seller should require a resale certificate containing a statement that the specific property is being purchased for resale in the regular course of business. (d) Improper Use of Certificate. Except when a resale certificate is issued in accordance with subdivision (h) or (i): (1) A purchaser, including any officer or employee of a corporation, is guilty of a misdemeanor if the purchaser, for the purpose of evading payment to the seller of tax or tax reimbursement, gives a resale certificate for property which the purchaser knows at the time of purchase will be used rather than resold. The purchaser will also be liable for penalty under section 6072 or 6094.5 for such improper use of a certificate. (2) Any person, including any officer or employee of a corporation, who gives a resale certificate for property which he or she knows at the time of purchase is not to be resold by him or her or the corporation in the regular course of business is liable to the state for the amount of tax that would be due if he or she had not given such resale certificate. If the person fails to report and pay the use tax due on the use of the property, the person may be liable for the penalty imposed under section 6484 or 6485. (e) Other Evidence to Rebut Presumption of Taxability. A sale for resale is not subject to sales tax. A person who purchases property for resale and who subsequently uses the property owes tax on that use. A resale certificate which is not timely taken is not retroactive and will not relieve the seller of the liability for the tax. Consequently, if the seller does not timely obtain a resale certificate containing the essential elements as described in (b)(1), the seller will be relieved of liability for the tax only where the seller shows that the property: (1) Was in fact resold by the purchaser and was not used by the purchaser for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business, or (2) Is being held for resale by the purchaser and has not been used by the purchaser for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business, or (3) Was consumed by the purchaser and tax was reported directly to the Board by the purchaser on the purchaser's sales and use tax return, or (4) Was consumed by the purchaser and tax was paid to the Board by the purchaser pursuant to an assessment against or audit of the purchaser developed either on an actual basis or test basis. (f) Use of XYZ Letters. [A seller who does not timely obtain a resale certificate may use any verifiable method of establishing that it should be relieved of liability for tax under subdivision (e). One method that the Board authorizes to assist a seller in satisfying its burden that the sale was for resale or that tax was paid, is the use of "XYZ letters."] XYZ letters are letters in a form approved by the Board which are sent to some or all of the seller's purchasers inquiring as to the purchaser's disposition of the property purchased from the seller. An XYZ letter will include certain information and request responses to certain questions, set forth below. The XYZ letter may also be further customized by agreement between the Board's staff and the seller to reflect the seller's particular circumstances. (1) An XYZ letter may include the following information: seller's name and permit number, date of invoice(s), invoice number(s), purchase order number(s), amount of purchase(s), and a description of the property purchased or other identifying information. A copy of the actual invoice(s) may be attached to the XYZ letter. The XYZ letter will request the purchaser to complete the statement and include the purchaser's name, seller's permit number and nature of the purchaser's business. The statement shall be signed by the purchaser, purchaser's employee or authorized representative, and include the printed name of person signing the certificate, title, date, telephone number and city. (2) An XYZ letter will request that the purchaser, purchaser's employee or authorized representative check one of the boxes provided inquiring as to whether the property in question was: (A) Purchased for resale and resold in the form of tangible personal property, without any use other than retention, demonstration, or display while being held for sale in the regular course of business; (B) Purchased for resale and presently in resale inventory, without having been used for any purpose other than retention, demonstration, or display while being held for sale in the regular course of business; (C) Purchased solely for leasing and was so leased. Tax has been paid directly to the Board measured by the purchase price or rental receipts ( "tangible personal property"); or tax has been paid measured by the purchase price or fair rental value ( "mobile transportation equipment"). (D) Purchased for resale but consumed or used (whether or not subsequently resold); or (E) Purchased for use. (F) When the purchaser answers either (D) or (E) affirmatively (box checked), the XYZ letter will inquire further whether: 1. The tax was paid directly to the Board on the purchaser's Sales and Use Tax Return, and if so, in what amount; 2. The tax was added to the billing of the seller and remitted to the seller, and if so, in what amount; 3. The tax was paid directly to the Board by the purchaser pursuant to an assessment against or audit of the purchaser developed either on an actual basis or test basis. 4. The purchaser confirms that the purchase is a taxable transaction and that tax is applicable. (3) A response to an XYZ letter is not equivalent to a timely and valid resale certificate. A purchaser responding affirmatively to questions reflected in paragraphs (A), (B), (C), or (D) of subdivision (f)(2) will be regarded as confirming the seller's belief that a sale was for resale for purposes of subdivision (g). However, the Board is not required to relieve a seller from liability for sales tax or use tax collection based on a response to an XYZ letter. The Board may, in its discretion, [verify the information provided in the response to the XYZ letter,] including making additional contact with the purchaser or other persons to determine whether the purchase was for resale or for use [or whether tax was paid by the purchaser.] When the Board accepts the purchaser's response to an XYZ letter as a valid response, the Board shall relieve the seller of liability for sales tax or use tax collection. [(4) When there is no response to an XYZ letter, the Board staff should consider whether it is appropriate to use an alternative method to ascertain whether the seller should be relieved of tax under subdivision (e) with respect to the questioned or unsupported transaction(s).] (g) Purchaser's Liability for Tax. A purchaser who issues a resale certificate containing the essential elements as described in subdivision (b)(1) and that otherwise appears valid on its face, or who otherwise purchases tangible personal property that is accepted by the Board as purchased for resale pursuant to subdivision (f) and who thereafter makes any storage or use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business is liable for use tax on the cost of the property. The tax is due at the time the property is first stored or used and must be reported and paid by the purchaser with the purchaser's tax return for the period in which the property is first so stored or used. A purchaser cannot retroactively rescind or revoke a resale certificate and thereby cause the transaction to be subject to sales tax rather than use tax. A purchaser who issues a resale certificate for property which the purchaser knows at the time of purchase is not to be resold in the regular course of business is liable for the sales tax on that purchase measured by the gross receipts from the sale to that purchaser. The tax is due as of the time the property was sold to the purchaser and must be reported and paid by the purchaser with the purchaser's tax return for the period in which the property was sold to the purchaser. (h) Mobilehomes. A mobilehome retailer who purchases a new mobilehome for sale to a customer for installation for occupancy as a residence on a foundation system pursuant to Section 18551 of the Health and Safety Code, or for installation for occupancy as a residence pursuant to Section 18613 of the Health and Safety Code, and which mobilehome is thereafter subject to property taxation, may issue a resale certificate to the mobilehome vendor even though the retailer is classified as a consumer of the mobilehome by Sections 6012.8 and 6012.9 of the Revenue and Taxation Code. Also, effective September 19, 1985,a mobilehome retailer, licensed as a mobilehome dealer under Section 18002.6 of the Health and Safety Code, who purchases a new mobilehome for sale to a customer for installation for occupancy as a residence on a foundation system pursuant to Section 18551 of the Health and Safety Code, may issue a resale certificate to the mobilehome vendor even though the mobilehome retailer may have the mobilehome installed on a foundation system as an improvement to realty prior to the retailer's sale of the mobilehome to the customer for occupancy as a residence. Where the mobilehome is acquired by a mobilehome retailer, who is not licensed as a dealer pursuant to Section 18002.6 of the Health and Safety Code, for affixation by the retailer to a permanent foundation, or for other use or consumption (except demonstration or display while holding for sale in the regular course of business), prior to sale, the mobilehome retailer may not issue a resale certificate. The mobilehome retailer shall notify the vendor that the purchase is for consumption and not for resale. When a mobilehome manufacturer or other vendor is informed or has knowledge that the purchaser will install the mobilehome on a permanent foundation prior to its resale, the manufacturer or other vendor is not making a sale for resale. Such vendor is making a taxable retail sale and cannot accept a resale certificate in good faith. (i) Mobile Transportation Equipment. Any person, other than a person exempt from use tax, such as under Revenue and Taxation Code section 6352, who purchases mobile transportation equipment for the sole purpose of leasing that equipment, may issue a resale certificate for the limited purpose of reporting use tax based on fair rental value as provided in Regulation 1661. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6012.8, 6012.9, 6072, 6091-6095 and 6241-6245, Revenue and Taxation Code. Appendix A California Resale Certificate I HEREBY CERTIFY: 1. I hold valid seller's permit number __________ __________ __________ __________ 2. I am engaged in the business of selling the following type of tangible personal property: __________ __________ __________ __________ 3. The certificate is for the purchase from ____________________ [Vendor's name] _______________of the item(s) I have listed in paragraph 5 below. 4. I will resell the item(s) listed in paragraph 5, which I am purchasing under this resale certificate in the form of tangible personal property in the regular course of my business operations, and I will do so prior to making any use of the item(s) other than demonstration and display while holding the item(s) for sale in the regular course of my business. I understand that if I use the item(s) purchased under this certificate in any manner other than as just described, I will owe tax based on each item's purchase price or as otherwise provided by law. 5. Description of property to be purchased for resale: _________________________________________________________________ _________________________________________________________________ _____________________ 6. I have read and understand the following: For Your Information: A person may be guilty of a misdemeanor under Revenue and Taxation Code section 6094.5 if the purchaser knows at the time of purchase that he or she will not resell the purchased item prior to any use (other than retention, demonstration, or display while holding it for resale) and he or she furnishes a resale certificate to avoid payment to the seller of an amount as tax. Additionally, a person misusing a resale certificate for personal gain or to evade the payment of tax is liable, for each purchase, for the tax that would have been due, plus a penalty of 10 percent of the tax of $500, whichever is more. Name of Purchaser Signature of Purchaser, Purchaser's Employee or Authorized Representative Printed Name of Person Signing Title Address of Purchaser Telephone Number Date Appendix B California Resale Certificate for the Auto Body Repair and Painting Industry I HEREBY CERTIFY: 1. I hold valid California seller's permit no. __________ ________________________________ 2. I am engaged in the business of selling the following type of property: _________________________________________________________ 3. This certificate is for the purchase from _________________ [Vendor's name] ________________ of the item(s) I have initialed in paragraph 5 below. 4. I will resell the following item(s) I am purchasing under this resale certificate in the form of tangible personal property in the regular course of my business operations, and I will do so prior to making any use of the item(s) other than demonstration and display while holding the item(s) for sale in the regular course of my business. I understand that if I use the item(s) purchased under the certificate in any manner other than as just described, I will owe use tax based on each item's purchase price or as otherwise provided by law. 5. I am purchasing for resale under this resale certificate the item(s) indicated by my initials below ( not an X or similar mark): ______ Automobile parts ______ Fisheye ______ ______ eliminator Polishes/Wax Sealers ______ Clear Coats ______ ______ Primers Glues/Adhesives ______ Electrical Tape ______ Hardeners ______ Putties ______ Fillers ______ Paints ______ Rust Protectors ______ Other (specify ____________________ _____ items)__________________ 6. I have read and understand the following: Note: Auto body repair and paint shops are generally considered consumers of the items listed below regardless of the manner in which they bill their customers for repairs and painting. Thus, this certificate generally may not be used to purchase these items. If a person does, in fact, resell any of the following items prior to use, the person may take a deduction on his or her sales and use tax return to offset the amount paid as tax (the deduction is taken under "Tax-paid purchases resold"). If, however, a person is purchasing one of these items exclusively for resale in the form of tangible personal property and not for consumption during repairs, painting, or the like, this certificate may be used to purchase such item by listing it under "Other" above. Abrasives Equipment repair Masks Reducers parts Books Goggles Metal conditioners Respirators Cans Hand cleaners Paint remover Rubbing compounds Cleaning solvent Manuals Plastic bottles Rubbing machines Color charts Masking paper Polishing compounds Thinners Equipment Masking tape Polishing machines Touch-up bottles 7. I have read and understand the following: For Your Information: A person may be guilty of a misdemeanor under Revenue and Taxation Code section 6094.5 if the purchaser knows at the time of purchase that he or she will not resell the purchased item prior to any use (other than retention, demonstration, or display while holding it for resale) and he or she furnishes a resale certificate to avoid payment to the seller of an amount as tax. Additionally, a person misusing a resale certificate for personal gain or to evade the payment of tax is liable, for each purchase, for the tax that would have been due, plus a penalty of 10 percent of the tax or $500, whichever is more. __________ __________ Name of Purchaser Signature of Purchaser, Purchaser's Employee or Authorized Representative __________ __________ __________ Printed Name of Person Signing Address of Purchaser __________ Title Date__________________20_____________ Telephone Number:_________ s 1669. Demonstration, Display, and Use of Property Held for Resale - General. (a) In General. A purchaser of tangible personal property who gives a resale certificate therefor, and who uses the property solely for demonstration or display while holding it for sale in the regular course of business, is not required to pay tax on account of such use. Except as otherwise provided in this regulation, if the property is used for any purpose other than or in addition to demonstration or display, such as making deliveries, personal use of employees, etc., the purchaser must include in the measure of the tax reported the purchase price of the property. Tax applies to the subsequent retail sale of the property. (b) Sale to Sales Representatives for Demonstration. Tax applies to sales by dealers to their sales representatives of tangible personal property to be used for demonstration. It is presumed that any such tangible personal property will be used for purposes in addition to demonstration, and any resale certificates given for such property by sales representatives to dealers will be questioned, even if the sales representatives hold seller's permits. (c) Rental to Sales Representatives for Demonstration. A dealer who rents property to sales representatives is regarded as making a continuous sale of the property and must collect and pay tax on the rental receipts unless tax has been paid measured by the purchase price of the property rented. The dealer must also include in the measure of the tax reported the gross receipts from the retail sale of such property following its rental to the sale representatives. (d) Loans to Schools for Educational or Training Program. The loan by any retailer of any tangible personal property to any school district for an educational program conducted by the district is exempt from the use tax. (e) Donations of Property. (1) In General. Operative January 1, 1989, use tax does not apply to tangible personal property withdrawn from a resale inventory for the purpose of making a charitable contribution to a qualified organization located in this state. This exemption applies only to property which has been purchased for resale and subsequently donated without any use other than retention, demonstration or display while holding it for sale in the regular course of business. For purposes of this regulation, property purchased for the purpose of incorporation into a manufactured article is regarded as having been purchased for resale. For the period January 1, 1989 through October 1, 1989, this exemption is available only to retailers. Effective October 2, 1989, this exemption is available to all sellers. Property purchased specifically for donation to a qualified organization remains subject to the tax. As provided in section 6094.5 of the Revenue and Taxation Code, a person is guilty of a misdemeanor if a resale certificate is issued for property which he or she knows at the time of purchase will be donated rather than resold. Such improper use of a certificate may cause the person to become liable for penalties called for by sections 6072, 6094.5, 6484 or 6485 of the Revenue and Taxation Code. (2) "Qualified Organization". For purposes of this regulation, "qualified organization" means and includes any organization described in section 170(b)(1)(A) of the Internal Revenue Code, including but not limited to: A. religious organizations, e.g., synagogues, churches and associations of churches; B. charitable organizations, e.g., the Red Cross, the Salvation Army, nonprofit schools and hospitals, and medical assistance and research groups; C. organizations operated for educational, scientific, or literary purposes including nonprofit museums, art galleries, and performing arts groups; D. organizations operated for the protection of children or animals; E. fraternal lodges if the donated property is to be used for charitable purposes and not for the benefit of the members; and F. the United States, this state and any political subdivisions of this state. Effective January 1, 1990, a nonprofit museum will not be considered a "qualified organization" unless the donated property is used exclusively for purposes of display to the public within the museum and the museum either; (1) has a significant portion of its display space open to the public without charge during its normal operating hours; (2) has its entire display space open to the public without charge for at least six of its normal operating hours during each month of operation; or (3) has its entire display space open without charge to a segment of the student or adult population for educational purposes. (f) Use of Rental Value as a Measure of Tax. (1) Where Applicable. (A) Accommodation Loans. If the use of property purchased under a resale certificate is limited to the loan of property to customers as an accommodation while awaiting delivery of property purchased or leased from the lender or while property is being repaired for customers by the lender, the measure of tax is the fair rental value of the property for the duration of each loan so made. The lender must also include in the measure of the tax reported the gross receipts from the retail sales of such property following its loan to customers. (B) Property Used Both for Demonstration and Other Purposes. If property purchased under a resale certificate is used frequently for purposes of demonstration or display while holding it for sale in the regular course of business and is used partly for other purposes, the measure of tax is the fair rental value of the property for the period of such other use or uses. The gross receipts from the retail sale of the property after such use or uses must be included in the measure of tax. This applies, for example, to a situation in which a dealer or lessor purchases property without tax paid on the purchase price and uses it personally, or allows sales representatives, sales managers, partners, corporate officers, or other authorized persons to use the property, for purposes in addition to demonstration or display. The property must, in fact, be used frequently for demonstration or display. Mere incidental use for demonstration or display will not suffice. The dealer or lessor must maintain evidence substantiating the exempt use for examination by board auditors. (C) Aircraft Dealers. The use of aircraft withdrawn from inventory for flight instruction and personal and business use is subject to tax. Tax may be reported on the fair hourly rental value of such use provided the requirements of (B) above are met. (D) Mobile Transportation Equipment Leased While Being Held for Resale. If the use of mobile transportation equipment purchased under a resale certificate is limited to leasing the equipment, the purchaser may elect to pay use tax liability measured by the fair rental value if the election is made on or before the due date of a return for the period in which the equipment is first leased. The election must be made by reporting tax measured by the fair rental value on the return for that period. Tax must thereafter be paid with the return for each reporting period, measured by the fair rental value, whether the equipment is within or without this state. The election may not be revoked with respect to the equipment as to which it is made. This election is available to any purchaser who leases mobile transportation equipment, other than a person exempt from use tax under Revenue and Taxation Code section 6352, and such purchaser may properly issue a resale certificate for the limited purpose of reporting use tax liability based on fair rental value. 1. Fair Rental Value. "Fair rental value" means the rentals required by the lease, except where the Board determines the rental receipts are nominal. Fair rental value does not include any payment made by the lessee to reimburse the lessor for the lessor's use tax, whether or not the amount is separately stated, and regardless of how the charge is designated in the lease documentation and invoices. Lump-sum charges to the lessee will be assumed to include reimbursement for the lessor's use tax whether or not any statement to that effect is made to the lessee. EXAMPLE: Assuming a 6 percent tax rate, if the invoice to the lessee states "rental $100, tax reimbursement to the lessor $6," "rental $100, sales and use taxes $6," or similar wording, the fair rental value is $100. If the invoice to the lessee states "rental $106" and makes no reference to reimbursement, the fair rental value is $100 ($106 divided by 1.06). Assuming a 6.5 percent tax rate, the fair rental value is $99.53 ($106 divided by 1.065). Fair rental value includes any deficiency payment required from the lessee on disposition of mobile transportation equipment at the termination of an open-end lease and such payment is subject to tax. Any surplus rentals, however, which are returned to the lessee at the termination of an open-end lease may be deducted from the total fair rental value reported for the period in which the surplus rentals are returned. In the alternative, a refund may be claimed for any tax paid within the applicable statute of limitations period on such surplus rentals. Fair rental value includes any capitalized cost reduction payment, which is a one-time payment by the lessee at the start of the lease to reduce the lessor's investment and the lessee's rentals. The payment may either be reported for the period in which it became due from the lessee or it may be reported in equal increments over the lease term. On early termination of such a lease, any unreported portion of the capitalized cost reduction payment shall be reported for the period in which termination occurred. The term "fair rental value" includes any payments required by the lease, including amounts paid for personal property taxes on the leased property, whether assessed directly against the lessee or against the lessor, but does not include amounts paid to the lessor for: a. Collection costs, including attorney's fees, court costs, repossession charges, and storage fees; but tax does apply to any delinquent rental payments, including those collected in court action; b. Insuring, repairing or refurbishing the leased property following a default; c. Cost incurred in defending a court action or paying a tort judgement arising out of the lessee's operation of the leased property, or any premiums paid on insurance policies covering such court actions or tort judgements; d. Cost incurred in disposing of the leased property at expiration or earlier termination of the lease; e. Late charges and interest thereon for failing to pay the rentals timely; f. Separately stated optional insurance charges, maintenance or warranty contracts. g. Personal property taxes assessed against personal property where a bank or financial corporation is the lessor. 2. Tax Application. Tax applies to fair rental value for all periods during which the mobile transportation equipment is leased even though the lessee may not make the required rental payments. Tax on fair rental value does not apply either (a) for periods during which the equipment is not leased and is merely held for lease; or (b), for periods after the lessor has formally demanded return of the equipment if the lessee wrongfully retains possession of the property and is not required to make rental payments under the lease. (2) Measuring Fair Rental Value. The fair rental value for property other than mobile transportation equipment is the amount which normally is charged by the lender for the rental of similar property under similar circumstances. If the lender does not rent similar property, the rental rate which generally is charged by others in the area is to be used. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6092.1, 6094, 6243.1, 6244 and 6403, Revenue and Taxation Code. s 1669.5. Demonstration, Display, and Use of Property Held for Resale-Vehicles. (a) Vehicle Dealers, Lessors, Manufacturers, and Distributors-In General. (1) "Vehicle." Except as used in (a)(4), the term "vehicle" as used herein means passenger motor vehicles, as defined in section 465 of the Vehicle Code, pickup trucks, and small vans. (2) "Lessor." The term "lessor," as used herein, means only a lessor whose leases are continuing sales. (3) Demonstration or Display. A purchaser of a vehicle under a resale certificate, who uses the vehicle solely for demonstration or display while holding it for sale in the regular course of business, is not required to pay tax on account of such use. (4) Loans to Schools, Colleges, and Veterans' Institutions for Educational or Training Programs. (A) The loan by any retailer of any tangible personal property to any school district for an educational program conducted by the district is exempt from the use tax. (B) The loan by any retailer of any motor vehicle to the California State Universities or the University of California for exclusive use in an approved driver education teacher preparation certification program conducted by the state college or university is exempt from the use tax. (C) The loan by any retailer of a motor vehicle to be used exclusively for driver training in an accredited private or parochial secondary school in a driver education and training program approved by the State Department of Education as a regularly conducted course of study is exempt from the use tax. (D) The loan by any retailer of any motor vehicle to a veterans' hospital or such other nonprofit facility or institution to provide instruction in the operation of specially equipped motor vehicles to disabled veterans is exempt from the use tax. (5) Donations of Vehicles. Operative January 1, 1989, vehicles withdrawn from resale inventory for donation to a qualified organization located in this state as described in paragraph (e) of Regulation 1669, (18 CCR 1669), are exempt from the use tax. For the period January 1, 1989 through October 1, 1989, this exemption is available only to retailers. Effective October 2, 1989, this exemption is available to all sellers. (6) Personal or Business Use. Vehicles withdrawn from resale inventory for personal or business use are subject to use tax except as provided in paragraph (a)(5). If the vehicle is not frequently demonstrated or displayed while holding it for resale in conjunction with such business or personal use, the tax is measured by the purchase price of the vehicle. (7) Vehicles Capitalized as Fixed Assets. Except for vehicles held for the purpose of leasing, vehicles which are capitalized in a fixed asset account and depreciated for income tax purposes are not held for sale in the regular course of business. Tax must be paid measured by the purchase price of such vehicles. (8) Registration. If a vehicle manufacturer, distributor, dealer, or lessor registers a vehicle purchased for resale in a name other than that of the manufacturer, distributor, dealer, or lessor, while retaining title to the vehicle, the vehicle is not held for sale in the regular course of business, and the manufacturer, distributor, dealer, or lessor must pay use tax measured by his purchase price of the vehicle. (9) Vehicles Used Both For Demonstration and Other Purposes. If vehicles purchased under a resale certificate are frequently demonstrated or displayed while being held for sale in the regular course of business, and are also used partly for other purposes, tax must be paid measured by the fair rental value of the vehicles for the periods of other use. Such interspersed demonstration or display and other use may occur when a dealer or lessor purchases vehicles without tax paid on the purchase price and uses them personally, or allows vehicle salespersons, vehicle sales managers, partners, corporate officers, or other persons to use them for purposes in addition to demonstration or display. (10) Rental to Salespersons For Demonstration. A dealer who rents vehicles which are not mobile transportation equipment to salespersons is regarded as making continuing sales of the vehicles and must collect and pay tax on the rental receipts, unless tax has been paid measured by the purchase price of the vehicles. However, if the rental receipts are less than 1/60th of the dealer's purchase price of the vehicle for each month of the rental, the transaction will not be considered a bona fide rental, and tax will be measured by 1/60th of the purchase price for each month of such use. For the application of tax to rentals of pickup trucks and other mobile transportation equipment, see Regulation 1661. (11) Subsequent Retail Sales. The taxability of retail sales of vehicles is not affected by the fact that tax has been paid previously on the purchase price, rental receipts, or fair rental value because of the use or rental of the vehicles. (12) Sales to Salespersons for Demonstration. Tax applies to sales by dealers to their salespersons of vehicles to be used for demonstration and personal use. (13) Presumptions. Any presumption established by this regulation may be rebutted only by clear and convincing evidence to the contrary. However, declarations after the fact are of little value as evidence because of their self-serving nature, and will be given little weight. (b) New and Used Vehicle Dealers and Lessors-Specific Applications. The following provisions apply with respect to vehicles which are registered in the name of the dealer or lessor, and vehicles which are not registered. If vehicles are registered in the name of a person other than the dealer or lessor, see (a)(8) above. (1) Types of Vehicles Not Ordinarily Sold. If a vehicle dealer or lessor purchases under a resale certificate a new vehicle of a type which he or she is not franchised to sell, or does not ordinarily sell or lease as a new vehicle, and uses the vehicle for any purpose other than, or in addition to, demonstration or display, it will be presumed that the vehicle is not being held for sale in the regular course of business and that tax is due measured by the purchase price of such vehicle. (2) Vehicles Assigned to Vehicle Sales Personnel. When a vehicle dealer or lessor assigns a vehicle as a demonstrator to vehicle sales personnel for a period not exceeding 12 months, it will be presumed that such vehicles are frequently demonstrated or displayed, and that they are also used partly for other purposes. Under these circumstances, the measure of tax is the fair rental value of the vehicle for the periods of personal or business use which are interspersed with the demonstration or display. It will be further presumed that the fair rental value for such business and personal use is 1/60th of the purchase price of the vehicle for each month of combined demonstration or display and use. As used here, the term "sales personnel" is limited to vehicle salespersons and vehicle sales managers, and to sole proprietors, partners, or corporate officers who directly participate in negotiating sales. (3) Vehicles Assigned to Others. (A) When a vehicle dealer or lessor assigns a vehicle for a period not exceeding 12 months to employees or officers other than vehicle sales personnel, it will be presumed that such vehicles are frequently demonstrated or displayed, but less frequently than those assigned to vehicle sales personnel, and that they are also used for other purposes to a greater extent than those assigned to vehicle sales personnel. Under these circumstances, the measure of tax is the fair rental value of the vehicle for the periods of personal or business use which are interspersed with demonstration or display. It will be further presumed that the fair rental value for such business and personal use is 1/40th of the purchase price of the vehicle for each month of combined demonstration or display and use. (B) When a vehicle dealer or lessor assigns a vehicle to persons other than employees or officers, such as relatives or business associates, it will be presumed that the vehicle is not frequently demonstrated or displayed. Tax must be paid measured by the purchase price of such vehicles. (4) Vehicles Assigned For Extensive Periods of Time. It will be presumed that any vehicle assigned for more than 12 months to one or a series of persons for business or personal use in addition to demonstration or display is not held for sale in the regular course of business. Tax must be paid measured by the purchase price of such vehicles. If at the time the vehicle is assigned for such combined use the duration of the combined use is not known, the dealer or lessor may use either the 1/40th or 1/60th formula, as appropriate, to report use tax liability until the period of combined use exceeds 12 months. At that time he or she must report and pay tax on the difference between the purchase price of the vehicle and the measure of tax previously reported with respect to the vehicle under the formula. (5) Unassigned Demonstrators. If no use is made of vehicles purchased under a resale certificate, other than demonstration or display while holding them for sale in the regular course of business, no tax liability arises. Such vehicles generally are not assigned to any individual. However, if such vehicles are registered in the name of the dealer, it will be presumed that they are used for other purposes in addition to demonstration or display. Under these circumstances, the measure of tax is the fair rental value of the vehicle for the periods of personal or business use which are interspersed with the demonstration or display. It will be further presumed that the fair rental value for such other use is 1/40th of the purchase price of the vehicle for each month of combined demonstration or display and use. (6) Customer Loan Vehicles. If the use of a vehicle purchased under a resale certificate is limited to the loan, but not the rental, of the vehicle to customers while they are awaiting delivery of vehicles purchased or leased from the dealer, or while their vehicles are being repaired by the dealer, the measure of tax is the fair rental value of the vehicle for the duration of each loan so made. The fair rental value is the amount for which the dealer rents similar vehicles for similar periods to persons who are not customers awaiting delivery of vehicles purchased or leased from the dealer or being repaired by the dealer. If the dealer does not rent vehicles under such circumstances, the fair rental value is the amount for which other dealers in the area rent similar vehicles for similar periods to persons who are not customers awaiting delivery of vehicles purchased or leased from the other dealers or being repaired by the other dealers. If a lessor loans a vehicle to a lessee while the lessee is awaiting delivery of the leased vehicle, or while the leased vehicle is being repaired, and the regular lease payments continue to accrue during the period of the loan, the regular lease payments will be considered to cover the use of the substitute loan vehicle. No additional tax beyond the tax measured by the regular lease payments will be due as a result of the loan. (7) Other Loans of Vehicles. If a vehicle dealer or lessor removes a vehicle from resale inventory and loans it to persons other than those specified in (b)(6) above, and the vehicle is not frequently demonstrated or displayed, tax must be paid measured by the purchase price of the vehicle, unless the loan is of such short duration as to constitute only incidental use. If the loan constitutes only incidental use, preceded and followed by frequent demonstration or display, the measure of tax is the fair rental value of the vehicle for the period of such use as fair rental value is defined in (b)(6) above. A loan for a period of 30 days or less will be considered incidental use. Periods during which a vehicle is leased, pursuant to leases which constitute continuing sales, will be regarded as periods equivalent to periods of demonstration and display. (c) Vehicle Manufacturers and Distributors-Specific Applications. (1) Vehicles Assigned For Extensive Periods of Time. It will be presumed that any vehicle assigned for more than 12 months to one or a se ries of persons for business or personal use in addition to demonstration or display, or assigned for more than 12 months to "pool service," is not held for sale in the regular course of business. Tax must be paid by manufacturers measured by the purchase price of tangible personal property used to manufacture the vehicle, and tax must be paid by distributors measured by their purchase price of the vehicle. (2) Vehicles Assigned For Limited Periods of Time. It will be presumed that any vehicle assigned to one or a series of employees or other persons for a period of time not exceeding 12 months in the aggregate is frequently demonstrated or displayed and that it is also used partly for other purposes. This same presumption will be made with respect to any vehicle registered in the name of the manufacturer or distributor, and any vehicle placed for a period of time not exceeding 12 months in a "pool" from which vehicles are assigned to various employees or loaned for short intervals to television studios, visiting dignitaries, automotive magazine editors, etc. Under these circumstances, the measure of tax is the fair rental value of the vehicle for the periods of personal or business use which are interspersed with the demonstration or display. It will be further presumed that the fair rental value for such personal or business use is 1/40th of the "net dealer price" of the vehicle for each month of such combined use. Since manufacturers' and distributors' sales personnel demonstrate vehicles less frequently than dealers' or lessors' sales personnel, no distinction is made in this presumption between sales personnel and others. "Net dealer price" is the factory selling price to dealers, including optional extra cost equipment, before any discounts or rebates. It also includes federal excise tax, but it does not include destination, handling, and other charges. Appendix In determining 1/40th or 1/60th of the purchase price of vehicles, the following schedule may be used: Purchase Price Median of Vehicle Cost 1/40th 1/60th $ 900 to $1,500 $1,200 $ 30 $ 20 1,500 to 2,100 1,800 45 30 2,100 to 2,700 2,400 60 40 2,700 to 3,300 3,000 75 50 3,300 to 3,900 3,600 90 60 3,900 to 4,600 4,200 105 70 4,500 to 5,100 4,800 120 80 5,100 to 5,700 5,400 135 90 5,700 to 6,300 6,000 150 100 6,300 to 6,900 6,600 165 110 6,900 to 7,500 7,200 180 120 7,500 to 8,100 7,800 195 130 8,100 to 8,700 8,400 210 140 Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6094, 6244 and 6403, Revenue and Taxation Code. s 1670. Gifts, Marketing Aids, Premiums and Prizes. (a) Gifts. Persons who make gifts of property to others are the consumers of the property and the tax applies with respect to the sale of the property to such persons. (b) Marketing Aids. The tax applies to sales of advertising material, display cases, counter display cards, racks, and other similar marketing aids to persons acquiring such property for use in selling other property to customers. A marketing aid is deemed to be "sold" if a consideration at least equivalent to 50 percent of the purchase price of the aid is obtained from the customer, either by the making of a separate charge or by increasing the regular sales price of other merchandise sold to the customer and delivered with the marketing aid. Manufacturers or others who provide marketing aids to persons engaged in selling their products without obtaining reimbursement equivalent to 50 percent of the purchase price of the aid are deemed to be the consumers of the property provided. In such case the sales tax applies to the sale to or the use tax applies to the use by the manufacturer or other person purchasing the aid for distribution whether it is delivered directly to the person engaged in selling its product or is delivered to a distributor, wholesaler, or jobber for redelivery to such person with "deal merchandise." Distributors, wholesalers, or jobbers are the retailers of aids which they "sell" to persons engaged in marketing their products. (c) Premium Delivered With Goods Sold. When a person delivers tangible personal property as a premium together with other merchandise sold, and the obtaining of the premium by the purchaser is certain and not dependent upon chance or skill, the transaction is a sale of both articles. Tax applies to the gross receipts received from the purchaser for the goods and the premium except when the premium is delivered along with a food product for human consumption or other exempt item. In such case tax applies to the gross receipts from the sale of the premium, which will be regarded as the cost of the premium to the retailer, in the absence of any evidence that the retailer is receiving a larger sum. If there is no such evidence, and if sales tax or use tax has been paid measured by the sale price of the premiums to the retailer, no further tax is due. (d) Prizes. The operator of a game who delivers a prize to each customer is regarded as the retailer of the merchandise delivered as prizes, and the tax applies to the operator's total gross receipts. The awarding of such prizes is not regarded as dependent upon chance or skill, inasmuch as the customer for each game played is certain to receive a prize. Similarly, the tax applies to the entire receipts from operators of "grab bag" concessions by which the customer always receives some tangible personal property. If the prize consists of a food product, the tax does not apply. An operator who delivers both food items and nonfood items as prizes may take a deduction of that percentage of his total receipts which equals the percentage of the cost to him of the food items to the total cost to him of all merchandise purchased for delivery as prizes. The operator of a game who awards property as a prize the winning of which depends upon chance or skill is the consumer of the property and tax applies with respect to the sale to or the use of the property by the operator. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007-6009, 6015 and 6365, Revenue and Taxation Code. Charitable Organizations, see Regulation 1570. Exemption Certificates, see Regulation 1667. "Free" Meals, see Regulation 1603. s 1671. Trading Stamps and Related Promotional Plans. (a) Introduction. A variety of sales promotion plans involving premiums are in use by retailers. Common to these plans are some indicia furnished by the retailer to his customers based on the amount of purchases. Examples of such indicia are trading tamps, coupons, tickets and cash register tapes. Given quantities of indicia are surrendered by the customer in exchange for the premium. (b) Description of Plans. For the purposes of this ruling, these plans may be divided into three types, as follows: (1) At or near the time of making the same the retailer incurs expense with relation to the premium by paying a third party, which third party assumes the obligation to furnish the premium to the retailer's customer. The retailer's payment to the third party is not dependent on his customer subsequently surrendering the indicia in exchange for the premium. (2) The retailer incurs no expense with relation to the premium until such time as the customer obtains the premium. The retailer purchases the premium and delivers it to his customer in exchange for the required quantity of indicia. (3) The retailer incurs no expense with relation to the premium until about the customer obtains the premium. A third party delivers the premium to the customer in exchange for the required quantity of indicia. The retailer pays the third party on an agreed basis related to premium merchandise delivered to the customer by the third party. The typical trading stamp plan falls under (1) above. The typical cash register tape plan falls under (2) or (3) above. (c) Cash Discounts Generally. Cash discounts allowed and taken on taxable retail sales may be excluded from the measure of the tax. The promotion plans described above constitute cash discounts. The cash discount is allowed by the retailer and taken by the customer at the time the retailer incurs the expense with relation to the premium. (d) Plan Described in (b)(1). (1) Cash Discount. The retailer is entitled to a cash discount deduction at the time he pays the third party who undertakes to redeem the indicia used in the plan. The amount of the cash discount shall be computed on the basis of the amount the retailer pays to the third party for the indicia. See paragraph (g) below for proration of cash discount where retailer's sales are not all taxable. (2) Sale of Premium. The delivery of premium merchandise in exchange for a prescribed number of units of indicia used in this type of plan constitutes a taxable retail sale of the premium merchandise by the person delivering the merchandise (assuming that the premium merchandise is of a kind the retail sale of which is subject to tax). The selling price is the average amount paid to the third party by its customers for the indicia surrendered in exchange for the premiums. (e) Plan Described in (b)(2). (1) Cash Discount. The retailer incurs the expense with relation to the premium at the time he delivers the premium to his customer. The retailer is entitled to a cash discount deduction at the time he delivers the premium to his customer. The amount of the cash discount deduction shall be the selling price of the premium as determined by paragraph (e)(2) below. Since the cash discount relates to the previous sales on which indicia of some kind were issued to customers and which indicia are surrendered in exchange for the premium, the retailer is not entitled to the full cash discount deduction unless the previous sales on which indicia were issued were all taxable retail sales. Where some, but less than all, of such previous sales were taxable retail sales the retailer shall be allowed a portion of the cash discount as a deduction. See paragraph (g) below. (2) Sale of Premium. The delivery of premium merchandise by the retailer to his customer in exchange for a prescribed number of units of indicia constitutes a taxable retail sale of the premium merchandise (assuming that the premium merchandise is of a kind the retail sale of which is subject to tax). The selling price is the sales price to the retailer of the premium merchandise. (f) Plan Described in (b)(3). (1) Cash Discount. If a third party delivers the premium to the customer and the retailer pays such third party on an agreed basis related to premium merchandise delivered to the customer by the third party, the retailer is entitled to a cash discount deduction for the reporting period in which he pays the third party. The amount of the cash discount is the amount of the payment to the third party. If the retailer's sales are not all taxable retail sales, there must be a proration of the cash discount. See paragraph (g) below. (2) Sale of Premium. The delivery of premium merchandise by a third party to a retailer's customer in exchange for a prescribed number of units of indicia is a taxable retail sale (assuming the premium merchandise is of a kind the retail sale of which is subject to tax). The selling price is the amount received by the third party. (g) Proration of Cash Discount Between Taxable and Exempt Transactions. If the retailer makes taxable sales and also engages in exempt transactions (for example, sales of food or services such as dry cleaning), and issues indicia on both taxable and exempt transactions, the cash discount must be prorated between taxable and exempt transactions and the cash discount deduction on his sales tax return may be taken only for cash discounts on taxable sales. In making tax returns, the retailer may use the following formula to determine the proration of cash discounts to taxable sales: Taxable sales of the current reporting period on which indicia are issued divided by all transactions of the current reporting period on which indicia are issued. If upon audit this formula is shown to produce an incorrect proration, an appropriate determination or refund will be made. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006, 6011, 6012, Revenue and Taxation Code. Tax reimbursement on discounts, effect of collecting, see Regulation 1700 (2100 Unrevised Series). s 1683. "Engaged in Business." Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6023, Revenue and Taxation Code. s 1684. Collection of Use Tax by Retailers. (a) Retailers Engaged in Business in State. Retailers engaged in business in this state as defined in Section 6203 of the Revenue and Taxation Code and making sales of tangible personal property, the storage, use, or other consumption of which is subject to the tax must register with the Board and, at the time of making the sales, or, if the storage, use or other consumption of the tangible personal property is not then taxable, at the time it becomes taxable, collect the tax from the purchaser and give the purchaser a receipt therefor. Any retailer deriving rentals from a lease of tangible personal property situated in this state is a "retailer engaged in business in this state" and is required to collect the tax at the time rentals are paid by his lessee. The use of a computer server on the Internet to create or maintain a World Wide Web page or site by an out-of-state retailer will not be considered a factor in determining whether the retailer has a substantial nexus with California. No Internet Service Provider, On-line Service Provider, internetwork communication service provider, or other Internet access service provider, or World Wide Web hosting services shall be deemed the agent or representative of any out-of-state retailer as a result of the service provider maintaining or taking orders via a web page or site on a computer server that is physically located in this state. A retailer is not "engaged in business in this state" based solely on its use of a representative or independent contractor in this state for purposes of performing warranty or repair services with respect to tangible personal property sold by the retailer, provided that the ultimate ownership of the representative or independent contractor so used and the retailer is not substantially similar. For purposes of this paragraph, "ultimate owner" means a stock holder, bond holder, partner, or other person holding an ownership interest. (b) Convention and Trade Show Activities. For purposes of this subdivision, the term "convention and trade show activity" means any activity of a kind traditionally conducted at conventions, annual meetings, or trade shows, including, but not limited to, any activity one of the purposes of which is to attract persons in an industry generally (without regard to membership in the sponsoring organization) as well as members of the public to the show for the purpose of displaying industry products or to stimulate interest in, and demand for, industry products or services, or to educate persons engaged in the industry in the development of new products and services or new rules and regulations affecting the industry. Except as provided in this paragraph, a retailer is not "engaged in business in this state" based solely on the retailer's convention and trade show activities provided that: (1) For the period commencing on January 1, 1998 and ending on December 31, 2000, the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than seven days, in whole or in part, in this state during any 12-month period and did not derive more than ten thousand dollars ($10,000) of gross income from those activities in this state during the prior calendar year; (2) For the period commencing on January 1, 2001, the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than fifteen days, in whole or in part, in this state during any 12-month period and did not derive more than one hundred thousand dollars ($100,000) of net income from those activities in this state during the prior calendar year. A retailer coming within the provisions of this subdivision is, however, "engaged in business in this state," and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the retailer's convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities. (c) Retailers Not Engaged in Business in State. Retailers who are not engaged in business in this state may apply for a Certificate of Registration-Use Tax. Holders of such certificates are required to collect tax from purchasers, give receipts therefor, and pay the tax to the Board in the same manner as retailers engaged in business in this state. As used in this regulation, the term "Certificate of Registration-Use Tax" shall include Certificates of Authority to Collect Use Tax issued prior to September 11, 1957. (d) Use Tax Direct Payment Permit Exemption Certificates. Notwithstanding subdivisions (a) and (b), a retailer who takes a use tax direct payment exemption certificate in good faith from a person holding a use tax direct payment permit is relieved from the duty of collecting use tax from the issuer on the sale for which the certificate is issued. Such certificate must comply with the requirements of Regulation 1699.6, Use Tax Direct Payment Permits. (e) Tax as Debt. The tax required to be collected by the retailer and any amount unreturned to the customer which is not tax but was collected from the customer under the representation that it was tax constitute debts owed by the retailer to the state. (f) Refunds of Excess Collections. Whenever the Board ascertains that a retailer has collected use tax from a customer in excess of the amount required to be collected or has collected from a customer an amount which was not tax but was represented by the retailer to the customer as being use tax, no refund of such amount shall be made to the retailer even though the retailer has paid the amounts so collected to the state. Section 6901 of the Revenue and Taxation Code requires that any overpayment of use tax be credited or refunded only to the purchaser who made the overpayment. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6203, 6204, 6226 and 7051.3, Revenue and Taxation Code; and Section 513(d)(3)(A), Internal Revenue Code (26 USC). s 1685. Payment of Tax by Purchasers. (a) Purchasers and lessees of tangible personal property, the storage, use, or other consumption of which is subject to the use tax, must pay the tax: (1) To the person from whom such property is purchased or leased, if such person holds a seller's permit or a Certificate of Registration -Use Tax. (2) Directly to the board if the person from whom the tangible personal property is purchased or leased does not hold such a permit or certificate. Purchasers and lessees should not pay the tax to a person who does not hold either a seller's permit or a Certificate of Registration -Use Tax. Purchasers and lessees will be liable for payment of tax to the board unless receipts are obtained from sellers holding a seller's permit or a Certificate of Registration -Use Tax. (b) Payment by Persons Holding Use Tax Direct Payment Permits. Notwithstanding the provisions of subdivision (a), persons who obtain use tax direct payment permits and issue use tax direct payment exemption certificates in good faith to the persons from whom tangible personal property, the storage, use, or other consumption of which is subject to the use tax is purchased, shall not pay the use tax to such persons but shall self-assess and pay state and local use tax under Part 1 (commencing with Section 6001), Part 1.5 (commencing with Section 7200), and, if applicable, Part 1.6 (commencing with Section 7251) directly to the Board. Use tax direct payment permits and exemption certificates must comply with the requirements of Regulation 1699. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6202, 6203, 6367, 6401 and 7051.3, Revenue and Taxation Code. s 1686. Receipts for Tax Paid to Retailers. (a) In General. Each retailer required to collect use tax from purchasers (including lessees) must give a receipt to each purchaser (or lessee) for the amount of the tax collected. The receipt need not be in any particular form but must show the following: (1) The name and place of business of the retailer. (2) The serial number of the retailer's permit to engage in business as a seller or the retailer's Certificate of Registration-Use Tax. (3) The name and address of the purchaser or lessee. (4) A description identifying the property sold to the purchaser or leased to the lessee. (5) The date on which the property was sold or leased. (6) The sale price of the property, or, in the case of rentals, the amount of the rental for the period covered by the invoice. (7) The amount of tax collected from the purchaser or lessee. For sales transactions, and rental transactions with respect to which use tax applies, an invoice showing the data required above, together with evidence of payment of such invoice, will constitute a receipt. (b) Notice to Lessee. For lease or rental transactions with respect to which use tax does not apply, the inapplicability of the tax must be indicated by a statement on the invoice that the tax does not apply for one of the following reasons: (1) The property leased is of a kind (specify) the lease of which is excluded from the definition of "sale" and "purchase" by sections 6006(g) and 6010(e), respectively, of the Sales and Use Tax Law. (2) The property is being leased in substantially the same form as acquired by the lessor (or transferor) and the lessor (or transferor) acquired the property in a transaction that was a retail sale with respect to which the retailer reported and paid sales tax or as to which the lessor (or transferor) has paid use tax measured by the purchase price of the property. (3) The property was acquired by the lessor in an exempt "occasional sale" and the lessor has paid, or elects to pay and will pay with his return for the period in which the property is first leased, use tax measured by the purchase price of the property in lieu of his rental charges. (4) The amount of the rental payments is fixed by lease (or renewal thereof) prior to August 1, 1965, and the lessee does not have the unconditional right to terminate the lease upon notice. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6202, Revenue and Taxation Code. s 1687. Information Returns. Information returns must be filed by all persons who solicit orders for the sale of tangible personal property the storage, use, or other consumption of which is subject to the tax if the seller does not hold a Certificate of Registration-Use Tax, unless the seller is engaged in business in this state and holds a seller's permit under the Sales and Use Tax Law. Such returns shall be for quarters of the calendar year and must be filed not later than the last day of the month following each three-month period ending in March, June, September and December. Such returns must show: 1. The name and address of each purchaser from whom an order was taken. 2. The description and sales price of the tangible personal property sold or to be sold pursuant to such order. 3. The date upon which the order is taken. 4. The date as nearly as can be determined at which the tangible personal property is to be delivered to the purchaser. As used in this regulation, the term "Certificate of Registration-Use Tax" shall include Certificates of Authority to Collect Use Tax issued prior to September 11, 1957. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 7055, Revenue and Taxation Code. s 1698. Records. (a) Definitions. (1) "Database Management System" - a software system that controls, relates, retrieves, and provides accessibility to data stored in a database. (2) "Electronic data interchange" or "EDI technology" - the computer to computer exchange of business transactions in a standardized structured electronic format. (3) "Hardcopy" - any document, record, report or other data maintained in a paper format. (4) "Machine-sensible record" - a collection of related information in an electronic format. Machine-sensible records do not include hardcopy records that are created or recorded on paper or stored in or by a storage-only imaging system such as microfilm or microfiche. (5) "Taxpayer" - every seller or retailer of tangible personal property in this state and every person storing, using or otherwise consuming in this state tangible personal property purchased from a retailer, and every lessor and lessee of tangible personal property for use in this state. (b) General. (1) A taxpayer shall maintain and make available for examination on request by the Board or its authorized representative, all records necessary to determine the correct tax liability under the Sales and Use Tax Law and all records necessary for the proper completion of the sales and use tax return. Such records include but are not limited to: (A) Normal books of account ordinarily maintained by the average prudent businessperson engaged in the activity in question. (B) Bills, receipts, invoices, cash register tapes, or other documents of original entry supporting the entries in the books of account. (C) Schedules or working papers used in connection with the preparation of tax returns. (2) Machine-sensible records are considered records under Revenue and Taxation Code sections 7053 and 7054. (c) Machine-Sensible Records. (1) General. (A) Machine-sensible records used to establish tax compliance shall contain sufficient source document (transaction-level) information so that the details underlying the machine-sensible records can be identified and made available to the Board upon request. A taxpayer has discretion to discard duplicated records and redundant information provided the integrity of the audit trail is preserved and the responsibilities under this regulation are met. (B) At the time of an examination, the retained records must be capable of being retrieved and converted to a standard magnetic record format, e.g., Extended Binary Coded Decimal Interchange Code (EBCDIC) or American Standard Code for Information Interchange (ASCII) flat file. (C) Taxpayers are not required to construct machine-sensible records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes. (2) Electronic Data Interchange Requirements. (A) Where a taxpayer uses electronic data interchange (EDI) processes and technology, the level of record detail, in combination with other records related to the transactions, must be equivalent to that contained in an acceptable paper record. For example, the retained records should contain such information as vendor name, invoice date, product description, quantity purchased, price, amount of tax, indication of tax status (e.g., for resale), and shipping detail. Codes may be used to identify some or all of the data elements, provided the taxpayer maintains a method which allows the Board to interpret the coded information. (B) The taxpayer may capture the information necessary to satisfy subdivision (c)(2)(A) at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established. For example, a taxpayer using EDI technology receives electronic invoices from its suppliers. The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Since neither the EDI transaction nor the accounts payable system capture information from the invoice pertaining to product description and vendor name (i.e., they contain only codes for that information), the taxpayer must also retain other records, such as its vendor master file and product code description lists, and make them available to the Board. In this example, the taxpayer need not retain its EDI transaction for tax purposes. (3) Electronic Data Processing Systems Requirements. The requirements for an electronic data processing (EDP) accounting system should be similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this regulation. (4) Business Process Information. (A) Upon request of the Board, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records. (B) The taxpayer shall be capable of demonstrating: 1. the functions being performed as they relate to the flow of data through the system; 2. the internal controls used to ensure accurate and reliable processing, and; 3. the internal controls used to prevent unauthorized addition, alteration, or deletion of retained records. (C) The following specific documentation is required for machine sensible records retained pursuant to this regulation: 1. record formats or layouts; 2. field definitions (including the meaning of all codes used to represent information); 3. file descriptions (e.g., data set name); and 4. detailed charts of accounts and account descriptions. (d) Machine-Sensible Records Maintenance Requirements. (1) The taxpayer's computer hardware or software shall accommodate the extraction and conversion of retained machine-sensible records to a standard magnetic record format as provided in subdivision (c)(1)(B). (2) The Board recommends but does not require that taxpayers refer to the National Archives and Record Administration's (NARA) standards for guidance on the maintenance and storage of electronic records, such as the labeling of records, the location and security of the storage environment, the creation of back-up copies, and the use of periodic testing to confirm the continued integrity of the records. (e) Access to Machine-Sensible Records. (1) The manner in which the Board is provided access to machine-sensible records may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer. (2) Such access will be provided in one or more of the following manners: (A) The taxpayer may arrange to provide the Board with the hardware, software, and personnel resources to access the machine-sensible records. (B) The taxpayer may arrange for a third party to provide the hardware, software, and personnel resources necessary to access the machine-sensible records. (C) The taxpayer may convert the machine-sensible records to a standard record format specified by the Board, including copies of files, on a magnetic medium that is agreed to by the Board. (D) The taxpayer and the Board may agree on other means of providing access to the machine-sensible records. (f) Taxpayer Responsibility and Discretionary Authority. (1) In conjunction with meeting the requirements of subdivision (c), a taxpayer may create files solely for the use of the Board. For example, if a data base management system is used, it is consistent with this regulation for the taxpayer to create and retain a file that contains the transaction-level detail from the data base management system and that meets the requirements of subdivision (c). The taxpayer should document the process that created the separate file to show the relationship between that file and the original records. (2) A taxpayer may contract with a third party to provide custodial or management services of the records. Such a contract shall not relieve the taxpayer of its responsibilities under this regulation. (g) Hardcopy Records. (1) Except as specifically provided, taxpayers are not relieved of the responsibility to retain hardcopy records that are created or received in the ordinary course of business as required by existing law and regulations. Hardcopy records may be retained on a record keeping medium as provided in subdivision (h). (2) If hardcopy transaction level documents are not produced or received in the ordinary course of transacting business (e.g., when the taxpayer uses electronic data interchange technology), such hardcopy records need not be created. (3) Hardcopy records generated at the time of a transaction using a credit or debit card must be retained unless all the details necessary to determine correct tax liability relating to the transaction are subsequently received and retained by the taxpayer in accordance with this regulation. Such details include those listed in subdivision (c)(2)(A). (4) Computer printouts that are created for validation, control, or other temporary purposes need not be retained. (h) Alternative Storage Media. (1) For purposes of storage and retention, taxpayers may convert hardcopy documents received or produced in the normal course of business and required to be retained under this regulation to storage-only imaging media such as microfilm or microfiche and may discard the original hardcopy documents, provided the conditions of this subdivision are met. Documents which may be stored on these media include, but are not limited to general books of account, journals, voucher registers, general and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda. (2) Storage-only imaging media such as microfilm and microfiche systems shall meet the following requirements. (A) Documentation establishing the procedures for converting the hardcopy documents to the storage-only imaging system must be maintained and made available on request. Such documentation shall, at a minimum, contain a sufficient description to allow an original document to be followed through the conversion system as well as internal procedures established for inspection and quality assurance. (B) Procedures must be established for the effective identification, processing, storage, and preservation of the stored documents and for making them available for the period they are required to be retained under subdivision (i). (C) Upon request by the Board, a taxpayer must provide facilities and equipment for reading, locating, and reproducing any documents maintained on storage-only imaging media. (D) When displayed on such equipment or reproduced on paper, the documents must exhibit a high degree of legibility and readability. For this purpose, legibility is defined as the quality of a letter or numeral that enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals. Readability is defined as the quality of a group of letters or numerals being recognizable as words or complete numbers. (E) All data on storage-only imaging media must be maintained and arranged in a manner that permits the location of any particular record. (F) There is no substantial evidence that the storage-only imaging medium lacks authenticity or integrity. (i) Record Retention - Time Period. All records required to be retained under this regulation must be preserved for a period of not less than four years unless the State Board of Equalization authorizes in writing their destruction within a lesser period. For reporting periods beginning before January 1, 2003 that are subject to the extended ten year statute of limitations contained in Revenue and Taxation Code section 7073(d), records required to be retained under this regulation must be preserved for a period of not less than ten years. (j) Record Retention Limitation Agreements. (1) The Board has the authority to enter into or revoke a record retention limitation agreement with the taxpayer to modify or waive any of the specific requirements in this regulation. A taxpayer's request for an agreement must specify which records (if any) the taxpayer proposes not to retain and provide the reasons for not retaining such records, as well as, proposing any other terms of the requested agreement. The taxpayer shall remain subject to all requirements of this regulation that are not modified, waived, or superseded by a duly approved record retention limitation agreement. (A) If a taxpayer seeks to limit its retention of machine-sensible records, the taxpayer may request a record retention limitation agreement, which shall; 1. document understandings reached with the Board, which may include, but is not limited to, any one or more of the following issues: a. the conversion of files created on an obsolete computer system; b. restoration of lost or damaged files and the actions to be taken; c. use of taxpayer computer resources, and 2. specifically identify which of the taxpayer's records the Board determines are not necessary for retention and which the taxpayer may discard, and 3. authorize variances, if any, from the normal provisions of this regulation. (B) The Board shall consider a taxpayer's request for a record retention limitation agreement and notify the taxpayer of the actions to be taken. (C) The Board's decision to enter or not to enter into a record retention limitation agreement shall not relieve the taxpayer of the responsibility to keep adequate and complete records supporting entries shown on any tax or information return. (2) A taxpayer's record retention practices shall be subject to evaluation by the Board when a record retention limitation agreement exists. The evaluation may include a review of the taxpayer's relevant data processing and accounting systems with respect to EDP systems, including systems using EDI technology. (A) The Board shall notify the taxpayer of the results of any evaluation, including acceptance or disapproval of any proposals made by the taxpayer (e.g., to discard certain records) or any changes considered necessary to bring the taxpayer's practices into compliance with this regulation. (B) Since the evaluation of a taxpayer's record retention practices is not directly related to the determination of tax reporting accuracy for a particular period or return, an evaluation made under this regulation is not an "examination of records" under section 7054 of the Revenue and Taxation Code. (C) Unless otherwise specified, an agreement shall not apply to accounting and tax systems added subsequent to the completion of the record evaluation. All machine-sensible records produced by a subsequently added accounting or tax system shall be retained by the taxpayer in accordance with this regulation until a new evaluation is conducted by the Board. (D) Unless otherwise specified, an agreement made under this subdivision shall not apply to any person, company, corporation, or organization that, subsequent to the taxpayer's signing of a record retention limitation agreement, acquires or is acquired by the taxpayer. All machine-sensible records produced by the acquired or the acquiring person, company, corporation, or organization, shall be retained pursuant to this regulation. (3) In addition to the record retention evaluation under subdivision (j)(2), the Board may conduct tests to establish the authenticity, readability, completeness, and integrity of the machine-sensible records retained under a record retention limitation agreement. The state shall notify the taxpayer of the results of such tests. These tests may include the testing of EDI and other procedures and a review of the internal controls and security procedures associated with the creation and storage of the records. (k) Failure to Maintain Records. Failure to maintain and keep complete and accurate records will be considered evidence of negligence or intent to evade the tax and may result in penalties or other appropriate administrative action. Note: Authority cited: section 7051, Revenue and Taxation Code. Reference: Sections 6455, 7053 and 7054, Revenue and Taxation Code. s 1699. Permits. (a) 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 permit for each place of business in this state at which transactions relating to sales are customarily negotiated with his or her customers. For example: A permit is required for a branch sales office at which orders are customarily taken and 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. If two or more activities are conducted by the same person on the same premises, even though in different buildings, only one permit is required. For example: A service station operator having a restaurant in addition to the station on the same premises requires only one permit for both activities. (b) Persons Selling in Interstate Commerce or to United States Government. A permit is not required to be held by persons all of whose sales are made exclusively in interstate or foreign commerce but a 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 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 he or she: w 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. w Maintains separate business records, particularly with respect to sales. w Establishes his or her own selling prices. w Makes business decisions independently, such as hiring employees or purchasing inventory and supplies. w 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. w 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 his or her 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 his or her obligation for sales and use tax liabilities incurred by such a concessionaire for the period in which the concessionaire holds a 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 he or she holds a seller's permit for that location with the Board. The following essential elements must be included in the statement in order to relieve the prime retailer of his or her liability for any unreported tax liabilities incurred by the concessionaire: w The permit number of the concessionaire w The location for which the permit is issued (must show the concessionaire's location within the perimeter of the prime retailer's location). w Signature of the concessionaire w Date While any statement, taken timely, in good faith and containing all of these essential elements will relieve a prime retailer of his or her 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 his or her retail sales. In instances where the lessor, or grantor of permission to occupy space, is not a retailer himself or herself, he or she is not liable for any sales or use taxes owed by his or her 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 his or her 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 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 permit. (f) Inactive Permits. A permit shall be held only by persons actively engaging in or conducting a business as a seller of tangible personal property. Any person not so engaged shall forthwith surrender his or her permit to the Board for cancellation. The Board may revoke the permit of a person found to be not actively engaged in or conducting a business as a seller of tangible personal property. Upon discontinuing or transferring a business, a permit holder shall promptly notify the Board and deliver his or her permit to the Board for cancellation. To be acceptable, the notice of transfer or discontinuance of a business must be received in one of the following ways: (1) Oral or written statement to a Board office or authorized representative, accompanied by delivery of the permit, or followed by delivery of the permit upon actual cessation of the business. The permit need not be delivered to the Board, if lost, destroyed or is unavailable for some other acceptable reason, but notice of cessation of business must be given. (2) Receipt of the transferee or business successor's application for a seller's permit may serve to put the Board on notice of the transferor's cessation of business. Notice to another state agency of a transfer or cessation of business does not in itself constitute notice to the Board. Unless the permit holder who transfers the business notifies the Board of the transfer, or delivers the permit to the Board for cancellation, he or she will be liable for taxes, interest and penalties (excluding penalties for fraud or intent to evade the tax) incurred by his or her transferee who with the permit holder's actual or constructive knowledge uses the permit in any way; e.g., by displaying the permit in transferee's place of business, issuing any resale certificates showing the number of the permit thereon, or filing returns in the name of the permit holder or his or her business name and under his or her permit number. Except in the case where, after the transfer, 80 percent or more of the real or ultimate ownership of the business transferred is held by the predecessor, the liability shall be limited to the quarter in which the business is transferred, and the three subsequent quarters. Stockholders, bondholders, partners, or other persons holding an ownership interest in a corporation or other entity shall be regarded as having the "real or ultimate ownership" of the property of the corporation or other entity. (g) 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 Board on or before the last day of the month following the close of the calendar quarter in which the business was transferred or discontinued. (h) 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. (i) 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. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6066 and 6075, Revenue and Taxation Code. Appendix A Certification of Permit - Concessionaires I certify that I operate an independent business at the premises of the following retailer and that I hold a valid seller's permit to operate at this location, as noted below. I further understand that I will be solely responsible for reporting all sales that I make on those premises and remitting all applicable sales and use taxes due to the Board of Equalization: Name of retailer on whose premises I operate my business: ______ Location of premises: __________________________________________ _______________________________________________________________ I hereby certify that the foregoing information is accurate and true to the best of my knowledge: Certifier's Signature: ___________________ Date: _______________ Certifier's Printed Name __________ ____________________________ Certifier's Seller's Permit Number: ____________________________ Certifier's Business Name and Address [FNa1] ____________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ Certifier's Telephone Number ___________________________________ [FNa1] Please Note: The certifier must be registered to do business at the location of the retailer upon whose premises he or she is making retail sales. s 1699.5. Direct Payment Permits. (a) Definition. As used in this regulation, "direct payment permit" means a permit issued by the board which allows the holder to purchase tangible personal property for use without paying tax or tax reimbursement to the retailer from whom the purchase is made, and which relieves that retailer from liability for tax on the transaction provided that the retailer obtains an exemption certificate as provided herein from the purchaser. (b) Requirements for Permit. A direct payment permit will be issued only if all of the following conditions are met: (1) The applicant holds a valid seller's permit. (2) The applicant agrees to report and pay directly to the board all tax liabilities which are transferred from retailers to the applicant as a result of exemption certificates issued in accordance with this regulation. (3) The board determines that issuance of the direct payment permit will facilitate the collection of the tax. This requirement will be met only if the applicant has sufficient information processing resources to accurately and timely account for and report the tax liabilities assumed as a result of the direct payment permit (separately from other tax liabilities) and allocate the local tax portion of such liabilities to all of the cities, counties, redevelopment agencies, and districts involved. (4) The board determines that issuance of the direct payment permit is to the mutual convenience of the board, the applicant, and the retailers whose tax liability will be reported and paid by the applicant. Issuance of the permit will not be deemed to be to the convenience of the board if the applicant is a government entity or if the applicant has had gross receipts from sales of tangible personal property of less than $75,000,000 and purchases of tangible personal property subject to sales or use tax of less than $75,000,000 in any calendar quarter during the twelve months immediately preceding the application for the permit. (5) The applicant has a record of timely payment of tax liabilities and is in such financial condition that issuance of the direct payment permit will not result in a tax loss to the state. (c)(1) Application for Permit. An application for a direct payment permit must be in writing and provide information which supports the claim that the applicant meets the requirements for a permit. The application must include a certified financial statement and a detailed description of the information processing system which will be used to account for the tax liabilities assumed and allocate the local taxes involved. (2) Within 30 days of receipt of an application for a direct payment permit the board shall inform the applicant in writing either that the application is complete and has been accepted or that the application is deficient and what additional specific information is required to make the application complete. Within 60 days of acceptance of a complete application the board shall approve or deny the issuance of a direct payment permit and notify the applicant in writing of its decision. (d) Revocation of Permit. Any direct payment permit issued pursuant to this regulation shall be revoked if the board determines that the holder no longer meets the requirements for the permit. (e) Returns. On or before the last day of the month following each quarterly period, a holder of a direct payment permit shall file a return with the board in such form as the board may prescribe. The person required to file the return shall deliver it together with a remittance for the amount of tax due to the office of the board. The return shall show the aggregate gross receipts of retailers during the reporting period with respect to which the person filing the return has assumed responsibility for payment of the retailers' tax liabilities, the amount of such liabilities, and such other information as the board may require. This return shall be separate from and in addition to any returns required to be filed by the person to report his or her own sales and use tax liabilities. (f) Prepayments. A holder of a direct payment permit shall make prepayments of the tax liabilities assumed in accordance with this regulation as prescribed in Section 6471 of the Revenue and Taxation Code. The prepayments shall be made as prescribed in Section 6472 of the Revenue and Taxation Code, except that the due dates of these prepayments shall be five days earlier than the due dates prescribed in that section. These prepayments shall be made separately from any prepayments of the person's own sales and use tax liabilities. (g) Allocation of Local Tax. Every holder of a direct payment permit must include with each direct payment tax return a schedule approved by the board allocating all local sales and use taxes and district transactions and use taxes to the cities, counties, redevelopment agencies, and districts to which the tax would have been allocated if it had been reported and paid by the retailers involved. The allocation shall be based on the place of sale as provided in Regulation 1802 and Regulation 1822. The board may require that the schedule be provided on computer tape in a format prescribed by the Board. If the local and district taxes are misallocated due to negligence or intentional disregard of the law, a penalty of 10 percent of the amount misallocated may be imposed. (h) Exemption Certificates. A holder of a direct payment permit may issue a direct payment exemption certificate to any retailer. The certificate shall be in substantially the following form and shall be valid only with respect to the calendar year for which it is issued. DIRECT PAYMENT EXEMPTION CERTIFICATE ______________________________________________________________ (Name of Purchaser) ______________________________________________________________ (Address of Purchaser) I certify that I hold direct payment permit No. _______________ issued pursuant to the California Sales and Use Tax Law and that I am authorized to report and pay directly to the State the applicable sales or use tax with respect to the property described herein which I shall purchase from _________________________________________________ during the calendar year ________. In the event that I fail to timely report and pay the applicable tax to the State, I understand that in addition to the tax liability, I will be subject to applicable interest and penalties. Description of property to be purchased: ______________________________________________________________ ______________________________________________________________ Date: ____________ __________________________________________ (Signature of Purchaser or Agent) __________________________________________ (Title) (i)(1) Effect of Certificate. A party who issues a direct payment of exemption certificate to a retailer shall be liable for the tax with respect to sales made pursuant to the certificate in the same manner as if the party were the retailer making the sale. The liability assumed by issuing the certificate must be included on the return filed for the period in which the sale was made rather than on the return for the period in which the property was used by the purchaser. The party who issued the exemption certificate is liable for the tax on the sale even if the property is lost, destroyed, removed from this state, or otherwise never used or consumed in this state. (2) A direct payment exemption certificate shall not be substituted for a resale certificate because the tax consequences are different. Resale certificates shall only be issued with respect to property which the purchaser intends to resell and direct payment exemption certificates shall be issued only for property purchased for use or other consumption. (3) A retailer who timely takes a direct payment exemption certificate in good faith from a person who holds a direct payment permit is relieved from liability for the sales tax and responsibility for collecting the use tax with respect to retail sales to the person who issued the certificate during the period covered by the certificate. A certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or at any time within the seller's normal billing and payment cycle, or at any time at or prior to delivery of the property to the purchaser. The invoice or other evidence of sale issued by the retailer must clearly state that the sale was made pursuant to a direct payment exemption certificate in order to support a deduction on the retailer's sales tax return. If a retailer makes sales under both a direct payment exemption certificate and a resale certificate to the same customer, care must be exercised to identify which property is sold pursuant to each certificate. The retailer must segregate in his or her records, and on his or her sales tax return, sales made pursuant to a direct payment exemption certificate from sales for resale. (j) Interest and Penalties. All provisions of the Sales and Use Tax Law relating to interest and penalties apply to tax liabilities incurred under the provisions of this regulation in the same manner as to other sales and use tax liabilities. (See Section 1703 of Title 18 of the California Code of Regulations.) Note: Authority cited: Sections 7051 and 7051.1, Revenue and Taxation Code. Reference: Sections 7051.1 and 7051.2, Revenue and Taxation Code. s 1699.6. Use Tax Direct Payment Permits. (a) Forward. "Use tax direct payment permit" means a permit issued by the board that allows a use tax direct payment permit holder to self-assess and pay state, local, and district use taxes under Part 1 (commencing with Section 6001), Part 1.5 (commencing with Section 7200), and, if applicable, Part 1.6 (commencing with Section 7251) directly to the board. The provisions of this regulation apply only to transactions subject to use tax. (b)(1) Application for Permit. Persons seeking to pay use taxes directly to the board shall file an application for a use tax direct payment permit. An application for a use tax direct payment permit shall be made on Board of Equalization Form BOE-400-DP (no revision date). The application shall be signed by the owner, if a natural person; in the case of an association or partnership, by a member or partner; and in the case of a corporation, by an executive officer or some person specifically authorized by the corporation to sign the application. (2) Within 30 days of receipt of an application for a direct payment permit the board shall inform the applicant in writing either that the application is complete and has been accepted or that the application is deficient and what additional specific information is required to make the application complete. Within 60 days of acceptance of a complete application the board shall approve or deny the issuance of a direct payment permit and notify the applicant in writing of its decision. (c) Requirements for Permit. Pursuant to an application, a use tax direct payment permit shall be issued to any person who meets all of the following conditions: (1) The applicant agrees to self-assess and pay directly to the board any use tax liability incurred under this regulation. (2) The applicant certifies to the board either of the following: (A) The applicant is the purchaser for its own use or is the lessee of tangible personal property subject to the use tax at a cost of five hundred thousand dollars ($500,000) or more in the aggregate, during the calendar year immediately preceding the application for the permit. Tangible personal property purchased for own use includes both property subject to use tax and property exempt from use tax except that it does not include property purchased for resale; or (B) The applicant is a county, city, city and county, or redevelopment agency. (d) Reporting of Local Use Tax. Any person who holds a valid use tax direct payment permit shall self-assess and pay directly to the board with each return the use taxes due under Division 2, Part 1 (commencing with Section 6001), Part 1.5 (commencing with Section 7200), and, if applicable, Part 1.6 (commencing with Section 7251), for all purchases subject to use tax for which a use tax direct payment exemption certificate was issued, and shall report the local use tax component to the jurisdiction in which the property is located at the time the state imposed use tax must be reported. Temporary storage for the purpose of reporting local tax shall be disregarded. Any tax so reported may be redistributed in accordance with law. (e) Returns. On or before the last day of the month following each quarterly period, a holder of a direct payment permit shall file a return with the board. The person required to file the return shall deliver it together with a remittance for the amount of tax due to the board. The return shall show the aggregate sales price of tangible personal property purchased during the reporting period with respect to which the person filing the return has issued a use tax direct payment exemption certificate relieving the retailer of liability for reporting and paying use tax, and such other information as the board may require. (f) Exemption Certificates. The board shall allow any holder of a use tax direct payment permit to issue a use tax direct payment certificate to any registered retailer or seller subject to all of the following: (1) The use tax direct payment exemption certificate shall be in a form prescribed by the board, and shall be signed by, and bear the name, address, and permit number of, the holder of the use tax direct payment permit. (2) Once a use tax direct payment exemption certificate has been issued by a holder of a use tax direct payment permit, it shall remain effective until revised or withdrawn by the holder of the permit or until the retailer or seller has received written notice that the permit has been revoked by the board. (3) A use tax direct payment certificate relieves a person selling property from the duty of collecting use tax only if taken timely and in good faith from a person who holds a use tax direct payment permit. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser. (4) A purchaser who issues a use tax direct payment certificate that is accepted in good faith by a seller or retailer of tangible personal property shall be the sole person liable for any sales tax and related interest and penalties with respect to any transaction that is subsequently determined by the board to be subject to sales tax and not use tax. The local sales tax portion so determined shall be allocated to the city, county, city and county, or redevelopment agency to which the tax would have been allocated if it had been reported and paid by the retailer in accordance with Part 1.5 (commencing with Section 7200). Such allocation shall be based on the place of sale as provided in Regulation 1802 and Regulation 1822. (5) Any person who holds a use tax direct payment permit and gives a use tax direct payment certificate to a seller or retailer shall, in addition to any applicable use tax liabilities, be subject to the same penalty provisions that apply to a seller or retailer. (g) Resale Transactions. A use tax direct payment exemption certificate shall not be substituted for a resale certificate, because the tax consequences are different. Resale certificates shall only be issued with respect to property which the purchaser intends to resell, and use tax direct payment exemption certificates shall be issued for property purchased for use or other consumption. If a retailer makes sales under both a use tax direct payment exemption certificate and a resale certificate to the same customer, an audit trail must be maintained to identify which property is sold pursuant to each certificate. (h) Revocation of Permit. The board may revoke the use tax direct payment of any person who fails to purchase tangible personal property for own use of at least $500,000 per year. The permit shall remain valid for all transactions taking place prior to the date the permit is revoked. (i) Successor Entities. A successor entity to a use tax direct payment permit holder shall qualify to obtain a use tax direct payment permit if the predecessor entity so qualified in the calendar year in which the succession occurred but must obtain its own permit. (j) Operative Date. The provisions of this regulation apply only to purchases that occur on or after January 1, 1998. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6070 and 7051.3, Revenue and Taxation Code. s 1700. Reimbursement for Sales Tax. (a) Reimbursement for Sales Tax. (1) Addition of Sales Tax Reimbursement. Whether a retailer may add sales tax reimbursement to the sales price of the tangible personal property sold at retail to a purchaser depends solely upon the terms of the agreement of sale. (2) Presumptions. Certain presumptions concerning the addition of sales tax reimbursement are created by Civil Code Section 1656.1. It shall be presumed that the parties agreed to the addition of sales tax reimbursement to the sales price of tangible personal property sold at retail to a purchaser if: (A) The agreement of sale expressly provides for such addition of sales tax reimbursement; (B) Sales tax reimbursement is shown on the sales check or other proof of sale; or (C) The retailer posts in his or her premises in a location visible to purchasers, or includes on a price tag or in an advertisement or other printed material directed to purchasers, a notice to the effect that reimbursement for sales tax will be added to the sales price of all items or certain items, whichever is applicable. It shall be presumed that the property, the gross receipts from the sale of which is subject to the sales tax, is sold at a price which includes tax reimbursement if the retailer posts in his or her premises, or includes on a price tag or in an advertisement (whichever is applicable) one of the following notices: 1. "All prices of taxable items include sales tax reimbursement computed to the nearest mill." 2. "The price of this item includes sales tax reimbursement computed to the nearest mill." (3) Reimbursement Schedules. Each retailer who adds to the sales price of tangible personal property sold at retail an amount from a consumer in reimbursement of the sales tax upon gross receipts shall compute the amount of reimbursement by reference to schedules prepared by the board pursuant to Civil Code Section 1656.1 or by mathematical computation as described below. Schedules are available from the local district board offices for the various applicable rates. Reimbursement on sales prices in excess of those shown in the schedules provided by the board may be computed by applying the applicable tax rate to the sales price, rounded off to the nearest cent by eliminating any fraction less than one-half cent and increasing any fraction of one-half cent or over to the next higher cent. (b) Excess Tax Reimbursement. (1) Definition. When an amount represented by a person to a customer as constituting reimbursement for sales tax is computed upon an amount that is not taxable or is in excess of the taxable amount and is actually paid by the customer to the person, the amount so paid is excess tax reimbursement. Excess tax reimbursement is charged when reimbursement is computed on a transaction which is not subject to tax, when reimbursement is computed on an amount in excess of the amount subject to tax, when reimbursement is computed using a tax rate higher than the rate imposed by law, and when mathematical or clerical errors result in an overstatement of the reimbursement on a billing. (2) Procedure upon Ascertainment of Excess Tax Reimbursement. Whenever the board ascertains that a person has collected excess tax reimbursement, the person will be afforded an opportunity to refund the excess collections to the customers from whom they were collected. In the event of failure or refusal of the person to make such refunds, the board will make a determination against the person for the amount of the excess tax reimbursement collected and not previously paid to the state, plus applicable interest and penalty. (3) Evidence Sufficient to Establish that Excess Amounts have been or will be Returned to Customer. (A) If a person already has refunded to each customer amounts collected as reimbursement for tax in excess of the tax due, this may be evidenced by any type of record which can be verified by audit such as: 1. Receipts or cancelled checks. 2. Books of account showing that credit has been allowed the customer as an offset against an existing indebtedness owed by the customer to the person. (B) If a person has not already made sales tax reimbursement refunds to each customer but desires to do so rather than incur an obligation to the state, the person must: 1. Inform in writing each customer from whom an excess amount was collected that the excess amount collected will be refunded to the customer or that, at the customer's option, the customer will be credited with such amount, and 2. The person must obtain and retain for verification by the board an acknowledgement from the customer that the customer has received notice of the amount of indebtedness of the person to the customer. (4) Offsets. If a person who has collected excess tax reimbursement on a transaction fails or refuses to refund it to the customer from whom it was collected, the excess tax reimbursement shall be offset against any tax liability of the taxpayer on the same transaction. Any excess tax reimbursement remaining after the offset must be refunded to the customer or paid to the state. The offset can be made when returns are filed, when a determination is issued, or when a refund is claimed. Such offsets can be made only on a transaction by transaction basis. Tax reimbursement collected on a specific transaction can be used only to satisfy a tax liability arising from the same transaction. The "same transaction" means all activities involved in the acquisition and disposition of the same property. The "same transaction" may involve several persons, such as a vendor, a subcontractor, a prime contractor, and the final customer; or a vendor, a lessor, and a series of sublessors. Tax reimbursement can be offset against the tax liability of the taxpayer whether the liability was satisfied by paying sales tax reimbursement to a vendor, paying use tax to a vendor, or paying use tax to the state. An offset of a taxpayer's own tax liability against tax reimbursement collected from a customer can be made only with respect to transactions in which possession of the property upon which the taxpayer's tax liability is based is transferred, either permanently or temporarily, to the customer, as in the case of construction contracts or leases. A taxpayer such as a repairman or printer who uses shop supplies or printing aids in performing a job for a customer cannot offset the tax liability arising from the use of the supplies or aids against tax reimbursement collected from the customer. A person who claims that a tax liability on a transaction should be offset against tax reimbursement paid to the state by another person has the burden of proving that tax reimbursement was in fact paid to the state on the same transaction by the other person. In the absence of such proof no offset will be allowed. The offset allowances explained above are procedural changes mandated by statute and apply to all proceedings pending before the board on and after September 7, 1982. (5) Particular Applications. (Examples at 6 percent tax rate.) (A) Discounts and trading stamps. 1. Discounts. A retailer who allows discounts on sales prices but charges customers tax reimbursement computed upon the prices before the discount is deducted is collecting excess reimbursement. For example, a sale is made for $100 plus $6 as tax reimbursement. Upon payment for the item the purchaser is allowed a discount of 20 percent of the sales price of $100 but the $6 tax reimbursement is excluded from the computation. Since the retailer is deducting the amount of the discount, $20, from taxable gross receipts, the retailer is actually paying a tax of only $4.80, i.e., 6 percent of $80, and has retained excessive tax reimbursement of $1.20. 2. Trading Stamps. A retailer who issues trading stamps or similar evidences of patronage may deduct as cash discounts the cost to the retailer of the stamps or other indicia (hereinafter called "stamps") issued in connection with taxable retail sales. A retailer who deducts the cost of stamps as a cash discount in computing the tax payable to the state, but who charges tax reimbursement on the full sales price of the goods, collects more tax reimbursement than the retailer pays to the state. The following illustration shows why this is true: If a retailer collects sales tax reimbursement of $6 on a $100 sale but gives the customer trading stamps which cost the retailer $2 and then deducts the $2 as a cash discount when reporting taxable receipts, the retailer will pay a tax of only $5.88 (6 percent of $98). The retailer must follow one of the three following procedures: a. Adjust the price upon which tax reimbursement is computed so it will correspond to the price upon which the retailer computes the tax paid by the retailer to the state. b. Consider the price which determines the number of stamps to be given a customer as the total amount paid by the customer, inclusive of that portion charged as reimbursement for sales tax. c. Take no deduction from gross receipts in computing tax to be paid to the state on account of the cost of stamps given to customers. (B) Construction Contractors. (See Regulation 1521 (18 CCR 1521) for application of tax to construction contractors generally) A contractor furnishes and installs materials under a lump sum construction contract for the improvement of real property and collects tax reimbursement on the total contract price. As the contractor is the consumer of materials furnished and installed in the performance of the lump sum contract, the tax reimbursement collected on the total contract price constitutes excess tax reimbursement. Such excess tax reimbursement must be returned to the customer or paid to the state. However, offsets will be allowed as explained in (b)(4). Under a lump sum contract to improve real property, a subcontractor furnishes and installs materials which were acquired without the payment of sales or use tax. The prime contractor collects tax reimbursement from the prime contractor's customer on the total contract price and pays all of the tax reimbursement collected to the state. The subcontractor's use tax liability on the materials consumed in performing the contract will be offset against the tax reimbursement paid to the state by the prime contractor, and the subcontractor has no further tax liability on the transaction. The tax reimbursement paid to the state by the prime contractor in excess of the use tax liability of the subcontractor will be refunded to the prime contractor only if it is returned to the customer. (C) Lessors of Mobile Transportation Equipment. A lessor of mobile transportation equipment purchases such equipment under a resale certificate and collects tax reimbursement on the rental receipts, but pays no tax to the state. The lessor must pay tax on the purchase price of the equipment since a timely election to measure the tax by fair rental value was not made. The tax reimbursement collected on rental receipts is excess tax reimbursement. Such excess tax reimbursement must be returned to the lessee or paid to the state. However, offsets will be allowed as explained in (b)(4). (See Regulation 1661 (18 CCR 1661) for application of tax to leases of mobile transportation equipment) (D) Other Lessors of Tangible Personal Property. A lessor purchases property and pays sales tax reimbursement to the vendor. The property is leased in the same form as acquired and tax reimbursement is collected on the rental receipts. Tax reimbursement collected on rental receipts must be returned to the lessee or paid to the state to the extent that it exceeds the tax liability measured by the purchase price. (See Regulation 1660 (18 CCR 1660) for application of tax to leases, generally) (6) Rights of Customers. The provisions of this regulation with respect to offsets do not necessarily limit the rights of customers to pursue refunds from persons who collected tax reimbursement from them in excess of the amount due. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6901.5, Revenue and Taxation Code; and Section 1656.1, Civil Code. Leases, see also regulation 1660; Meals, tips and other charges as tax-included amounts, see regulation 1603; "Free meals," charging reimbursement on, see regulation 1670; Trading stamps generally, see regulation 1671; Trade-ins generally, see regulation 1654. s 1701. "Tax-Paid Purchases Resold." (a) Procedure in General. A retailer who resells tangible personal property before making any use thereof (other than retention, demonstration or display while holding it for sale in the regular course of business) may take a deduction of the purchase price of the property if, with respect to its purchase, he has reimbursed his vendor for the sales tax or has paid the use tax. If such a deduction is taken by the retailer, no refund or credit will be allowed to his vendor with respect to the sale of the property. The deduction under the caption "Tax-paid purchases resold" must be taken on the retailer's return in which his sale of the property is included. If the deduction is not taken in the proper quarter, a claim for refund of tax must be filed. (b) Circumstances Warranting Use. This procedure should be used in any of the following circumstances: (1) The retailer when making the purchase intends to use the property rather than resell it, but later resells it before making any use thereof. (2) The particular property is of a kind not ordinarily sold or stocked by the retailer, and not customarily covered by resale certificates given to his vendors and is the subject of an unusual sale, such as a sale for the accommodation of a customer, employee, etc. (3) The particular property is generally for the use of the retailer, but a small portion is incidentally resold. (4) Through error, sales tax reimbursement or use tax is paid by the retailer with respect to the purchase price of property purchased for resale in the regular course of business. (c) Particular Application. "Standby Service." Property purchased "tax paid" by a retailer and placed in "Standby Service," located at the place of intended use and committed to that use, is considered used sufficiently to preclude a tax-paid purchase deduction when sold, even though never physically used there and ultimately removed and sold. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6012(a), Revenue and Taxation Code. s 1702. Successor's Liability. (a) When Duty to Withhold Purchase Price Arises. The requirement that a successor or purchaser of a business or stock of goods withhold sufficient of the purchase price to cover the tax liability of the seller, arises only in the case of the purchase and sale of a business or stock of goods under a contract, providing for the payment to the seller or person designated by him of a purchase price in money or property or providing for the assumption of liabilities and only to the extent thereof, and does not arise in connection with other transfers of a business such as assignments for the benefit of creditors, foreclosures of mortgages, or sales by trustees in bankruptcy. (b) Amounts to Which Liability Extends. The liability of the successor or purchaser of a business or stock of goods extends to amounts incurred with reference to the operation of the business by the predecessor or any former owner, including the sale thereof, even though not then determined against him or her, which include taxes, interest thereon to the date of payment of the taxes, and penalties including penalties for nonpayment of taxes. Liability also extends to penalties determined and unpaid at the time of sale for negligence or intentional disregard of the Sales and Use Tax Law or authorized rules and regulations, and fraud or intent to evade the Sales and Use Tax Law or authorized rules and regulations. (c) Release from Obligation. The purchaser of the business or stock of goods will be released from further obligation to withhold the purchase price if he obtains a certificate from the board stating that no taxes, interest, or penalties are due from a predecessor. He will also be released if he makes a written request to the board for a certificate and if the board does not issue the certificate or mail to the purchaser a notice of the amount of the tax, interest, and penalties that must be paid as a condition of issuing the certificate within 60 days after the latest of the following dates: (1) The date the board receives a written request from the purchaser for a certificate. (2) The date of the sale of the business or stock of goods. (3) The date the former owner's records are made available for audit. The certificate may be issued after the payment of all amounts due under the Sales and Use Tax Law, according to the records of the board as of the date of the certificate, or after the payment of the amounts, including amounts not yet ascertained, is secured to the satisfaction of the board. Such security is not subject to the limitations contained in section 6701 of the Revenue and Taxation Code. (d) Enforcement of Obligation. (1) The liability is enforced by service of a notice of successor liability not later than three years after the date the board receives written notice of the purchase of the business or stock of goods. The successor may petition the Board for reconsideration of the liability within 30 days after service. The liability becomes final, and the amount due and payable, in the same manner as determinations and redeterminations of other sales and use tax liability. (2) On or after January 1, 1990, a successor shall be relieved of any penalty originally imposed upon the predecessor included in the notice of successor liability regardless of when the notice was issued where there is no relationship between the successor and predecessor. A relationship exists between the successor and predecessor if there is any common ownership or if the successor was a responsible person as defined in Sales and Use Tax Regulation 1702.5(b)(1) in the predecessor entity. A successor seeking relief of a penalty must file a written statement with the board under penalty of perjury stating the facts upon which he or she bases the claim for relief. (e) Separate Business Locations. Where one person operates several business establishments, each at a separate location, each establishment is a separate "business" and has a separate "stock of goods" for purposes of determining the liability of a successor. A purchaser of the business or stock of goods of any such establishment is subject to liability as a successor with respect to that establishment even if he does not purchase the business or stock of goods of all the establishments. (f) Purchase of a Portion of a Business. A person who purchases a portion of a business or stock of goods may become liable as a successor as, for example, where he purchases substantially all of the business or stock of goods or where the business or stock of goods is purchased by two or more persons. In cases of doubt as to possible liability, the purchaser should obtain a certificate as provided in subdivision (c) above. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6592, 6701, 6811, 6812, 6813 and 6814, Revenue and Taxation Code. s 1702.5. Responsible Person Liability. (a) General. Any responsible person who willfully fails to pay or to cause to be paid, under circumstances set forth below, any taxes due from a domestic or foreign corporation or limited liability company pursuant to Part 1, Division 2, of the Revenue and Taxation Code shall be personally liable for any unpaid taxes and interest and penalties on those taxes not so paid upon termination, dissolution, or abandonment of the corporate or limited liability company business. Personal liability shall apply if the board establishes that while the person was a responsible person, the corporation or limited liability company: 1. sold tangible personal property in the conduct of its business and collected sales tax reimbursement on the selling price (whether separately itemized or included in the selling price) and failed to remit such tax when due; or 2. consumed tangible personal property and failed to pay the applicable tax to the seller or the board; or 3. issued a receipt for use tax and failed to report and pay the tax. (b) Definition of Terms. (1) Responsible Person. As used herein, the term "responsible person" means any officer, member, manager, employee, director, shareholder, or other person having control or supervision of, or who is charged with the responsibility for, the filing of returns or the payment of tax or who has a duty to act for the corporation or limited liability company in complying with any provision of the Sales and Use Tax Law. The term "responsible person" does not include any person who would otherwise qualify but is serving in that capacity as an unpaid volunteer for a non-profit organization. (2) Willful. As used herein, the term "willful" means voluntary, conscious and intentional. A failure to pay or to cause to be paid may be willful even though such failure was not done with a bad purpose or evil motive. (3) Termination. As used herein, "termination" of a domestic or foreign corporate or limited liability company business includes discontinuance or cessation of business activities. (c) Collection. The board may issue a Notice of Determination, in the manner provided in Chapter 5 of the Sales and Use Tax Law, for the amount of the personal liability of the responsible person, and penalties and interest shall be added to the amount due as applicable. The board may collect the amounts due from the responsible person in the manner provided by Chapter 6 of the Sales and Use Tax Law for the collection of sales and use taxes. 1. New section filed 1-9-97; operative 2-8-97 (Register 97, No. 2). Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6829, Revenue and Taxation Code. s 1702.6. Suspended Corporations. (a) General. A corporate officer or shareholder with control over operations or management of a closely held corporation during a time in which the corporation's powers, rights, and privileges are suspended or any responsible person who fails to pay or to cause to be paid any taxes due from a closely held corporation during a time in which the corporation's powers, rights, and privileges are suspended shall be personally liable under the circumstances set forth below for any unpaid sales or use tax liability of that suspended corporation incurred during the period of that suspension. The corporate officer, shareholder, or responsible person shall be liable for the unpaid tax, and interest and penalties on those taxes not so paid, regardless of the basis for the suspension of the corporation's powers, rights, and privileges. Personal liability under this regulation applies only when the Board establishes that, during the period of suspension, the corporation: (1) Sold tangible personal property in the conduct of its business and collected sales tax reimbursement on the selling price (whether separately itemized or included in the selling price) and failed to remit such tax when due; or (2) Collected use tax and failed to report and pay the tax; or (3) Consumed tangible personal property and failed to pay the applicable tax to the seller or the Board. (b) Definitions of Terms. (1) Responsible Person. For the purposes of this regulation, the term "responsible person" means any officer or shareholder who is charged with the responsibility for the filing of returns or the payment of tax or who has a duty to act for the closely held corporation in complying with any provision of the Sales and Use Tax Law, and who derives a direct financial benefit from the failure to pay the tax liability. (2) Closely Held. For the purposes of this regulation, the term "closely held" corporation means one in which ownership is concentrated in one individual, one family, or a small number of individuals and the majority stockholders manage the business. (3) Control over Operations or Management. For the purposes of this regulation, the term "control over operations or management" means the power to manage or affect day to day operations of the business. For the purposes of this regulation, it is rebuttably presumed that a corporate officer has control over operations and management of the closely held corporation. (c) Determination and Collection. The Board shall determine and collect the liability established under this regulation in the manner provided in Chapter 5 (commencing with section 6451) and Chapter 6 (commencing with section 6701) of Part 1, Division 2, of the Revenue and Taxation Code. (d) Liability of the Corporation. A suspended corporation shall remain liable for the unpaid tax, interest, and penalties incurred during the period in which its corporate powers, rights, and privileges were suspended without regard to any personal liability determined under subdivision (a) of this regulation. Payments made pursuant to subdivision (a) shall be applied to the liability of the corporation. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6066, Revenue and Taxation Code. s 1703. Interest and Penalties. (a) Statutory Provisions. Interest and penalties are prescribed in various sections of the Sales and Use Tax Law as follows: Subject Interest Penalties Failure to pay tax within 6480.4, 6480.8 6476, 6477, required time (except 6480.19, 6591 6478, 6479.3 determinations) 6480.4, 6480.8, 6480.19, 6591, 7051.2 Failure to file a timely return 6591, 6479.3 Deficiency determinations 6482 6484 (negligence) 6485 (fraud) 7051.2 Determination -failure to 6513 6511, 7051.2 make return 6514 (fraud) Jeopardy determinations 6537 6537, 7051.2 Extensions of time 6459 Determinations -Nonpayment of 6565, 7051.2 Offsets 6512 6512 Refunds and credits 6901, 6907 6908 6901 Suits for refund 6936 Disposition of interest and penalties 7101 7101 Criminal Penalties 6073, 6094.5, 6422.1, 7152, 7153, 7153.5 Failure to make timely application for registration of motor vehicle, mobilehome, aircraft or undocumented vessel 6291-6294 6291-6294 Registration of vehicle, vessel or aircraft out of state 6485.1, 6514.1 (intent to evade) Advertising that use tax will be absorbed 6207 Any violation of Sales and Use Tax Law 7153, 7153.5 Failure to collect use tax 6207 Failure to display use tax separately 6207 Failure to furnish return or other data 6452, 6455 Improper use of resale certificates 6072 6094.5, 6072 Making false return 7152 Misuse of vehicle use tax exemption certificates 6422.1 Operating as seller without permit 6071, 6077 Failure to obtain valid permit 6077, 7155 Relief from interest or penalty 6593, 6596 6592, 6596 Modified adjusted rate 6591.5 Failure to obtain evidence that operator of catering truck holds valid permit 6074 Improper allocation of local tax by direct payment permitholder 7051.2 Managed Audit program 7076.5 Failure to pay tax due to an error or delay by an employee of the Board or Department of Motor Vehicles 6593.5 Erroneous refund 6964 Tax Amnesty Program (Reporting Periods Beginning Before January 1, 2003) 7073, 7074 (b) Interest. (1) Interest Rates. (A) In General. Interest is computed at the modified adjusted rate per month, or fraction thereof. "Modified adjusted rate per month, or fraction thereof" means the modified adjusted rate per annum divided by 12. (B) Underpayments. "Modified adjusted rate per annum" for underpayments of tax is the rate for underpayments determined in accordance with the provisions of section 6621 of the Internal Revenue Code plus three percentage points. Such rate is subject to semiannual modification pursuant to the provisions of subparagraph (c) of section 6591.5 of the Revenue and Taxation Code. (C) Overpayments. Except as provided below, "modified adjusted rate per annum" for overpayments of tax is the bond equivalent rate of 13-week treasury bills auctioned, rounded to the nearest full percent (or to the next highest full percent if .50%), subject to semiannual modification pursuant to the provisions of subparagraph (d) of Section 6591.5 of the Revenue and Taxation Code. For the period July 1, 1991, through June 30, 1992, the modified adjusted rate per annum for overpayments is equal to the bond equivalent rate of 13-week treasury bills auctioned on July 1, 1991, rounded to the nearest full percent (or to the next highest full percent if .50%). (D) Managed Audit Program. Upon completion of the managed audit and verification by the Board, interest shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. (E) Error or Delay by Employee of Board or Department of Motor Vehicles. For tax liabilities that arise during taxable periods commencing on or after July 1, 1999, this subdivision is limited to interest imposed by sections 6480.4, 6480.8, 6513, 6591, and 6592.5 of the Revenue and Taxation Code. Effective January 1, 2002, this subdivision applies to interest imposed by any provision of the Sales and Use Tax Law. All or any part of such interest imposed may be relieved by the Board, in its discretion, under either of the following circumstances: 1. Where the failure to pay tax is due in whole or in part to an unreasonable error or delay by an employee of the Board acting in his or her official capacity. 2. Where failure to pay use tax on a vehicle or vessel registered with the Department of Motor Vehicles was the direct result of an error by the Department of Motor Vehicles in calculating the use tax. For the purposes of this subdivision, an error or delay shall be deemed to have occurred only if no significant aspect of the error or delay is attributable to an act of, or a failure to act by, the taxpayer. Any person seeking relief under this subdivision shall file with the Board a statement under penalty of perjury setting forth the facts on which the claim for relief is based and any other information which the Board may require. (F) Erroneous Refund. Operative for any action for recovery under Revenue and Taxation Code section 6961 on or after July 1, 1999, no interest shall be imposed on the amount of an erroneous refund by the Board until 30 days after the date on which the Board mails a notice of determination for repayment of the erroneous refund if the Board finds that neither the person liable for payment of tax nor any party related to that person had in any way caused an erroneous refund for which an action for recovery is provided under section 6961 of the Revenue and Taxation Code. The act of filing a claim for refund shall not be considered as causing the erroneous refund. (2) Late Payments Generally. Interest applies to the amount of all taxes, except prepayments of amounts of tax due and payable pursuant to section 6471 of the Revenue and Taxation Code, not paid within the time required by law from the date on which the amount of tax became due and payable until the date of payment. Interest applies to amounts due but not paid by any distributor or broker of motor vehicle fuel who fails to make a timely remittance of the prepayment of tax required pursuant to sections 6480.1 and 6480.3 of the Revenue and Taxation Code. Operative January 1, 1992, interest applies to amounts due but not paid by any producer, importer, or jobber of fuel as defined in section 6480.10 of the Revenue and Taxation Code who fails to make a timely remittance of the prepayment of tax required pursuant to sections 6480.16 and 6480.18 of the Revenue and Taxation Code. (3) Determinations. Except as otherwise provided in subdivisions (b)(1)(E) and (b)(1)(F) above, interest applies to all determinations from the date on which the amount of tax becomes due and payable until the date of payment. (4) Extensions of Time. In cases in which an extension of time for the filing of a return and the payment of tax has been granted, interest applies from the date on which the tax would have been due and payable had the extension not been granted until the date of payment. In cases in which an extension of time has been granted for making a prepayment of tax pursuant to section 6471 of the Revenue and Taxation Code, interest applies to the unpaid amount of the required prepayment at the same rate. (5) Refunds and Credits. (A) In General. If an overpayment is credited on amounts due from any person or is refunded, interest will be computed on the overpayment from the first day of the calendar month following the month during which the overpayment was made. A refund or credit shall be made of any interest imposed upon the person making the overpayment with respect to the amount being refunded or credited. Interest will be paid in the case of a refund, to the last day of the calendar month following the date upon which the person making the overpayment, if he or she has not already filed a claim, is notified by the board that a claim may be filed or the date upon which the refund is approved by the board, whichever date is the earlier; and in the case of a credit, to the same date as that to which interest is computed on the tax or amount against which the credit is applied. (B) Intentional or Careless Overpayments. Credit interest will be allowed on all overpayments, except when statutorily prohibited or in cases of intentional overpayment, fraud, negligence, or carelessness. Carelessness occurs if a taxpayer makes an overpayment which: 1) is the result of a computational error on the return or on its supporting schedules or the result of a clerical error such as including receipts for periods other than that for which the return is intended, failing to take allowable deductions, or using an incorrect tax rate; and 2) is made after the taxpayer has been notified in writing by the Board of the same or similar errors on one or more previous returns. (C) Waiver of Interest as Condition of Deferring Action on Claim. If any person who has filed a claim for refund requests the Board to defer action on the claim, the Board, as a condition to deferring action, may require the claimant to waive interest for the period during which the person requests the Board to defer action. (6) Improper Use of Resale Certificate. Interest applies to the taxes imposed upon any person who knowingly issues a resale certificate for personal gain or to evade the payment of taxes while not actively engaged in business as a seller. The interest is computed from the last day of the month following the quarterly period for which a return should have been filed and the amount of tax or any portion thereof should have been paid. (7) Untimeliness Caused by Disaster. A person may be relieved of the interest imposed by sections 6459, 6480.4, 6480.8, 6513, and 6591 of the Revenue and Taxation Code if the board finds that the person's failure to make a timely return or payment was occasioned by a disaster and was neither negligent nor willful. Such person shall file with the board a statement under penalty of perjury setting forth the facts upon which the claim for relief is based. For purposes of this section "disaster" means fire, flood, storm, tidal wave, earthquake or similar public calamity, whether or not resulting from natural causes. (c) Penalties. (1) Late Payments Generally. (A) Prepayments. 1. Any person required to make a prepayment who fails to make a prepayment before the last day of the monthly period following the quarterly period in which the prepayment became due and who files a timely return and payment for that quarterly period shall pay a penalty of 6 percent of the amount equal to 90 percent or 95 percent of the tax liability, as prescribed in Section 6471 of the Revenue and Taxation Code, for each of the periods during that quarterly period for which a required prepayment was not made. 2. If the failure to make a prepayment as described in (c)(1)(A)1. above is due to negligence or intentional disregard of the Sales and Use Tax Law or authorized regulations, the penalty shall be 10 percent instead of 6 percent. 3. Any person required to make a prepayment who fails to make a timely prepayment, but who makes such prepayment before the last day of the monthly period following the quarterly period in which the prepayment became due, shall pay a penalty of 6 percent of the amount of the prepayment. 4. If any part of a deficiency in prepayment is due to negligence or intentional disregard of the Sales and Use Tax Law or authorized regulations, a penalty of 10 percent of the deficiency shall be paid. The penalties provided in subparagraphs 2 and 4 of this subsection shall not apply to amounts subject to the provisions of sections 6484, 6485, 6511, 6514, and 6591 of the Revenue and Taxation Code (subparagraphs (c)(1)(B), (c)(2)(A) and (c)(2)(B) of this regulation) 5. A penalty of 25% shall apply to the amount of prepayment due but not paid by any distributor or broker of motor vehicle fuel who fails to make a timely remittance of the prepayment as required pursuant to sections 6480.1 and 6480.3 of the Revenue and Taxation Code. 6. Operative January 1, 1992, a penalty of 10 percent shall apply to the amount of prepayment due but not paid by any producer, importer, or jobber of fuel as defined in section 6480.10 of the Revenue and Taxation Code who fails to make a timely remittance of the prepayment as required pursuant to sections 6480.16 and 6480.18 of the Revenue and Taxation Code. This penalty shall be 25 percent if the producer, importer, or jobber knowingly or intentionally fails to make a timely remittance. (B) Other Late Payments. A penalty of 10 percent of the amount of all unpaid tax shall be added to any tax not paid in whole or in part within the time required by law. (C) Vehicles, Vessels and Aircraft. A purchaser of a vehicle, vessel or aircraft who registers it outside this state for the purpose of evading the payment of sales or use taxes shall be liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vehicle, vessel or aircraft. (2) Late Return Forms Generally. (A) Any person who fails to file a return in accordance with the due date set forth in section 6451 of the Revenue and Taxation Code or the due date established by the Board in accordance with section 6455 of the Revenue and Taxation Code, shall pay a penalty of 10 percent of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required. (B) Any person remitting taxes by electronic funds transfer shall, on or before the due date of the remittance, file a return for the preceding reporting period in the form and manner prescribed by the Board. Any person who fails to timely file the required return shall pay a penalty of 10 percent of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required. (3) Determinations. (A) Negligence or Intentional Disregard. A penalty of 10 percent of the amount of the tax specified in the determination shall be added to deficiency determinations if any part of the deficiency for which the determination is imposed is due to negligence or intentional disregard of the Sales and Use Tax Law or authorized regulations. (B) Failure to Make Return. A penalty of 10 percent of the amount of tax specified in the determination shall be added to all determinations made on account of the failure of any person to make a return as required by law. (C) Fraud or Intent to Evade. A penalty of 25 percent of the amount of the tax specified in a deficiency determination shall be added thereto if any part of the deficiency for which the determination is made is due to fraud or intent to evade the Sales and Use Tax Law or authorized regulations. In the case of a determination for failure to file a return, if such failure is due to fraud or an intent to evade the Sales and Use Tax Law or authorized regulations, a penalty of 25 percent of the amount required to be paid, exclusive of penalties, shall be added thereto in addition to the 10 percent penalty for failure to file a return. Fraud or intent to evade shall be established by clear and convincing evidence. A penalty of 50 percent applies to the taxes imposed upon any person who, for the purpose of evading the payment of taxes, knowingly fails to obtain a valid permit prior to the date in which the first tax return is due. The 50 percent penalty applies to the taxes determined to be due for the period during which the person engaged in business in this state as a seller without a valid permit and may be added in addition to the 10 percent penalty for failure to file a return. However, the 50 percent penalty shall not apply if the measure of tax liability over the period during which the person was engaged in business without a valid permit averaged $1000 or less per month. Also, the 50 percent penalty shall not apply to the amount of taxes due on the sale or use of a vehicle, vessel, or aircraft, if the amount is subject to the penalty imposed by section 6485.1 or 6514.1 of the Revenue and Taxation Code. (D) Nonpayment of Determinations. A penalty of 10 percent of the amount of the tax specified in the determination shall be added to any determination not paid within the time required by law. (4) Improper Use of Resale Certificate. A penalty of 10 percent applies to the taxes imposed upon any person who knowingly issues a resale certificate for personal gain or to evade the payment of taxes while not actively engaged in business as a seller. The penalty is 10 percent of the amount of tax or $500, whichever is greater, if the purchase is made for personal gain or to evade payment of taxes. (5) Direct Payment Permits. Every holder of a direct payment permit who gives an exemption certificate to a retailer for the purpose of paying that retailer's tax liability directly to the Board must make a proper allocation of that retailer's local sales and use tax liability and also its district transactions and use tax liability if applicable. Such allocation must be made to the cities, counties, city and county, redevelopment agencies, and district to which the taxes would have been allocated if they had been reported by that retailer. Allocations must be submitted to the board in conjunction with the direct payment permit holder's tax return on which the taxes are reported. If the local and district taxes are misallocated due to negligence or intentional disregard of the law, a penalty of 10 percent of the amount misallocated shall be imposed. (6) Failure to Obtain Evidence that Operator of Catering Truck Holds Valid Seller's Permit. Any person making sales to an operator of a catering truck who has been required by the Board pursuant to section 6074 of the Revenue and Taxation Code to obtain evidence that the operator is the holder of a valid seller's permit issued pursuant to section 6067 of the Revenue and Taxation Code and who fails to comply with that requirement shall be liable for a penalty of five hundred dollars for each such failure to comply. (7) Failure of Retail Florist to Obtain Permit. Any retail florist (including a mobile retail florist) who fails to obtain a seller's permit before engaging in or conducting business as a seller shall, in addition to any other applicable penalty, pay a penalty of five hundred dollars ($500). For purposes of this regulation, "mobile retail florist" means any retail florist who does not sell from a structure or retail shop, including, but not limited to, a florist who sells from a vehicle, pushcart, wagon, or other portable method, or who sells at a swap meet, flea market, or similar transient location. "Retail florist" does not include any flower or ornamental plant grower who sells his or her own products. (8) Relief from Penalty for Reasonable Cause. If the Board finds that a person's failure to make a timely return, payment, or prepayment, or failure to comply with the provisions of section 6074 of the Revenue and Taxation Code is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, the person may be relieved of the penalty provided by sections 6074, 6476, 6477, 6480.4, 6480.8, 6511, 6565, 6591, and 7051.2 of the Revenue and Taxation Code for such failure. Any person seeking to be relieved of the penalty shall file with the Board a statement under penalty of perjury setting forth the facts upon which the claim for relief is based. Section 6592 of the Revenue and Taxation Code, providing for the relief of certain penalties does not apply to the 10 percent penalty imposed for failure to make a timely prepayment under section 6478 of the Revenue and Taxation Code. (9) Tax Amnesty Program (Reporting Periods Beginning Before January 1, 2003). (A) If on or after April 1, 2005, the Board issues a deficiency determination upon a return filed under the amnesty program or upon any other nonreporting or underreporting of tax liability by a person who could have otherwise been eligible for amnesty as specified in sections 7071, 7072 and 7073 of the Revenue and Taxation Code, the Board shall impose penalties at a rate that is double the rate of penalties normally applicable. (B) Any taxpayer who could have applied for amnesty as specified in sections 7071, 7072 and 7073 of the Revenue Taxation Code but fails to do so, will be subject to a penalty of 50 percent of the interest computed under section 6591 of the Revenue and Taxation Code for the period beginning on the date the tax was due and ending on March 31, 2005. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6071, 6072, 6073, 6074, 6077, 6094.5, 6207, 6291-6294, 6422.1, 6452, 6455, 6459, 6476-6478, 6479.3, 6480.4, 6480.8, 6480.19, 6482, 6484, 6485, 6485.1, 6511-6514, 6514.1, 6537, 6565, 6591, 6591.5, 6592, 6593, 6593.5, 6596, 6901, 6907, 6908, 6936, 6964, 7051.2, 7073, 7074, 7076.5, 7101, 7152-7153, 7153.5 and 7155, Revenue and Taxation Code. s 1704. Whole Dollar Reporting-Computations on Returns or Other Documents. (a) General. Any amount required to be reported or shown on any form filed with the board, including any return, statement, supporting schedule, or other document, may be entered at the nearest whole dollar amount. For the purpose of the computation to the nearest whole dollar, a fractional part of a dollar shall be disregarded unless it amounts to one-half dollar ($0.50) or more, in which case the amount shall be increased to the next whole dollar. (b) Election to Use Whole Dollar Amounts. The election to report using whole dollar amounts must be made at the time of filing the return statement or other document. The election is irrevocable as to that return, statement or other document. However, a new election may be made on the return, statement, or other document filed for a subsequent reporting period. (c) Computation of Amount to be Reported or Shown. The provisions of paragraph (a) of this regulation apply only to cumulative amounts required to be reported or shown on a return, statement, or other document. The total amount to be reported at the nearest whole dollar must be computed from the aggregate sum of the individual items which include cents. (d) Computation of Interest and Penalties. If a return, statement, or other document is not filed, or the tax due is not paid, within the time required by law, the computation of any interest and penalty due shall be made from the amount of tax due, computed as provided in this regulation. If the interest and penalty is entered on the return, statement or other document, it may be entered at the nearest whole dollar amount. If the interest and penalty is computed and billed by the board, the billing will be issued showing the full amount due, including cents. Note: Authority cited: Section 7051, Revenue and Taxation Code; and Section 16302.2, Government Code. References: Sections 6452, 6453, 6471 and 7055, Revenue and Taxation Code. s 1705. Relief From Liability. (a) In General. A person may be relieved from the liability for the payment of sales and use taxes, including any penalties and interest added to those taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the Board to be due to reasonable reliance on: (1) Written advice given by the Board under the conditions set forth in subdivision (b) below, or (2) Written advice in the form of an annotation or legal ruling of counsel under the conditions set forth in subdivision (d) below; or (3) Written advice given by the Board in a prior audit of that person under the conditions set forth in subdivision (c) below. As used in this regulation, the term "prior audit" means any audit conducted prior to the current examination where the issue in question was examined. Written advice from the Board may only be relied upon by the person to whom it was originally issued or a legal or statutory successor to that person. Written advice from the Board which was received during a prior audit of the person under the conditions set forth in subdivision (c) below, may be relied upon by the person audited or by a legal or statutory successor to that person. The term "written advice" includes advice that was incorrect at the time it was issued as well as advice that was correct at the time it was issued, but, subsequent to issuance, was invalidated by a change in statutory or constitutional law, by a change in Board regulations, or by a final decision of a court of competent jurisdiction. Prior written advice may not be relied upon subsequent to: (1) the effective date of a change in statutory or constitutional law and Board regulations or the date of a final decision of a court of competent jurisdiction regardless that the Board did not provide notice of such action; or (2) the person receiving a subsequent writing notifying the person that the advice was not valid at the time it was issued or was subsequently rendered invalid. As generally used in this regulation, the term "written advice" includes both written advice provided in a written communication under subdivision (b) below and written advice provided in a prior audit of the person under subdivision (c) below. (b) Advice Provided in a Written Communication. (1) Advice from the Board provided to the person in a written communication must have been in response to a specific written inquiry from the person seeking relief from liability, or from his or her representative. To be considered a specific written inquiry for purposes of this regulation, representatives must identify the specific person for whom the advice is requested. Such inquiry must have set forth and fully described the facts and circumstances of the activity or transactions for which the advice was requested. (2) A person may write to the Board and propose a use tax reporting methodology for qualified purchases subject to use tax. If the Board concludes that the reporting method reflects the person's use tax liability for the defined population, then the Board may write to the person approving the use of the reporting method. The approval shall be subject to certain conditions. The following conditions shall be included in the approval: (A) The defined population of the purchases that will be included in the reporting method; (B) The percentage of purchases of the defined population that is subject to tax; (C) The length of time the writing shall remain in effect; (D) The definition of a significant or material change that will require rescinding the approved reporting method; and (E) Other conditions as required. The written approval of the use tax reporting methodology is void and shall not be relied upon for the purposes of Revenue and Taxation Code section 6596 if the taxpayer files a claim for refund for tax that had been reported based upon this reporting method. (c) Written Advice Provided in a Prior Audit. Presentation of the person's books and records for examination by an auditor shall be deemed to be a written request for the audit report. If a prior audit report of the person requesting relief contains written evidence which demonstrates that the issue in question was examined, either in a sample or census (actual) review, such evidence will be considered "written advice from the Board" for purposes of this regulation. A census (actual) review, as opposed to a sample review, involves examination of 100% of the person's transactions pertaining to the issue in question. For written advice contained in a prior audit of the person to apply to the person's activity or transaction in question, the facts and conditions relating to the activity or transaction must not have changed from those which occurred during the period of operation in the prior audit. Audit comments, schedules, and other writings prepared by the Board that become part of the audit work papers which reflect that the activity or transaction in question was properly reported and no amount was due are sufficient for a finding for relief from liability, unless it can be shown that the person seeking relief knew such advice was erroneous. (d) Annotations and Legal Rulings of Counsel. Advice from the Board provided to the person in the form of an annotation or legal ruling of counsel shall constitute written advice only if: (1) The underlying legal ruling of counsel involving the fact pattern at issue is addressed to the person or to his or her representative under the conditions set forth in subdivision (b) above; or (2) The annotation or legal ruling of counsel is provided to the person or his or her representative by the Board within the body of a written communication and involves the same fact pattern as that presented in the subject annotation or legal ruling of counsel. (e) Trade or Industry Associations. A trade or industry association requesting advice on behalf of its member(s) must identify and include the specific member name(s) for whom the advice is requested for relief from liability under this regulation. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6596, Revenue and Taxation Code. s 1705.1. Innocent Spouse Relief from Liability. (a) In General. A spouse claiming relief from liability for any sales or use tax, interest, penalties, and other amounts shall be relieved from such liability where all of the following requirements are met: (1) A liability is incurred under the Sales and Use Tax Law; (2) The liability is attributable to the nonclaiming spouse; (3) The spouse claiming relief establishes that he or she did not know of, and that a reasonably prudent person in the claiming spouse's circumstances would not have has reason to know of, the liability; and (4) It would be inequitable to hold the claiming spouse liable for the liability, taking into account whether the claiming spouse significantly benefited directly or indirectly from the liability, and taking into account all other facts and circumstances. (b) "Benefited." Whether a claiming spouse has benefited directly or indirectly from the liability will be determined by a review by the Board of all of the available evidence. Normal support payment is not a significant benefit for purposes of this determination. Normal support is measured relative to each family's standard of living. The claiming spouse will not be deemed to have benefited directly or indirectly from the liability solely as a result of normal support unless his or her lifestyle significantly improved during the periods of liability. Gifts received by the claiming spouse, or lavish or luxury purchases made by either spouse may be evidence that the claiming spouse benefited directly or indirectly from the liability. Evidence of direct or indirect benefit may consist of transfers of property, including transfers which may be received several years after the calendar quarter in which the liability occurred. For example, if a claiming spouse receives from the other spouse an inheritance of property or life insurance proceeds which are traceable to the liability, the claiming spouse will be considered to have benefited from that liability. Other factors considered may include desertion of the claiming spouse by the other spouse or that the spouses have become divorced or separated subsequent to the periods of liability. (c) Attribution. The determination of the spouse to whom items of liability are attributable shall be made without regard to community property laws. (1) A claim may be filed if, at the time relief is requested, the claiming spouse is no longer married to or is legally separated from the nonclaiming spouse, or the claiming spouse is no longer a member of the same household as the nonclaiming spouse. (2) With respect to a liability incurred as a result of a failure to file a return or an omission of an item from the return, attribution to one spouse may be determined by whether a spouse rendered substantial services as a retailer of taxable items related to the liability. If neither spouse rendered substantial services as a retailer, then the attribution of the liability shall be treated as community property. A liability incurred as a result of an erroneous deduction or credit shall be attributable to the spouse who caused that deduction or credit to be entered on the return. (d) Written Request for Relief. To seek relief under these provisions, a claiming spouse may submit a written request for relief setting forth the seller's permit number, the period for which relief is requested, and the specific grounds upon which the request for relief is based. (e) Statute of Limitations. These provisions shall apply to all calendar quarters for claims made no later than one year after the board's first contact with the spouse making the claim. Claims made after one year from the board's first contact with the spouse making the claim shall not apply to any calendar quarter that is more than five years from the return due date for nonpayment on a return, or five years from the finality date on the board-issued determination, whichever is later. No calendar quarters shall be eligible for relief under this regulation that have been closed by res judicata. (f) Refunds. A refund of any amounts under these provisions shall be subject to the requirements as set forth in Revenue and Taxation Code section 6901 through 6908, inclusive. (g) This regulation shall apply retroactively to liabilities arising prior to January 1, 1994. (h) Effective January 1, 2001, a spouse may be relieved of liability for any unpaid tax or deficiency under the Sales and Use Tax Law if, taking into account all the facts and circumstances, it is inequitable to hold the spouse liable for such amount attributable to any item for which relief is not available under subdivisions (a) through (d). A spouse may be considered for equitable relief under this subdivision only after a written claim for relief as an innocent spouse has been filed pursuant to subdivision (d). A spouse whose claim for equitable relief is denied may request that the claim be reconsidered by the Board. (1) Criteria for Equitable Relief. (A) Factors that may be considered for the purpose of granting equitable relief include, but are not limited to: 1. The claiming spouse is separated (whether legally or not) or divorced from the nonclaiming spouse. 2. The claiming spouse would suffer economic hardship if relief is not granted. 3. The claiming spouse, under duress from the nonclaiming spouse, did not pay the liability. To substantiate "duress," the claiming spouse must provide objective evidence. "Objective evidence" can include, but is not limited to, such documents as police reports, restraining orders, or counseling reports. 4. The claiming spouse did not know and had no reason to know about the items causing the understatement or that the tax would not be paid. 5. The nonclaiming spouse has a legal obligation under a divorce decree or agreement to pay the tax. (This obligation will not be considered a positive factor if the claiming spouse knew or had reason to know, at the time the divorce decree or agreement was entered into, that the nonclaiming spouse would not pay the tax.) 6. The tax for which the claiming spouse is requesting relief is attributable to the nonclaiming spouse. (B) Factors that may be considered for purposes of denying equitable relief include, but are not limited to: 1. The claiming spouse will not suffer economic hardship if relief is not granted. 2. The claiming spouse knew or had reason to know about the items causing the understatement or that the tax would be unpaid at the time the claiming spouse signed the return. 3. The claiming spouse received a significant benefit from the unpaid tax or items causing the understatement. 4. The claiming spouse has not made a good faith effort to comply with the Board's laws for the periods for which the claiming spouse is requesting relief or for subsequent periods of liability. 5. The claiming spouse has a legal obligation under a divorce decree or agreement to pay the tax. 6. The tax for which relief is being requested is attributable to the claiming spouse. (2) Conditions for Relief. The following conditions apply to claims for equitable relief: (A) The statutes of limitations provided for innocent spouse claims in subdivisions 1705.1(e) and (f) also apply to requests for equitable relief. (B) Claims for equitable relief may be filed on liabilities incurred prior to January 1, 2001, including liabilities incurred prior to January 1, 1994, as provided in subdivision (g). (i) The Board shall send notification by mail of the claim for relief from liability and the basis for that claim to the nonclaiming spouse. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6066, 6067, 6456 and 6901-6908, Revenue and Taxation Code. s 1706. Drop Shipments. (a) Definitions. For purposes of this regulation: (1) "Retailer engaged in business in this state" means and includes any person who would be so defined by Revenue and Taxation Code section 6203 if the person were a retailer. (2) "True retailer" means and includes a retailer who is not a retailer engaged in business in this state and who makes a sale of tangible personal property to a consumer in California. (3) "Drop shipment" means and includes a delivery of tangible personal property by an owner or former owner thereof, or factor or agent of that owner or former owner, to a California consumer pursuant to the instructions of a true retailer. (4) "Drop shipper" means and includes an owner or former owner thereof, or factor or agent of that owner or former owner, who makes a drop shipment of tangible personal property. (b) General. A drop shipment generally involves two separate sales. The true retailer contracts to sell tangible personal property to a consumer. The true retailer then contracts to purchase that property from a supplier and instructs that supplier to ship the property directly to the consumer. The supplier is a drop shipper. A drop shipper that is a retailer engaged in business in this state is reclassified as the retailer and is liable for tax as provided in this regulation. When more than two separate sales are involved, the person liable for the applicable tax as the drop shipper is the first person who is a retailer engaged in business in this state in the series of transactions beginning with the purchase by the true retailer. (c) Application of Tax (1) Unless the sale to the California consumer and the use by the California consumer are exempt from sales and use tax as otherwise provided in the Sales and Use Tax Law, a drop shipper must report and pay tax measured by the retail selling price of the property paid by the California consumer to the true retailer. (2) Except as provided in subdivision (c)(3) of this regulation, for reporting periods commencing on or after January 1, 2001, a drop shipper may calculate the retail selling price of its drop shipments of property based on its selling price of the property to the true retailer plus a mark-up of 10 percent (10%). A drop shipper may use a mark-up percentage lower than 10 percent if the drop shipper can document that the lower mark-up percentage accurately reflects the retail selling price charged by the true retailer to the California consumer. If a mark-up percentage lower than 10 percent is developed in an audit of the drop shipper, the drop shipper may use that percentage for the subsequent reporting periods provided the drop shipper has not had a significant change in business operations. Provided there is no significant change in business operations, if a later audit develops a higher percentage, the Board would not assess additional tax based on that newly computed mark-up percentage. However, for subsequent reporting periods, the lower mark-up from the previous audit cannot be used, and the drop shipper must instead use the higher percentage developed in the most recent audit or 10 percent, whichever is lower. (3) The procedures set forth in subdivision (c)(2) of this regulation do not apply to drop shipments of vehicles, vessels, and aircraft (also known as "courtesy deliveries"). For purposes of this regulation, "vehicle," "vessel," and "aircraft" are defined in Sections 6272, 6273, and 6274 of the Revenue and Taxation Code, respectively. (d) Examples. (1) ABC Co. is not a retailer engaged in business in this state. It contracts to sell tangible personal property to a California consumer. ABC Co. then contracts with XYZ Inc. to purchase the tangible personal property. ABC Co. instructs XYZ Inc. to ship the property directly to the California consumer. XYZ Inc. is a retailer engaged in business in this state. XYZ Inc. is the drop shipper liable for the applicable tax as the retailer. (2) ABC Co. is not a retailer engaged in business in this state. It contracts to sell tangible personal property to a California consumer. ABC Co. then contracts with XYZ Inc. to purchase the tangible personal property. ABC Co. instructs XYZ Inc. to ship the property directly to the California consumer. XYZ Inc. is a retailer engaged in business in California. XYZ Inc. then contracts with Supplies Corp. to purchase the tangible personal property, and instructs Supplies Corp. to ship the property directly to the California consumer. Whether or not Supplies Corp. is a retailer engaged in business in this state, XYZ Inc. is the drop shipper liable for the applicable tax as the retailer. (3) ABC Co. is not a retailer engaged in business in this state. It contracts to sell tangible personal property to a California consumer. ABC Co. then contracts with XYZ Inc. to purchase the tangible personal property. ABC Co. instructs XYZ Inc. to ship the property directly to the California consumer. XYZ Inc. is not a retailer engaged in business in this state. XYZ Inc. then contracts with Supplies Corp. to purchase the tangible personal property, and instructs Supplies Corp. to ship the property directly to the California consumer. Supplies Corp. is a retailer engaged in business in this state. Supplies Corp. is the drop shipper liable for the applicable tax as the retailer. (4) Dropshipper Company is a drop shipper of tangible personal property to California consumers on behalf of retailers who are not retailers engaged in business in this state. During its last audit, the Board developed and applied a mark-up of 8 1/2 percent. During the current audit, the Board develops a mark-up of 11 percent. The Board will apply a mark-up of 8 1/2 percent in the current audit provided there was no significant change in Dropshipper Company's business operations between the prior audit period and the current audit period. If there was a significant change in business operations, the Board will apply a mark-up percentage of 10 percent in the current audit. For periods after the current audit period, Dropshipper Company must use a 10 percent mark-up percentage. (5) In the previous example, Dropshipper Company sold only computer hardware during the period covered by the prior audit, but in the period covered by the current audit, it also made considerable sales of computer software. Since there was a significant change in Dropshipper Company's business operations after the prior audit period, the mark-up of 8 1/2 percent developed during that audit does not apply. The Board will apply a mark-up of 10 percent (because it is lower than the 11 percent mark-up developed during the audit). (e) Burden of Proof (1) An owner or former owner of tangible personal property, or a factor or agent of that owner or former owner, who, upon the instructions of that person's customer, delivers property to a California consumer is presumed to be a drop shipper liable for the applicable tax as the retailer. A person may overcome this presumption by accepting a timely resale certificate from that person's customer that includes a valid California seller's permit number. The acceptance of a resale certificate that does not include a valid California seller's permit number will not overcome the presumption. (2) A person otherwise qualifying as a drop shipper under this regulation can overcome the presumption that the delivery is to a consumer by accepting a timely and valid resale certificate in good faith from the person in California to whom the property is delivered. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6091 and 6203, Revenue and Taxation, Code. s 1707. Electronic Funds Transfer. (a) Definitions. (1) "Electronic funds transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape, so as to order, instruct, or authorize a financial institution to debit or credit an account. Electronic funds transfers shall be accomplished by an automated clearinghouse debit, an automated clearinghouse credit, or by Federal Reserve Wire Transfer. (2) "Automated clearinghouse" means any federal reserve bank, or an organization established in agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and which authorizes an electronic transfer of funds between these banks or bank accounts. (3) "Automated clearinghouse debit" means a transaction in which the state, through its designated depository bank, originates an automated clearinghouse transaction debiting the person's bank account and crediting the state's bank account for the amount due. Banking costs incurred for the automated clearinghouse debit transaction shall be paid by the state. (4) "Automated clearinghouse credit" means an automated clearinghouse transaction in which the person through his or her own bank, originates an entry crediting the state's bank account and debiting his or her own bank account. Banking costs incurred for the automated clearinghouse credit transaction charged to the state shall be paid by the person originating the credit. (5) "Federal Reserve Wire Transfer" means any transaction originated by a person and utilizing the national electronic payment system to transfer funds through the federal reserve banks, when that person debits his or her own bank account and credits the state's bank account. Electronic funds transfers pursuant to Revenue and Taxation Code section 6479.3 may be made by Federal Reserve Wire Transfer only if payment cannot, for good cause, be made according to subdivision (a)(1) of this regulation, and the use of Federal Reserve Wire Transfer is preapproved pursuant to subdivision (h) of this regulation. Banking costs incurred for the Federal Reserve Wire Transfer transaction charged to the person and to the state shall be paid by the person originating the transaction. (b) Participation. (1) Mandatory Participation. Prior to January 1, 2006, persons with an estimated monthly tax liability of twenty thousand dollars ($20,000) or more were required to remit amounts due by electronic funds transfer under procedures set forth in this regulation. Operative January 1, 2006, persons with an estimated monthly tax liability of ten thousand dollars ($10,000) or more are required to remit amounts due by electronic funds transfer under procedures set forth in this regulation. To identify mandatory participants, the Board shall conduct an annual review of all persons with sales and use tax permits. The review is performed by calculating an average monthly tax liability for a twelve-month period. Persons whose average monthly tax liability equals or exceeds the threshold for mandatory participation will be required to remit payments by electronic funds transfer. If a person did not begin making sales until after the beginning of the designated twelve-month review period, then the monthly tax liability will be calculated based upon the number of months in which sales were made (for example, in a calendar year review period, if the person obtains a seller's permit and begins making sales in May, the total tax liability would be divided by eight to determine the average monthly tax liability since there are eight months remaining in the evaluation period). Persons registering to report and pay sales or use tax for the first time, except certain successors, will not be required to participate in the electronic funds transfer program until an annual review is conducted. A successor will be regarded as having an estimated tax liability that equals or exceeds the threshold for mandatory participation in the electronic funds transfer program when the monthly tax liability of the predecessor equalled or exceeded the threshold for mandatory participation or the predecessor was a mandatory participant in the electronic funds transfer program. If the successor purchases a portion of a business that is required to participate in the mandatory electronic funds transfer program (e.g. a multiple outlet business that only sells some, but not all, of its locations), the average monthly tax liability of the purchased locations will be computed to determine if the successor meets the threshold to be identified as a mandatory participant in the electronic funds transfer program. After an annual review, if a person drops below the threshold for mandatory participation, the Board shall provide notification, in writing, that the status has been changed from mandatory participation to voluntary participation in the electronic funds transfer program. If, at that time, a person wishes to discontinue making electronic funds transfer payments, a written request must be made to the Board. Payments must continue to be remitted by electronic funds transfer until the taxpayer is notified by the Board, in writing, of an effective date of withdrawal from the program. Any person who fails to comply with the mandatory participation requirements under this subdivision shall be liable for penalty as provided under Revenue and Taxation Code section 6479.3. (2) Voluntary Participation. Any person not meeting the criteria for mandatory participation set forth in subdivision (b)(1) may participate in the program on a voluntary basis. A person must register with the Board prior to participation. If a person wishes to discontinue making electronic funds transfer payments, a written request must be made to the Board. Payments must continue to be remitted by electronic funds transfer until notified by the Board, in writing, of an effective date of withdrawal from the program. (c) Date of Payment. Payment is deemed complete on the date the electronic funds transfer is initiated, if the settlement to the state's demand account occurs on or before the banking day following the date the transfer is initiated. If the settlement to the state's demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs. (d) Filing of Returns. In addition to a tax payment made by electronic funds transfer, a return must be filed on or before the due date. Any person who fails to comply with this provision shall be subject to penalty charges as provided under Revenue and Taxation Code section 6479.3. (e) Failure to Pay by Electronic Funds Transfer. Any person required to pay taxes by electronic funds transfer must continue to do so until the Board advises that person otherwise in writing. Any person required to pay taxes by electronic funds transfer, as set forth in subdivision (b)(1), who does not pay through electronic funds transfer but uses another means (e.g., pay by check), will be assessed a penalty as provided by Revenue and Taxation Code section 6479.3. (f) Reporting Prepayments. Any person required to make prepayments will not receive and is not required to file prepayment forms; however, a payment must still be made by electronic funds transfer. (g) Zero Amount Due. When no tax is due for a given period, a zero dollar transaction must be made by electronic funds transfer or the Board must receive written notification stating that no tax is due for that period. (h) Emergencies. In emergency situations, a Federal Reserve Wire Transfer transaction may be used to transmit a payment. A Federal Reserve Wire Transfer is an electronic payment system used by federal reserve banks to transfer funds instantaneously. Generally, this method of payment is not approved for recurring transactions. Authorization must be received from the Board prior to making a payment by Federal Reserve Wire Transfer. The person who originates the transfer shall be responsible for any fees incurred by the Federal Reserve Wire Transfer transaction. Note: Authority cited: Sections 7051 and 6479.3, Revenue and Taxation Code. Reference: Sections 6479.3 and 6479.5, Revenue and Taxation Code. s 1802. Place of Sale and Use for Purposes of Bradley-Burns Uniform Local Sales and Use Taxes. (a) In General. (1) Retailers Having One Place of Business. For the purposes of the Bradley-Burns Uniform Local Sales and Use Tax Law, if a retailer has only one place of business in this state, all California retail sales of that retailer in which that place of business participates occur at that place of business unless the tangible personal property sold is delivered by the retailer or his or her agent to an out-of-state destination, or to a common carrier for delivery to an out-of-state destination. (2) Retailers Having More Than One Place of Business. (A) If a retailer has more than one place of business in this state but only one place of business participates in the sale, the sale occurs at that place of business. (B) If a retailer has more than one place of business in this state which participates in the sale, the sale occurs at the place of business where the principal negotiations are carried on. If this place is the place where the order is taken, it is immaterial that the order must be forwarded elsewhere for acceptance, approval of credit, shipment, or billing. For the purposes of this regulation, an employee's activities will be attributed to the place of business out of which he or she works. (3) Place of Passage of Title Immaterial. If title to the tangible personal property sold passes to the purchaser in California, it is immaterial that title passes to the purchaser at a place outside of the local taxing jurisdiction in which the retailer's place of business is located, or that the property sold is never within the local taxing jurisdiction in which the retailer's place of business is located. (b) Place of Sale in Specific Instances. (1) Vending Machine Operators. The place of sale is the place at which the vending machine is located. If an operator purchases property under a resale certificate or from an out-of-state seller without payment of tax and the operator is the consumer of the property, for purposes of the use tax, the use occurs at the place where the vending machine is located. (2) Itinerant Merchants. The place of sale with respect to sales made by sellers who have no permanent place of business and who sell from door to door for their own account shall be deemed to be in the county in which is located the seller's permanent address as shown on the seller's permit issued to him or her. If this address is in a county imposing sales and use taxes, sales tax applies with respect to all sales unless otherwise exempt. If this address is not in a county imposing sales and use taxes, he or she must collect the use tax with respect to property sold and delivered or shipped to customers located in a county imposing sales and use taxes. (3) Retailers Under Section 6015. Persons regarded by the Board as retailers under section 6015(b) of the Revenue and Taxation Code are regarded as selling tangible personal property through salespersons, representatives, peddlers, canvassers or agents who operate under or obtain the property from them. The place of sale shall be deemed to be: (A) the business location of the retailer if the retailer has only one place of business in this state, exclusive of any door-to-door solicitations of orders, or (B) the business location of the retailer where the principal negotiations are carried on, exclusive of any door-to-door solicitations of orders, if more than one in-state place of business of the retailer participates in the sale. The amendments to paragraph (b)(3) apply only to transactions entered into on or after July 1, 1990. (4) Auctioneers. The place of sale by an auctioneer is the place at which the auction is held. Operative July 1, 1996, auctioneers shall report local sales tax revenue to the participating jurisdiction (as defined in subdivision (c) below) in which the sales take place, with respect to auction events which result in taxable sales in an aggregate amount of $500,000 or more. (5) Out-of-State Retailers Who Maintain a Stock of Tangible Personal Property in California. Operative October 1, 1993, if an out-of-state retailer does not have a permanent place of business in this state other than a stock of tangible personal property, the place of sale is the city, county, or city and county from which delivery or shipment is made. Local tax collected by the Board for such sales will be distributed to that city, county, or city and county. (6) Factory-built School Buildings. The place of sale or purchase of a factory-built school building (relocatable classroom) as defined in paragraph (c)(4)(B) of Regulation 1521 (18 CCR 1521), Construction Contractors, is the place of business of the retailer of the factory-built school building regardless of whether sale of the building includes installation or whether the building is placed upon a permanent foundation. (7) Jet Fuel. (A) In General. The place of sale or purchase of jet fuel is the city, county, or city and county which is the point of the delivery of the jet fuel to the aircraft, if both of the following conditions are met: 1. The principal negotiations for the sale are conducted at the retailer's place of business in this state; and 2. The retailer has more than one place of business in the state. (B) The local sales or use tax revenue derived from the sale or purchase of jet fuel under the conditions set forth in this subdivision shall be transmitted by the Board, to the city, county, or city and county where the airport is located at which such delivery occurs. (C) Multi-Jurisdictional Airports. For the purposes of this regulation, the term "multi-jurisdictional airport" means and includes an airport that is owned or operated by a city, county, or city and county, that has enacted a state-administered local sales and use tax ordinance and as to which the owning or operating city, county, or city and county is different from the city, county, or city and county in which the airport is located. Through June 30, 2004, the local tax rate is imposed at 1.25% by Revenue and Taxation Code section 7202(a). Operative July 1, 2004, the local tax rate is imposed at 1% by Revenue and Taxation Code section 7203.1. The local tax revenue derived from of sales of jet fuel at a "multi-jurisdictional airport" shall, notwithstanding subdivision (B), be transmitted by the Board as follows: 1. In the case of the 0.25% local sales tax imposed by counties under Government Code section 29530 and Revenue and Taxation Code section 7202(a), or operative July 1, 2004, imposed by counties under Revenue and Taxation Code section 7203.1(a)(1), half of the revenue to the county which owns or operates the airport (or in which the city which owns or operates the airport is located) and half to the county in which the airport is located. 2. In the case of the remaining 1% of the local sales tax imposed by counties under Revenue and Taxation Code section 7202(a), or operative July 1, 2004, the remaining 0.75%, imposed by counties under Revenue and Taxation Code section 7203.1(a)(2), and in the case of the local sales tax imposed by cities at a rate of up to 1%, or operative July 1, 2004, at a rate of up to 0.75% under Revenue and Taxation Code section 7203.1(a)(2), and offset against the local sales tax of the county in which the city is located under Revenue and Taxation Code section 7202(h), half of the revenue to the city which owns or operates the airport and half to the city in which the airport is located. If the airport is either owned or operated by a county or is located in the unincorporated area of a county, or is owned or operated by a county and is located in the unincorporated area of a different county, the local sales tax revenue which would have been transmitted to a city under this subdivision shall be transmitted to the corresponding county. 3. Notwithstanding the rules specified in subdivisions 1. and 2., the following special rules apply: a. In the case of retail sales of jet fuel in which the point of the delivery of the jet fuel to the aircraft, as described in subdivision (A), is San Francisco International Airport, the Board shall transmit one-half of the local sales tax revenues derived from such sales to the City and County of San Francisco, and the other half to the County of San Mateo. b. In the case of retail sales of jet fuel in which the point of the delivery of the jet fuel to the aircraft, as described in subdivision (A), is Ontario International Airport, the Board shall transmit local sales taxes with respect to those sales in accordance with both of the following: c. All of the revenues that are derived from a local sales tax imposed by the City of Ontario shall be transmitted to that city. d. All of the revenues that are derived from a local sales tax imposed by the County of San Bernardino shall be allocated to that county. (D) Otherwise, as provided elsewhere in this regulation. (c) Allocation of Sales Tax and Application of Use Tax. Local sales tax is allocated to the place where the sale is deemed to take place under the above rules. The local use tax ordinance of the jurisdiction where the property at issue is put to its first functional use applies to such use. As used in this subdivision, the term "participating jurisdiction" means any city, city and county, or county which has entered into a contract with the Board for administration of that entity's local sales and use tax. Application of Use Tax Generally. (1) When the order for the property is sent by the purchaser directly to the retailer at an out-of-state location and the property is shipped directly to the purchaser in this state from a point outside this state, the transaction is subject to the local use tax ordinance of the participating jurisdiction where the first functional use is made. Operative July 1, 1996, for transactions of $500,000 or more, except with respect to persons who register with the Board to collect use tax under Regulation 1684(c) (18 CCR 1684), the seller shall report the local use tax revenues derived therefrom directly to such participating jurisdiction. (2) Operative July 1, 1996, if a person who is required to report and pay use tax directly to the Board makes a purchase in the amount of $500,000 or more, that person shall report the local use tax revenues derived therefrom to the participating jurisdiction in which the first functional use of the property is made. The amendments to paragraph (b)(4) and new paragraph (c) shall apply prospectively only to transactions entered into on or after July 1, 1996. New paragraph (c) shall not apply to lease transactions. Note: Authority cited: Sections 7051 and 7205, Revenue and Taxation Code. Reference: Sections 6012.6, 6015, 6359, 6359.45, 7202, 7204.03 and 7205, Revenue and Taxation Code. s 1803. Application of Tax. (a) Sales Tax. (1) In General. Except as stated below, in any case in which state sales tax is applicable, state-administered Bradley-Burns uniform local sales tax is also applicable, if the place of sale is in a county imposing a state-administered local tax. In any case in which state sales tax is inapplicable, state-administered local sales tax is also inapplicable. Thus, if title to the property sold passes to the purchaser at a point outside this state, state-administered local sales tax does not apply regardless of participation in the transaction by a California retailer. As explained in paragraphs (b) and (c), the use tax may apply. If so, the retailer is required to collect the use tax and pay it to the board. Gross receipts from sales of tangible personal property subject to the local tax shall include delivery charges, when such charges are subject to the state sales or use tax. (2) Exception. State-administered local sales tax does not apply to certain sales of tangible personal property to operators of aircraft to be used or consumed principally outside the county in which the sale is made if such property is to be used or consumed directly and exclusively in the use of the aircraft as common carriers of persons or property under the authority of the laws of the State of California, the United States, or any foreign government. On and after July 1, 1972, for county tax purposes this exemption is limited to 80 percent of the county tax. (b) Use Tax. State-administered local use tax applies if the purchase is made from a retailer on or after the effective date of the local taxing ordinance and the property is purchased for use in a jurisdiction having a state-administered local tax and is actually used there, provided any one of the following conditions exist: (1) Title to the property purchased passes to the purchaser at a point outside this state; (2) The place of sale is in this state but not in a jurisdiction having a state-administered local tax; (3) The place of sale is in a jurisdiction having a state-administered local tax and there is an exemption of the sale of the property from the sales tax but there is no exemption of the use of the property from the use tax; (4) The property is purchased under a valid resale certificate. State-administered local use tax does not apply to the storing, keeping, retaining, processing, fabricating or manufacturing of tangible personal property for subsequent use solely outside the state or for subsequent use solely in a county not imposing a local use tax. (c) Collection of Use Tax by Retailers. Retailers engaged in business in this state and making sales of tangible personal property, the storage, use tax, are required to collect the tax from the purchaser. It is immaterial that the retailer might not be engaged in business in the particular county or city in which the purchaser uses the property. Retailers who are not engaged in business in this state may apply for a certificate of Registration-Use Tax. Holders of such certificates are required to collect tax from purchasers, give receipts therefor, and pay tax to the board in the same manner as retailers engaged in business in this state. As used in this regulation, the term "Certificate of Registration-Use Tax" shall include Certificate of Authority to Collect Use Tax issued prior to September 11, 1957. (d) Leases. If a lease is continuing sale, or a continuing purchase, for the purposes of state tax, it shall be a continuing sale, or a continuing purchase, for the purpose of local tax. If a lease is neither a continuing sale nor a continuing purchase for the purposes of state tax, it shall be neither a continuing sale nor a continuing purchase for the purposes of local tax. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6008, 6009.1, 6203, 6352, 6385, 7202, 7203 and 7205, Revenue and Taxation Code. s 1803.5. Long-Term Leases of Motor Vehicles. (a) PLACE OF USE. (1) With respect to the long-term lease of a new or used motor vehicle, the place of use for the reporting and transmittal of the local use tax shall be determined as follows. (A) If the lessor is a California new motor vehicle dealer or leasing company, the place of use of the leased new or used vehicle shall be deemed to be the participating jurisdiction in which is located the lessor's place of business at which the lease is negotiated (as determined under Regulation 1802). (B) If a lessor who is not a California new motor vehicle dealer or leasing company purchases the vehicle from a new motor vehicle dealer or leasing company, the place of use of the leased vehicle shall be deemed to be the participating jurisdiction in which is located the place of business of the new motor vehicle dealer or leasing company from which the lessor purchased the vehicle. (C) If a lessor who is not a California new motor vehicle dealer or leasing company purchases a new motor vehicle from a person other than a new motor vehicle dealer, or a used motor vehicle from any source, the place of use of the leased vehicle shall continue to be the participating jurisdiction in which the lessee resides and shall be distributed to that jurisdiction through the countywide pool of the county in which the jurisdiction is located. (2) The place of use as determined by subdivisions (a)(1)(A) and (a)(1)(B) shall be the place of use for the duration of the lease contract, notwithstanding the fact that the lessor may sell the vehicle and assign the lease contract to a third party or the lessee may change his or her place of residence. The fact that the lessor may sell the vehicle and assign the lease contract to a third party is also not relevant to the determination of the place of use under subdivision (a)(1)(C). (b) DEFINITIONS. (1) As used in this regulation, the term "motor vehicle" means a passenger vehicle (designed to carry no more than 10 persons, including the driver), such as an automobile, minivan, or sport-utility vehicle. The term also includes light-duty pickup trucks rated less than one (1) ton. The term does not include a house car. (2) Notwithstanding any other provision, as used in this regulation the term "long-term lease" means the lease of a motor vehicle for a term exceeding four months. (3) Notwithstanding any other provision, as used in this regulation the term "lessor" means a person who, for a term exceeding four months, leases or offers for lease, negotiates or attempts to negotiate a lease, or induce any person to lease a motor vehicle, and who receives or expects to receive a commission, money, brokerage fees, profit or any other thing of value from the lessee of that vehicle. (4) As used in this regulation, the term "dealer" means a person who, as defined under Vehicle Code section 285, is engaged wholly or in part in the business of selling motor vehicles or buying or taking in trade, motor vehicles for the purpose of resale, selling, or offering for sale, or consigned to be sold, or otherwise dealing in motor vehicles, whether or not such vehicles are owned by such person. The term "dealer" does not include a person who is solely engaged in the business of leasing. (5) As used in this regulation, the term "leasing company" is determined on a location-by-location basis. "Leasing company" means a location of a motor vehicle dealer who originates lease contracts with lessees and does not sell or assign such contracts, provided the annual lease receipts from leases of motor vehicles originated at that location are equal to or greater than $15 million, calculated for the previous calendar year. Once a location is a leasing company for purposes of this regulation, it remains a leasing company unless and until such status is expressly revoked in writing by the Board. (6) As used in this regulation, the term "new motor vehicle dealer" means a dealer as defined in subdivision (b)(4) who acquires for resale or lease new and unregistered motor vehicles from manufacturers or distributors of such motor vehicles. (7) The provisions of subdivision (a) do not apply to leases of motor vehicles that are considered mobile transportation equipment (MTE) under Regulation 1661, except for pickup trucks rated less than one (1) ton. Although pickup trucks are still considered MTE, the local use tax revenues derived from qualifying leases of pickup trucks rated less than one (1) ton shall be reported pursuant to the terms of subdivision (a). (8) The "place of business" shall be determined under Regulation 1802. (c) If the lessor is located out of state and purchases the vehicle from a source other than one listed in subdivision (a)(1), the place of use of the vehicle shall remain the residence of the lessee, and the use tax revenue derived from such lease shall be distributed to that place through the countywide pool of the county in which the lessee resides. (d) The rules regarding local use tax distribution set forth in subdivision (a)(1) shall be applied each time a motor vehicle is leased for a long term, as defined in this regulation. As a result, when a lease is terminated and the vehicle is acquired by a new lessee, the local use tax revenue derived from that transaction shall be distributed to the participating jurisdiction entitled thereto under the facts and circumstances of that lease. Where, however, the lease is structured as a series of short-term leases but is in fact a long-term lease, as shown by the course of performance of the parties (for example, same lessor, same lessee, same lease terms), the local use tax revenues derived therefrom shall be distributed to the same participating jurisdiction throughout the duration of the transaction. For example, government agencies frequently structure their long-term leases as a series of one-year leases due to funding restrictions. In that case, the agency shall be treated as bound for the full term notwithstanding any right it may have to terminate the contract in the event that sufficient funds are not appropriated to pay amounts due under the contract. (e) OPERATIVE DATES. The provisions of this regulation applicable to leases by and purchases for lease from a California new motor vehicle dealer shall apply to lease transactions entered into on or after January 1, 1996. The provisions of this regulation applicable to leases by and purchases for lease from a leasing company shall apply to lease transactions entered into on or after January 1, 1999. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 7205.1, Revenue and Taxation Code. s 1804. Public Utilities. s 1805. Aircraft Common Carriers. (a) Definition - "Common Carriers." As used herein, the term "common carriers" means persons who engage in the business of transporting persons or property for hire or compensation and who offer their services indiscriminately to the public or to some portion of the public. (b) Aircraft Common Carriers. (1) The state-administered Bradley-Burns local sales tax does not apply to sales of tangible personal property to operators of aircraft to be used or consumed principally outside the county in which the sale is made if such property is used or consumed directly and exclusively in the use of such aircraft as common carriers of persons or property under the laws of this state, the United States, or any foreign government. Tax applies, however, to sales of fuel and petroleum products on and after July 29, 1991. Exemption rates and their effective dates are provided in the Appendix. (2) The state-administered Bradley-Burns local use tax does not apply to the storage, use, or other consumption of tangible personal property purchased by operators of aircraft when such property is used or consumed by such operators directly and exclusively in the use of such aircraft as common carriers of persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the laws of this state, the United States, or any foreign government. Effective July 29, 1991, this exemption is not available for the storage, use, or other consumption of fuel and petroleum products. This exemption is in addition to that provided in sections 6366 and 6366.1 of the Revenue and Taxation Code. (c) Conditions of Exemption. The exemption for operators of aircraft common carriers applies only if the property is used directly and exclusively in the exempt activity. This exemption is limited to supplies and equipment (excluding fuel and petroleum products effective July 29, 1991) used or consumed directly in the carriage of persons or property. It does not include office or shop equipment or supplies or any other property not directly used or consumed in the carriage of persons or property. (d) Leases. If property is leased to an operator of an aircraft common carrier under a lease which is a continuing sale or a continuing purchase, unless otherwise exempted, either the use tax or sales tax applies to the gross receipts from the lease during such period of time that the property is in a taxing jurisdiction. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 7202, 7203 and 7203.1, Revenue and Taxation Code. Appendix Form of Exemption Certificate for Claiming Exemption Under Regulations 1805 and 1825. (a) Certificate Necessary to Support Exemption. All purchasers of tangible personal property claiming exemption from Bradley-Burns local taxes under the provisions of Regulation 1805 or from both Bradley-Burns local taxes and district transactions (sales) and use taxes under Regulation 1825 should file with the seller an exemption certificate in the form shown below. On and after July 1, 1972, for purposes of the Bradley-Burns local taxes, this exemption is limited to 80 percent of the 1.25 percent local tax (i.e., 1%); and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, this exemption is limited to 75 percent of the 1 percent local tax (i.e., .75%). (b) Form of Certificate. Aircraft Common Carrier. The following certificate may be used by a purchaser claiming exemption under Regulation 1825 from district transactions (sales) and use taxes, and/or claiming partial exemption under Regulation 1805 from Bradley-Burns local taxes which: On or before June 30, 2004 is 1 percent; and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, is .75 percent: "The purchaser hereby certifies that the purchaser is the operator of aircraft as a common carrier of persons or property and that the property purchased will be used or consumed principally outside the county in which the sale is made and will be used or consumed directly and exclusively in the use of such aircraft as a common carrier of persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the laws of (check which is applicable) (1) the State of California (2) the United States (3) __________ (Insert the name of the foreign government) "The purchaser agrees that if the property is used in some other manner or some other purpose, the purchaser will report and pay the tax measured by the purchase price of the property. "This certificate is given to claim: (check which is applicable) (1) Partial exemption from Bradley-Burns local tax only which: On or before June 30, 2004 is 1 percent; and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, is .75 percent (2) Exemption from district tax only (3) Both exemption from district tax and partial exemption from Bradley-Burns local tax which: On or before June 30, 2004 is 1 percent; and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, is .75 percent. "Description of property to be purchased __________ __________ __________ __________ Name of Seller __________ __________ Purchaser __________ __________ Address __________ __________ Dated __________" s 1806. Construction Contractors. (a) In General. All of the provisions of the state Sales and Use Tax Law and regulations adopted thereunder relating to construction contractors (other than those relating to the rate of tax) are applicable to state-administered local sales and use taxes. (b) Jobsite Is Place of Business. The jobsite is regarded as a place of business of a construction contractor or subcontractor and is the place of sale of "fixtures " furnished and installed by contractors or subcontractors. The place of use of "materials" is the jobsite. Accordingly, if the jobsite is in a county having a state-administered local tax, the sales tax applies to the sale of the fixtures, and the use tax applies to the use of the materials unless purchased in a county having a state-administered local tax and not purchased under a resale certificate. If the jobsite is in a county without a state-administered local tax, state-administered local sales tax will not apply to the sale of the fixtures even though the contractor's principal place of business is in a county with such a tax. If fixtures are purchased by a contractor tax paid in a county having a state-administered local tax, the contractor, upon installing the fixtures in a county without such a tax, is entitled to a credit for the local tax of the place of purchase. The place of sale or purchase of a factory-built school building (relocatable classroom) as defined in paragraph (c)(4)(B) of Regulation 1521 (18 CCR 1521), Construction Contractors, is the place of business of the retailer of the factory-built school building regardless of whether sale of the building includes installation or whether the building is placed upon a permanent foundation. (c) United States Contractors. United States contractors are consumers of both materials and fixtures, and the place of use of both is the jobsite. Accordingly, if the jobsite is in a county having a state-administered local tax, the use tax applies to the use of the materials and fixtures unless purchased in a county having a state-administered local tax and not purchased under a resale certificate. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6010, inclusive, 6012.6, 6015, 6384, 7202 and 7203, Revenue and Taxation Code. s 1807. Process for Reviewing Local Tax Reallocation Inquiries. (a) Definitions. For inquiries under Revenue and Taxation Code section 6066.3, see subdivision (g) of this regulation. (1) Inquiring Jurisdictions and their Consultants (IJC). "Inquiring Jurisdictions and their Consultants (IJC)" means any city, county, city and county, or transactions and use tax district of this state which has adopted a sales or transactions and use tax ordinance and which has entered into a contract with the Board to perform all functions incidental to the administration or operation of the sales or transactions and use tax ordinance of the city, county, city and county, or transactions and use tax district of this state. Except for submittals under Revenue and Taxation Code section 6066.3, IJC also includes any consultant that has entered into an agreement with the city, county, city and county, or transactions and use tax district, and has a current resolution filed with the Board which authorizes one (or more) of its officials, employees, or other designated persons to examine the appropriate sales, transactions, and use tax records of the Board. (2) Claim (Inquiry) of Incorrect or Non Distribution of Local Tax. Except for submittals under Revenue and Taxation Code section 6066.3, "claim or inquiry" means a written request from an IJC for investigation of suspected improper distribution of local tax. The inquiry must contain sufficient factual data to support the probability that local tax has been erroneously allocated and distributed. Sufficient factual data must include at a minimum all of the following for each business location being questioned: (A) Taxpayer name, including owner name and fictitious business name or d.b.a. (doing business as) designation. (B) Taxpayer's permit number or a notation stating "No Permit Number." (C) Complete business address of the taxpayer. (D) Complete description of taxpayer's business activity or activities. (E) Specific reasons and evidence why the taxpayer's allocation is questioned. In cases where it is submitted that the location of the sale is an unregistered location, evidence that the unregistered location is a selling location or that it is a place of business as defined by Regulation 1802 must be submitted. In cases that involve shipments from an out-of-state location and claims that the tax is sales tax and not use tax, evidence must be submitted that there was participation by an in-state office of the out-of-state retailer and that title to the goods passed in this state. (F) Name, title, and phone number of the contact person. (G) The tax reporting periods involved. (3) Date of Knowledge. "Date of knowledge" shall be the date the inquiry of suspected improper distribution of local tax that contains the facts required by subdivision (a)(2) of this regulation is received by the Board, unless an earlier such date is operationally documented by the Board. If the IJC is not able to obtain the above minimum factual data, but provides a letter with the inquiry documenting IJC efforts to obtain each of the facts required by subdivision (a)(2) of this regulation, the Board will use the date this inquiry is received as the date of knowledge. (4) Board Management. "Board Management" consists of the Executive Director, Chief Counsel, Assistant Chief Counsel for Business Taxes, and the Deputy Director of the Sales and Use Tax Department. (b) Inquiries. (1) Submitting Inquiries. Every inquiry of local tax allocation must be submitted in writing and shall include the information set forth in subdivision (a)(2) of this regulation. Except for submittals under Revenue and Taxation Code section 6066.3, all inquiries are to be sent directly to the Allocation Group in the Refund Section of the Board's Sales and Use Tax Department. (2) Acknowledgement of Inquiry. The Allocation Group will acknowledge inquiries. Acknowledgement of receipt does not mean that the inquiry qualifies to establish a date of knowledge under subdivision (a)(2) of this regulation. The Allocation Group will review the inquiry and notify the IJC if the inquiry does not qualify to establish a date of knowledge. (c) Review Process. (1) Review by Allocation Group Supervisor. The Allocation Group will investigate all accepted inquiries. If the Allocation Group concludes that a misallocation has not occurred and recommends that a request for reallocation be denied, the IJC will be notified of the recommendation and allowed 30 days from the date of mailing of the notice of denial to contact the Allocation Group Supervisor to discuss the denial. The Allocation Group's notification that a misallocation has not occurred must state the specific facts on which the conclusion was based. If the IJC contacts the Allocation Group Supervisor, the IJC must state the specific facts on which its disagreement is based, and submit all additional information in its possession that supports its position at this time. (2) Review by Refund Section Supervisor. Subsequent to the submission of additional information by the IJC, if the Allocation Group Supervisor upholds the denial, the IJC will be advised in writing of the decision and that it has 30 days from the date of mailing of the decision to file a "petition for reallocation" with the Refund Section Supervisor. The petition for reallocation must state the specific reasons of disagreement with the Allocation Group Supervisor's findings. If a petition for reallocation is filed by the IJC, the Refund Section Supervisor will review the request for reallocation and determine if any additional staff investigation is warranted prior to making a decision. If no basis for reallocation is found, the petition will be forwarded to the Local Tax Appeals Auditor. (3) Review by Local Tax Appeals Auditor. After the petition is forwarded to the Local Tax Appeals Auditor a conference between the Local Tax Appeals Auditor and the IJC will be scheduled. The IJC may, however, at its option, provide a written brief instead of attending the conference. If a conference is held, the Local Tax Appeals Auditor will consider oral arguments, as well as review material previously presented by both the IJC and the Sales and Use Tax Department. The Local Tax Appeals Auditor will prepare a written Decision and Recommendation (D&R) detailing the facts and law involved and the conclusions reached. (4) Review by Board Management. If the D&R's recommendation is to deny the petition, the IJC will have 30 days from the date of mailing of the D&R to file a written request for review of the D&R with Board Management. The request must state the specific reasons of disagreement with the D&R and submit any additional information that supports its position. Board Management will only consider the petition and will not meet with the IJC. The IJC will be notified in writing of the Board Management's decision. If a written request for review of the D&R is not filed with Board Management within the 30-day period, the D&R becomes final at the expiration of that period. (5) Review by Board Members. If Board Management's decision is adverse to the IJC, the IJC may file a petition for hearing by the Board. The petition for hearing must state the specific reason for disagreement with Board Management findings. (A) Petition for Hearing. The IJC shall file a petition for hearing with the Board Proceedings Division within 90 days of the date of mailing of Board Management's decision. If a petition for hearing is not filed within the 90-day period, the Board Management's decision becomes final at the expiration of that period. (B) Persons to be Notified of the Board Hearing. After receiving the IJC's petition for hearing, the Board Proceedings Division will notify the IJC and the following persons of the Board hearing: 1. The taxpayer(s) whose allocations are the subject of the petition. 2. All jurisdictions that would be substantially affected if the Board does not uphold the taxpayer's original allocation (including the jurisdictions within the statewide and countywide pools that would gain or lose money solely as a result of a reallocation to or from the pools in which they participate). For the purpose of this subdivision a jurisdiction is "substantially affected" if its total reallocation would increase or decrease by the amount of 5% of its average quarterly allocation (generally, the prior four calendar quarters) or $50,000, whichever is less, as a result of a reallocation of the taxpayer's original allocation. The notification will state that the claimed misallocation is being placed on the Board's Hearing Calendar to determine the proper allocation and that the IJC and all jurisdictions so notified are considered parties to the hearing. (C) The Hearing and Parties to the Hearing. The petitioning IJC and all jurisdictions notified of the Board hearing pursuant to subdivision (c)(5)(B) are parties to the Board hearing. The taxpayer, however, shall not be considered a "party" within the meaning of this regulation unless it actively participates in the hearing process by either filing a brief or making a presentation at the hearing. The hearing shall be conducted in accordance with sections 5070 to 5087 of the Rules of Practice. The Board will make a final decision at the hearing on the proper allocation. The Board's decision exhausts all parties' administrative remedies on the matter. (D) Presentation of New Evidence. If new arguments or evidence not previously presented at the prior levels of review are presented after Board Management's review and prior to the hearing, the Board Proceedings Division shall forward the new arguments or evidence to the Local Tax Appeals Auditor for review and recommendation to the Board. Notwithstanding subdivision (c)(5)(C) of this regulation, no new evidence or arguments not previously presented at the prior levels of review or considered by the Local Tax Appeals Auditor may be presented at the Board hearing. (d) Time Limitations. (1) An IJC will be limited to one 30-day extension of the time limit established for each level of review through the Board Management level. (2) If action is not taken beyond acknowledgement on any inquiry for a period of six months at any level of review, the IJC may request advancement to the next level of review. For the purpose of these procedures, "action" means taking the steps necessary to resolve the inquiry. (3) By following the time limits set forth in subdivisions (c), (d)(1) and (d)(2), any date of knowledge established by the original inquiry will remain open even if additional supporting information is provided prior to closure. If the time limits or any extensions are not met, or if closure has occurred, any additional supporting documentation submitted will establish a new date of knowledge as of the date of receipt of the new information. (e) Appeal Rights of Jurisdictions That Will Lose Revenue as the Result of a Reallocation. (1) If at any time during the review process prior to Board hearing, the Board's investigation determines that a misallocation has occurred, any jurisdiction that will lose 5% of its average quarterly allocation (generally, the prior four calendar quarters) or $50,000, whichever is less, will be informed of the decision and be allowed 30 days from the date of mailing the notice, to contact the Allocation Group to discuss the proposed reallocation. The losing jurisdiction may follow the same appeals procedure as described in subdivisions (c) and (d) of this regulation. "Losing jurisdiction" includes a gaining jurisdiction where the original decision in favor of the gaining jurisdiction was overturned in favor of a previously losing jurisdiction. The reallocation will be postponed until the period for the losing jurisdiction to request a hearing with the Allocation Group has expired. (2) If the losing jurisdiction contacts the Allocation Group prior to Board hearing, and subsequently petitions the proposed reallocation, the reallocation postponement will be extended pending the final outcome of the petition. (f) Limitation Period for Redistributions. Redistributions shall not include amounts originally distributed earlier than two quarterly periods prior to the quarterly period in which the Board obtains knowledge of the improper distribution. (g) Application to Section 6066.3 Inquiries. (1) The procedures set forth herein for submitting information to the Board concerning improper distributions are in addition to, but separate and apart from, any procedures established under the authority of Revenue and Taxation Code section 6066.3 for making inquiries regarding improper distributions. If inquiries regarding suspected improper distribution of local tax are received both under the procedures set forth herein and section 6066.3, duplicate submissions will not be processed. The date of the earliest submission shall be controlling as to whether the request is to be handled under the provisions of this regulation or section 6066.3, and the date of knowledge shall be established under the controlling procedure. (2) The terms and procedures set forth in subdivision (c)(2) through (c)(5) of this regulation shall also apply to appeals from reallocation determinations made under Revenue and Taxation Code section 6066.3. (h) The provisions of this regulation shall apply to reallocation inquiries and appeals filed after January 1, 2003. Inquiries and appeals filed prior to this date shall continue to be subject to the existing inquiries and appeals procedures contained in the "Process for Reviewing Reallocation Inquiries", (June 1996, amended October 1998) incorporated herein by reference in it entirety. However, for inquiries filed prior to January 1, 2003, the IJC may elect in writing to proceed under the provisions of this regulation as to appeals not already decided or initiated. In such cases, failure to make such written election prior to appealing to the next step of review under the existing procedures shall constitute an election not to proceed under the provisions of this regulation. If written election to proceed under the provisions of this regulation is made, the provisions of this regulation become applicable the date the election is received by the Board. Neither election shall be subject to revocation. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 7209 and 7223, Revenue and Taxation Code. s 1821. Foreword. Transactions (sales) and use taxes imposed by certain special taxing districts are administered by the State Board of Equalization. These taxes incorporate most of the provisions of the state Sales and Use Tax Law and generally have the same tax base as the Bradley-Burns uniform local sales and use taxes adopted in accordance with the provisions of Part 1.5 of Division 2 of the Revenue and Taxation Code. The primary differences between the transactions (sales) and use taxes and the state and Bradley-Burns uniform local sales and use taxes are: (1) The transactions (sales) tax of a district is not applicable to the gross receipts from the sale or lease of tangible personal property which the seller or the lessor is obligated to furnish for a fixed price pursuant to a contract entered into prior to the operative date of the district transactions (sales) and use taxes ordinance. (2) The transactions (sales) tax does not apply to gross receipts from the sale of property to be used outside the district when the property is shipped to a point outside the district, pursuant to the contract of sale, by delivery to such point by the retailer or his agent, or by delivery by the retailer to a carrier for shipment to a consignee at such point. If thereafter the purchaser brings the property into the district for use there and uses it there, the district use tax may apply and the purchaser may be required to pay that tax. (3) The use tax of a district is not applicable to the storage, use or other consumption in the district of tangible personal property which the purchaser or lessee is obligated to purchase or lease for a fixed price pursuant to a contract or lease entered into prior to the operative date of the district transactions (sales) and use tax ordinance. (4) The district use tax must be collected by retailers engaged in business in the district and paid to the board when the retailer ships or delivers the property sold into the district or participates within the district in making the sale. The state and Bradley-Burns uniform local use tax must be collected by retailers engaged in business in this state. (5) Beginning January 1, 1988, retailers of vehicles, aircraft, or undocumented vessels described in paragraph (c)(4) of Regulation 1827 (18 CCR 1827) are engaged in business in a district imposing a state-administered transactions use tax and are required to collect the use tax from the purchaser and pay it to the board when such vehicles, aircraft or undocumented vessels are registered or licensed in that district. The district use tax applies to the storage, use or other consumption in the district of tangible personal property purchased after the operative date of the ordinance for storage, use or other consumption in the district. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 7251-7273, Revenue and Taxation Code. s 1822. Place of Sale for Purposes of Transactions (Sales) and Use Taxes. (a) In General. (1) Retailers Having One Place of Business. For the purposes of the Transactions (Sales) and Use Tax Law, if a retailer has only one place of business in this state, all California retail sales of that retailer occur at that place of business unless the tangible personal property sold is delivered by the retailer or his agent or her to an out-of-state destination, or to a common carrier for delivery to an out-of-state destination. (2) Retailers Having More Than One Place of Business. If a retailer has more than one place of business in this state which participate in the sale, the sale occurs at the place of business where the principal negotiations are carried on. If this place is the place where the order is taken, it is immaterial that the order must be forwarded elsewhere for acceptance, approval of credit, shipment, or billing. For the purposes of this regulation, an employee's activities will be attributed to the place of business out of which he or she works. (3) Place of Passage of Title Immaterial. If title to the tangible personal property sold passes to the purchaser in California, it is immaterial that title passes to the purchaser outside the taxing jurisdiction in which the retailer's place of business is located. (b) Place of Sale in Specific Instances. (1) Vending Machine Operators. The place of sale is the place at which the vending machine is located. If an operator purchases property under a resale certificate or from an out-of-district seller without payment of tax and the operator is the consumer of the property, for purposes of the use tax, the use occurs at the place where the vending machine is located. (2) Itinerant Merchants. The place of sale with respect to sales made by sellers who have no permanent place of business and who sell from door to door for their own account shall be deemed to be at the location of the seller's permanent address as shown on the seller's permit issued to him or her. If this address is in a district imposing transactions (sales) and use taxes, the district transactions (sales) tax applies with respect to all sales unless otherwise exempt (i.e., when the property sold is shipped or delivered to a purchaser outside the district for use outside the district). If the address is outside such a district but the merchant solicits orders in a district imposing transactions (sales) and use taxes, he or she must collect the district use tax with respect to property sold and delivered or shipped to customers in the district. (3) Retailers Under Section 6015. Persons regarded as retailers under Section 6015(b) are regarded as selling tangible personal property through salesmen, representatives, peddlers, canvassers, or agents who operate under or obtain the property from them. The place of sale is the place from which the salesperson, representative, peddler, canvasser, or agent who makes the sale operates. If this place is in a district imposing transactions (sales) and use taxes, the district transactions (sales) tax applies to all retail sales unless otherwise exempt (i.e., when property is shipped or delivered to a purchaser outside the district for use outside the district). If this place of business is outside such a district, but if any salesperson or representative solicits orders in a district imposing transactions (sales) and use taxes, the district use tax applies and must be collected with respect to property sold and delivered or shipped to customers in the district. (4) Auctioneers. The place of sale by an auctioneer is the place at which the auction is held. (5) Out-of-State Retailers Who Maintain a Stock of Tangible Personal Property in California. If an out-of-state retailer does not have a place of business in this state other than a stock of tangible personal property, the place of sale is the location of the stock of property from which delivery or shipment is made. (6) Factory-Built School Buildings. The place of sale or purchase of a factory-built school building (relocatable classroom) as defined in paragraph (c)(4)(B) of Regulation 1521 (18 CCR 1521), "Construction Contractors", is the place of business of the retailer of the factory-built school building regardless of whether sale of the building includes installation or whether the building is placed upon a permanent foundation. Note: Authority cited: Sections 7051 and 7263, Revenue and Taxation Code. Reference: Sections 6012.6, 6015, 6359, 6359.45 and 7263, Revenue and Taxation Code. s 1823. Application of Transactions (Sales) Tax and Use Tax. (a) Transactions (Sales) Tax. (1) In General. Except as stated below, in any case in which state sales tax is applicable, state-administered transactions (sales) tax is also applicable, if the place of sale is in a district imposing such a tax. In any case in which state sales tax is inapplicable, state-administered transactions (sales) tax is also inapplicable. Thus, if title to the property sold passes to the purchaser at a point outside this state, state-administered transactions (sales) tax does not apply regardless of participation in the transaction by a California retailer. As explained in paragraph (b), the use tax may apply. If so and if the retailer is engaged in business in the taxing jurisdiction, he is required to collect the use tax and pay it to the board when the retailer ships or delivers the property sold into the district or participates within the district in making the sale. Additionally, on and after January 1, 1988, any retailer of vehicles subject to registration pursuant to Chapter 1 (commencing with Section 4000) of Division 3 of the Vehicle Code, aircraft licensed in compliance with Section 21411 of the Public Utilities Code, or undocumented vessels registered under Division 3.5 (commencing with Section 9840) of the Vehicle Code, is a retailer engaged in business in any district where a transactions (sales) and use tax is imposed and is required to collect the use tax from the purchaser and pay it to the board when the vehicle, aircraft or undocumented vessel is registered or licensed in that district. Gross receipts from sales of tangible personal property subject to the transactions (sales) tax shall include delivery charges, when such charges are subject to the state sales or use tax. (2) Exceptions. State-administered transactions (sales) tax does not apply to gross receipts from sales of tangible personal property: (A) To certain operators of aircraft common carriers to be used or consumed directly and exclusively in the operation of such aircraft common carriers and principally outside the county of sale; (B) To be used outside the district when the property sold is shipped to a point outside the district pursuant to the contract of sale, by delivery to such point by the retailer or his agent, or by delivery by the retailer to a carrier for shipment to a consignee at such point. If the purchaser uses the property in a district imposing transactions (sales) and use taxes, the use tax may apply; (C) If the seller is obligated to furnish the property for a fixed price pursuant to a contract entered into prior to the operative date of the ordinance imposing the transactions (sales) and use taxes; or (D) Which are continuing sales of such property under a lease of such property, if the lessor is obligated to lease the property for an amount fixed by the lease prior to the operative date of the ordinance imposing the transactions (sales) and use taxes. (b) Use Tax. (1) In General. State-administered district use tax applies if tangible personal property is purchased from a retailer on or after the operative date of the district taxing ordinance and the property is purchased for use in the district and is actually used there, provided any one of the following conditions exist: (A) Title to the property purchased passes to the purchaser at a point outside this state; (B) The place of sale is in this state but not in a district having state-administered transactions (sales) and use taxes; (C) The place of sale is in a district having state-administered transactions (sales) and use taxes and there is an exemption of the sale of the property from the transactions (sales) tax but there is no exemption of the use of the property from the use tax; (D) The property is purchased under a valid resale certificate; or (E) The place of sale is in a district having state-administered transaction (sales) and use taxes, but at a rate lower than the rate (or combined rate) in effect in the district (or districts) in which the property is purchased for use and actually used. The person liable for the use tax is entitled to a credit against the use tax liability equal to but not exceeding the transactions (sales) tax or transactions tax reimbursement paid to a district or to a retailer in the district where the sale occurred. If the taxable use occurs in two or more districts whose boundaries are overlapping or coextensive, the amount of the credit shall be applied as follows: first, against the use tax liability imposed in the district having the earliest enacted state-administered transactions (sales) and use tax ordinance; second, against the use tax liability imposed in the district having the next earliest state-administered transactions (sales) and use tax ordinance; and so forth, until the amount of the credit is exhausted. (2) Exceptions. State-administered district use tax does not apply to: (A) The storing, keeping, retaining, processing, fabricating or manufacturing of tangible personal property for subsequent use solely outside the state or for subsequent use solely outside any district imposing a use tax; (B) The storage, use or other consumption of tangible personal property, the gross receipts from the sale of which have been subject to a transactions (sales) tax by the district in which the tangible personal property is stored, used, or consumed; (C) The storage, use or other consumption of tangible personal property by certain operators of aircraft common carriers; (D) The storage, use or other consumption of tangible personal property if the purchaser is obligated to purchase the property for a fixed price pursuant to a contract entered into prior to the operative date of the ordinance; or (E) The possession of, or the exercise of any right or power over, tangible personal property under a lease which is a continuing purchase of such property for any period of time for which the lessee is obligated to lease the property for an amount fixed by a lease prior to the operative date of the ordinance. (c) Leases. When a lease is a continuing sale or a continuing purchase, the use tax, rather than the sales tax, applies unless the lease is to the United States or an agency or instrumentality thereof, insurance company, federally chartered bank exempt from direct state taxation by federal law (such as a federal reserve bank, or federal home loan bank), [FN1] or other lessee exempted from use tax, and the lessor is required to collect the use tax with respect to rentals collected while the property is in the district. If the lessee is exempted from use tax, the sales tax may apply. In the absence of evidence to the contrary, it shall be assumed that the use of property by the lessee occurs in the taxing district in which the lessor delivers, or to which the lessor ships the property to the lessee. If a lease is a continuing sale, or a continuing purchase, for the purposes of state tax, it shall be a continuing sale, or a continuing purchase, for the purposes of the transactions (sales) and use taxes. If a lease is neither a continuing sale nor a continuing purchase for the purposes of the state tax, it shall be neither a continuing sale nor a continuing purchase for the purposes of the transactions (sales) and use taxes. If a person purchases property state tax paid prior to the operative date of the district transactions (sales) and use tax ordinance and after such date leases the property in substantially the same form as acquired, neither the transactions (sales) tax nor use tax of the district is applicable to the sales price of the property to the lessor or to the rentals. (d) When Property Is Deemed Obligated Pursuant to a Contract or Lease. For the purposes of this regulation, the sale or lease of tangible personal property shall be deemed not to be obligated pursuant to a contract or lease for any period of time for which any party to the contract or lease has the unconditional right to terminate the contract or lease upon notice, whether or not such right is exercised. [FN1] State banks and national banking associations are subject to sales and use taxes. Note: Authority cited: Sections 7051, Revenue and Taxation Code. Reference: Sections 6008, 6009.1, 6203, 6352, 6385, 7202, 7203, 7261, 7262 and 7263, Revenue and Taxation Code.Authority cited: Sections 7051, Revenue and Taxation Code. Reference: Sections 6008, 6009.1, 6203, 6352, 6385, 7202, 7203, 7261, 7262 and 7263, Revenue and Taxation Code.Authority cited: Sections 7051, Revenue and Taxation Code. Reference: Sections 6008, 6009.1, 6203, 6352, 6385, 7202, 7203, 7261, 7262 and 7263, Revenue and Taxation Code. s 1823.4. Place of Delivery of Tangible Personal Property Generally. (a) In General. A retailer engaged in business in a district (except retailers of certain vehicles, aircraft and vessels) is not required to collect use tax from the purchaser of tangible personal property unless the retailer ships or delivers the property into the district or participates within the district in making the sale of the property. The purpose of this regulation is to provide a sample declaration to be signed by a purchaser that retailers may use to support shipment or delivery of tangible personal property (other than vehicles, aircraft and vessels) to a purchaser outside of a district in order to be relieved of the obligation to collect the use tax imposed by that district. This regulation does not apply to the transactions (sales) tax. Under this regulation, the purchaser will be liable for and pay the use tax if the property is principally stored, used or otherwise consumed within a district. (b) Delivery Outside District. For the purposes of the use tax, when a retailer ships or delivers tangible personal property to a purchaser's principal residence address or principal business address outside of a district, the retailer is relieved of the obligation to collect the use tax imposed by that district by accepting in good faith a declaration under penalty of perjury, signed by the buyer, stating that such address is, in fact, the buyer's principal place of residence or principal place of business; that the buyer's principal place of residence or principal place of business is located outside the boundaries of the district; and that the property was purchased for use at a designated point or points outside of a district imposing a district use tax. (c) Records. Any seller claiming exemption under this regulation must retain in its records the declaration executed in compliance with subdivision (d). (d) Form of Declaration. The declaration shall be in substantially the following form: DECLARATION I HEREBY CERTIFY THAT: (1) The (here insert description of tangible personal property pur-chased) purchased from (insert name of seller) was delivered to the following address: __________ __________ __________ __________ __________ __________ __________ (2) The above address is located outside the (name of district) District. (3) The above address is my principal place of residence or principal place of business. (4) The tangible personal property listed above is purchased for use at the following location(s), which is outside the (name of district) District. Street, City, State, Zip Code: __________ __________ __________ __________ I understand that this declaration is for the purpose of allowing the above named seller to treat the sale of the above-described tangible personal property as exempt from the use tax imposed by the (name of district) District. If the property is principally stored, used or otherwise consumed in that district, the purchaser shall be liable for and pay the use tax. I have personal knowledge of the statements of fact contained in this declaration. I declare under penalty of perjury under the laws of the State of California and the United States that the foregoing statements are true and correct. ___________________________________________ Name of Purchaser ___________________________________________ Name and Title of Authorized Agent (if applicable) ___________________________________________ Signature of Purchaser or Authorized Agent __________________ Date Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 7261 and 7262, Revenue and Taxation Code. s 1823.5. Place of Delivery of Certain Vehicles, Aircraft and Undocumented Vessels. (a) In General. This regulation relates to the place of delivery of certain vehicles, aircraft, and undocumented vessels for the purpose of the transactions (sales) tax only. It does not apply to the use tax. Thus, even though the sale of the vehicle, aircraft or undocumented vessel is exempt from transactions (sales) tax under this regulation, the use tax will apply if the property is principally stored, used or otherwise consumed within the district. Beginning January 1, 1988, if the vehicle, aircraft or undocumented vessel is licensed or registered in any district imposing the tax, the retailer is considered as engaged in business in that district and is required to collect the use tax and pay it to the state. (b) Delivery Outside District. For the purposes of the transactions (sales) tax, "delivery to a point outside the district" shall be satisfied: (1) With respect to vehicles (other than commercial vehicles) subject to registration pursuant to chapter 1 (commencing with section 4000) of division 3 of the Vehicle Code, aircraft licensed in compliance with section 21411 of the Public Utilities Code, and undocumented vessels registered under Division 3.5 (commencing with Section 9840) of the Vehicle Code by registration to an out-of-district address and by a declaration under penalty of perjury, signed by the buyer, stating that such address is, in fact, his principal place of residence, and (2) With respect to commercial vehicles by registration to a place of business outside the district and a declaration under penalty of perjury, signed by the buyer, that the vehicle will be operated from that address. (c) Definition-"Commercial Vehicle." For the purposes of this regulation, "commercial vehicle" means a vehicle of a type required to be registered under the Vehicle Code used or maintained for the transportation of persons for hire, compensation, or profit or designed, used, or maintained primarily for the transportation of property. Passenger vehicles which are not used for the transportation of persons for hire, compensation, or profit are not commercial vehicles. (d) Records. Any seller claiming exemption under this regulation must retain in his records the declaration executed in the prescribed form. If the exemption claimed relates to the sale of a vehicle, the seller also must retain in his records a copy of either the Department of Motor Vehicles report of sale or other documentary evidence showing the out-of-district address to which the vehicle is registered. (e) Form of Declaration. The declaration shall be in substantially the following form: (1) For vehicles (other than commercial vehicles), aircraft and undocumented vessels: DECLARATION (Vehicles, Aircraft, Undocumented Vessels) I HEREBY CERTIFY THAT: (1) The (here insert description of vehicle, aircraft or undocumented vessel giving name of manufacturer and type) purchased from (insert name of seller) will be registered to the following address: ________________________________________________________________ ________________________________________________________________ (2) The above address is outside the ( name of district) District. (3) The above address is my principal place of residence (or, in the case of a corporation, principal place of business). (4) The vehicle, aircraft or undocumented vessel when not in use will be kept, garaged, hangared or docked at: ________________________________________________________________ ________________________________________________________________ (5) The vehicle, aircraft or undocumented vessel will be stored, used or otherwise consumed principally outside the ( name of district) District. (6)[ ](a) The purchaser does not hold a California seller's permit. [ ](b) The purchaser holds California seller's permit No. ________. (Check applicable box.) I understand that this declaration is for the purpose of allowing the above named seller to treat the sale of the above described tangible personal property as exempt from the transactions ( sales) tax imposed by the (name of district) District. If the property is principally stored, used or otherwise consumed in that district, the purchaser shall be liable for and pay the use tax. The foregoing declaration is made under penalty of perjury. ___________________ Purchaser ___________________ Title ___________________ Authorized Agent ___________________ Date (2) For commercial vehicles: DECLARATION (Commercial Vehicle) I HEREBY CERTIFY THAT: (1) The (here insert description of commercial vehicle, giving name of manufacturer and type) purchased from (insert name of seller) will be registered to the following address: ________________________________________________________________ ________________________________________________________________ (2) The vehicle will be operated from the following address: ________________________________________________________________ ________________________________________________________________ (3) The address from which the vehicle will be operated is outside the ( name of district) District. (4) When not in use, the vehicle will be kept or garaged at: ________________________________________________________________ ________________________________________________________________ (5) The vehicle will be stored, used or otherwise consumed principally outside the (name of district ) District. (6)[ ](a) The purchaser does not hold a California seller's permit. [ ](b) The purchaser holds California seller's permit No. ________. (Check applicable box.) I understand that this declaration is for the purpose of allowing the above named seller to treat the sale of the above described tangible personal property as exempt from the transactions (sales) tax imposed by the (name of district) District. If the property is principally stored, used or otherwise consumed in that district, the purchaser shall be liable for and pay the use tax. The foregoing declaration is made under penalty of perjury. __________________ Purchaser __________________ Title __________________ Authorized Agent __________________ Date Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 7261 and 7262, Revenue and Taxation Code. s 1824. Public Utilities. s 1825. Aircraft Common Carriers. (a) Definition - "Common Carriers." As used herein, the term "common carriers" means persons who engage in the business of transporting persons or property for hire or compensation and who offer their services indiscriminately to the public or to some portion of the public. (b) Aircraft Common Carriers. (1) State-administered district transactions (sales) tax does not apply to sales of tangible personal property to operators of aircraft to be used or consumed principally outside the county in which the sale is made if such property is to be used or consumed directly and exclusively in the use of such aircraft as common carriers of persons or property under the laws of this state, the United States, or any foreign government. Tax applies, however, to sales of fuel and petroleum products on and after July 29, 1991. (2) State-administered district use tax does not apply to the storage, use, or other consumption of tangible personal property purchased by operators of aircraft when such property is used or consumed by such operators directly and exclusively in the use of such aircraft as common carriers of persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the laws of this state, the United States, or any foreign government. Effective July 29, 1991, this exemption is not available for the storage, use, or other consumption of fuel and petroleum products. This exemption is in addition to that provided in sections 6366 and 6366.1 of the Revenue and Taxation Code. (c) Conditions of Exemption. The exemption for operators of aircraft common carriers applies only if the property is used directly and exclusively in the exempt activity. This exemption is limited to supplies and equipment (excluding fuel and petroleum products effective July 29, 1991) used or consumed directly in the carriage of persons or property. It does not include office or shop equipment or supplies or any other property not directly used or consumed in the carriage of persons or property. (d) Leases. If property is leased to an operator of an aircraft common carrier under a lease which is a continuing sale or a continuing purchase, unless otherwise exempted, either the use tax or transactions (sales) tax applies to the gross receipts from the lease during such period of time that the property is in a taxing jurisdiction. Note: Authority cited: Sections 7051, 7261 and 7262, Revenue and Taxation Code. Reference: Sections 7261 and 7262, Revenue and Taxation Code. Appendix Form of Exemption Certificates for Claiming Exemption Under Regulations 1805 and 1825 (a) Certificate Necessary to Support Exemption. All purchasers of tangible personal property claiming exemption from Bradley-Burns local taxes under the provisions of Regulation 1805 or from both Bradley-Burns local taxes and district transactions (sales) and use taxes under Regulation 1825 should file with the seller an exemption certificate in the form shown below. On and after July 1, 1972, for purposes of the Bradley-Burns local taxes, this exemption is limited to 80 percent of the 1.25 percent local tax (i.e., 1%); and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, this exemption is limited to 75 percent of the 1 percent local tax (i.e., .75%). (b) Form of Certificate. Aircraft Common Carrier. The following certificate may be used by a purchaser claiming exemption under Regulation 1825 from district transactions (sales) and use taxes, and/or claiming partial exemption under Regulation 1805 from Bradley-Burns local taxes which: On or before June 30, 2004 is 1 percent; and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, is .75 percent: "The purchaser hereby certifies that the purchaser is the operator of aircraft as a common carrier of persons or property and that the property purchased will be used or consumed principally outside the county in which the sale is made and will be used or consumed directly and exclusively in the use of such aircraft as a common carrier of persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the laws of (check which is applicable) (1) the State of California (2) the United States (3) __________ (Insert the name of the foreign government) "The purchaser agrees that if the property is used in some other manner or some other purpose, the purchaser will report and pay the tax measured by the purchase price of the property. "This certificate is given to claim: (check which is applicable) (1) Partial exemption from Bradley-Burns local tax only which: On or before June 30, 2004 is 1 percent; and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, is .75 percent (2) Exemption from district tax only (3) Both exemption from district tax and partial exemption from Bradley-Burns local tax which: On or before June 30, 2004 is 1 percent; and, on and after July 1, 2004, until the rate modifications in subdivision (a) of Revenue and Taxation Code section 7203.1 cease to apply, is .75 percent. "Description of property to be purchased __________ __________ __________ __________ Name of Seller __________ __________ Purchaser __________ __________ Address __________ __________ Dated __________" s 1826. Construction Contractors. (a) In General. All of the provisions of the state Sales and Use Tax Law and regulations adopted thereunder relating to construction contractors, including subcontractors, (other than those relating to the rate of tax) are applicable to state-administered transactions (sales) and use taxes. (b) Jobsite Is Place of Business. (1) The jobsite is regarded as a place of business of a contractor and is the place of sale of "fixtures" furnished and installed by a contractor. The place of use of "materials" is the jobsite. Accordingly, if the jobsite is in a district (or districts) having state-administered transactions (sales) and use taxes, the transactions (sales) tax applies to the sale of the fixtures, and the use tax applies to the use of the materials. If the jobsite is not in a district with a state-administered tax, state-administered transactions (sales) tax will not apply to the sale of the fixtures even though the contractor's principal place of business is in a district with such a tax. (2) The contractor is entitled to a credit against use tax liability for transactions tax reimbursement paid to the retailer of the materials in a district, under the conditions specified in paragraph (b)(1)(E) of Regulation 1823 (18 CCR 1823), Application of Transactions (Sales) Tax and Use Tax. If fixtures are purchased by a contractor tax paid in a district having state administered transactions (sales) and use taxes, the contractor, upon installing the fixtures in a county without such a tax, is entitled to a credit for the tax of the district of purchase. If the contractor installs the fixtures in a district (or districts) imposing transactions and use taxes at a rate (or combined rate) greater than the district in which the contractor purchased the fixtures tax paid, the contractor is also entitled to a credit for the tax of the district of purchase, but is liable for the transactions tax (or taxes) of the district (or districts) where the fixtures are installed. (3) The place of sale or purchase of a factory-built school building (relocatable classroom) as defined in paragraph (c)(4)(B) of Regulation 1521 (18 CCR 1521), Construction Contractors, is the place of business of the retailer of the factory-built school building regardless of whether sale of the building includes installation or whether the building is placed upon a permanent foundation. The district use tax of the district (or districts) where the building is installed or placed will apply, if the rate of tax (or combined rate) is greater than the rate of tax in the district of sale, or if the place of sale is not in a district. See paragraph (b) of Regulation 1823 (18 CCR 1823). (c) United States Contractors. United States contractors are consumers of both materials and fixtures, and the place of use of both is the jobsite. Accordingly, if the jobsite is in a district having state-administered transactions (sales) and use taxes, the use tax applies to the use of the materials and fixtures. The contractor is entitled to a credit against use tax liability for transactions tax reimbursement paid to the retailer of the materials or fixtures in a district, under the conditions specified in paragraph (b)(1)(E) of Regulation 1823 (18 CCR 1823). Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6006-6010, inclusive, 6012.6, 6015, 6384, 7261 and 7262, Revenue and Taxation Code. s 1827. Collection of Use Tax by Retailers. (a) In General. Except as provided in subdivision (d) below, any retailer engaged in business in a district imposing transactions (sales) and use taxes and making sales of tangible personal property, the storage, use or other consumption of which is subject to the state-administered district use tax imposed by that district is required to register with the board, collect the use tax from the purchaser, give receipts therefor, and pay the tax to the board. Retailers to whom seller's permits have been or are issued under Section 6067 of the Revenue and Taxation Code and who are engaged in business in the district are registered to collect the district use tax. Any retailer who is not engaged in business in the district imposing transactions (sales) and use taxes may apply for a Certificate of Registration -Use Tax. Holders of such certificates are required to collect tax from purchasers, give receipts therefor, and pay tax to the board in the same manner as retailers engaged in business in the district. (b) When Collection of Use Tax is Required. (1) Deliveries Into the District. A retailer engaged in business in the district (except retailers of certain vehicles, aircraft and vessels as described in paragraph (c)(4) below) shall not be required to collect use tax from the purchaser of tangible personal property unless the retailer ships or delivers the property into the district or participates within the district in making the sale of the property, including, but not limited to soliciting or receiving the order, either directly or indirectly, at a place of business of the retailer in the district or through any representative, agent, canvasser, solicitor, subsidiary or person in the district under authority of the retailer. (2) Presumption of Use -Out-of-District Deliveries. It shall be presumed that tangible personal property (except for certain vehicles, aircraft and vessels described in paragraph (c)(4) below) delivered outside a district imposing transactions (sales) and use taxes to a purchaser known by the retailer to be a resident of a district imposing such taxes was purchased from a retailer for storage, use or other consumption in the district in which the purchaser resides and was stored, used or otherwise consumed in that district. If the retailer is engaged in business in that district and participates within the district in making the sale of the property, he shall collect the district use tax and pay it to the board. The presumption may be controverted and the retailer relieved of the duty of collecting the use tax if the retailer, in good faith, accepts from the purchaser a statement in writing that the property was purchased for use at a designated point or points outside a district imposing a use tax. The presumption may also be controverted by other evidence satisfactory to the board that the property was not purchased for storage, use or other consumption in a district imposing a use tax. (3) Vehicles, Aircraft and Undocumented Vessels. Retailers of vehicles, aircraft or undocumented vessels described in paragraph (c)(4) below are engaged in business in a district imposing a state-administered transactions use tax and are required to collect the use tax from the purchaser and pay it to the board when such vehicles, aircraft or undocumented vessels are registered or licensed in that district. (c) Definition - "Retailer Engaged in Business in District." "Retailer engaged in business in the district" includes any of the following: (1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business in the district. (2) Any retailer having any representative, agent, salesman, canvasser or solicitor operating in the district under the authority of the retailer or its subsidiary for the purpose of selling, delivering, or the taking of orders for any tangible personal property. (3) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in the district. (4) On and after January 1, 1988, any retailer of vehicles subject to registration pursuant to Chapter 1 (commencing with Section 4000) of Division 3 of the Vehicle Code, aircraft licensed in compliance with Section 21411 of the Public Utilities Code, or undocumented vessels registered under Division 3.5 (commencing with Section 9840) of the Vehicle Code. (d) Sales to Persons Holding Use Tax Direct Payment Permits. Retailers selling tangible personal property, the storage, use or other consumption of which is subject to the use tax, who take in good faith use tax direct payment exemption certificates from persons holding use tax direct payment permits shall be relieved from the duty of collecting district use tax. Use tax direct payment permits and exemption certificates must comply with the requirements of Regulation 1699.6. This subdivision applies only to transfers that are subject to state and local use tax. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 7051.3 and 7262, Revenue and Taxation Code. s 1828. Process for Reviewing Transactions and Use Tax Distribution Inquiries. (a) Definitions. (1) District. "District" means any entity, including a city, county, city and county, or special taxing jurisdiction, which levies a transactions and use ( "district") tax that the Board administers pursuant to Part 1.6, Division 2, Revenue and Taxation Code (Sections 7251-7279.6). (2) District Tax. Any tax levied under special statutory authority that the Board administers pursuant to Part 1.6, Division 2, Revenue and Taxation Code (Sections 7251-7279.6). District taxes may be for either general or special purposes. (3) Inquiring Districts and Their Consultants (IDC). "Inquiring Districts and their Consultants (IDC)" means any district which has adopted a district tax ordinance and which has entered into a contract with the Board to perform all functions incidental to the administration or operation of that ordinance. IDC also includes any consultant that has entered into an agreement with the tax district and has a current resolution filed with the Board which authorizes one (or more) of its officials, employees, or other designated persons to examine the appropriate sales, transactions, and use tax records of the Board. (4) Claim (Inquiry) of Incorrect Distribution or Non Distribution of District Tax. "Claim or inquiry" means a written request from an IDC for investigation of suspected improper distribution or nondistribution of district tax. The inquiry must contain sufficient factual data to support the probability that district tax has not been distributed or has been erroneously distributed. Sufficient factual data must include at a minimum all of the following for each business location being questioned: (A) Taxpayer name, including owner name and fictitious business name or d.b.a. (doing business as) designation. (B) Taxpayer's permit number or a notation stating "No Permit Number." (C) Complete business address of the taxpayer. (D) Complete description of taxpayer's business activity or activities. (E) Specific reasons and evidence why the distribution or nondistribution is questioned, including the location to which the property the sales of which are at issue was delivered. In cases that involve claims that the transactions that are the focus of the appeal are subject to the IDC's district use tax, evidence must be submitted that the retailer is engaged in business in the IDC under Regulation 1827. (F) Name, title, and phone number of the contact person. (G) The tax reporting periods involved. (5) Claim Date "Claim date" shall be the date the inquiry of suspected improper distribution or non distribution of district tax that contains the facts required by subdivision (a)(4) of this regulation is received by the Board, unless an earlier such date is operationally documented by the Board. The Board shall redistribute district tax revenues back from the claim date to the beginning of the applicable statute of limitations. If the IDC is not able to obtain the above minimum factual data but provides a letter with the inquiry documenting IDC efforts to obtain each of the facts required by subdivision (a)(4) of this regulation, the Board will use the date this inquiry is received as the claim date. (6) Board Management. "Board Management" consists of the Executive Director, Chief Counsel, Assistant Chief Counsel for Business Taxes, and the Deputy Director of the Sales and Use Tax Department. (b) Inquiries. (1) Submitting Inquiries. Every inquiry regarding district tax distributions must be submitted in writing and shall include the information set forth in subdivision (a)(4) of this regulation. All inquiries must be sent directly to the Allocation Group in the Audit Determination and Refund Section of the Board's Sales and Use Tax Department. (2) Acknowledgement of Inquiry. The Allocation Group will acknowledge inquiries. Acknowledgement of receipt does not mean that the inquiry qualifies to establish a claim date under subdivision (a)(4) of this regulation. The Allocation Group will review the inquiry and notify the IDC if the inquiry does not qualify to establish a claim date. Investigation of an alleged improper distribution cannot occur until a claim date is established. (c) Review Process. (1) Review by Allocation Group Supervisor. The Allocation Group will investigate all accepted inquiries. If the Allocation Group concludes that an improper distribution has not occurred and recommends that a request for redistribution be denied, the IDC will be notified of the recommendation and allowed 30 days from the date of mailing of the notice of denial to contact the Allocation Group Supervisor to discuss the denial. The Allocation Group's notification that an improper distribution has not occurred must state the specific facts on which the conclusion was based. If the IDC contacts the Allocation Group Supervisor, the IDC must state the specific facts on which its disagreement is based, and submit all additional information in its possession that supports its position at this time. (2) Review by Audit Determination and Refund Section Supervisor. Subsequent to the submission of additional information by the IDC, if the Allocation Group Supervisor upholds the denial, the IDC will be advised in writing of the decision and that it has 30 days from the date of mailing of the decision to file a "petition for redistribution" with the Audit Determination and Refund Section Supervisor. The petition for redistribution must state the specific reasons of disagreement with the Allocation Group Supervisor's findings. If a petition for redistribution is filed by the IDC, the Audit Determination and Refund Section Supervisor will review the request for redistribution and determine if any additional staff investigation is warranted prior to making a decision. If no basis for redistribution is found, the petition will be forwarded to the Local Tax Appeals Auditor. (3) Review by Local Tax Appeals Auditor. After the petition is forwarded to the Local Tax Appeals Auditor, a conference between the Local Tax Appeals Auditor and the IDC will be scheduled. However, the IDC may provide a written brief in addition to or instead of attending the conference. If a conference is held, the Local Tax Appeals Auditor will consider oral arguments, as well as review material previously presented by both the IDC and the Sales and Use Tax Department. The Local Tax Appeals Auditor will prepare a written Decision and Recommendation (D&R) detailing the facts and law involved and the conclusions reached. (4) Review by Board Management. If the D&R's recommendation is to deny the petition, the IDC will have 30 days from the date of mailing of the D&R to file a written request for review of the D&R with Board Management. The request must state the specific reasons of disagreement with the D&R and submit any additional information that supports its position. Board Management will only consider the petition and will not meet with the IDC. The IDC will be notified in writing of the Board Management's decision. If a written request for review of the D&R is not filed with Board Management within the 30-day period, the D&R becomes final at the expiration of that period. (5) Review by Board Members. If Board Management's decision is adverse to the IDC, the IDC may file a petition for hearing by the Board. The petition for hearing must state the specific reason for disagreement with Board Management findings. (A) Petition for Hearing. The IDC shall file a petition for hearing with the Board Proceedings Division within 90 days of the date of mailing of Board Management's decision. If a petition for hearing is not filed within the 90-day period, the Board Management's decision becomes final at the expiration of that period. (B) Persons To Be Notified of the Board Hearing. After receiving the IDC's petition for hearing, the Board Proceedings Division will notify the IDC and the following persons of the Board hearing: 1. The taxpayer(s) whose district tax reporting was the subject of the petition. 2. All districts that would be substantially affected if the Board does not uphold the taxpayer's original distribution. For the purpose of this subdivision a district is "substantially affected" if its total redistribution would increase or decrease by the amount of 5% of its average quarterly distribution (generally, the prior four calendar quarters) or $50,000, whichever is less, as a result of such redistribution. The notification will state that the claimed improper distribution is being placed on the Board's Hearing Calendar to determine the proper distribution and that the IDC and all districts so notified are considered parties to the hearing. (C) The Hearing and Parties to the Hearing. The petitioning IDC and all districts notified of the Board hearing pursuant to subdivision (c)(5)(B) are parties to the Board hearing. The taxpayer, however, shall not be considered a "party" within the meaning of this regulation unless it actively participates in the hearing process by either filing a brief or making a presentation at the hearing. The hearing shall be conducted in accordance with sections 5070 to 5087 of the Rules of Practice. The Board's decision is final as provided in Regulation 5082. The Board's decision exhausts all parties' administrative remedies on the matter. (D) Presentation of New Evidence. If new arguments or evidence not previously presented at the prior levels of review are presented after Board Management's review and prior to the hearing, the Board Proceedings Division shall forward the new arguments or evidence to the Local Tax Appeals Auditor for review and recommendation to the Board. Notwithstanding subdivision (c)(5)(C) of this regulation, no new evidence or arguments not previously presented at the prior levels of review or considered by the Local Tax Appeals Auditor may be presented at the Board hearing. (d) Time Limitations. (1) An IDC will be limited to one 30-day extension of the time limit established for each level of review through the Board Management level. (2) If action is not taken beyond acknowledgement on any inquiry for a period of six months at any level of review, the IDC may request advancement to the next level of review. For the purpose of these procedures, "action" means taking the steps necessary to resolve the inquiry. (3) By following the time limits set forth in subdivisions (c), (d)(1) and (d)(2), any claim date established by the original inquiry will remain open even if additional supporting information is provided prior to closure. If the time limits or any extensions are not met, or if closure has occurred, any additional supporting documentation submitted will establish a new claim date as of the date of receipt of the new information. (e) Appeal Rights of Districts That Will Lose Revenue as the Result of a Redistribution. (1) If at any time during the review process prior to Board hearing, the Board's investigation determines that an improper distribution has occurred, any district that will lose 5% of its average quarterly receipts (generally, the prior four calendar quarters) or $50,000, whichever is less, will be informed of the decision and be allowed 30 days from the date of mailing the notice, to contact the Allocation Group to discuss the proposed redistribution. The losing district may follow the same appeals procedure as described in subdivisions (c) and (d) of this regulation. "Losing district" includes a gaining district where the original decision in favor of the gaining district was overturned in favor of a previously losing district. The redistribution will be postponed until the period for the losing district to request a hearing with the Allocation Group has expired. (2) If the losing district contacts the Allocation Group prior to Board hearing, and subsequently petitions the proposed redistribution, the redistribution postponement will be extended pending the final outcome of the petition. (f) Operative Date. The provisions of this regulation shall apply to redistribution inquiries and appeals filed after July 1, 2004. Inquiries and appeals filed prior to this date shall continue to be subject to existing inquiries and appeals procedures. However, for inquiries filed prior to July 1, 2004, the IDC may elect in writing to proceed under the provisions of this regulation as to appeals not already decided or initiated. In such cases, failure to make such written election prior to appealing to the next step of review under the existing procedures shall constitute an election not to proceed under the provisions of this regulation. If written election to proceed under the provisions of this regulation is made, the provisions of this regulation become applicable the date the election is received by the Board. Neither election shall be subject to revocation. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 7270, Revenue and Taxation Code. s 1901. Service Enterprises in General. Note: 1900 to 2103, inclusive, issued under the authority contained in Section 7051, Revenue and Taxation Code. The source of 1900 to 2103, inclusive, is the Rules of the State Board of Equalization re Sales and Use Tax. s 1902. Advertising Agencies, Commercial Artists and Designers. s 1903. Barbers, Beauty Shop Operators, Bootblacks, Launderers and Cleaners. s 1904. Circulating Libraries. s 1905. Dentists and Dental Laboratories. s 1906. Gun Clubs. s 1907. Hospitals, and Institutions and Homes for the Care of Children, and Aged and Incompetent Persons. s 1907.5. Mailing House Transactions. s 1908. Morticians. s 1909. Summer Camps. s 1910. Taxidermists. (Formerly Article 2) s 1921. Construction Contractors Generally. s 1922. United States Contractors. s 1923. "War Materiel" Contractors. (Formerly Article 3) s 1924. Property Used in Manufacturing-General Rules. s 1925. Producing, Fabricating and Processing Property Furnished by Consumers-General Rules. s 1926. Electrical Transcriptions. s 1927. Foundries. s 1928. Fur Dressers and Dyers. s 1929. Motion Pictures. s 1930. Oculists, Optometrists and Dispensing Opticians. s 1931. Painters, Polishers, and Finishers. s 1932. Pharmacists and Prescription Medicines. s 1933. Photographers and Photostat Producers, Photo Finishers and X-Ray Laboratories. s 1934. Printing and Related Industries. s 1935. Signs, Show Cards, and Posters. (Formerly Article 4) s 1946. Repairers and Reconditioners in General. s 1947. Bookbinders. s 1948. Exchange of Vehicle Motors. s 1949. Fur Repairers, Alterers and Remodelers. s 1950. Repainting and Refinishing. s 1951. Retreading and Recapping Tires. s 1952. Rewinding Motors and Transformers. s 1953. Shoe Repairmen. s 1954. Tennis Racket Restringing and Repairing. s 1955. Watch and Jewelry Repairmen. (Formerly Article 5) s 1966. Auctioneers. s 1967. Automobile Dealers and Salesmen. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6015, Revenue and Taxation Code. s 1968. Beer, Wine and Liquor Dealers. s 1969. Brokers and Lienors. s 1970. Charitable Organizations. s 1971. Exchanges. s 1972. Florists. s 1973. Memorial Dealers. s 1974. Mortgagees and Trustees. s 1975. Vending Machine Operators. (Formerly Article 6) (Formerly Article 7) s 2002. Food Products. s 2003. Taxable Sales of Food Products. (Formerly Article 8) s 2014. Sales to the United States and Its Instrumentalities. s 2015. Interstate and Foreign Commerce. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6008, 6009.1, 6352, 6368.5 and 6385, Revenue and Taxation Code. s 2016. Federal Areas. s 2017. Federal Taxes. (Formerly Article 9) s 2028. Delivery Charges. s 2029. Goods Damaged in Transit. s 2030. Packers, Loaders, Shippers. (Formerly Article 10) s 2041. Credit Sales Generally. s 2042. Lease Contracts. s 2043. Oil Well Drilling Tools. Note: Authority cited: Sections 6006, 6010, Revenue and Taxation Code. (Formerly Article 11) s 2054. Returned Merchandise. s 2055. Merchandise Traded In. s 2056. Defective Merchandise. s 2057. Replacement Parts. (Formerly Article 12) s 2068. Resale Certificates. s 2069. Demonstration and Display. s 2070. Leases of Tangible Personal Property. s 2071. "Tax-Paid Purchases Resold." s 2072. Gifts and Premiums. s 2073. Trading Stamps and Other Promotional Plans. (Formerly Article 13) s 2083. Engaged in Business. Note: Authority cited: Section 6203, Revenue and Taxation Code. s 2084. Collection of Tax by Retailers. s 2085. Payment of Tax by Purchasers. s 2086. Receipts for Tax Paid to Retailers. s 2087. Information Returns. 1. Repealer of Article 34 filed-6-70; effective thirtieth day thereafter (Register 70, No. 32). For history of former Article 34 Secs. 2098, 2099 and 2100 see Registers 69, Nos. 45 and 70, Nos. 5 and 24. s 2101. Occasional Sales-Sale of a Business. s 2101.5. Vehicles, Vessels, and Aircraft. s 2102. Successor's Liability. s 2103. Interest and Penalties. (Formerly Article 15) s 2202. Place of Sale for Purposes of Local Sales and Use Tax. s 2203. Sales Tax and Use Tax-When Applicable-Collection of Use Tax by Retailers. s 2204. Lease Contracts. s 2205. Public Utilities, Common Carriers, and Waterborne Vessels. s 2206. Construction Contractors. s 2231. Oil Spill Prevention and Administrative Fee Return. (a) This regulation applies to the fees imposed for the period September 24, 1990 through December 12, 1990. (b) Marine Terminal Operator-For the privilege of operating a marine terminal, an oil spill prevention and administration fee is imposed under article 6, section 8670.40 of chapter 7.4 of division 1 of Title 2 of the Government Code upon every marine terminal operator at the rate of four cents ($0.04) per barrel of oil delivered through the operator's marine terminal. (c) Pipeline Operator-For the privilege of operating a pipeline, an oil spill prevention and administration fee is imposed under article 6, section 8670.40 of chapter 7.4 of division 1 of Title 2 of the Government Code upon every operator of a pipeline at the rate of four cents ($0.04) per barrel of oil transported into the state by means of a pipeline operating across, under, or through marine waters of this state. (d) Each marine terminal operator and operator of a pipeline shall file a return with the State Board of Equalization on or before February 25, 1991 showing the number of barrels of oil delivered through a marine terminal or transported into the state by means of a pipeline operating across, under, or through marine waters of this state during the period September 24, 1990 through December 12, 1990. The fee due shall be remitted with the return. Note: Authority cited: Section 8670.40, Government Code. Reference: Sections 8670.3 and 8670.48, Government Code. s 2232. Oil Spill Response Fee Return. (a) This regulation applies to the fees imposed for the period September 24, 1990 through December 12, 1990. (b) For the privilege of operating a marine terminal, an oil spill response fee is imposed under article 7, section 8670.48 of chapter 7.4 of division 1 of Title 2 of the Government Code upon every marine terminal operator at the rate of twenty five cents ($0.25) per barrel of petroleum products received at a marine terminal within the state by means of a vessel from a point of origin outside the state and of crude oil that is transported from within the state by means of vessel to a destination outside the state. (c) For the privilege of operating a pipeline, an oil spill response fee is imposed under article 7, section 8670.48 of chapter 7.4 of division 1 of Title 2 of the Government Code upon every operator of a pipeline at the rate of twenty five cents ($0.25) per barrel of petroleum products transported into the state by means of a pipeline and of crude oil transported out of the state. (d) For the privilege of operating a refinery, an oil spill response fee is imposed under article 7, section 8670.48 of chapter 7.4 of division 1 of Title 2 of the Government Code upon every operator of a refinery at the rate of twenty five cents ($0.25) per barrel of crude oil received at a refinery within the state. (e) Each marine terminal operator and each operator of a pipeline shall file a return with the State Board of Equalization, on a form prescribed by the board, (Form ET-501-OR (12-90) California Oil Spill Response Fee Return), showing the number of barrels of petroleum products received at a marine terminal by means of a vessel from outside this state or transported into the state by means of a pipeline. (f) Each operator of a refinery or pipeline and each marine terminal operator shall file a return with the State Board of Equalization, on a form prescribed by the board, (ET-501-OR (12-90) showing the number of barrels of crude oil received at a refinery within the state, transported out of state by means of a pipeline or transmitted from within the state by means of a vessel to a destination outside the state. (g) The oil spill response fee returns (ET-501-OR (12-90) will be due on or before February 25, 1991 for the period September 24, 1990 through December 12, 1990. The fee due shall be remitted with the return. Note: Authority cited: Section 8670.48, Government Code. Reference: Sections 8670.3 and 8670.48, Government Code. s 2240. Petroleum Products. (a) "Petroleum products" means a hydrocarbon product that is all of the following: (1) a liquid at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (2) the product of fractionation, distillation, or other refining or processing of crude oil; and (3) that is used as, useable as, or may be refined as, a fuel or fuel blendstock. (b) Petroleum products includes, but is not limited to, the following hydrocarbon products: (1) alcohol fuels containing petroleum products, (2) aviation fuel, (3) benzene and benzene hydrocarbon liquids, (4) bunker fuel, (5) crude hydrocarbon feedstock (containing butyraldehydes and ethylpropyl acrolein), (6) diesel fuel, (7) gasoline and gasoline feedstocks, (8) jet fuel, (9) methyltertiarybutylether (MTBE) produced from crude oil feedstocks, (10) naphtha, (11) oil (including base oil, sump, oil sludge, oil refuse, and oil mixed with waste) (12) toluene, and (13) transmix. (c) Petroleum products does not include: (1) Any hydrocarbon product that is not a liquid at standard temperature and pressure (for example asphalt, coke, liquid petroleum gas, solid greases and wax), (2) Ammonia, and (3) MTBE and other substances that are produced from non-crude oil derived feedstocks. MTBE will be considered a petroleum product produced from crude oil derived feedstocks and therefore subject to the fee unless the manufacturer or other party who has held title or possession to the MTBE has provided acceptable documentation to the feepayer, which documentation the feepayer has made available for inspection to the board, which indicates that the source of the feedstocks used to produce the MTBE was non-crude oil derived feedstocks. Acceptable documentation includes, but is not limited to, certifications, written statements, invoices, product descriptions, or any other representation which shows that the composition of the feedstocks used in manufacturing was non-crude oil derived and which documentation was provided to any person prior to the delivery of the product at any marine or other terminal. Note: Authority cited: Section 15606(a), Government Code; and Section 46601, Revenue and Taxation Code. Reference: Section 46021, Revenue and Taxation Code. s 2241. Barrel of Crude Oil. "Barrel of crude oil" means 42 United States gallons of crude oil in its unrefined or natural state, including condensate and natural gasoline, at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute), and excluding such sediment and water which are present in the crude oil as the result of the production process. Note: Authority cited: Section 15606(a), Government Code; and Section 46601, Revenue and Taxation Code. References: Sections 46008 and 46010, Revenue and Taxation Code; and Sections 8670.40 and 8670.48, Government Code. s 2242. Barrel of Petroleum Products. "Barrel of petroleum products" means 42 United States gallons of petroleum product at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute) and excluding such sediment and water which are present in the petroleum products. Note: Authority cited: Section 15606(a), Government Code; and Section 46601, Revenue and Taxation Code. References: Section 46008 Revenue and Taxation Code; and Section 8670.40 and 8670.48, Government Code. s 2250. Relief of Liability. A person may be relieved from the liability for the payment of the oil spill response fee and/or the oil spill prevention and administration fee including any penalties and interest added to those fees, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 15606(a), Government Code; and Section 46601, Revenue and Taxation Code. Reference: Section 46158, Revenue and Taxation Code. s 2255. Records. (a) General. A feepayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), feepayers shall comply with the following requirements. In general, a person who is liable for payment of the oil spill response fee and/or the oil spill prevention and administration fee, would be expected to maintain some or all of the following records, as applicable: (1) Books of account pertaining to crude oil ( including condensate and natural gasoline) and petroleum products received at a marine terminal (including third-party terminals) or transported by pipeline across, under or through the marine waters of this state. (2) Shipping and discharge records. (3) Records evidencing ownership at the landside flange of crude oil or petroleum products received at marine terminals. (4) Records identifying all marine terminal/shipping dock locations owned or operated within the state. (5) Records identifying third party locations where crude oil or petroleum products are received and documentation or certification that the third-party terminal operator remitted the fee on the crude oil and petroleum products where applicable. (6) Third-party independent inspectors reports (e.g. Saybolt and Caleb Brett reports), where available, showing loading in the state of crude oil at marine terminals or discharge in the state of crude oil and other petroleum products at marine terminals/shipping docks. (7) Refinery records showing the receipt of crude oil used for processing. (8) Marine terminal records identifying the point of origin of crude oil and petroleum products received. (9) Records from production platforms operated in this state accounting for all crude oil and any other product extracted on the platform and their distribution. (10) Copies of all returns filed with the board and related schedules used to prepare the returns. Note: Authority cited: Section 15606(a), Government Code; and Section 46601, Revenue and Taxation Code. References: Sections 46602 and 46603, Revenue and Taxation Code. s 2257. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 46160, Revenue and Taxation Code. Reference: Sections 46160 and 46162, Revenue and Taxation Code. s 2300. Collection of Surcharge. Every electric utility making sales of electrical energy to consumers in this state shall collect the surcharge from each consumer other than a consumer that is an electric utility or is exempt under Chapter 3, Part 19 of the Revenue and Taxation Code, at the time it collects its billing from the consumer for the electrical energy sold. A consumer is any person receiving electrical energy furnished by an electric utility and includes a person receiving electrical energy for redistribution for the use of his tenants. An electric utility may collect the surcharge on sales of electrical energy to another electric utility if the purchasing utility certifies in writing to the selling utility that all purchased electrical energy will be consumed by it in such a manner as to be subject to the surcharge, that all self-generated electrical energy will be sold to other electrical utilities without collection of the surcharge, and that purchased electrical energy will not be pooled with self-generated electrical energy. For the purpose of the proper administration of this part, it shall be presumed that electrical energy sold by an electric utility in this state to other than an electric utility is consumed by the purchaser in this state until the contrary is established. Whenever the rate of the surcharge is increased or decreased, the duty to collect the surcharge from a consumer at such new rate shall commence with the first regular billing period applicable to that consumer which begins on or after the effective date of the change of rate. The surcharge required to be collected by the electric utility from the consumer shall be added to the charges to the consumer for the electrical energy sold. The amount of the surcharge may be stated separately. If the electric utility does not separately state the amount of the surcharge, the electric utility shall print on the billing a notice to the effect that the charges include energy resources surcharge computed at (applicable rate) mill per kilowatt-hour. Note: Authority cited: Section 40171, Revenue and Taxation Code. Reference: Sections 40001-40191, Revenue and Taxation Code. s 2301. Due and Payable Dates. The surcharges required to be collected by electric utilities are due quarterly on or before the last day of the month next succeeding each calendar quarter. Amounts of surcharge due for which a billing for the electrical energy is issued by an electric utility to the consumer prior to the close of a calendar quarter are payable with the surcharge return for that quarter. Any amounts of the surcharge required to be paid or collected that are not billed in the ordinary course of the billings by an electric utility may be determined by the Board against the utility or the consumer, or both. s 2302. Surcharge Collections a Debt. The surcharge required to be collected by the electric utility, and any amount unreturned to the consumer which is not a surcharge but was collected from the consumer as representing a surcharge, constitute debts owed by the electric utility to this state. Any amounts collected by an electric utility from a consumer on account of the purchase of electrical energy the consumption of which is subject to the surcharge shall be applied proportionately between the liability of the consumer on account of the purchase of the electrical energy and the liability of the consumer for the surcharge. An electric utility may not apply partial payments by a consumer preferentially to the amount owing the utility for electrical energy, even though the partial payment is in an amount equal to the charge for such energy. s 2303. Relief from Liability. A person may be relieved from the liability for the payment of the energy resources surcharge, including any penalties and interest added to the surcharge, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 40171, Revenue and Taxation Code. Reference: Section 40104, Revenue and Taxation Code. s 2304. Worthless Accounts. An electric utility is relieved from liability to collect the surcharge insofar as the base upon which the surcharge is imposed is represented by accounts which have been found to be worthless and charged off in accordance with generally accepted accounting principles. If the electric utility has previously paid the amount of the surcharge, it may take as a deduction on its return the amount found to be worthless and charged off. If such accounts are thereafter collected in whole or in part, the surcharge so collected shall be paid with the first return filed after such collection. Electric utilities may charge off their worthless accounts on the basis of their experience ratio provided the write-off percentage includes an allowance for collection on worthless accounts made subsequent to the write-off. s 2315. Exemptions and Exclusions. The consumption of electrical energy which this state is prohibited from taxing under the Constitution of the United States or under the Constitution of this state is exempt from the surcharge. The surcharge does not apply to the consumption of electrical energy by foreign governments or by any state of the United States other than the State of California. The surcharge applies to the consumption of purchased electrical energy by the State of California, by any county, city and county, municipality, district, public agency, or subdivision of this state unless otherwise exempt. The surcharge applies to the consumption of purchased electrical energy by charitable, religious, scientific, or educational corporations, funds, or foundations, whether or not the organizations qualify for exemption from property tax or franchise tax. s 2316. Specific Applications. The surcharge does not apply to the consumption of electrical energy by the following persons: (1) The United States, its unincorporated agencies and instrumentalities; (2) Any incorporated agency or instrumentality of the United States wholly owned by either the United States, or by a corporation wholly owned by the United States; (3) The American National Red Cross, its chapters and branches; (4) Insurance companies, including title insurance companies, subject to taxation under California Constitution, Article XIII, Section 28; (5) Banks, including national banking associations, located within the limits of this state. The exemption for state banks and national banking associations has been repealed beginning with the bank's income year for Bank and Corporation Tax purposes commencing on or after January 1, 1981. The surcharge shall be collected by the electric utility from each state bank and each national banking association beginning with the first regular billing period applicable to that bank which commences on or after the date the bank becomes subject to the surcharge. (6) Enrolled Indians purchasing and consuming electrical energy on Indian reservations; (7) Career consular officers and employees of certain foreign governments who are exempt from tax by treaties and other diplomatic agreements with the United States; (8) Federal credit unions organized in accordance with the provisions of the Federal Credit Union Act. Note: Authority cited: Section 40171, Revenue and Taxation Code. Reference: Sections 40001-40191, Revenue and Taxation Code. s 2317. Consumption by Electric Utilities. The consumption by an electric utility of self-generated electrical energy is not subject to the surcharge. The consumption by an electric utility of purchased electrical energy that is used directly, lost by dissipation, or unaccounted for in accordance with generally accepted accounting principles by the electric utility in the process of generation, transmission, and distribution of electrical energy is exempt from the surcharge. However, the surcharge applies to the consumption by electric utilities of purchased electrical energy for any other purpose. (The term "consumption" does not include the receiving of purchased electrical energy by an electric utility for resale.) When an electric utility purchases electrical energy and pools in its system the energy with electrical energy generated by it, the consumption of electrical energy in this state from the pool by the utility during any quarter shall be deemed to be a consumption of energy generated by it to the extent that the kilowatt-hours of the electrical energy generated by it during the quarter exceed the kilowatt-hours consumed by the electric utility. When an electric utility consumes electrical energy purchased from another electric utility, which has not been pooled in its system with electrical energy generated by it, the surcharge will apply to the consumption of the purchased electrical energy, unless the consumption is otherwise exempt. s 2318. Exemption Procedure. s 2329. Registration. Every electric utility selling electric energy for consumption in this state shall register with the Board upon a form prescribed by the Board and shall set forth the name under which the utility transacts or intends to transact business, the principal office address and the mailing address of the utility, and such other information as the Board may require. s 2330. Electric Utility Returns. Every electric utility shall file an electrical energy surcharge return on a form prescribed by the Board showing the number of kilowatt-hours of electrical energy generated, purchased, and used together with deductions claimed and the amount of surcharge due for the preceding quarterly period. The return shall be signed by a responsible officer or agent of the electric utility and shall be accompanied by a payment for the surcharge due. The return and the payment shall be filed quarterly on or before the last day of the month next succeeding each calendar quarter. Amounts of surcharge due for which a billing for the electrical energy is issued by an electric utility to the consumer prior to the close of a calendar quarter are payable with the surcharge return for that quarter. s 2331. Consumer Returns. Every person purchasing electrical energy the consumption of which is subject to the surcharge and who has not paid the surcharge billed and required to be collected by an electric utility shall file a return with the Board on or before the last day of the month following each calendar quarter for the preceding quarterly period. The return shall be filed in such form as the Board may prescribe and shall be filed by the person required to file the return or by his duly authorized agent. The person required to file a return shall deliver the return together with a remittance of the amount of the surcharge payable to the office of the Board. The Board may require the filing of returns by consumers in circumstances where it finds that consumers' liabilities are not being included in the return of an electric utility or it determines that consumer returns are necessary for the efficient administration of the electrical energy surcharge. The Board may require consumers' returns to cover periods other than calendar quarters. s 2332. Reports. Every electric utility registered with the Board shall annually file a report with the Board in such form as the Board may prescribe setting forth its estimate of the kilowatt-hours it will sell and use to which the surcharge will apply during the period September 1 through August 31 following the date of the estimate. The report shall be filed no later than June 30 of each year. In addition, every electric utility registered with the Board shall annually file a report with the Board in such form as the Board may prescribe setting forth its estimate of the kilowatt-hours it will sell and use to which the surcharge will apply during the period March 1 through the last day of February following the date of the estimate. This report shall be filed no later than December 31 of each year. In addition to any other reports or returns required, the Board may require additional, supplemental, or other reports from electric utilities, consumers, and any other person generating,purchasing, transmitting, distributing, or consuming electrical energy, including verification of the information to be given on and the times for filing of such reports. The Board may require reports of estimates of future availability, generation, sales, and consumption of electrical energy from electric utilities and other persons as it may deem necessary. Note: Authority cited: Section 40171, Revenue and Taxation Code. Reference: Sections 40001-40191, Revenue and Taxation Code. s 2333. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 40067, Revenue and Taxation Code. Reference: Sections 40067 and 40069, Revenue and Taxation Code. s 2343. Records. (a) General. A taxpayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), a taxpayer shall comply with the following requirements. Every electric utility engaged in generating, purchasing, transmitting, distributing, consuming, or selling electrical energy in this state shall keep and maintain adequate and complete records showing: (1) The electrical energy generated, purchased, transmitted, distributed, consumed, and sold in this state. (2) Meter readings and other records as may be necessary for the accurate determination of the kilowatt-hours of electrical energy generated, purchased, consumed, or sold in this state. For sales or use measured by a basis other than metering, the records shall show the other measurement and the method of computing the kilowatt-hours of electrical energy so sold or used. (3) All deductions allowed by law and claimed in filing returns, except for the electrical energy used or lost in generation, transmission, and/or distribution. (4) The methods and amounts used in computing its reports of estimates of future availability, generation, sales, and consumption of electrical energy. Note: Authority cited: Section 40171, Revenue and Taxation Code. Reference: Sections 40172, 40173, 40174 and 40175, Revenue and Taxation Code. s 2344. Microfilm Records. s 2345. Records Prepared by Automated Data Processing Systems. s 2346. Records Retention. s 2400. Foreword. Note: Authority cited for Chapter 5.5 (Sections 2400-2431, not consecutive): Section 41128, Revenue and Taxation Code. Reference: Sections 41003-41019, 41020-41049, 41052-41053, 41073-41095 and 41129, Revenue and Taxation Code. s 2401. Definitions. (a) Service Supplier. "Service Supplier" means any person supplying intrastate telephone communication services to any service user in this state, provided however: (1) Where intrastate telephone communication services are supplied through a prepaid telephone calling card, the "service supplier" means the person that provides access to its lines and switches for telephone services and is responsible for deducting the amounts charged for telephone services used from amounts of service available on the prepaid telephone calling card. (2) A wholesaler or retailer of prepaid telephone calling cards is not a service supplier unless it provides access to its lines and switches for telephone services and is responsible for deducting the amounts charged for telephone services used from amounts of service available on the prepaid telephone calling card. (b) Intrastate Telephone Communication Services. "Intrastate telephone communication services" means all local or toll telephone services where the point or points of origin and the point or points of destination of the services are all located in this state. It includes the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radiotelephone stations constituting a part of a local telephone system and any facility or service provided in connection with local telephone service. It also includes telephonic quality communication for which there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication as well as a service which entitles the subscriber, upon payment of a periodic charge (whether a flat charge or a charge based upon total elapsed transmission time),to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radiotelephone stations in a specified area which is outside the local telephone system area in which the station provided with the service is located. (c) Billing Agent. "Billing Agent" shall mean any person that submits a bill to a service user on behalf of another person who is a service supplier, reseller or billing aggregator. A billing agent is not considered to be a service supplier for intrastate telephone communication services provided by or billed on behalf of that person. (d) Billing Aggregator. "Billing Aggregator" shall mean any person engaged in the business of facilitating the billing and collection of charges for intrastate telephone communication services by aggregating the information about telephone communication services provided by one or more service suppliers and submitting the combined information to one or more local exchange carriers for billing and collection. The billing aggregator may contract with service suppliers to: (1) receive call information detail from one or more service suppliers and submit that call information detail to one or more local exchange carriers acting as billing agents; (2) receive payments from local exchange carriers acting as billing agents for disbursement as directed by service suppliers; and (3) prepare and file returns and remit the surcharge to the Board in the manner provided in the applicable contract. A billing aggregator shall identify all service suppliers on whose behalf it will prepare and file returns at such time and in such form as the Board requests. (e) Prepaid Telephone Calling Card. "Prepaid telephone calling card" means any card, or other identifier such as an authorization number or access code, which is purchased in advance of use of telephone services, and entitles the holder of the card or user of the authorization number or access code to a specified dollar amount or number of minutes of telephone service, where dollar amounts or minutes for telephone services used are deducted from the amount of prepaid service available on the prepaid telephone calling card as local and long distance telephone services are provided to the user of the prepaid telephone calling card. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Sections 41007, 41011 and 41021, Revenue and Taxation Code. s 2402. Imposition of the Surcharge. s 2403. Prepaid Telephone Calling Cards. (a) The surcharge applies to the dollar amounts deducted or the value of the minutes deducted from the prepaid telephone calling card by the providing service supplier to the extent that those dollar amounts or minutes were deducted to pay for intrastate telephone communication services provided to the user of the prepaid telephone calling card. Dollar amounts or minutes deducted for interstate telephone communication services are exempt from the surcharge. Dollar amounts or minutes of telephone service which are forfeited because they have not been used prior to the expiration of the prepaid telephone calling card are not subject to the surcharge. (b) Where intrastate telephone communication services are supplied through a prepaid telephone calling card, the providing service supplier may apply the surcharge to an estimate of the charges for intrastate services subject to the surcharge. The estimate of charges may be based on such call information as the providing service supplier reasonably believes demonstrates the approximate amount of intrastate telephone communication service charges subject to the surcharge. (c) If a prepaid telephone calling card contains a statement that the price of the card includes applicable taxes and fees, the service supplier responsible for collecting and paying the surcharge on intrastate telephone communications services provided pursuant to the card may reduce the taxable measure of such services by taxes and fees which are not subject to the 911 surcharge. Taxes and fees which are not subject to the 911 surcharge include the federal excise tax and the 911 surcharge. Taxes and fees imposed on the service supplier by statute, such as those imposed by the California Public Utilities Commission, may not be deducted from the taxable measure. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Sections 41011 and 41021, Revenue and Taxation Code. s 2404. Billing Presumed to Be Correct. s 2405. Partial Payments. Partial payments by a service user to a service supplier for intrastate charges for service shall be applied proportionately to the charges for service and to surcharge, unless the service user specifically directs otherwise in writing. s 2406. Liability for Surcharge Remitted by Billing Aggregator or Billed Through Billing Agents. (a) The surcharge is required to be remitted by the service supplier which provided the intrastate telephone communication services. (b) Where a return is filed and surcharge remitted by a billing aggregator on behalf of one or more service suppliers, the service supplier will be deemed to have remitted the surcharge if all of the following conditions have been met: (1) The service supplier has registered with the Board in accordance with Regulation 2421. (2) The service supplier has notified the Board in writing that the billing aggregator is authorized to act on its behalf to prepare and file returns and remit the surcharge to the Board, and such authorization is still in effect. Where the service supplier authorizes the billing aggregator to act on its behalf concerning only a portion of the telephone communication services it provides, the service supplier shall so notify the Board and must report and remit directly to the Board the surcharge due on the remainder of the telephone communication services it provides. (3) The service supplier has provided to the Board and to the billing aggregator its written consent for the billing aggregator to disclose to the Board any and all records concerning the activities conducted on behalf of the service supplier related to the surcharge. (4) The billing aggregator does either (A) or (B). (A) files a separate return for each service supplier on whose behalf the return is filed which includes the name, address, account number and amount of surcharge remitted; or (B) files a single return for more than one service supplier; provided that the billing aggregator, at such time and in such form as the board requests, shall identify the service suppliers on whose behalf it filed the return and provide documentation supporting the return. (c) A service supplier acting as a billing agent for another service supplier, reseller or billing aggregator is not liable for remitting the surcharge on services provided by or billed on behalf of the other service supplier, reseller or billing aggregator even though those charges may be included, as a separate part of a billing, with charges for services it did provide to the service user. A billing agent providing only billing services is not a service supplier and is not required to remit the surcharge collected on behalf of a service supplier that provided the service. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Sections 41021 and 41023, Revenue and Taxation Code. s 2411. Exclusion from the Term "Person." s 2412. Exclusions from the Term "Charges for Service." s 2413. Exemptions from Surcharge. The surcharge does not apply to: (a) Charges for service or equipment furnished by a service supplier subject to public utilities regulation during any period when the same or similar service or equipment is also available for sale or lease from other than a service supplier subject to public utility regulation. (b) Charges for service when imposition of such surcharge would be in violation of the Constitution of the United States, the United States Code, or the laws of the State of California. These include charges for service to: (1) The United States, its unincorporated agencies and instrumentalities, or any state of the United States. (2) Any incorporated agency or instrumentality of the United States wholly owned by either the United States, or by a corporation wholly owned by the United States. (3) The American National Red Cross, its chapters and branches. (4) Insurance companies, including title insurance companies, subject to taxation under California Constitution, Article XIII, Section 28. (5) Banks, including national banking associations, located within the limits of this state. The exemption for state banks and national banking associations has been repealed beginning with the bank's income year for Bank and Corporation Tax purposes commencing on or after January 1, 1981. The service supplier shall collect the surcharge from each state bank and each national banking association beginning with the first regular billing period applicable to that bank which commences on or after the date the bank becomes subject to the surcharge. (6) Enrolled Indians who are service users subscribing for service from within the limits of an Indian reservation. (7) Foreign governments and career consular officers and employees of certain foreign governments who are exempt from tax by treaties and other diplomatic agreements with the United States. (8) Federal credit unions organized in accordance with the provisions of the Federal Credit Union Act. (c) Toll charges used in the collection and dissemination of news for public press. (d) Charges for wide-area telephone service used by common carriers in the conduct of their business. (e) Charges for intrastate telephone communication services which are exempt from the federal communication services tax pursuant to Section 4253 of the Internal Revenue Code of 1954. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Sections 41003-41019, 41020-41049, 41052-41053, 41073-41095, and 41129, Revenue and Taxation Code. s 2414. Exemption Procedure. s 2421. Registration. Every service supplier supplying intrastate telephone communication service to any service user in this state shall register with the board upon a form prescribed by the board and shall set forth the name under which it transacts or intends to transact business, the principal office address and the mailing address of the service supplier, and such other information as the board may require. The registration form shall be signed by the owner, a general partner, or a responsible officer of the corporation, as the case may be. s 2422. Returns and Payment. On or before the last day of the second month of each calendar quarter every service supplier shall file an emergency telephone users surcharge return on a form prescribed by the board for the preceding calendar quarter. The return shall be signed by a responsible officer or agent of the service supplier and shall be accompanied by a payment for the surcharge due. All remittances shall be payable to the State Board of Equalization. At the time of filing each surcharge return the service supplier shall provide the board with a list containing the names and addresses of any service users who have refused to pay the surcharge, the date the surcharge was billed to each customer, the amount of each unpaid surcharge, and the reasons, if any, given by the users for refusing to make such payment. On and after January 1, 1982, such information shall be provided for a service user only if the cumulative uncollected amount for that user totals $3.00 or more. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Sections 41024, 41051 and 41052, Revenue and Taxation Code. s 2423. Refunds to Service User by Service Supplier. s 2424. Service User Is Liable. s 2425. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 41060, Revenue and Taxation Code. Reference: Sections 41060 and 41062, Revenue and Taxation Code. s 2431. Records. (a) General. A service supplier shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), service suppliers shall comply with the following requirements. Every service supplier liable for payment of the emergency telephone users surcharge which it collects from service users shall keep complete and accurate records showing: (1) Totals for intrastate telephone communication in this state billed to service users. (2) All exemptions allowed by law. (3) Amounts of Emergency Telephone Users Surcharge collected. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Section 41056, Revenue and Taxation Code. s 2432. Relief from Liability. A person may be relieved from the liability for the payment of the Emergency Telephone Users Surcharge, including any penalties and interest added to the surcharge, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 41128, Revenue and Taxation Code. Reference: Section 41098, Revenue and Taxation Code. Note: Authority cited: Section 42600, Revenue and Taxation Code. Reference: Sections 42101-42103, 42103.5, 42104-42106 and 42108, Revenue and Taxation Code. s 2500. Records. A taxpayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32452 and 32453, Revenue and Taxation Code. s 2504. Distilled Spirits Produced, Packaged, or Bottled. Every distilled spirits manufacturer, manufacturer's agent, brandy manufacturer, and rectifier shall keep and preserve a record of all distilled spirits produced, manufactured, cut, blended, rectified, bottled, packaged, or otherwise acquired in this State. A daily record of such acquisitions shall be made in book forms prescribed by the board. All distilled spirits received from licensee's own bottling or packaging department shall be recorded in SBE Form 240A. Receipts from the bottling or packaging department shall include all distilled spirits bottled or packaged, whether or not the distilled spirits are owned by the licensee. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32001-32556, Revenue and Taxation Code. s 2505. Bottled or Packaged Distilled Spirits Acquired in California. Every distilled spirits taxpayer shall keep a record in SBE Form 241A of all bottled or packaged distilled spirits acquired from other distilled spirits taxpayers in California and of all distilled spirits received from licensee's own branches in California. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32001-32556, Revenue and Taxation Code. s 2506. Bottled or Packaged Distilled Spirits Imported. Every distilled spirits or brandy importer shall keep a record in SBE Form 242A of all bottled or packaged distilled spirits acquired by direct importation from without the State. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32001-32556, Revenue and Taxation Code. s 2507. Distilled Spirits Sold or Exported. Every distilled spirits taxpayer shall keep a record of all distilled spirits sold, and in addition thereto, shall make a daily record in book forms prescribed by the board covering all distilled spirits sold or delivered to other taxpayers in California and all distilled spirits exported or sold for export from California, as follows: (a) All sales or deliveries of distilled spirits to other California distilled spirits taxpayers, all transfers of distilled spirits to licensee's own branches in California, and all returns of distilled spirits to original vendors in California, shall be recorded in SBE Form 243B. (b) All sales of distilled spirits exported or sold for export from California and actually exported and all sales of distilled spirits to common carriers engaged in interstate or foreign passenger service, shall be recorded in SBE Form 244B. s 2508. Distilled Spirits Invoices and Bottling or Packaging Records. All purchase invoices and bottling or packaging records covering distilled spirits acquisitions and all sales invoices, credit memoranda, or other data supporting such sales or deliveries, must be retained by the licensee and filed in such manner as to be readily available for verification by employees of the board. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32001-32556, Revenue and Taxation Code. s 2509. Prepayment of Distilled Spirits Tax; Consolidated Returns. Any distilled spirits wholesaler may make an application to the board for permission to prepay the distilled spirits excise tax on his inventory of distilled spirits on hand as of the first day of any calendar month, and for permission thereafter to pay the excise tax levied on sales of distilled spirits on the basis of subsequent purchases and acquisitions of distilled spirits by him. Any wholesaler who has been granted such permission and who operates more than one location for which distilled spirits wholesalers' licenses are issued and who elects to file a consolidated tax return covering distilled spirits transactions for all of his branch premises, need not include in his SBE Forms 241A and 243B transfers of distilled spirits between his own premises as otherwise provided in this article. s 2512. Beer and Wine Production; Beer Bottling; Wholesalers' Beer and Wine Purchases. Every beer manufacturer or wine grower shall keep and preserve a record of all beer or wine manufactured or produced in this State. Such record must show the quantity produced and the disposition thereof. Duplicates of federal production and bottling records, if available to employees of the board, shall suffice to comply with this regulation. Every beer manufacturer shall keep and preserve separately a record of all beer received by the bottling, canning, and cooperage departments and packaged therein. Every beer and wine wholesaler shall keep and preserve a record of all beer and wine purchased in this State. This record must show the kind and quantity of beer or wine purchased, the name and address of the person from whom purchased, and the date received. Purchase invoices containing all of the above information, if filed so as to be readily accessible for verification by employees of the board, shall suffice to comply with this regulation. s 2513. Beer and Wine Imported. Every importer of beer and wine shall keep a record in SBE Form 269A of all beer and wine imported into this State. This record must be supported by purchase invoices filed in such manner as to be readily accessible for verification by employees of the board. s 2514. Beer and Wine Sold. Every manufacturer, wine grower, importer, and beer and wine wholesaler shall keep and preserve a record of all beer and wine sold. This record must show the name and address of the purchaser, the date sold, the kind and quantity, the size and capacity of packages of beer or wine sold, the price, container charges or deposits and any discount offered. Sales invoices containing all of the above information, if filed so as to be readily accessible for verification by employees of the board, shall suffice to comply with this regulation. s 2515. Beer and Wine Exports. s 2518. Beer Sold to Instrumentalities of the Armed Forces. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32151, 32177, and 32452, Revenue and Taxation Code. s 2519. Distilled Spirits and Wine Sold to Instrumentalities of the Armed Forces. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32177.5 and 32452, Revenue and Taxation Code. s 2520. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 32260, Revenue and Taxation Code. Reference: Sections 32260 and 32262, Revenue and Taxation Code. s 2525. Contents. (a) Every sale or delivery of alcoholic beverages, except beer, from one licensee to another licensee must be recorded on a sales invoice, whether or not consideration is involved. Invoices covering the sale or purchase of alcoholic beverages must be filed in such manner as to be readily accessible for examination by employees of the board and shall not be commingled with invoices covering commodities other than alcoholic beverages. Each sales invoice shall have printed thereon the name and address of the seller and shall show the following information: (1) Name and address of the purchaser. (2) Date of sale and invoice number. (3) Kind, quantity, size, and capacity of packages of alcoholic beverages sold. (4) The cost to the purchaser, together with any discount which at any time is to be given on or from the price as shown on the invoice. (5) The place from which delivery of the alcoholic beverages was made unless delivery was made from the premises of the licensee or from a public warehouse located in the same county. (6) Invoices covering sales of distilled spirits by distilled spirits taxpayers to other distilled spirits taxpayers shall show, in addition to the above, the total number of wine gallons covered by the invoice. (b) Invoices covering sales of wine in internal revenue bond by a wine grower to another wine grower must also show that delivery was made "in bond." (c) Invoices covering sales of alcoholic beverages for use in trades, professions, or industries, and not for beverage use, must be marked or stamped: "No state tax-not for beverage use." (d) Invoices covering the sale of alcoholic beverages for export must be marked or stamped: "Sold for export." s 2530. Inventories. (a) Distilled Spirits. Every distilled spirits taxpayer shall furnish to the board a statement of the gallonage of finished packaged distilled spirits on hand at the end of each month, or other reporting period authorized by the board. This statement shall be made on the Distilled Spirits Taxpayer's Return. Except as provided below, at least two of these statements shall be prepared from semi-annual physical inventories, a detailed record of which must be available at all times for verification by employees of the board. For taxpayers reporting on an annual basis, the statement shall be prepared from the December semi-annual physical inventory. A detailed record of the semi-annual physical inventories must be available at all times for verification by employees of the board. A distilled spirits tax shall be relieved of the requirement of taking one of the required semi-annual physical inventories upon the filing with the board of a copy of an order of the regional director (compliance) of the Federal Bureau of Alcohol, Tobacco and Firearms waiving the taking of such inventory and approving the taxpayer's taking of physical inventories on an annual basis. Said taxpayer may continue to take physical inventories on an annual basis until such waiver is rescinded by the board or by the federal regional director (compliance). The board may rescind the waiver and reimpose the requirement of semi-annual physical inventories if it finds that such semi-annual physical inventories are necessary to law enforcement or protection of the revenue. A distilled spirits taxpayer shall furnish to the board a copy of any order of the federal regional director (compliance) affecting the taking of physical inventories by such taxpayer within 10 days of the taxpayer's receipt of such order. (b) Beer. Every licensed beer manufacturer shall take a physical inventory monthly of bulk and bottled beer in the brewery bottling house in such manner as provided in Title 27, Code of Federal Regulations, Section 25.294 as it reads on April 1, 1989. (c) Wine. Every licensed wine grower shall take a physical inventory of all wine and distilling material on hand in United States internal revenue bond on June 30th of each year or, if an annual inventory period ending on other than June 30 has been approved by the regional director (compliance) of the Bureau of Alcohol, Tobacco, and Firearms, then the inventory shall be taken at the end of such annual inventory period. (d) Supporting Records. All records used in preparing inventories for certification to the board shall be kept at the licensee's premises for verification by employees of the board. Note: Authority cited: Sections 32152 and 32451, Revenue and Taxation Code. Reference: Sections 32151, 32152, 32211 and 32452, Revenue and Taxation Code. s 2534. Reporting Periods for Tax Returns. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32151, 32151.5, 32452, Revenue and Taxation Code. s 2535. Distilled Spirits. Every distilled spirits taxpayer shall, on or before the fifteenth day of each and every month, or, on or before the fifteenth day of the month following the close of such other reporting period authorized by the board, file with the board at Sacramento a tax return on the form prescribed by the board of all sales of distilled spirits for the reporting period, together with such other information as is required on said form. Every distilled spirits taxpayer shall immediately following the close of business on the last day of each month forward the original page, or pages, of SBE Forms 241A, 242A, 243B, and 244B to the board at Sacramento, provided that additional entries in these forms as required by Article 1 have been made since the last reporting date. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32201, 32211, 32251, 32251.5 and 32452, Revenue and Taxation Code. s 2536. Beer Manufacturers. Every licensed beer manufacturer shall, on or before the fifteenth of each and every month, or, on or before the fifteenth day of the month following the close of such other reporting period authorized by the board, file with the board at Sacramento, a tax return on forms prescribed by the board of all sales of beer for the preceding reporting period together with such other information as is required on said forms. In determining the tax due on the sale of beer in bottles or cans, the quantity sold shall be computed in accordance with the following table: Fluid Contents Number of (Ounces) of Bottles or Each Bottle Barrel Cans Per Case or Can Equivalent 4............ 64 0.06452 6............ 64 .09677 12........... 6 .01815 12........... 7 .02117 12........... 8 .02419 12........... 12 .03629 12........... 14 .04234 12........... 30 .09073 12........... 32 .09677 24........... 6 .03629 24........... 7 .04234 24........... 8 .04839 24........... 9 .05444 24........... 10 .06048 24........... 11 .06653 24........... 12 .07258 24........... 13 .07863 24........... 14 .08468 24........... 15 .09073 24........... 16 .09677 36........... 6 .05444 36........... 7 .06351 36........... 8 .07258 48........... 12 .14516 50........... 12 .15120 Since the determination of tax liability is based upon a count of cases of bottles or cans, only bottles or cans of uniform size and content may be packaged in the same case or shipping container. If beer is to be packaged in cases of sizes other than those shown above, the beer manufacturer shall notify the board in advance and request to be advised of the proper fractional barrel equivalent of the proposed container. Reports of inventories required to be made on each tax return shall be in agreement with Federal Form 5130.9. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32151, 32152, 32175, 32176, 32251, 32251.5 and 32452, Revenue and Taxation Code. s 2537. Wine Growers. Every licensed wine grower shall, on or before the fifteenth day of each and every month, or, on or before the fifteenth day of the month following the close of such other reporting period authorized by the board, file with the board at Sacramento, a tax return on forms prescribed by the board of all sales of wine for the preceding reporting period, together with such other information as is required on said form. Reports of inventories required to be made on each tax return must be in agreement with the data on Federal Report Form 5120.17 (702). The amounts reported must be book inventories for all months except for the end of the annual inventory period as described in Regulation 2530. The inventory reported in that month must be a physical inventory. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32151, 32152, 32173, 32174, 32175, 32176, 32251, 32251.5 and 32452, Revenue and Taxation Code. s 2538. Beer and Wine Importers. Every licensed beer and wine importer shall, on or before the fifteenth day of each and every month, or, on or before the fifteenth day of the month following the close of such other reporting period authorized by the board, file with the board at Sacramento, a tax return on the form prescribed by the board of all sales of beer or wine for the preceding reporting period, together with such other information as is required on such form. A wine grower holding both a winegrower's license and a beer and wine importer's license shall include the total imports of wine for the reporting period on the "Winegrower's Tax Return". A beer manufacturer holding both a beer manufacturer's license and a beer and wine importer's license shall include the total imports of beer on the "Tax Return of Beer Manufacturer". Every licensed beer and wine importer shall on or before the fifteenth day of the month following the close of each reporting period, file BOE 269-A. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32151, 32171, 32173, 32174, 32175, 32176, 32251, 32251.5 and 32452, Revenue and Taxation Code. s 2539. Tax Remittances. Note: Authority cited: Sections 32451 and 32452, Revenue and Taxation Code. Reference: Section 32251, Revenue and Taxation Code. s 2540. Common Carrier Receipts and Delivery Reports. Common carriers and holders of interstate alcoholic beverage transporters' permits, transporting alcoholic beverages into this State from without this State for delivery or use within this State, shall obtain from the licensed importer or customs broker a receipt for the alcoholic beverages so transported and delivered. This receipt must show the following information: Name of shipper, point of origin, name of importer or customs broker to whom delivery is made, place of delivery, name of carrier making delivery, a complete description of the shipment, and the number of the waybill covering the shipments. In the case of rail shipments the receipt shall show also the car number and in the case of water shipments the receipt shall show also the name of the vessel and the number of the steamship bill of lading. A copy of the freight bill or other shipping document containing all of this information shall be deemed to be compliance with this requirement. A copy of such receipt must be delivered to the importer or customs broker to whom delivery is made. With respect to pool shipments in which more than one licensed importer or customs broker participates, the common carrier shall furnish a copy of the receipt to each participating importer or customs broker. All deliveries of alcoholic beverages, shipment of which originated outside California, made to California importers or customs brokers, shall be reported to the board at Sacramento by common carriers and holders of interstate alcoholic beverage transporters' permits. Such report shall be filed with the board on forms prescribed by the board not later than the fifteenth day of each month covering such deliveries made in the previous calendar month. Note: Authority cited: Sections 32451 and 32452, Revenue and Taxation Code. s 2541. Common Carrier Tax Reports. Every common carrier engaged in interstate or foreign passenger service making sales of distilled spirits in California and every person licensed to sell distilled spirits aboard such a carrier, shall, on or before the first day of the second calendar month following the close of each calendar month, or such other reporting period as is authorized by the Board, file with the Board at Sacramento, a report of all sales of distilled spirits in California for the preceding reporting period. The report shall be in such form as the Board shall prescribe and shall be accompanied by a remittance of the amount of tax due for the period covered by the report. For the purpose of making these reports, such common carrier or other licensed person may compute its sales of distilled spirits in California by allocating a portion of the total distilled spirits sales for the entire system served by the reporting taxpayer to California based on the ratio that passenger miles in California bears to total passenger miles for the entire system served by the reporting taxpayer. The ratio of passenger miles in California to total passenger miles may be determined by tests. New tests should be made when there is any significant change in routes, schedules, or other operating conditions. The tests will be made by the reporting taxpayer and will be subject to review by the Board. All detail and test data should be retained for inspection by the Board. This method of computing sales of distilled spirits in California is authorized only for the purpose of making reports under this regulation. Determinations may be imposed or refunds granted if the Board, upon audit of the taxpayer's accounts and records, or upon the basis of tests or other information, determines that the report did not disclose the correct amount of tax due. A report must be filed for each reporting period even though no sales of distilled spirits were made in California during that period. Any person who fails to file a timely report and pay any tax that may be due shall be required to pay the applicable penalties and interest as provided by the Alcoholic Beverage Tax Law. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Section 32202, Revenue and Taxation Code. s 2542. Public Warehouses. Licensed public warehouses shall report on or before January 15th and July 15th of each year, all distilled spirits held in storage by them, in bottled form, at the close of business on December 31st and June 30th. Such reports shall be filed with the board at Sacramento on forms prescribed by the board, and shall show the name of each person for whom distilled spirits are stored, the size of containers, number of cases, and the units per case stored for each such person. s 2543. Customs Brokers. Every person holding a Federal customhouse broker's license and making customs entries in connection with original importations of alcoholic beverages into California in customs bond for California licensed importers shall, on or before the fifteenth day of each month, report to the board in Sacramento on forms prescribed by the board, every such importation of alcoholic beverages handled by him as a customhouse broker during the preceding calendar month. Every person holding a customs broker's license under the Alcoholic Beverage Control Act and making customs entries in connection with the importation of alcoholic beverages in customs bond into California for a person who does not hold the appropriate importer's license under the Alcoholic Beverage Control Act shall, on or before the fifteenth day of each month, report to the board in Sacramento on forms prescribed by the board, every such transaction in alcoholic beverages handled by him as a customs broker during the preceding calendar month. Note: Authority cited: Sections 32451 and 32452, Revenue and Taxation Code. s 2544. Conversion of Liters to Gallons. The Federal Bureau of Alcohol, Tobacco and Firearms has authorized the bottling of wine and distilled spirits in standard metric sizes. Reports of California licensees must be in wine gallons. To convert liters to wine gallons for reporting purposes, licensees shall use the standards established by the Bureau. These are: (a) For wine, to convert liters to wine gallons on any record or report, the quantity in liters shall be multiplied by 0.26417 to determine the equivalent quantity in wine gallons. The resulting figure shall be rounded to the nearest one-hundredth of a gallon. (b) For distilled spirits, to convert liters to wine gallons on any record or report, the quantity in liters shall be multiplied by 0.264172 to determine the equivalent quantity in wine gallons. The resulting figure shall be rounded to the nearest one-hundredth of a gallon. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32151, 32152 and 32201, Revenue and Taxation Code. s 2550. Destruction and Unaccounted for Losses of Distilled Spirits. (a) Unintentional Destruction. The term "unintentional destruction" shall mean destruction of distilled spirits by fire, earthquake, floods, breakage in transit, accident, or by any other cause, when the exact quantity destroyed is known. Claims for loss by unintentional destruction must be filed with the Board in Sacramento immediately following the close of business on the last day of the month in which the loss is discovered. The claim must state under oath of the licensee that the distilled spirits were so damaged that they could not be used for any purpose. Proof of loss satisfactory to the Board in the form of paid insurance or carrier claims, must be retained on the taxpayer's premises for verification. (b) Unaccounted For Losses. Unaccounted for losses shall include all other losses disclosed by physical inventory due to pilferage, handling, etc. The allowable tolerance for unaccounted for losses of distilled spirits acquired by any distilled spirits taxpayer shall not exceed one-tenth of one percent of the total sales of the distilled spirits. In the case of distilled spirits taxpayer who holds licenses for two or more premises, the tolerance allowed by this rule shall be computed and applied separately to the transactions for each premises, unless the Board has granted the taxpayer permission to file a consolidated tax return. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Section 32211, Revenue and Taxation Code. s 2551. Unaccounted for Losses of Beer. There shall be no unaccounted for losses of beer other than those, if any, permitted under Federal law. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Section 32152, Revenue and Taxation Code. s 2552. Spoiled Beer and Wine. A beer and wine importer will be allowed a credit for beer and wine sold and subsequently returned as spoiled, when the spoiled beer or wine is destroyed under the supervision of a representative of the board. For small quantities of beer or wine destroyed, which are not supervised by a representative of the Board, the exemption or credit is allowed only after prior written approval is obtained from the Board. To secure prior written approval, the beer and wine importer must submit a written request to the Board, listing the type of beverage, the number of containers, the container sizes and the total gallons to be destroyed. After receiving approval from the Board and after destroying the beer or wine, the beer and wine importer must submit a declaration signed under penalty of perjury, listing the number of containers, the container sizes, the total gallons destroyed and the date and manner of destruction. The declaration must be signed by a person in authority in the importer's organization who witnessed the destruction of the beer or wine. For the purposes of this regulation, small quantities means 2,500 gallons or less of beer, 2,500 gallons or less of still wine, and 1,500 gallons or less of champagne or sparkling wine by volume. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32171, 32173 and 32176, Revenue and Taxation Code. s 2553. Losses Resulting from Disaster, Vandalism, Malicious Mischief, or Insurrection. (a) In General. An amount equal to the state alcoholic beverage taxes included in the sales price of beverages to the licensee shall be refunded by the Board if: (1) The beverages are lost, rendered unmarketable, or condemned by a duly authorized official by reason of fire, flood, casualty, or other disaster, or by reason of breakage, destruction, or other damage resulting from vandalism, malicious mischief, or insurrection; (2) The beverages were held and intended for sale at the time of the disaster or other damage; (3) The disaster or damage occurred in this state; (4) The licensee has not and will not be compensated, by insurance or otherwise, for the loss in the amount of the tax included in the purchase price paid for the beverages; (5) The disaster or other loss occurred on or after April 1, 1980; (6) The amount to be refunded with respect to a single disaster or other loss is two hundred fifty dollars ($250) or more; and (7) A claim for refund is filed with the Board within six months after the date on which the beverages were lost, rendered unmarketable, or condemned by a duly authorized official. The refund shall be made to the licensee holding the beverages for sale at the time of the loss, and no interest shall be paid on the amount refunded. No refund shall be made with respect to losses resulting from theft. (b) Claims for Refund. A claim for refund under this regulation must be in writing and must state all of the facts upon which the claim is based, including the type and date of occurrence of the disaster or other cause of loss and the location of the beverages at the time. The claim must specify the amount of the state tax included in the purchase price paid for the beverages lost, rendered unmarketable, or condemned and contain a certification under penalty of perjury that such amount has not and will not be compensated by insurance or otherwise. The claim must be accompanied by a record of the inventory of the beverages lost, rendered unmarketable, or condemned showing the size and number of containers of each kind of beverage and the total wine gallons of each kind of beverage. (c) Proof of Loss. Claims for refund under this regulation will be approved only upon proof satisfactory to the Board that the beverages were destroyed or so damaged that they could not be sold. In the case of beverages lost due to a disaster or other specified cause the claim must be supported by inventory records, purchase invoices, container labels, settled insurance claims, or similar evidence which establishes the quantity and kind of beverages lost. In the case of beverages which are rendered unmarketable or condemned, but not lost, the claim must be supported by evidence that the beverages were destroyed under the supervision of a state or federal official responsible for witnessing such destruction. Proof of refund of federal alcoholic beverage taxes pursuant to the disaster, vandalism, or malicious mischief loss provisions of 26 United States Code Section 5064 will constitute proof of loss satisfactory to the Board. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Section 32407, Revenue and Taxation Code. s 2554. Consumption of Beer on Brewery Premises. All beer consumed on a brewery's premises shall be accounted for. (a) Except as provided in Subdivision (b), tax shall be paid on all beer consumed by brewery employees, visitors and others in a brewery tavern. Beer manufactured by the brewery for consumption in a brewery tavern, and which is placed in a storage tank designed for this purpose, shall be subject to tax at the time it is placed in the storage tank. For purposes of this Regulation, a "tavern" means a federally approved portion of the brewery premises where beer is sold to consumers. (b) Beer consumed by brewery employees, visitors and others is not subject to tax if consumed without charge within the brewery's bonded premises and not in a brewery tavern. Note: Authority cited: Sections 32152 and 32451, Revenue and Taxation Code. Reference: Sections 32171 and 32172, Revenue and Taxation Code. s 2555. Closures. Bitters, Chinese liquors, and other products which bear the federal closure or other device as provided in Title 27 Code of Federal Regulation, Part 19 shall, for tax purposes, be deemed to be distilled spirits. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Section 23005, Business and Professions Code; and 27 CFR 19.661 and 19.662. s 2557. Powdered Distilled Spirits. (a) In General. The Alcoholic Beverage Tax Law and Alcoholic Beverage Tax Regulations apply with respect to powdered distilled spirits in the same manner and to the same extent as with respect to other distilled spirits. Tax will be paid at the same rate per wine gallon, and at a proportionate rate for any quantity, as for distilled spirits of the same proof strength in liquid form. (b) Records and Reports. Transactions involving powdered distilled spirits, including any powdered alcoholic beverage containing powdered distilled spirits, must be stated by volume in wine gallons to the nearest one-hundredth of a gallon in all required records and reports. The importer, in the case of powdered distilled spirits imported into California packaged in containers for sale to the general public, and the rectifier in the case of powdered distilled spirits packaged within California shall: (1) Label the outside of each case with the volume in wine gallons of the powdered product contained in the case and of the powdered product contained in each individual package within the case. (2) Print on each invoice, credit memorandum, or similar document the total volume in wine gallons of the powdered product or products listed on that document. (3) Print on each invoice, credit memorandum, or similar document the volume in wine gallons of the powdered product contained in each size case and in each individual package listed on that document. (c) Conversion of Weight to Volume. The weight of powdered distilled spirits, and powdered distilled spirits products, shall be converted to volume as follows: (1) One pound equals .16 wine gallons; (2) One ounce equals .01 wine gallons; (3) One gram equals .000353 wine gallons. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32001-32556, Revenue and Taxation Code. s 2560. Treated As Sales. Samples and donations of alcoholic beverages shall be reported as sales. Each transfer of samples between licensees authorized to possess alcoholic beverages on which the California state alcoholic beverages taxes have not been paid (manufacturers, manufacturers' agents, distilled spirits wholesalers and rectifiers) shall be on an ex-tax basis, and shall be recorded on an invoice marked: "Samples." Distilled spirits taxpayers receiving samples from other licensees in California shall record the receipt in SBE Form 241A. Samples received by direct importation shall be recorded in SBE Form 242A. Distilled spirits picked up at the licensed premises of a distilled spirits rectifier or wholesaler by a representative of a manufacturer or of a manufacturer's agent to be used by him for sampling purposes, shall not be considered to be a transfer of samples between the licensees referred to in the second paragraph of this rule. Such deliveries of distilled spirits shall be reported as taxable sales by the rectifier or wholesaler. Note: Authority cited: Sections 32451 and 32452, Revenue and Taxation Code. Reference: Sections 32003, 32151, 32201, Revenue and Taxation Code. s 2561. Exports and Sales for Export. (a) Proof of Claim for Exemption for Exports and Sales for Export. The claim for exemption from tax for exports of alcoholic beverages or sales of alcoholic beverages for export shall be allowed only when the alcoholic beverages are actually exported to a point outside this state (and, in the case of distilled spirits sold for export, actually exported to a point outside this state within 90 days from the date of the sale) and one or more of the following conditions is met: (1) The beverages are delivered to an armed force of the United States at a depot of the armed force in this state for transport out of the state, and the taxpayer's record of such sales is supported by a copy of the official purchase order and documentary evidence of export. (2) The beverages are shipped to a point in a foreign country, and the federal tax on alcoholic beverages is not imposed or is refunded. (3) The beverages are shipped to a point outside this state by a carrier who is independent of the buyer and the seller and the claim for tax exemption is supported by a copy of the shipping documents receipted for by the carrier. For purposes of this regulation, the term "carrier" means a person or firm regularly engaged in the business of transporting for compensation property owned by other persons. (4) The beverages are shipped to or delivered to a point outside this state by any means, and the claim for tax exemption is supported by Form BT-260 signed by the purchaser and containing the certificate of the appropriate liquor control or tax authority of the state in which the beverages have been delivered to the effect that receipt of the delivery of the beverages has been reported to such authority by the purchaser. (b) Sales Which Are Not Exports. Alcoholic beverages on which federal taxes have been paid and which are sold to persons operating commercial fishing boats or private carrier freight vessels for use as ships' stores outside of the state upon the high seas are not exports and are subject to tax. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32171, 32173, 32175, 32176, 32179, 32211 and 32212, Revenue and Taxation Code. s 2562. Exports Shipped by Sellers' Vehicles. Note: Authority cited: Sections 32451 and 32452, Revenue and Taxation Code. Reference: Sections 32171, 32173, 32175, 32176, 32179, 32211 and 32212, Revenue and Taxation Code. s 2563. Sales for Export Shipped by Purchasers' Vehicles. Note: Additional authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32171, 32173, 32175, 32176, 32179, 32211, 32212, Revenue and Taxation Code. s 2564. Shipments Via Common Carrier. Note: Authority cite: Section 32451, Revenue and Taxation Code. Reference: Sections 32171, 32173, 32175, 32176, 32179, 32211 and 32212, Revenue and Taxation Code. s 2565. Fishing Boats and Freighters. Note: Additional authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32171, 32173, 32175, 32176, 32179, 32211, 32212, Revenue and Taxation Code; Article 1, Section 8, Clause 3, United States Constitution. s 2566. Armed Forces. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Sections 32171, 32173, 32175, 32176, 32179, 32211 and 32212, Revenue and Taxation Code. s 2567. Invoices. s 2570. Relief from Liability. A person may be relieved from the liability for the payment of alcoholic beverage taxes, including any penalties and interest added to those taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the Board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 32451, Revenue and Taxation Code. Reference: Section 32257, Revenue and Taxation Code. s 2610. Credit for Tax-Paid Telecommunication Services. A service supplier that uses the telecommunications services of another service supplier to furnish services to its customers may take as a deduction on its return from gross revenues subject to the tax imposed by Section 44030 of the Revenue and Taxation Code the amount paid to another service supplier for intrastate telecommunications services with respect to which that other service supplier has paid the tax imposed by Section 44030 and which tax is not subject to refund. Note: Authority cited: Section 44170, Revenue and Taxation Code. Reference: Section 44030, Revenue and Taxation Code. s 3000. Generator of Hazardous Waste. (a) Scope The provisions contained herein shall apply to the collection of the generator fee imposed pursuant to Health and Safety Code 25205.5. Regulations concerning the manifesting of hazardous waste, enforcement of hazardous waste management requirements and standards, and other regulatory activities conducted by the Department of Toxic Substances Control (DTSC) are contained in Title 22 of the California Code of Regulations. Nothing in this section shall grant any benefit or exemption to a generator, subject a generator to any duty or liability, or infer that any person is or is not a generator, except for the purpose of determining whether a person is subject to, or exempted from, the generator fee. (b) Definitions (1) "Generator" means any person, by site, whose act or process produces hazardous waste or causes hazardous waste to become subject to regulatory control by a government agency authorized to regulate hazardous waste. If more than one person is liable for the same generator fee for the same load of hazardous waste, that liability shall be joint and several. A generator includes, but is not limited to: (A) a person identified on a hazardous waste manifest as the generator and whose Environmental Protection Agency (EPA) identification number is listed on that manifest, if that identifying information was provided by that person or by an agent or employee of that person; (B) except as provided in subdivision (f)(2) below, a person who cleans up a release of hazardous waste caused by another, including a property owner who cleans up contamination caused by a tenant or lessee and an owner or lessee who cleans up property contaminated by a previous owner or lessee; (C) a person who contracts with an environmental cleanup to clean up property; (D) a person who places hazardous waste into repositories at the same site where the waste was generated, including but not limited to, a site or portion of a site that has been designated as a corrective action management unit (CAMU) by the Department of Toxic Substances Control; however, a person will not be considered the generator of hazardous waste if the person removes hazardous waste (for example, contaminated soil or groundwater) from a site, treats it at the same site until it is non-hazardous, and returns it to the same location from which it was removed at the site; (E) a person who excavates contaminated soil that is hazardous waste during cleanup activities, regardless of whether the soil became contaminated over a period of time or when the property was under the control of another person; (F) any person who is expressly identified as a generator pursuant to the Health and Safety Code or Title 22 of the California Code of Regulations. (G) Notwithstanding subdivisions (b)(1)(A) through (b)(1)(F) above, "generator" does not include an entity such as an environmental clean-up company or an emergency response contractor, when that entity, pursuant to contract, cleans up a release of hazardous waste for another person, unless the entity is identified on a hazardous waste manifest as the generator as described in subdivision (b)(1)(A) above. (2) "Site or onsite" means the location at which hazardous waste is generated. Contiguous properties, divided by public or private right-of-way, may be considered one site, provided entry to and exit from the properties are gained by traveling across, as opposed to going along, the right-of-way. (c) Reporting Period During which Hazardous Waste is Generated If the hazardous waste remains permanently at the site where it was generated, the generation of the waste shall be reported on the generator fee return for the calendar year during which the waste was produced or first brought subject to regulation. If the hazardous waste is removed from the site where it was generated, the generation of the waste shall be reported on the generator fee return for the calendar year during which the waste was removed from the site. (d) Commingled Waste Where hazardous waste is commingled with non-hazardous waste and manifested on a hazardous waste manifest, the entire mixture constitutes hazardous waste. (e) Exemptions from the Generator Fee The following persons and waste are exempt from the generator fee: (1) Facilities. A hazardous waste facility that pays the facility fee pursuant to Health and Safety Code Section 25205.2 for the site for which the facility fee is paid. However, fees paid pursuant to Health and Safety Code Section 25205.14 for permit-by-rule, conditional authorization or conditional exemption are not facility fees, and therefore sites paying such fees are also liable for the generator fee. (2) Government Cleanups. Hazardous wastes which result when a government agency, or its contractor, removes or remedies a release of hazardous waste in the state caused by another person, or natural disaster. A government agency that produces hazardous waste as a result of its normal operations, including but not limited to accidental releases that occur in the course of normal operations, or as part of a cleanup of a release of hazardous waste it caused, is subject to the fee. However, the government agency is not subject to the fee if the release of hazardous waste is caused by the public during public use of services provided by the government agency as part of its governmental activities, such as the providing of sewer service or roads used by the public. (3) Household Hazardous Waste. Hazardous waste generated or disposed of by a public agency, or by any person under an agreement with a public agency, operating a household hazardous waste facility in the state pursuant to Division 1, Chapter 6.5, Article 10.8 of the Health and Safety Code (commencing with Section 25218), including hazardous waste received from conditionally exempt small quantity commercial generators, authorized pursuant to Health and Safety Code Section 25218.3. (4) Local Vector Control. Hazardous waste generated or disposed of by local vector control agencies which have entered into a cooperative agreement pursuant to Health and Safety Code Section 116180, or by county agricultural commissioners, if the hazardous wastes result from their control or regulatory activities and if they comply with the requirements of Division 20, Chapter 6.5 of the Health and Safety Code and regulations adopted pursuant to that code. (5) Load Checking Program. Hazardous waste disposed of, or submitted for disposal or treatment, by any person, which is discovered and separated from solid waste as part of a load checking program. (6) Recycled Used Motor Oil. Used oil which is removed from a motor vehicle and which is subsequently recycled by a recycler permitted pursuant to Article 13 (commencing with Section 25250) of Chapter 6.5, Division 20 of the Health and Safety Code. "Motor vehicle" includes locomotives, vessels and self-propelled, off-road equipment, whether or not the equipment moves or is permitted to move on public highways. (7) Hazardous Waste Recycled and Used Onsite. Hazardous waste which is recycled, used onsite, and not transferred offsite. (8) Aqueous Waste. Aqueous waste treated in a treatment unit operating, or which subsequently operates, pursuant to a permit by rule, conditional authorization or conditional exemption. However, hazardous waste generated by the treatment process is subject to the generator fee. (9) Underground Storage Tank. Hazardous waste generated during the removal of an underground storage tank if the generator of the waste acquired land for the sole purpose of owner-occupied single-family residential use, without actual or constructive notice or knowledge that there was a tank containing hazardous waste on or under the property. (10) Waste Imported from Outside California. On and after January 1, 1996, no generator fee is due concerning any hazardous waste imported into this state from other states, territories, or possessions of the United States for purposes of treatment, recycling or disposal, and no generator fee is due concerning non-RCRA hazardous waste imported into this state from any source for purposes of treatment, recycling or disposal. (11) Banks and Financial Institutions. A bank or financial institution that pays an "in lieu" tax, pursuant to Article XIII, Section 27 of the California Constitution (codified as Revenue and Taxation Code Section 23182) is not subject to the generator fee for hazardous waste which is generated during an activity performed by, or in a business conducted by, the bank or a department or division of the bank, regardless of whether the activity or business is directly related to banking. (12) Insurance Companies. An insurance company that pays an "in lieu" tax, pursuant to Article XIII, Section 28 of the California Constitution (codified as Revenue and Taxation Code Section 12204) is not subject to the generator fee for hazardous waste which is generated during an activity performed by, or in a business conducted by, the insurance company or a department or division of the insurance company, regardless of whether the activity or business is directly related to providing insurance. (13) Exempt Waste. A waste is not subject to the generator fee if it is exempt from regulation or classification as a hazardous waste under Chapter 6.5 of Division 20 of the Health and Safety Code (commencing with Section 25100) or the regulations promulgated thereunder. A waste is exempt from regulation or classification as a hazardous waste for purposes of this paragraph if the waste is exempt from all provisions of Chapter 6.5 of Division 20 of the Health and Safety Code and the regulations promulgated thereunder, except those provisions which are necessary in order for DTSC to make or rescind the determination that the waste is exempt from regulation or classification as a hazardous waste, or to compensate DTSC for making or rescinding such a determination. Note: Authority cited: Section 43501, Revenue and Taxation Code. Reference: Sections 25174.7, 25205.1(e), 25205.5, 25205.22 and 25250.24, Health and Safety Code; and Sections 43152.7 and 43152.15, Revenue and Taxation Code.Authority cited: Section 43501, Revenue and Taxation Code. Reference: Sections 25174.7, 25205.1(e), 25205.5, 25205.22 and 25250.24, Health and Safety Code; and Sections 43152.7 and 43152.15, Revenue and Taxation Code. s 3005. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 43170, Revenue and Taxation Code. Reference: Sections 43170 and 43172, Revenue and Taxation Code. s 3020. Records. (a) General. A taxpayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), taxpayers shall comply with the following requirements. (1) Hazardous Substance Tax. A taxpayer shall keep complete records, including but not limited to: (A) Uniform Hazardous Waste Manifests. (B) Transporter billings or invoices. (C) Weight tickets. (D) Waste profile analysis reports. (2) Environmental Fee. A taxpayer shall keep complete records, including but not limited to: (A) Payroll reports and all other documents listing employees, wages, and hours worked. (B) Employment agreements or contracts. (3) Occupational Lead Poisoning Prevention Fee. A taxpayer shall keep complete records, including but not limited to: (A) Fee waiver requests and Department of Health Services responses. (B) Payroll reports and all other documents listing employee names, wages paid, and hours worked. Note: Authority cited: Section 43501, Revenue and Taxation Code. Reference: Section 43502, Revenue and Taxation Code. s 3021. Relief From Liability. A person may be relieved from the liability for the payment of the taxes or fees required to be collected pursuant to the Hazardous Substances Tax Law, Part 22 (commencing with Section 43001) of Division 2 of the Revenue and Taxation Code, including any penalties and interest added to the taxes or fees, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. The fees and taxes collected pursuant to the Hazardous Substances Tax Law include the Hazardous Substance Taxes (Disposal Fee, Environmental Fee, Facility Fee, Generator Fee and Activity Fee), Childhood Lead Poisoning Prevention Fee and Occupational Lead Poisoning Prevention Fee. Note: Authority cited: Section 43501, Revenue and Taxation Code. Reference: Section 43159, Revenue and Taxation Code. s 3301. Records. (a) General. A fee payer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. Notwithstanding the record keeping requirements of the Integrated Waste Management Board set forth at California Code of Regulations, Title 14, Section 17414, for fee collection purpose the fee payer shall retain and preserve records for a period of not less than four years except as provided in Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), fee payers shall comply with the following requirements. A fee payer shall keep complete records, including but not limited to: (1) Weight tickets or other source documents recording amounts of waste entering the landfill. (2) Documentation supporting the validity of volumetric conversion factors used as an alternative to actual weight to report waste tonnage. (3) Reports to other local and state agencies of waste tonnage disposed. Note: Authority cited: Section 45851, Revenue and Taxation Code. Reference: Section 45852, Revenue and Taxation Code. s 3302. Relief From Liability. A person may be relieved from the liability for the payment of the integrated waste management fee, including any penalties and interest added to those fees, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 45851, Revenue and Taxation Code. Reference: Section 45157, Revenue and Taxation Code. s 3303. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 45160, Revenue and Taxation Code. Reference: Sections 45160 and 45162, Revenue and Taxation Code. s 3501. Records. (a) General. A feepayer shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), feepayers subject to the Ballast Water Management Fee shall keep records documenting ballast water loading and discharge, ship schedules, ports of call and routes taken. Note: Authority cited: Section 55301, Revenue and Taxation Code. Reference: Section 55302, Revenue and Taxation Code. s 3502. Relief from Liability. A person may be relieved from the liability for the payment of the taxes or fees required to be collected pursuant to the Fee Collection Procedures Law, Part 30, (commencing with Section 55001) of Division 2 of the Revenue and Taxation Code, including any penalties and interest added to the taxes or fees, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board described in California Code of Regulations, Title 18, Section 4902. The fees and taxes collected pursuant to the Fee Collection Procedures Law include the California Tire Fee, Ballast Water Management Fee, and Natural Gas Surcharge. Note: Authority cited: Section 55301, Revenue and Taxation Code. Reference: Section 55045, Revenue and Taxation Code. s 3503. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 55050, Revenue and Taxation Code. Reference: Sections 55050 and 55052, Revenue and Taxation Code. Note: Authority cited for Chapter 9: Sections 30001 to 30479, inclusive, Revenue and Taxation Code. s 4011. Distributors Not Engaged in Business in This State. Persons who are not engaged in business in this state may apply for a distributor's license. Holders of such licenses are required to file a certified monthly report or return with the Board on Board of Equalization Form BOE-501-CTS entitled "Cigarette and Tobacco Products Tax Return for Shipments to California Consumers" reporting the following: distributor's name, account number, his or her total number of distributions of cigarettes, total excise tax due on cigarettes, total cost of tobacco purchased, total excise tax due on cost of tobacco products, total excise tax due for all cigarettes and tobacco products, remitting payment of taxes, including any applicable interest or penalty, the name and address of each purchaser from whom an order is taken, the number of cigarettes and/or type, quantity, and wholesale cost of tobacco products sold and delivered pursuant to each order, and the amount of tax required to be collected from each purchaser. Further, the licensee is required to collect the tax, give receipts for the collected tax, and pay the tax to the Board in the same manner as licensees engaged in business in this state. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30108 and 30140.1, Revenue and Taxation Code. s 4016. Bond of Distributor. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30141, 30145, 30182 and 30183, Revenue and Taxation Code. s 4017. Deposits in Lieu of Surety Bonds. Note: Authority cited: Section 30451, Revenue and Taxation Code. s 4018. Amount of Security. (a) The amount of security shall be fixed by the board. The board may increase or reduce the amount of security at any time, but in no event shall the amount of security be less than $1,000. (b) When a distributor is authorized to purchase stamps or meter register settings on the deferred payment basis, the security shall be fixed in an amount no less than 70 percent of the amount, and no more than twice the amount, as fixed by the board, of deferred payment purchases which the distributor may have unpaid at anytime. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30141, 30142 and 30167, Revenue and Taxation Code. s 4021. Opening Inventory. Every distributor or wholesaler engaged in the sale of cigarettes shall take a physical inventory of cigarettes on hand as of the time the distributor or wholesaler first engages in the sale of cigarettes as a distributor or wholesaler. A report of a first physical inventory taken shall be filed with the board on or before the 25th day of the calendar month following the calendar month in which the distributor or wholesaler first engages in the sale of cigarettes as a distributor or wholesaler. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30182, 30188, 30453, and 30454, Revenue and Taxation Code. s 4022. Inventories of Cigarettes. Every distributor and wholesaler engaged in the sale of cigarettes shall furnish with his or her monthly certified report to the board, on Board of Equalization Form BOE-501-CD entitled "Cigarette Distributor's Tax Report" or Board of Equalization Form BOE-501-CW entitled "Cigarette Wholesaler's Report," a statement of the cigarettes on hand at the end of the month covered by the report, showing the number of cigarettes on hand contained in packages to which tax stamps or meter impressions are affixed and the number not bearing tax stamps or meter impressions. The statement shall be furnished in one of the following manners: (a) If the distributor or wholesaler has a cycle count inventory system and perpetual inventory system in place, the monthly statement shall be based on the perpetual inventory report run on the last business day of the month for which the distributor's or wholesaler's report is filed. However, at least once every calendar year, the monthly statement shall be based on a physical inventory of cigarettes on hand on the last business day of the month for which the distributor's or wholesaler's report is filed. A "cycle count inventory system" is a system that provides evidence that all cigarettes are counted on a regular basis, with each item being counted at least once every three-month period. A "perpetual inventory system" is a system in which inventory records are maintained and updated continuously as items are purchased or sold. (b) If the distributor or wholesaler does not have a cycle count inventory system and perpetual inventory system in place, the monthly statement shall be based on the inventory on hand at the end of the month covered by the report. However, at least once every six months, the monthly statement shall be based on a physical inventory of cigarettes on hand performed within the last five days of the month for which the distributor's or wholesaler's report is filed. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30182, 30188, 30453 and 30454, Revenue and Taxation Code. s 4023. Inventories of Stamps and Meter Units. Every distributor engaged in the sale of cigarettes shall keep daily records of the number of tax stamps and meter units used in the distributor's affixing operations and shall record daily the meter register readings of the meters employed. The distributor shall take physical inventories of unused tax stamps on hand as of the end of each month and shall furnish, with his or her monthly report to the board, a statement of all unaffixed and affixed tax stamps and meter units on hand at the end of the month covered by the report. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30182, 30453, and 30454, Revenue and Taxation Code. s 4026. Records. (a) General. Every distributor, every wholesaler, and every manufacturer, of cigarettes and tobacco products, shall maintain and make available for examination on request by the board or its authorized representatives, records in the manner set forth at California Code of Regulations, Title 18, Section 4901. (b) Specific Applications. In addition to the record keeping requirements set forth in subdivision (a), every cigarette manufacturer and every tobacco products manufacturer shall comply with the following requirements: Every cigarette manufacturer or tobacco products manufacturer dealing in, transporting, storing or warehousing cigarettes or tobacco products in this state or otherwise engaged in business in this state as a distributor shall keep and maintain at his or her place of business in this state, or at the warehouses or storage places from which cigarettes or tobacco products are released or delivered by the manufacturer, a record of all releases or deliveries of cigarettes or tobacco products from each storage place or warehouse in this state and shall keep and maintain either within the state or at the manufacturer's home office, a record of all the manufacturer's shipments of cigarettes or tobacco products from points outside this state to points within this state. Such records shall be made available at any time during normal business hours to the board or its authorized representatives for examination upon request. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30453 and 30454, Revenue and Taxation Code. s 4027. Manufacturer's Monthly Report. (a) Each cigarette or tobacco products manufacturer shall file with the board by the 20th day of each calendar month a certified report with respect to all releases and deliveries of cigarettes or tobacco products in this state and all shipments of cigarettes or tobacco products from a point outside this state to a point within this state made or authorized by the manufacturer during the preceding calendar month. The releases, deliveries and shipments for each purchaser shall be grouped together in the report. The report shall be on Board of Equalization Form BOE-501-MC entitled "Manufacturer's Report of Cigarettes Released from Storage in California or Shipped into California" or Board of Equalization Form BOE-501-MT entitled "Manufacturer's Report of Tobacco Products Released from Storage in California or Shipped into California" and shall show the following information with respect to each release, delivery or shipment: (1) the date of the release, delivery or shipment; (2) the location from which the release, delivery or shipment was made; (3) the name and address of the purchaser; (4) the address of the place to which the cigarettes or tobacco products were shipped, released or consigned; (5) the number of cigarettes or type, quantity and wholesale cost of tobacco products released, delivered or shipped; (6) the invoice or document number and date thereof representing the release, delivery or shipment; (7) if released to a licensed distributor, the license number of such distributor; and (8) in the case of a cancellation of any release, delivery or shipment, information indicating the transaction was cancelled. The above information need not be supplied with respect to cigarettes or tobacco products which are non-tax-paid under the provisions of chapter 52 of the Internal Revenue Act of 1954, as amended, and are released, delivered or shipped in internal revenue bond or customs control. (b) In lieu of the monthly reports required by paragraph (a) of this section, a manufacturer may arrange with the board to supply the required information by supplying data processing media or other data in such manner and in such format as is satisfactory to the board. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30453 and 30454, Revenue and Taxation Code. s 4028. Period for Which Records to Be Kept. s 4029. Failure to Keep Records. s 4030. Wholesaler's Records. Every wholesaler shall keep complete and accurate records of all transactions in cigarettes and such other records, including copies of all reports to the board, as may be required by the board. s 4031. Distributor's and Wholesaler's Report. (a) Every distributor required to be licensed shall on or before the 25th day of each calendar month, file a report with the board of all acquisitions and distributions of cigarettes for the preceding calendar month, together with such other information as is required on the report form. The report shall be made on a form prescribed by the board. (b) Every wholesaler required to be licensed shall on or before the 25th day of each calendar month, file a report with the board of all acquisitions and sales of cigarettes for the preceding calendar month, together with such other information as is required on the report form. The report shall be made on a form prescribed by the board. s 4031.1. Payment by Electronic Funds Transfer. Payments by electronic funds transfer shall be made in accordance with California Code of Regulations, Title 18, Section 4905. Note: Authority cited: Section 30190, Revenue and Taxation Code. Reference: Sections 30190 and 30192, Revenue and Taxation Code. s 4032. Passenger Common Carrier Report. s 4033. Consumer's or User's Report. s 4034. Report of Sales to Consumers. (a) Every person engaged in business in this state who sells or solicits orders for cigarettes, the use or consumption of which is subject to the tax, must file a certified return with the board, on Board of Equalization Form BOE-501-CI entitled "Cigarette and Tobacco Products Excise Tax Return, on or before the 25th day of the calendar month following the calendar month in which the cigarettes were delivered in this state showing: (1) the name and address of each purchaser from whom an order was taken; (2) the number of cigarettes sold and delivered pursuant to each order; and (3) the amount of tax required to be collected from each purchaser, together with a remittance of such tax. (b) Every person engaged in business in this state who sells or solicits orders for tobacco products, the use or consumption of which is subject to the tax, must file a return with the board as follows: (1) If the person is required to be a licensed tobacco products distributor, he or she shall report on the tobacco products distributor's monthly certified tax return (Board of Equalization Form BOE-501-CT entitled "Tobacco Products Distributor Tax Return") the wholesale cost of all tobacco products distributed to consumers, together with a remittance of the tax due. The return shall be filed on or before the 25th day of the calendar month following the calendar month in which the tobacco products were delivered in this state. (2) If the person is required to be a registered tobacco products distributor, he or she shall file a certified return with the board, on Board of Equalization Form BOE-501-CTS entitled "Cigarette and Tobacco Products Tax Return", on or before the 25th day of the calendar month following the calendar month in which the tobacco products were delivered in this state showing: (A) the name and address of each purchaser from whom an order was taken; (B) the type, quantity, and wholesale cost of tobacco products sold and delivered pursuant to each order; and (C) the amount of tax required to be collected from each purchaser, together with a remittance of such tax. (c) Every person engaged in business in this state who, as permitted by state law and the terms of the November 23, 1998 Master Settlement Agreements with the state which are applicable to the signatories to those Agreements, makes gifts of untaxed cigarettes or tobacco products as samples by means of shipment from an out-of-state point directly to a donee in this state shall collect the tax from the donee if the donee is other than a licensed distributor and shall give the donee a receipt showing the name and place of business of the donor, the name and address of the donee, the number of cigarettes donated, and the amount of tax required to be collected, or the type, quantity and wholesale cost of the tobacco products donated and a statement indicating that the tobacco products tax has been paid. Each package of sample cigarettes shall have imprinted on it: "Not for Sale. Applicable state tax has been paid." and each package of sample tobacco products shall be clearly marked as a sample. Donors of sample cigarettes shall notify the board in writing in advance of the shipment of the cigarettes into the state giving information as to the approximate date or dates, location or locations, brand, and the method of shipment into the state. Each donor of cigarettes and tobacco products shall file a return with the board on or before the 25th day of the calendar month following the calendar month in which the cigarettes or tobacco products were delivered in this state showing the number of cigarettes shipped into the state or the type, quantity and wholesale cost of the tobacco products and the amount of tax required to be collected from each donee, together with a remittance of such tax. (d) The taxes required to be collected constitute debts owed by the distributor, or other person required to collect the taxes, to this state. (e) "Engaged in business in the state" means and includes any of the following: (1) Maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business. (2) Having any representative, agent, salesperson, canvasser or solicitor operating in this state under the authority of the distributor or its subsidiary for the purpose of selling, delivering, or the taking of orders for cigarettes. (f) The requirements of this regulation do not apply to those distributions of federally tax-free cigarettes or tobacco products which are exempt from tax under section 30105.5 of the Revenue and Taxation Code. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30105.5, 30108, 30140, 30151, 30182, 30183, 30453 and 30454, Revenue and Taxation Code. s 4035. Tax Remittances. s 4036. Cigarette and Tobacco Products Floor Stock and Indicia Adjustment Tax. Note: Authority cited: Sections 30131.6 and 30451, Revenue and Taxation Code. Reference: Sections 30131.2 and 30166, Revenue and Taxation Code. s 4041. Common Carrier Delivery Reports. Every common carrier making a delivery of cigarettes to a consignee in this State, the shipment of which originated outside this State shall report to the board not later than the 25th day of the calendar month following the calendar month in which the delivery of the cigarettes was made, the following information concerning the shipment: (a) the name of the shipper and the point of origin; (b) the name of the consignee and the address to which delivered; (c) the date and number of the waybill covering the shipment; (d) the number of cases, bales or other containers of cigarettes delivered and the quantity of cigarettes contained therein as shown by the shipping documents; and (e) in the case of rail shipments, the car initials and number; and (f) in the case of water shipments, the name of the vessel and the number of the steamship bill of lading. This report shall be made on a form prescribed by and filed with the board at Sacramento. s 4046. Sale of Stamps. s 4047. Transfer of Stamps. Without prior written approval of the board, a distributor may not sell to, transfer to, or exchange with another distributor or any other person stamps issued by the board, and may not sell, transfer or distribute packages of cigarettes accompanied by unaffixed stamps. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30164, Revenue and Taxation Code. s 4048. Manner of Affixing Stamps. Tax stamps shall be securely affixed to the bottom end of each standard package of 20 cigarettes. When affixed to "flats" or "rounds" the stamps shall be securely affixed to the lid or top of the individual package. Tax stamps shall not be affixed to the carton or larger container of cigarettes. s 4049. Adherence of Stamps. Tax stamps shall be affixed in such manner as to adhere securely to each package of cigarettes. If packages of cigarettes are wrapped in or covered by some substance to which the stamps do not readily adhere, such wrapper or covering must be roughened or treated so that the stamps will adhere securely thereto. s 4051. Metering Machines. Only those metering machines as are approved by the board shall be employed for affixing meter impressions to packages of cigarettes. A distributor shall not affix meter impressions to packages of cigarettes unless he has first obtained authorization from the board to employ this method of affixation. s 4052. Metering Machine Requirements. A distributor desiring to use a metering machine shall apply to the board for authorization. The following terms and conditions are applicable to the use of metering equipment by a distributor: (a) Impressions will be made only by means of machines approved by the board and meters registered with the board; (b) Only clear and legible imprints will be used on packages of cigarettes distributed; (c) Impressions by a meter registered to the distributor will be made only on packages of cigarettes owned by that distributor; (d) Only ink approved by the board will be used; (e) Each meter will be kept in a safe place when not in use, and will be safeguarded when being transported; (f) In case of theft, loss or mysterious disappearance of a meter or tampering therewith, the incident will be immediately reported to the board, to proper police authorities, and to the meter manufacturer; (g) No meter will be transferred or otherwise disposed of without prior written permission of the board; (h) No repairs will be made to a meter except by a duly authorized representative of the meter manufacturer and upon prior approval of the board; and (i) Any meter having a broken seal will be immediately reported to the board and to the manufacturer and will not be used by the distributor. s 4053. Revocation of Permission. If a distributor issues illegible meter impressions or violates any regulation of the board relative to the use of metering machines, the board may revoke its authorization to the distributor to affix meter impressions to packages of cigarettes. s 4054. Manner of Affixing Meter Impressions. Tax meter impressions shall be clearly imprinted to the bottom end of each standard package of 20 cigarettes. Meter impressions shall not be imprinted on any package, carton, or container of cigarettes containing other than 20 cigarettes. All dies and other equipment must be regularly serviced and cleaned according to the instructions issued by the manufacturers of the equipment. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30162, 30163 and 30164, Revenue and Taxation Code. s 4055. Where Purchased; Distributors' Discount. Cigarette tax stamps and meter register settings allowing the imprinting of meter impressions may be purchased by licensed distributors through stamp orders submitted to the board. Orders must include the distributor's account number, distributor's name and address, the quantity of stamps for each denomination, order date and the signature of the authorized individual. The tax stamps and meter register settings may be purchased for cash, and when authority has been granted in writing to a distributor, the tax stamps and meter register settings may be purchased on a deferred payment basis. In either case, a discount as provided by law will be allowed to a licensed distributor. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30161, 30162, 30166 and 30167, Revenue and Taxation Code. s 4056. Units of Sale; Minimum Sales. Cigarette tax stamps designated for packages containing 10 cigarettes, 20 cigarettes and 25 cigarettes will be sold in rolls containing 1,200 or 30,000 stamps. Such stamps are sold in full rolls only and the smallest sale unit is one roll. The Board, at its discretion, may authorize the use of stamps of other denominated values and specifications. Note: Authority cited: Sections 30451 and 30162, Revenue and Taxation Code. Reference: Sections 30161 and 30162, Revenue and Taxation Code. s 4056.1. Expiration of Heat-Applied Decal Tax Stamps. Note: Authority cited: Sections 30162 and 30451, Revenue and Taxation Code. Reference: Sections 30161 and 30162, Revenue and Taxation Code; and Section 6 of Statutes 2004, Chapter 822. s 4057. Cash Sales of Tax Stamps or Meter Register Settings. Every distributor desiring to purchase tax stamps or meter register settings for cash shall file an application to register the individual authorized to order cigarette tax stamps, on a form approved by the board. The distributor shall identify and authorize in writing on the form the individual who may order stamps or meter register settings for this distributor's account and include the signature of the individual authorized to submit the tax stamp orders. If a distributor wishes to allow multiple individuals to submit cigarette tax stamp orders, a separate application is required for each individual authorized to order cigarette tax stamps. Orders for stamps or meter register settings shall be made by the distributor on order forms approved by the board. The distributor's authorization of such individual(s) shall continue in effect until written notice of revocation of the authority is delivered to the board by registered mail or until written acknowledgment of receipt of the revocation is given by the board. Payment must be made for cash purchases at the time the stamps or meter register settings are ordered. The board may require cash, electronic fund transfer or certified or cashier's checks in payment of such purchases. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30161, 30162 and 30166, Revenue and Taxation Code. s 4058. Application for Credit Purchases. Every distributor desiring to purchase tax stamps or meter register settings on the deferred payment basis shall request the board to set the maximum amount of such purchases the distributor may have unpaid at any time and the amount of the required security. The board shall set the amounts and notify the distributor by mail of the maximum amount of deferred payment purchases that the distributor may have unpaid at any time and the amount of the required security. The maximum amount of tax stamps or meter register setting purchases for which the distributor may defer payment as determined by the board shall not exceed twice the distributor's average monthly tax liability, based on the distributor's previous six months' experience, or in the case of a distributor not previously authorized to make deferred payment purchases or a distributor the character of whose business has changed substantially, the maximum amount shall not exceed twice the estimated average monthly tax liability as determined by the board. The distributor shall provide to the board a surety bond or deposit in lieu of security in an amount equal to not less than 70 percent of the maximum amount, or more than twice the amount, of deferred payment purchases the distributor may have unpaid at any time as determined by the board. If the distributor elects, under Section 30168, to make payments on a twice-monthly basis, the distributor shall provide to the board a surety bond or deposit in lieu of security in an amount equal to not less than 50 percent of the maximum amount, or more than twice the amount, of deferred payment purchases the distributor may have unpaid at any time as determined by the board. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30142, 30162, 30167 and 30168, Revenue and Taxation Code s 4059. Authorization for Credit Purchases. (a) Upon approval of a distributor's request to purchase tax stamps or meter register settings on the deferred payment basis, and receipt of the required security, the board shall give written authorization to the distributor for the amount of deferred payment purchases the distributor may have unpaid at any time. (b) Before making deferred payment purchases of tax stamps and meter register settings, the distributor shall file an application to register the person authorized to order cigarette tax stamps on behalf of the distributor on a form approved by the board. The distributor shall identify and authorize in writing on the form the individual who may order purchases of stamps or meter register settings for this distributor's account and include the signature of the individual authorized to submit the tax stamp orders. If a distributor wishes to allow multiple individuals to submit cigarette tax stamp orders, a separate application form must be submitted for each individual. The distributor's authorization of such individual(s) shall continue in effect until written notice of revocation of the authority is delivered to the board by registered or certified mail or until written acknowledgment of receipt of the revocation is given by the board. (c) Orders for stamps or meter register settings shall be made by the distributor on order forms approved by the board. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30162, 30167 and 30169, Revenue and Taxation Code. s 4060. Payment for Credit Purchases. Payment for all deferred payment purchases of tax stamps or meter register settings made during each calendar month must be made to the board or the board's designee by the 25th day of the calendar month following the month in which the purchases were made. Remittance for such purchases shall be made payable to "State Board of Equalization." The privilege of making deferred payment purchases shall be suspended as long as a delinquent balance is owing therefor. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30162, 30167 and 30168, Revenue and Taxation Code. s 4061. Unused Stamps and Unused Meter Settings. (a) The board will refund or credit to a distributor the denominated value, less the purchase discount, of any identifiable unused stamps which are returned to the board. The board will refund or credit to a distributor the denominated value, less the purchase discount, of any verifiable meter setting remaining on a meter when the meter is returned to the bank for cancellation of the meter setting. A claim for refund or credit must be made on Board of Equalization Form BOE-1024 entitled "Claim For Refund For California Cigarette Tax Stamps" and filed with the board, providing the following information: distributor's name, account number, address, telephone number, date, district office, number and type of cigarette tax stamps being claimed for refund, amount of claim for each type of cigarette tax stamp being claimed for refund, total amount of claim less discount of .0085, and reason for claim. The form further requires acknowledgement by a board representative and his or her supervisor of receipt of the cigarette tax stamps being claimed for refund and certification by a board representative of the receipt and destruction of the cigarette tax stamps being claimed for refund. (b) "Unused stamp" means a tax stamp on a tax stamp roll or on a package of cigarettes which is not yet distributed and includes only those stamps on which 4 of the 5 characters of the stamp's serial number can be identified. If fewer than 4 characters in the stamp's serial number can be identified, the distributor shall provide evidence concerning the remainder of the tax stamp to show that the remainder of the stamp is not affixed to a package of cigarettes that has been distributed. Such proof may include, but is not limited to, the paper from the stamp roll or package of cigarettes to which the remainder of the stamp is affixed. If the stamp is of a design generated by a technology capable of being read by a scanning or similar device, a majority of the stamp must be present and should be able to be read by a scanning or similar device in accordance with Section 30162. Alternatively, as evidence of unused stamps, a distributor may return damaged stamps in such a form that a board representative is otherwise able to verify authenticity and that the stamps have not been used. (c) If the refund or credit is for tax stamps that are affixed to packages of cigarettes, an authorized board employee, upon verification that the refund or credit is due, shall ensure that the distributor obliterated the stamp with the use of a permanent marker. (d) If the refund or credit is for tax stamps remaining on a roll, upon verification that the refund or credit is due, the roll shall be returned to the board for destruction. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30162 and 30176, Revenue and Taxation Code. s 4062. Destroyed Stamps and Meters. The board will refund or credit to a distributor the denominated value, less the purchase discount, of any stamps, or unused meter register settings, when the stamps or the meter have been destroyed by fire, flood or other casualty prior to the affixation of the tax stamps or meter impressions to packages of cigarettes. The distributor must establish by clear and convincing evidence that the stamps or meter were destroyed by fire, flood or other casualty and the denominated value of the stamps or remaining meter register balance. Theft or mysterious disappearance of unaffixed stamps or of a meter shall not constitute a casualty for which refund or credit will be given. Note: Authority cited: Sections 30451 and 30176, Revenue and Taxation Code. Reference: Section 30176, Revenue and Taxation Code. s 4063. Destroyed Cigarettes. The board will refund or credit to a distributor the denominated value, less the purchase discount, of stamps or meter impressions affixed to packages of cigarettes which have been destroyed by fire, flood or other casualty, prior to distribution. The distributor must establish by clear and convincing evidence that the cigarettes were destroyed by fire, flood or other casualty prior to distribution and the denominated value of the affixed tax stamps or meter impressions. The theft or mysterious disappearance of packages of cigarettes shall not constitute a casualty for which refund or credit will be given. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30177, Revenue and Taxation Code. s 4063.5. Exported Tax-Paid Tobacco Products. The board will refund or credit to a distributor the tax paid on tobacco products which are: (a) Shipped to a point outside this state, pursuant to a contract of sale, by delivery by the distributor to such point by means of: (1) facilities operated by the distributor; (2) delivery by the distributor to a carrier for shipment to a consignee at such point, or (3) delivery by the distributor to a customs broker or forwarding agent for shipment outside this state. (b) Sold to a foreign purchaser for shipment abroad and delivered to a ship, airplane, or other conveyance furnished by the purchaser for the purpose of carrying the cigarettes or tobacco products abroad and actually carried to a foreign destination. (c) Sold for use solely outside this state and delivered to a forwarding agent, export packer, or other person engaged in the business of preparing goods for export or arranging for their exportation, and actually delivered to a port outside the continental limits of the United States. The distributor must file the claim for refund on Board of Equalization Form BOE-1024-T entitled "Claim for Refund - Exported Tax-Period Tobacco Products" and provide copies of documentation to support payment of taxes, as well as bills of lading or other documentary evidence of the delivery of the tobacco products to a carrier, customs broker or forwarding agent for shipments outside this state. The original documents must be retained by the distributor for inspection by employees of the board. In the case of tobacco products for foreign export, copies of United States Customs shipper's export declarations filed with the Collector for Customs or other documentary evidence of export must be obtained and retained. No refund or credit will be given if the tobacco products are diverted in transit or for any reason are not actually delivered outside the state pursuant to the contract of sale or are not shipped abroad by a foreign purchaser. Any application for refund or credit based upon the exportation of tax-paid tobacco products from this state shall be filed with the board within three months after the close of the calendar month in which the tobacco products are exported. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30176.1, 30178.1, 30178.2 and 30179.1, Revenue and Taxation Code. s 4064. Claim Forms. A claim for refund or credit made pursuant to Sections 4061, 4062, 4063 or 4063.5 must be made on a form prescribed by and filed with the board. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30176, 30176.1 and 30177, Revenue and Taxation Code. s 4065. Unsalable Cigarettes. The board will refund or credit to a distributor the denominated value, less the purchase discount, of identifiable stamps or meter impressions affixed to packages of cigarettes which have become unfit for use or unsalable before distribution, or after distribution if the cigarettes have been returned for credit or have been replaced and proof is submitted to the board showing that the cigarettes have not been used for smoking in California. Claim for refund or credit must be made on a form prescribed by the board and shall be accompanied by a properly executed receipt and a copy of the credit memorandum of the manufacturer for returned stock, or by proof of destruction of the cigarettes with the tax stamps or meter impressions thereon in the presence of an employee of the board authorized to witness the destruction. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30177, Revenue and Taxation Code. s 4066. Stolen Indicia. Refund or credit will not be given for stamps, meter settings or meter impressions which are lost through theft or mysterious disappearance of any unaffixed stamps, any meter, or any packages of cigarettes to which stamps or meter impressions have been affixed. If identifiable stamps, meter settings or meter impressions which have been lost through theft or mysterious disappearance are later recovered, credit or refund may be given under Sections 4061 or 4065. Note: Authority cited: Section 30451, Revenue and Taxation Code. s 4067. Provisions Limited to Distributors. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30176, 30177, Revenue and Taxation Code. s 4071. Necessary Costs. s 4076. Sales by Manufacturers. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30103, Revenue and Taxation Code. s 4077. Sales to the United States. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30102, Revenue and Taxation Code. s 4078. Sales to the State. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30008, 30105.5, Revenue and Taxation Code. s 4079. In Bond Federal Tax-Free Cigarettes. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Article 1, Section 8, Clause 3, United States Constitution. s 4080. Interstate and Foreign Commerce. The tax does not apply to sales of cigarettes or tobacco products which are: (a) Shipped to a point outside this State, pursuant to a contract of sale, by delivery by the seller to such point by means of: (1) Facilities operated by the seller; (2) Delivery by the seller to a carrier for shipment to a consignee at such point, or (3) Delivery by the seller to a customs broker or forwarding agent for shipment outside this State. (b) Sold to a foreign purchaser for shipment abroad and delivered to a ship, airplane, or other conveyance furnished by the purchaser for the purpose of carrying the cigarettes or tobacco products abroad and actually carried to a foreign destination. (c) Sold for use solely outside this State and delivered to a forwarding agent, export packer, or other person engaged in the business of preparing goods for export or arranging for their exportation, and actually delivered to a port outside the continental limits of the United States. Bills of lading or other documentary evidence of the delivery of the cigarettes or tobacco products to a carrier, customs broker or forwarding agent for shipments outside the State must be retained by the distributor for inspection by employees of the board. In the case of cigarettes or tobacco products for foreign export, copies of United States customs shippers' export declaration filed with the Collector of Customs or other documentary evidence of export must be obtained and retained. The tax applies to the transaction if the cigarettes or tobacco products are diverted in transit or for any reason are not actually delivered outside the State pursuant to the contract of sale or are not shipped abroad by a foreign purchaser, regardless of documentary evidence held by the distributor. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30008, Revenue and Taxation Code. s 4081. Sample Cigarettes and Tobacco Products. The giving away in this state of untaxed cigarettes or tobacco products as samples is a taxable distribution. Manufacturers' agents or representatives may for advertising purposes, as permitted by state law and the terms of the November 23, 1998 Master Settlement Agreements with the state which are applicable to the signatories to those Agreements, distribute to consumers packages of cigarettes without stamps or meter impressions affixed to the packages or untaxed tobacco products. However, the manufacturer giving away such sample cigarettes or tobacco products must report the distribution on its monthly report or return and pay the tax due. Each package of such samples shall have imprinted on it: "Not for sale. Applicable state tax has been paid." and each package of sample tobacco products shall be clearly marked as a sample. Cigarette manufacturers shall notify the board in writing in advance of the sampling, giving information as to the approximate date or dates, location or locations, brand, and method of distribution. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30005, 30005.5, 30008 and 30009, Revenue and Taxation Code. s 4082. Cigarettes for Hospitalized Veterans. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30102.5 and 30105.5, Revenue and Taxation Code. s 4086. Distribution from U. S. Government Bonded Premises. s 4089. Statement of Operator. A statement in substantially the following form must be affixed by the operator thereof upon each cigarette vending machine in a conspicuous place: "This vending machine is operated by __________ Name of Operator __________ Place of Business of Operator who holds Permit No. __________ , issued pursuant to the Sales and Use Tax Law." s 4091. Payment by Consumer. (a) Each consumer or user of cigarettes or tobacco products subject to the tax, resulting from the consumer having: (1) purchased cigarettes or tobacco products in any quantity, when such cigarettes or tobacco products are shipped to the consumer from out of state, (2) personally transported or brought into the state untaxed cigarettes in quantities of more than 400 cigarettes in a single lot for his or her own use or consumption, or (3) obtained more than 400 untaxed cigarettes at one time from a federal instrumentality listed in Revenue and Taxation Code section 30102 must pay the tax either to the licensed or registered distributor under the Cigarette and Tobacco Products Tax Law from whom the cigarettes or tobacco products were purchased, or directly to the board if the person from whom the cigarettes or tobacco products were purchased is not a licensed or registered distributor. A person who pays the tax directly to the Board must file a certified Board of Equalization Form BOE-501-CI entitled "Cigarette and Tobacco Products Excise Tax Return," and report the brand name, seller's name, seller's internet address or phone number, date received, and number of cartons or type and cost of tobacco products received. (b) Consumers or users will be liable for payment of the tax to the board unless receipts as provided by regulation 4092 are obtained for payment of the tax to the distributor. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Sections 30005, 30005.5, 30106, 30107 and 30108, Revenue and Taxation Code. s 4092. Receipts for Tax Paid to Distributors. Every distributor required to collect the tax under Revenue and Taxation Code Section 30108 must give a receipt to each purchaser for the amount of tax collected. The receipt need not be in any particular form but must show the following: (a) The name and place of business of the distributor making the sale or accepting the order for cigarettes or tobacco products; (b) The license number or registration number of the distributor; (c) The name and address of the purchaser; (d) The number of cigarettes or type, quantity, and wholesale cost of all tobacco products purchased; (e) The date the cigarettes or tobacco products were purchased; and (f) The amount of tax collected by the distributor or statement indicating that the tobacco products tax has been paid. A sales invoice containing the data required above, together with evidence of payment thereof, will constitute a receipt. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30108, Revenue and Taxation Code. s 4096. Table of Applicable Sections. Note: Authority cited: Section 30451, Revenue and Taxation Code. s 4098. Relief from Liability. (a) In General. A person may be relieved from the liability for the payment of cigarette and tobacco products taxes, including any penalties and interest added to those taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on: (1) Written advice given by the board under the conditions set forth in subdivision (b) below; or (2) Written advice in the form of an annotation or legal ruling of counsel under the conditions set forth in subdivision (d) below; or (3) Written advice given by the board in a prior audit of that person under the conditions set forth in subdivision (c) below. As used in this regulation, the term "prior audit" means any audit conducted prior to the current examination where the issue in question was examined. Written advice from the board may only be relied upon by the person to whom it was originally issued or a legal or statutory successor to that person. Written advice from the board which was received during a prior audit of the person under the conditions set forth in subdivision (c) below, may be relied upon by the person audited or by a legal or statutory successor to that person. The term "written advice" includes advice that was incorrect at the time it was issued as well as advice that was correct at the time it was issued, but, subsequent to issuance, was invalidated by a change in statutory or constitutional law, by a change in board regulations, or by a final decision of a court of competent jurisdiction. Prior written advice may not be relied upon subsequent to: (1) the effective date of a change in statutory or constitutional law and board regulations or the date of final decision of a court of competent jurisdiction regardless that the board did not provide notice of such action; or (2) the person receiving a subsequent writing notifying the person that the advice was not valid at the time it was issued or was subsequently rendered invalid. As generally used in this regulation, the term "written advice" includes both written advice provided in a written communication under subdivision (b) below and written advice provided in a prior audit of the person under subdivision (c) below. (b) Advice Provided in a Written Communication. Advice from the board provided to the person in a written communication must have been in response to a specific written inquiry from the person seeking relief from liability, or from his or her representative. To be considered a specific written inquiry for purposes of this regulation, representatives must identify the specific person for whom the advice is requested. Such inquiry must have set forth and fully described the facts and circumstances of the activity or transactions for which the advice was requested. (c) Written Advice Provided in a Prior Audit. Presentation of the person's books and records for examination by an auditor shall be deemed to be written request for the audit report. If a prior audit report of the person requesting relief contains written evidence which demonstrates that the issue in question was examined, either in a sample or census (actual) review, such evidence will be considered "written advice from the board" for purposes of this regulation. A census (actual) review, as opposed to a sample review, involves examination of 100% of the person's transactions pertaining to the issue in question. For written advice contained in a prior audit of the person to apply to the person's activity or transaction in question, the facts and conditions relating to the activity or transaction must not have changed from those which occurred during the period of operation in the prior audit. Audit comments, schedules, and other writings prepared by the board that become part of the audit work papers which reflect that the activity or transaction in question was properly reported and no amount was due are sufficient for a finding for relief from liability, unless it can be shown that the person seeking relief knew such advice was erroneous. (d) Annotations and Legal Rulings of Counsel. Advice from the board provided to the person in the form of an annotation or legal ruling of counsel shall constitute written advice only if: (1) The underlying legal ruling of counsel involving the fact pattern at issue is addressed to the person or to his or her representative under the conditions set forth in subdivision (b) above; or (2) The annotation or legal ruling of counsel is provided to the person or his or her representative by the board within the body of a written communication and involves the same fact pattern as that presented in the subject annotation or legal ruling of counsel. (e) Trade or Industry Associations. A trade or industry association requesting advice on behalf of its member(s) must identify and include the specific member names(s) for whom the advice is requested for relief from liability under this regulation. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30284, Revenue and Taxation Code. s 4099. Affixing of Stamps or Meter Impressions Out-of-State. Any person who maintains a place of business in the United States and distributes cigarettes in this State may obtain a distributor's license and, when authorized in writing, may affix stamps or meter impressions to packages of cigarettes at such place of business before the cigarettes are brought to this State. s 4100. Purchases of Cigarettes by a Retailer. s 4101. Cigarette Transporter's Permit. s 4102. Application Form. s 4103. Invoices, Bills of Lading or Delivery Tickets. s 4105. Relief from Liability. A person may be relieved from the liability for the payment of the Cigarette and Tobacco Products Tax, including any penalties and interest added to the tax, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on written advice given by the board as described in California Code of Regulations, Title 18, Section 4902. Note: Authority cited: Section 30451, Revenue and Taxation Code. Reference: Section 30284, Revenue and Taxation Code. s 4901. Records. (a) Definitions. (1) "Applicable Tax Laws" means any of the following: (A) Aircraft Jet Fuel Tax, Revenue and Taxation Code Sections 7385-7398, 7486-8406; (B) Alcoholic Beverage Tax, Revenue and Taxation Code Sections 32001-32557; (C) Ballast Water Management Fee, Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381; (D) California Tire Fee, Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381; (E) Childhood Lead Poisoning Prevention Fee, Health and Safety Code Section 105310; Revenue and Taxation Code Sections 43001-43651; (F) Cigarette and Tobacco Products Tax, Revenue and Taxation Code Sections 30001-30481; (G) Diesel Fuel Tax, Revenue and Taxation Code Sections 60001-60709; (H) Emergency Telephone Users Surcharge, Revenue and Taxation Code Sections 41001-41176; (I) Energy Resources Surcharge, Revenue and Taxation Code Sections 40001-40216; (J) Hazardous Substances Tax, Health and Safety Code Sections 25174.1, 25205.2, 25205.5, 25205.6, and 25205.7; Revenue and Taxation Code Sections 43001-43651; (K) Integrated Waste Management Fee, Public Resources Code Sections 40000-48008; Revenue and Taxation Code Sections 45001-45984; (L) Motor Vehicle Fuel Tax, Revenue and Taxation Code Sections 7301-8526; (M) Natural Gas Surcharge, Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381; (N) Occupational Lead Poisoning Prevention Fee, Health and Safety Code Section 105190; Revenue and Taxation Code Sections 43001-43651; (O) Oil Spill Response, Prevention, and Administration Fees, Revenue and Taxation Code Sections 46001-46751; (P) Underground Storage Tank Maintenance Fee, Revenue and Taxation Code Sections 50101-50162; (Q) Use Fuel Tax, Revenue and Taxation Code Sections 8601-9355. (2) "Database Management System" - a software system that controls, relates, retrieves, and provides accessibility to data stored in a database. (3) "Electronic data interchange" or "EDI technology" - the computer to computer exchange of business transactions in a standardized structured electronic format. (4) "Hardcopy" - any document, record, report or other data maintained in a paper format. (5) "Machine-sensible record" - a collection of related information in an electronic format. Machine-sensible records do not include hardcopy records that are created or recorded on paper or stored in or by a storage-only imaging system such as microfilm or microfiche. (6) "Taxpayer" includes "fee payer" and means any person liable for the payment of a tax or a fee specified under any of the applicable tax laws. (7) "Tax" includes "fee" and means any amount of tax or fee specified under any of the applicable tax laws. (b) General. (1) A taxpayer shall maintain and make available for examination on request by the board or its authorized representative, all records necessary to determine the correct tax liability under the applicable tax laws and all records necessary for the proper completion of the required tax return or report. Such records include but are not limited to: (A) Books of account or other similar summary information ordinarily maintained by the taxpayer as required by law or practice or otherwise in the possession of the taxpayer or third party at the direction or request of the taxpayer. (B) Bills, receipts, invoices, cash register tapes, or other documents of original entry supporting the entries in the books of account. (C) Schedules or working papers used in connection with the preparation of tax returns and reports. (2) Machine-sensible records are considered records under Revenue and Taxation Code Sections 8301-8306, 9253, 9254, 30453, 30454, 32551, 32453, 40172-40175, 41056, 41073, 41129.30, 43502, 45852, 46602, 46603, 50153, 55302, 60604-60606, Revenue and Taxation Code. (c ) Machine-Sensible Records. (1) General. (A) Machine-sensible records used to establish tax compliance shall contain sufficient source document (transaction-level) information so that the details underlying the machine-sensible records can be identified and made available to the board upon request. A taxpayer has discretion to discard duplicated records and redundant information provided the integrity of the audit trail is preserved and the responsibilities under this regulation are met. (B) At the time of an examination, the retained records must be capable of being retrieved and converted to a standard magnetic record format which the board has the technological capability to use, such as Extended Binary Coded Decimal Interchange Code (EBCDIC) or American Standard Code for Information Interchange (ASCII) flat file. (C) Taxpayers are not required to construct machine-sensible records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes. (2) Electronic Data Interchange Requirements. (A) Where a taxpayer uses electronic data interchange (EDI) processes and technology, the level of record detail, in combination with other records related to the transactions, must be equivalent to that contained in an acceptable paper record. For example, the retained records should contain such information as vendor name, invoice date, product description, quantity purchased, price, amount of tax, indication of tax status (e.g., exempt), and shipping detail. Codes may be used to identify some or all of the data elements, provided the taxpayer maintains a method which allows the board to interpret the coded information. (B) The taxpayer may capture the information necessary to satisfy subdivision (c)(2)(A) at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established. For example, a taxpayer using EDI technology receives electronic invoices from its suppliers. The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Since neither the EDI transaction nor the accounts payable system capture information from the invoice pertaining to product description and vendor name (i.e., they contain only codes for that information), the taxpayer must also retain other records, such as its vendor master file and product code description lists, and make them available to the board. In this example, the taxpayer need not retain its EDI transaction for tax purposes. (3) Electronic Data Processing Systems Requirements. The requirements for an electronic data processing (EDP) accounting system should be similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this regulation. (4) Business Process Information. (A) Upon request of the board, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records. (B) The taxpayer shall be capable of demonstrating: 1. the functions being performed as they relate to the flow of data through the system; 2. the internal controls used to ensure accurate and reliable processing, and; 3. the internal controls used to prevent unauthorized addition, alteration, or deletion of retained records. (C) The following specific documentation is required for machine sensible records retained pursuant to this regulation: 1. record formats or layouts; 2. field definitions (including the meaning of all codes used to represent information); 3. file descriptions (e.g., data set name); and 4. detailed charts of accounts and account descriptions. (d) Machine-Sensible Records Maintenance Requirements (1) The taxpayer's computer hardware or software shall accommodate the extraction and conversion of retained machine-sensible records to a standard magnetic record format as provided in subdivision (c)(1)(B). (2) The board recommends but does not require that taxpayers refer to the National Archives and Record Administration's (NARA) standards for guidance on the maintenance and storage of electronic records, such as the labeling of records, the location and security of the storage environment, the creation of back-up copies, and the use of periodic testing to confirm the continued integrity of the records. (e) Access to Machine-Sensible Records. (1) The manner in which the board is provided access to machine-sensible records may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer. (2) Such access will be provided in one or more of the following manners: (A) The taxpayer may arrange to provide the board with the hardware, software, and personnel resources to access the machine-sensible records. (B) The taxpayer may arrange for a third party to provide the hardware, software, and personnel resources necessary to access the machine-sensible records. (C) The taxpayer may convert the machine-sensible records to a standard record format specified by the board, including copies of files, on a magnetic medium that is agreed to by the board. (D) The taxpayer and the board may agree on other means of providing access to the machine-sensible records. (f) Taxpayer Responsibility and Discretionary Authority. (1) In conjunction with meeting the requirements of subdivision (c), a taxpayer may create files solely for the use of the board. For example, if a data base management system is used, it is consistent with this regulation for the taxpayer to create and retain a file that contains the transaction-level detail from the data base management system and that meets the requirements of subdivision (c). The taxpayer should document the process that created the separate file to show the relationship between that file and the original records. (2) A taxpayer may contract with a third party to provide custodial or management services of the records. Such a contract shall not relieve the taxpayer of its responsibilities under this regulation. (g) Hardcopy Records. (1) Except as specifically provided, taxpayers are not relieved of the responsibility to retain hardcopy records that are created or received in the ordinary course of business as required by existing law and regulations. Hardcopy records may be retained on a record keeping medium as provided in subdivision (h). (2) If hardcopy transaction level documents are not produced or received in the ordinary course of transacting business (e.g., when the taxpayer uses electronic data interchange technology), such hardcopy records need not be created. (3) Hardcopy records generated at the time of a transaction using a credit or debit card must be retained unless all the details necessary to determine correct tax liability relating to the transaction are subsequently received and retained by the taxpayer in accordance with this regulation. Such details include those listed in subdivision (c)(2)(A). (4) Computer printouts that are created for validation, control, or other temporary purposes need not be retained. (h) Alternative Storage Media. (1) For purposes of storage and retention, taxpayers may convert hardcopy documents received or produced in the normal course of business and required to be retained under this regulation to storage-only imaging media such as microfilm, microfiche or other media used in electronic imaging and may discard the original hardcopy documents, provided the conditions of subdivision (h) are met. Documents which may be stored on these media include, but are not limited to general books of account, journals, voucher registers, general and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda. (2) Storage-only imaging media such as microfilm, microfiche or other media used in electronic imaging systems shall meet the following requirements. (A) Documentation establishing the procedures for converting the hardcopy documents to the storage-only imaging system must be maintained and made available on request. Such documentation shall, at a minimum, contain a sufficient description to allow an original document to be followed through the conversion system as well as internal procedures established for inspection and quality assurance. (B) Procedures must be established for the effective identification, processing, storage, and preservation of the stored documents and for making them available for the period they are required to be retained under subdivision (i). (C) Upon request by the board, a taxpayer must provide facilities and equipment for reading, locating, and reproducing any documents maintained on storage-only imaging media (D) When displayed on such equipment or reproduced on paper, the documents must exhibit a high degree of legibility and readability. For this purpose, legibility is defined as the quality of a letter or numeral that enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals. Readability is defined as the quality of a group of letters or numerals being recognizable as words or complete numbers. (E) All data on storage-only imaging media must be maintained and arranged in a manner that permits the location of any particular record. (F) There is no substantial evidence that the storage-only imaging medium lacks authenticity or integrity. (i) Record Retention - Time Period. All records required to be retained under this regulation must be preserved for a period of not less than four years unless the State Board of Equalization authorizes in writing their destruction within a lesser period. (j) Record Retention Limitation Agreements. (1) The board has the authority to enter into or revoke a record retention limitation agreement with the taxpayer to modify or waive any of the specific requirements in this regulation. A taxpayer's request for an agreement must specify which records (if any) the taxpayer proposes not to retain and provide the reasons for not retaining such records, as well as, proposing any other terms of the requested agreement. The taxpayer shall remain subject to all requirements of this regulation that are not modified, waived, or superseded by a duly approved record retention limitation agreement. (A) If a taxpayer seeks to limit its retention of machine-sensible records, the taxpayer may request a record retention limitation agreement, which shall; 1. document understandings reached with the board, which may include, but is not limited to, any one or more of the following issues: a. the conversion of files created on an obsolete computer system; b. restoration of lost or damaged files and the actions to be taken; c. use of taxpayer computer resources, and 2. specifically identify which of the taxpayer's records the board determines are not necessary for retention and which the taxpayer may discard, and 3. authorize variances, if any, from the normal provisions of this regulation. (B) The board shall consider a taxpayer's request for a record retention limitation agreement and notify the taxpayer of the actions to be taken. (C) The board's decision to enter or not to enter into a record retention limitation agreement shall not relieve the taxpayer of the responsibility to keep adequate and complete records supporting entries shown on any tax or information return. (2) A taxpayer's record retention practices shall be subject to evaluation by the board when a record retention limitation agreement exists. The evaluation may include a review of the taxpayer's relevant data processing and accounting systems with respect to EDP systems, including systems using EDI technology. (A) The board shall notify the taxpayer of the results of any evaluation, including acceptance or disapproval of any proposals made by the taxpayer (e.g., to discard certain records) or any changes considered necessary to bring the taxpayer's practices into compliance with this regulation. (B) Since the evaluation of a taxpayer's record retention practices is not directly related to the determination of tax reporting accuracy for a particular period or return, an evaluation made under this regulation is not an "examination of records" under the applicable tax law. (C) Unless otherwise specified, an agreement shall not apply to accounting and tax systems added subsequent to the completion of the record evaluation. All machine-sensible records produced by a subsequently added accounting or tax system shall be retained by the taxpayer in accordance with this regulation until a new evaluation is conducted by the board. (D) Unless otherwise specified, an agreement made under this subdivision shall not apply to any person, company, corporation, or organization that, subsequent to the taxpayer's signing of a record retention limitation agreement, acquires or is acquired by the taxpayer. All machine-sensible records produced by the acquired or the acquiring person, company, corporation, or organization, shall be retained pursuant to this regulation (3) In addition to the record retention evaluation under subdivision (j)(2), the board may conduct tests to establish the authenticity, readability, completeness, and integrity of the machine-sensible records retained under a record retention limitation agreement. The state shall notify the taxpayer of the results of such tests. These tests may include the testing of EDI and other procedures and a review of the internal controls and security procedures associated with the creation and storage of the records. (k) Failure to Maintain Records. Failure to maintain and keep complete and accurate records will be considered evidence of negligence or intent to evade the tax and may result in penalties or other appropriate administrative action. Note: Authority cited: Sections 8251, 9251, 30451, 32451, 40171, 41128, 43501, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. References: Sections 8301, 8302, 8303, 8304, 9253, 9254, 30453, 30454, 32551, 32453, 40172, 40173, 40174, 40175, 41056, 41073, 41129.30, 43502, 45852, 46602, 46603, 50153, 55302, 60604, 60605 and 60606, Revenue and Taxation Code. s 4902. Relief from Liability. (a) General. A person may be relieved from the liability for the payment of tax, defined in section 4901(a)(7), imposed pursuant to applicable tax laws, defined in section 4901(a)(1), including any penalties and interest added to the tax, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on: (1) Written advice given by the board under the conditions set forth in subdivision (b) below, or (2) Written advice in the form of an annotation or legal ruling of counsel under the conditions set forth in subdivision (d) below; or (3) Written advice given by the board in a prior audit of that person under the conditions set forth in subdivision (c) below. As used in this regulation, the term "prior audit" means any audit conducted prior to the current examination where the issue in question was examined. Written advice from the board may only be relied upon by the person to whom it was originally issued or a legal or statutory successor to that person. Written advice from the board which was received during a prior audit of the person under the conditions set forth in subdivision (c) below, may be relied upon by the person audited or by a legal or statutory successor to that person. The term "written advice" includes advice that was incorrect at the time it was issued as well as advice that was correct at the time it was issued, but, subsequent to issuance, was invalidated by a change in statutory or constitutional law, by a change in board regulations, or by a final decision of a court of competent jurisdiction. Prior written advice may not be relied upon subsequent to: (1) the effective date of a change in statutory or constitutional law and board regulations or the date of a final decision of a court of competent jurisdiction regardless that the board did not provide notice of such action; or (2) the person receiving a subsequent writing notifying the person that the advice was not valid at the time it was issued or was subsequently rendered invalid. As generally used in this regulation, the term "written advice" includes both written advice provided in a written communication under subdivision (b) below and written advice provided in a prior audit of the person under subdivision (c) below. (b) Advice Provided in a Written Communication. Advice from the board provided to the person in a written communication must have been in response to a specific written inquiry from the person seeking relief from liability, or from his or her representative. To be considered a specific written inquiry for purposes of this regulation, representatives must identify the specific person for whom the advice is requested. Such inquiry must have set forth and fully described the facts and circumstances of the activity or transactions for which the advice was requested. (c) Written Advice Provided in a Prior Audit. Presentation of the person's books and records for examination by an auditor shall be deemed to be a written request for the audit report. If a prior audit report of the person requesting relief contains written evidence which demonstrates that the issue in question was examined, either in a sample or census (actual) review, such evidence will be considered "written advice from the board" for purposes of this regulation. A census, (actual) review, as opposed to a sample review, involves examination of 100% of the person's transactions pertaining to the issue in question. For written advice contained in a prior audit of the person to apply to the person's activity or transaction in question, the facts and conditions relating to the activity or transaction must not have changed from those which occurred during the period of operation in the prior audit. Audit comments, schedules, and other writings prepared by the board that become part of the audit work papers which reflect that the activity or transaction in question was properly reported and no amount was due are sufficient for a finding for relief from liability, unless it can be shown that the person seeking relief knew such advice was erroneous. (d) Annotations and Legal Rulings of Counsel. Advice from the board provided to the person in the form of an annotation or legal ruling of counsel shall constitute written advice only if: (1) The underlying legal ruling of counsel involving the fact pattern at issue is addressed to the person or to his or her representative under the conditions set forth in subdivision (b) above. (2) The annotation or legal ruling of counsel is provided to the person or his or her representative by the board within the body of a written communication and involves the same fact pattern as that presented in the subject annotation or legal ruling of counsel. (e) Trade or Industry Associations. A trade or industry association requesting advice on behalf of its member(s) must identify and include the specific member name(s) for whom the advice is requested for relief from liability under this regulation. Note: Authority cited: Sections 8251, 9251, 30451, 32451,40171, 41128, 43501, 45851, 46601, 50152 and 60601, Revenue and Taxation Code. References: Sections 7657.1, 8879, 30284, 32257, 40104, 41098, 43159, 45157, 46158, 50112.5, 55045 and 60210, Revenue and Taxation Code. s 4905. Electronic Funds Transfer. (a) Definitions. (1) "Electronic funds transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape, so as to order, instruct, or authorize a financial institution to debit or credit an account. Electronic funds transfers shall be accomplished by an automated clearinghouse debit, an automated clearinghouse credit, or by Federal Reserve Wire Transfer. (2) "Automated clearinghouse" means any federal reserve bank, or an organization established in agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and which authorizes an electronic transfer of funds between these banks or bank accounts. (3) "Automated clearinghouse debit" means a transaction in which the state, through its designated depository bank, originates an automated clearinghouse transaction debiting the person's bank account and crediting the state's bank account for the amount of tax or fee. Banking costs incurred for the automated clearinghouse debit transaction shall be paid by the state. (4) "Automated clearinghouse credit" means an automated clearinghouse transaction in which the person through his or her own bank, originates an entry crediting the state's bank account and debiting his or her own bank account. Banking costs incurred for the automated clearinghouse credit transaction charged to the state shall be paid by the person originating the credit. (5) "Federal Reserve Wire Transfer" means any transaction originated by a person and utilizing the national electronic payment system to transfer funds through the federal reserve banks, when that person debits his or her own bank account and credits the state's bank account. Electronic funds transfers pursuant to Revenue and Taxation Code sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050, and 60250 may be made by Federal Reserve Wire Transfer only if payment cannot, for good cause, be made according to subdivision (a) (1) of this regulation, and the use of Federal Reserve Wire Transfer is preapproved pursuant to subdivision (g) of this regulation. Banking costs incurred for the Federal Reserve Wire Transfer transaction charged to the person and to the state shall be paid by the person originating the transaction. (b) Participation. (1) Mandatory Participation. Persons with an estimated monthly tax or fee liability of twenty thousand dollars ($20,000) or more under the applicable part of the Revenue and Taxation Code, are required to remit amounts due by electronic funds transfer under procedures set forth in this regulation. To identify mandatory participants, the Board shall conduct a periodic review of all persons with licenses, permits, or other authorization under sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050, and 60250. The review is performed by calculating an average monthly tax or fee liability for a twelve-month period. Persons whose average monthly tax or fee liability equals or exceeds twenty thousand dollars will be required to remit payments by electronic funds transfer. If a person did not engage in a covered activity until after the beginning of the designated twelve-month review period, then the monthly tax or fee liability will be calculated based upon the number of months in which covered activites occurred (for example, in a calendar year review period, if the person obtains a permit or license and begins operations for which a tax or fee may be imposed in May, the total tax or fee liability would be divided by eight to determine the average monthly tax or fee liability since there are eight months remaining in the evaluation period). Persons registering to report and pay a tax or fee for the first time, except certain successors, will not be required to participate in the electronic funds transfer program until a review is conducted. A successor will be regarded as having an estimated tax or fee liability of twenty thousand dollars ($20,000) or more per month when the monthly tax or fee liability of the predecessor equaled or exceeded twenty thousand dollars per month or the predecessor was a mandatory participant in the electronic funds transfer program. If the successor purchases a portion of a business that is required to participate in the mandatory electronic funds transfer program (e.g. a multiple outlet business that only sells some, but not all of its locations), the average monthly tax or fee liability of the purchased business will be computed to determine if the successor meets the threshold to be identified as a mandatory participant in the electronic funds transfer program. After review, if a person drops below the threshold for mandatory participation, the Board shall provide notification, in writing, that the status has been changed from mandatory participation to voluntary participation in the electronic funds transfer program. If, at that time, a person wishes to discontinue making electronic funds transfer payments, a written request must be made to the Board. Payments must continue to be remitted by electronic funds transfer until the taxpayer or feepayer is notified by the Board, in writing, of an effective date of withdrawal from the program. Any person who fails to comply with the mandatory participation requirements under this section shall be liable for a penalty as provided under the applicable Revenue and Taxation Code sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050, and 60250. (2) Voluntary Participation. Any person not meeting the criteria for mandatory participation set forth in subdivision (b)(1) of this regulation may participate in the program on a voluntary basis. A person must register with the Board prior to participation. If a person wishes to discontinue making electronic funds transfer payments, a written request must be made to the Board. Payments must continue to be remitted by electronic funds transfer until notified by the Board, in writing, of an effective date of withdrawal from the program. (c) Date of Payment. Payment is deemed complete on the date the electronic funds transfer is initiated, if the settlement to the state's demand account occurs on or before the banking day following the date the transfer is initiated. If the settlement to the state's demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs. (d) Filing of Returns. In addition to a tax or fee payment made by electronic funds transfer, a return must be filed on or before the due date. Any person who fails to comply with this provision shall be subject to penalty charges as provided under Revenue and Taxation Code sections 7659.9(d), 8760(d), 30190(d), 32260(d), 40067(d), 41060(d), 43170(d), 45160(d), 46160(d), 50112.7(d), 55050(d), and 60250(d). (e) Failure to Pay by Electronic Funds Transfer. Any person required to pay tax or fee by electronic funds transfer must continue to do so until the Board advises them otherwise in writing. Any person required to pay taxes or fees by electronic funds transfer, as set forth in subdivision (b)(1), who does not pay through electronic funds transfer but uses another means (e.g., pay by check), will be assessed a penalty as provided by Revenue and Taxation Code sections 7659.9(e), 8760(e), 30190(e), 32260(e), 40067(e), 41060(e), 43170(e), 45160(e), 46160(e), 50112.7(e), 55050(e), and 60250(e). (f) Zero Amount Due. When no tax is due for a given period, a zero dollar transaction must be made by electronic funds transfer or the Board must receive written notification stating that no tax is due for that period. (g) Emergencies. In emergency situations, a Federal Reserve Wire Transfer transaction may be used to transmit a payment. A Federal Reserve Wire Transfer is an electronic payment system used by federal reserve banks to transfer funds instantaneously. Generally, this method of payment is not approved for recurring transactions. Authorization must be received from the Board prior to making a payment by Federal Reserve Wire Transfer. The person who originates the transfer shall be responsible for any fees incurred in paying by a Federal Reserve Wire Transfer transaction. Note: Authority cited: Sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050 and 60250, Revenue and Taxation Code. Reference: Sections 7659.9, 7659.92, 8760, 8762, 30190, 30192, 32260, 32262, 40067, 40069, 41060, 41062, 43170, 43172, 45160, 45162, 46160, 46162, 50112.7, 50112.9, 55050, 55052, 60250 and 60252, Revenue and Taxation Code. s 5010. Definitions; Board Hearing Procedures; Manner of Filing. (a) The definitions in Article 7, Regulation 5070 shall apply to this Article, and Board hearings on appeals filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7, commencing with Regulation 5070. (b) Two copies of an appeal to the Board from action by the Franchise Tax Board under the Administration of Franchise and Income Tax Laws or the Senior Citizens Property Tax Assistance Law, along with two copies of any supporting documents, shall be addressed and mailed to the Chief of Board Proceedings, State Board of Equalization in Sacramento, or deposited personally at the headquarters office of the Board in Sacramento. Upon receipt of the appeal, the of Board Proceedings Division shall provide one copy of the appeal and one copy of any supporting documents to the Franchise Tax Board in Sacramento, California. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 19045, 19046, 19072, 19085, 19087, 19324, 19331, 19332, 19343, 19344 and 20645, Revenue and Taxation Code. s 5011. Timeliness. An appeal shall be timely if it is mailed to or received by the Board Proceedings Division within the time specified by the particular statute under which the appeal is taken. Unless expressly stated otherwise in the statute under which the appeal is taken, such statutory period shall be extended 5 days upon service by mail of the action of the Franchise Tax Board being appealed if the place of address is within California, 10 days if the place of address is outside California but within the United States, and 20 days if the place of address is outside the United States. In the absence of other evidence, the post-mark date or the date of delivery to a delivery service as defined in Article 7, Regulation 5070 shall be considered as the mailing date. If the last day for mailing or delivering an appeal falls on a Saturday, Sunday or holiday, the time shall be extended to the next business day. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 19045, 19072, 19084, 19085, 19087, 19324, 19331, 19343 and 20645, Revenue and Taxation Code. s 5012. Form. (a) The appeal shall be in writing and shall state the fact that an appeal is being made, the name of the taxpayer, the amounts and the years involved, the date when the notice of action was mailed by the Franchise Tax Board, the facts involved and the legal authorities relied on by the taxpayer, including relevant statutes and regulations. Any portion of the tax that the taxpayer concedes is owing shall be indicated in the appeal. The appeal shall be signed by the taxpayer or by the taxpayer's authorized representative. (b) If the Franchise Tax Board's notice of action was directed to more than one taxpayer, each taxpayer desiring to contest it shall file an appeal on the taxpayer's own behalf, either separately or jointly with any other taxpayer, and each taxpayer shall satisfy all the requirements of this section in order for the appeal to be treated as filed by that taxpayer. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 19045, 19046, 19072, 19084, 19085, 19087, 19324, 19331, 19332, 19343, 19344 and 20645, Revenue and Taxation Code. s 5020. Definitions; Board Hearing Procedures; Taxes Affected by This Article. (a) The definitions in Article 7, Regulation 5070 shall apply to this Article, and Board hearings on petitions and claims filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7, commencing with Regulation 5070. (b) This Article applies to petitions for redetermination (other than petitions and applications for administrative hearings pertaining to jeopardy determinations, which are subject to Article 3, beginning with Regulation 5030) and claims for refund under the following programs: Alcoholic Beverage Tax California Constitution Article XX, Section 22; Revenue and Taxation Code Sections 32001-32557 California Tire Fee Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381 Childhood Lead Poisoning Prevention Fee Health and Safety Code Section 105310; Revenue and Taxation Code Sections 43001-43651 Cigarette and Tobacco Products Tax California Constitution Article XIIIB; Revenue and Taxation Code Sections 30001-30481 Diesel Fuel Tax Revenue and Taxation Code Sections 60001-60709 Emergency Telephone Users Surcharge Revenue and Taxation Code Sections 41001-41176 Energy Resources Surcharge Revenue and Taxation Code Sections 40001-40216 Hazardous Substances Tax Revenue and Taxation Code Sections 43001-43651 Insurance Tax California Constitution Article XIII, Section 28; Revenue and Taxation Code Sections 12001-13170 Integrated Waste Management Fee Revenue and Taxation Code Sections 45001-45984 Marine Invasive Species Fee Collection Law Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381 Motor Vehicle Fuel Tax California Constitution Article XIX; Revenue and Taxation Code Sections 7301-8526 Natural Gas Surcharge Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381 Occupational Lead Poisoning Prevention Fee Health and Safety Code Section 105190; Revenue and Taxation Code Sections 43001-43651 Oil Spill Response, Prevention, and Administration Fees Revenue and Taxation Code Sections 46001-46751 Sales and Use Tax (including State-administered local sales, transactions, and use taxes) Revenue and Taxation Code Sections 6001-7279.6 Timber Yield Tax Revenue and Taxation Code Sections 423.5, 431-437, 38101-38908 Underground Storage Tank Maintenance Fee Revenue and Taxation Code Sections 50101-50162 Use Fuel Tax Revenue and Taxation Code Sections 8601-9355 (c) To the extent that regulations in this Article are in conflict with the International Fuel Tax Agreement, the provisions of the International Fuel Tax Agreement are controlling. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6561, 6814, 6902, 7710, 8128, 8851, 9152, 12428, 12978, 30261, 30362, 32301, 32402, 38441, 38602, 40091, 40112, 41085, 41101, 43301, 43452, 45301, 45652, 46351, 46502, 50114, 50140, 55081, 55222, 60350 and 60522, Revenue and Taxation Code. s 5021. Contents of Petition for Redetermination; Amendments. (a) Every petition for redetermination shall be in writing and shall state the specific grounds upon which the petition is founded. The taxpayer or the taxpayer's representative shall sign the petition for redetermination. (b) The petition may be amended to state additional grounds at any time prior to the date the Board issues its order or decision on the petition. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6561.5, 6814, 7710.5, 8851.5, 12428, 30261.5, 32301.5, 38442, 40092, 41086, 43302, 45302, 46352, 50115, 55082 and 60351, Revenue and Taxation Code. s 5022. Claims for Refund. Every claim for refund shall be in writing and shall state the specific grounds upon which the claim is founded. The taxpayer or the taxpayer's representative shall sign the claim or refund. Although not required by statute to do so, the Board at its discretion may grant hearings on refund claims. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6814, 6904, 8129, 9153, 12979, 30363, 32402, 38603, 40113, 41102, 43452, 45652, 46503, 50140, 55222 and 60523, Revenue and Taxation Code. s 5023. Appeals Conference. (a) The Board Proceedings Division shall schedule an appeals conference with the parties and a conference holder who is an Appeals Attorney or Appeals Auditor independent of the assessing Department. As requested by the taxpayer, an appeals conference may be held at the Sacramento headquarters of the Board, a district office, by videoconference or by telephone. The appeals conference is an informal discussion of the relevant facts and applicable laws and regulations. The appeals conference is not an adversarial proceeding. Subpoenas are not issued for appeals conferences and testimony is not taken under oath; however, the conference holder will accept written statements made under penalty of perjury. The appeals conference is not recorded, videotaped or reported by the conference holder. Taxpayers may arrange for the appeals conference to be recorded or reported. If the appeals conference is recorded or reported, the taxpayer shall make a copy of the tape or transcript available to the conference holder upon request. (b) Rescheduling and Postponements. Requests to reschedule or postpone appeals conferences shall be directed to the Board Proceedings Division. (1) Rescheduling. If there is a scheduling conflict for an appeals conference scheduled to be held in-person at headquarters, by videoconference or by telephone, the appeals conference may be rescheduled to accommodate the parties. At the discretion of the Chief of Board Proceedings, a second rescheduling may be allowed. The Board Proceedings Division may reschedule an appeals conference scheduled to be heard at a district office to a different district office, to headquarters, to a videoconference, or a telephone conference, or may postpone the appeals conference to the same district office as provided in subdivision (b)(2). (2) Postponement. Postponements are only applicable to appeals conferences that are scheduled at a district office. A postponement results in the case being placed back into the inventory of unassigned cases. If a party requests a postponement of an appeals conference to be held at the district office within 15 days after the date of the notice of the appeals conference sent by the Board Proceedings Division and has sufficient justification for requesting the postponement, the Board Proceedings Division may allow the postponement. If a party requests a postponement of the appeals conference later than 15 days after the date of the notice of the appeals conference, and can demonstrate extreme hardship for requesting the postponement, the Board Proceedings Division may allow the postponement. While only one postponement may be granted, an appeals conference may be rescheduled as provided in subdivision (b)(1). (c) Failure to Respond or Appear; Waiver. (1) If the taxpayer fails to respond to the notice of the appeals conference sent by the Board Proceedings Division by the deadline stated in the notice, or responds to the notice but fails to appear for the appeals conference, the conference holder shall conduct the appeals conference as scheduled with the Department. (2) A party may waive appearance at the appeals conference. (d) Submission of Additional Documents. (1) A party may submit additional documents to the Appeals Division at any time before or during the appeals conference. If a party submits additional documents, the other party shall have the opportunity to respond to the documents either at the appeals conference or within 15 days after the appeals conference. (2) If at an appeals conference a party requests time to submit additional documents, the party shall have 15 days after the appeals conference to submit the documents. The other party shall have an additional 15 days to respond to the documents submitted. If there is sufficient justification, the conference holder may extend the time period for either party by an additional 15 days. Neither party shall be allowed any further additional time to submit or respond to documents unless approved by either the Assistant Chief Counsel of the Appeals Division or his or her designees. (3) A conference holder may contact either or both of the parties after the appeals conference in order to obtain clarification of the issues, or additional information on the issues. However, the conference holder shall not rely on any information obtained after the appeals conference in deciding an issue against a party, without giving that party an opportunity to respond to the information. (e) Within 90 days after the submission of any additional documents as authorized in subdivision (d) above, the conference holder shall issue a written report of his or her findings, called a Decision and Recommendation, copies of which shall be sent to all parties. If a party did not appear at the appeals conference, the Decision and Recommendation will be based on the information in the file and the information obtained from the other party. The Chief Counsel or his or her designee may allow additional time beyond the 90 days to prepare the Decision and Recommendation. Both the request for additional time and the granting of additional time shall be in writing and copies provided to all parties to the conference. (f) If the taxpayer or the Department has requested an oral hearing prior to, or within 30 days of, the date that the Decision and Recommendation was mailed to the taxpayer, an oral hearing before the Board will be scheduled. If an oral hearing before the Board is not requested, official notice of the Board's action on the Decision and Recommendation will be mailed to the taxpayer. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections: 6561, 6814, 6902, 7710, 8128, 8851, 9152, 12428, 12978, 30261, 30362, 32301, 32402, 38441, 38602, 40091, 40112, 41085, 41101, 43301, 43452, 45301, 45652, 46351, 46502, 50114, 50140, 55081, 55222, 60350 and 60522, Revenue and Taxation Code. s 5024. Combined Claims for Refund on Behalf of Class of Taxpayers. (Sales and Use Tax, Including State-Administered Local Sales, Transactions, and Use Taxes.) (a) This regulation applies only to combined claims for refund of the Sales and Use Tax, including State-administered local sales, transactions, and use taxes. (b) Procedures Required of Class Representative. The representative claiming a refund on behalf of members of a class shall establish: (1) That it is more beneficial to the class and to the state to proceed as a combined claim for refund rather than individually. (2) The existence and the composition of the class, including: (A) A description of the members sufficient to identify the persons making up the class. (B) The approximate number of persons in the class. (C) The manner in which and the time when the class members shall be identified and notified of the pendancy of the combined claim. (3) The issues of law and the issues of fact that are common to all class members and those that are not, and the approximate number of class members affected by each issue that is not common to all. (4) The representative's written authority to act as representative for each class member, which authority shall authorize the Board Staff to release to the representative any confidential information in the Board's files that may be required in connection with the claim. This statement may include a separate claim for refund by the class member or may state that the class member joins in the combined claim. (5) That the representative is a member of the class and when and how the representative became a member. In addition, any unique legal or factual issues pertaining to the representative's claim and any differences between the representative's status as a class member and that of any other class member shall be described. (6) That the representative can fairly and adequately protect the interests of each member of the class and that the representative's interests are not antagonistic to members of the class. (7) When requested by the Board Staff, that each member of the class has been notified of the pendancy of the claim and each member has had a reasonable opportunity to join in or be excluded from the combined claim. (c) Action to be Taken by Board Staff. (1) If the Board Staff finds that the claim is a proper combined claim it shall, to the extent possible, act upon the claim in the same manner that it would act on any other claim. If the Board Staff finds that the claim is not a proper combined claim, it shall act only on claims by individual members and notify the representative that the claim is not valid as to others. In determining the amount of any refund due to any member of the class, the refund shall be limited to the amount of tax overpayment by that member under the tax law pursuant to which the claim was filed. (2) Before a refund will be made to any member of the class, the amount of the tax overpayment by the member shall be established and the representative or member shall furnish or make available to the Board Staff all contracts, documents, or records (or copies thereof) necessary to verify the overpayment and the amount thereof. If such contracts, documents, or records are not presented to or made available to the Board Staff, the representative or member shall be deemed to have failed to exhaust the administrative remedies. (d) Effect of Action on Combined Claims. (1) Failure to commence a court action within 90 days after the mailing of the notice of the Board's action on a refund claim as provided in the tax law pursuant to which the claim was filed constitutes a waiver of any demand against the state on account of alleged overpayments. This waiver, however, does not apply with respect to persons who have not previously been notified of the claim, or who have notified the Board Staff that they desire to be excluded from the combined claim. Nor does the waiver apply with respect to persons involved in a claim to the extent it has been declared invalid as distinguished from persons as to whom a claim has been denied. (2) A judgment in any court filed with respect to the denial of any claim isres judicataas to the claimant's tax liability or overpayments for the period involved. Note: Authority cited: Section 15606(a), Government Code; and Sections 7051, 7202, 7203, 7261, 7262 and 7270, Revenue and Taxation Code. Reference: Sections 6814, 6904 and 6932, Revenue and Taxation Code. s 5030. Definitions; Board Hearing Procedures; Taxes Affected by This Article. (a) The definitions in Article 7, Regulation 5070 shall apply to this Article, and Board hearings on petitions and applications filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7, commencing with Resolution 5070. (b) This Article applies to jeopardy determinations and jeopardy assessments of private railroad cars issued under the following programs, and provides two alternative means to challenge a jeopardy determination or jeopardy assessment: filing a petition for redetermination or reassessment and stay of collection pursuant to Regulation 5031; and refiling an application for an administrative hearing pursuant to Regulation 5032: Alcoholic Beverage Tax California Constitution Article XX, Section 22; Revenue and Taxation Code Sections 32001-32557 California Tire Fee Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381 Childhood Lead Poisoning Prevention Fee Health and Safety Code Section 105310; Revenue and Taxation Code Sections 43001-43651 Cigarette and Tobacco Products Tax California Constitution Article XIIIB; Revenue and Taxation Code Sections 30001-30481 Diesel Fuel Tax Revenue and Taxation Code Sections 60001-60709 Emergency Telephone Users Surcharge Revenue and Taxation Code Sections 41001-41176 Energy Resources Surcharge Revenue and Taxation Code Sections 40001-40216 Hazardous Substances Tax Revenue and Taxation Code Sections 43001-43651 Insurance Tax California Constitution Article XIII, Section 28; Revenue and Taxation Code Sections 12001-13170 Integrated Waste Management Fee Revenue and Taxation Code Sections 45001-45984 Marine Invasive Species Fee Collection Law Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381 Motor Vehicle Fuel Tax California Constitution Article XIX; Revenue and Taxation Code Sections 7301-8526 Natural Gas Surcharge Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381 Occupational Lead Poisoning Prevention Fee Health and Safety Code Section 105190; Revenue and Taxation Code Sections 43001-43651 Oil Spill Response, Prevention, and Administration Fees Revenue and Taxation Code Sections 46001-46751 Sales and Use Tax (including State-administered local sales, transactions, and use taxes) Revenue and Taxation Code Sections 6001-7279.6 Timber Yield Tax Revenue and Taxation Code Sections 423.5, 431-437, 38101-38908 Underground Storage Tank Maintenance Fee Revenue and Taxation Code Sections 50101-50162 Use Fuel Tax Revenue and Taxation Code Sections 8601-9355 (c) To the extent that regulations in this Article are in conflict with the International Fuel Tax Agreement, the provisions of the International Fuel Tax Agreement are controlling. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538, 6538.5, 7700, 7700.5, 8828, 8828.5, 11353, 30243, 30243.5, 32312, 32313, 38433, 38435, 43351, 43352, 45352, 45353, 46302, 46303, 50120.2, 50120.3, 55102, 55103, 60332 and 60333, Revenue and Taxation Code. s 5031. Petition for Redetermination or Reassessment and Stay of Collection Activities. The person against whom a jeopardy determination or a jeopardy assessment is made may petition for redetermination or reassessment thereof if the person, within 10 days after service of the notice of the jeopardy determination or jeopardy assessment, files a petition for redetermination or reassessmentandwithin that period deposits with the Board such security as the Board deems necessary to secure compliance with the tax law or laws pursuant to which the determination is made or to insure payment of the amount due for the assessment. The petition shall be in writing and shall state the specific grounds upon which it is based. The filing of the petition and depositing of the required security shall stay further collection activities until such time as the determination or assessment becomes final. Board Staff review of such petitions shall be governed by the procedures set forth in Article 2, Regulation 5023. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538, 6538.5, 7700, 7700.5, 8828, 8828.5, 11353, 11354, 30243, 30243.5, 32312, 32313, 38433, 43351, 43352, 45352, 45353, 46302, 46303, 50120.2, 50120.3, 55102, 55103, 60332 and 60333, Revenue and Taxation Code. s 5032. Application for Administrative Hearing. (a) Within 30 days after service of the notice of jeopardy determination or jeopardy assessment, the taxpayer against whom a jeopardy determination or jeopardy assessment has been made may, with or without complying with the requirements of Regulation 5031, apply for an administrative hearing. (b) The taxpayer may apply for such a hearing for one or more of the following purposes: (1) to establish that the determination or assessment is excessive; (2) to establish that the sale of property that may have been seized after issuance of the jeopardy determination or jeopardy assessment or any part thereof, should be delayed pending the administrative hearing because the sale would result in irreparable injury to the person; (3) to request the release of all or part of the seized property to the person; (4) to request a stay of collection activities. (c) The application shall be in writing and shall state the specific factual and legal grounds upon which it is founded. (d) No security need be posted to obtain this hearing. Unless the person complies with the provisions of Regulation 5031 relating to the deposit of security, the filing of the petition shall not operate as a stay of collection activities except sale of the property seized. (e) Upon a showing of reasonable cause for failure to file a timely petition for administrative hearing, the Board may allow a late filing of the petition and grant petitioner an administrative hearing. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538.5, 7700.5, 8828.5, 30243.5, 32313, 38435, 43352, 45353, 46303, 50120.3, 55103 and 60333, Revenue and Taxation Code. s 5033. Effect of Filing Application. With respect to a jeopardy determination or a jeopardy assessment, the seized property shall not be sold without the consent of the owner during the first 30 days after service of the notice of jeopardy determination or jeopardy assessment nor while a timely application for an administrative hearing is pending. The storing of the property during the period the application is pending shall be at the applicant's expense. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538, 6538.5, 7700, 7700.5, 8828, 8828.5, 11353, 30243, 30243.5, 32312, 32313, 38433, 38435, 43351, 43352, 45352, 45353, 46302, 46303, 50120.2, 50120.3, 55102, 55103, 60332 and 60333, Revenue and Taxation Code. s 5034. Administrative Hearing. An administrative hearing shall be scheduled promptly after the filing of the application. The administrative hearing shall be conducted as an appeals conference, following the procedures set forth in Article 2, Regulation 5023. When an oral hearing before the Board is requested, the hearing shall be scheduled as soon as practicable. The Board shall give the applicant at least 10 days' notice of the time and place of the hearing. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538.5, 7700.5, 8828.5, 30243.5, 32313, 38435, 43352, 45353, 46303, 50120.3, 55103 and 60333, Revenue and Taxation Code. s 5035. Administrative Hearing Order. The Appeals Attorney or Appeals Auditor may find that the applicant is not entitled to the relief requested or may order that one or more of the following types of relief be granted: that the sale of the property will irreparably damage the applicant and that the property shall not be sold; that the property, or a portion thereof, be released to the applicant or to the person from whom it was seized; that the tax as determined is excessive and that the amount of the determination be reduced. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538.5, 7700.5, 8828.5, 30243.5, 32313, 38435, 43352, 45353, 46303, 50120.3, 55103 and 60333, Revenue and Taxation Code. s 5036. Notices. Any notice given pursuant to this article shall be served personally or by mail in the manner prescribed by statute for service of notice of a deficiency determination. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 30451, 32451, 38701, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6538.5, 7700.5, 8828.5, 11352, 30243.5, 32313, 38434, 43352, 45353, 46303, 50120.3, 55103 and 60333, Revenue and Taxation Code. s 5040. Definitions; Board Hearing Procedures; Hearings on Petitions for Reassessment of Unitary or Nonunitary Values; Correction of Allocated Values of Public Utilities and Reassessment of Private Railroad Cars; Contents of Petitions; Assessment Factor Hearings. (a) The definitions in Article 7, Regulation 5070 shall apply to this Article, and Board hearings on petitions filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7, commencing with Regulation 5070. (b) This Article applies to petitions for reassessment of unitary or nonunitary values, petitions for correction of allocated values of public utilities, and petitions for reassessment of private railroad cars and sets forth the procedures applicable to state assessees and private railroad car taxpayers in making oral and written presentations at Assessment Factor Hearings. (c) The Board shall hear petitions as follows: (1) The Board shall hear petitions for reassessment of unitary or nonunitary values between the date of receipt of a timely filed petition for reassessment and December 31 and render its decisions on individual petitions no later than December 31 each year. (2) The time for filing of and hearing and decision on petitions for correction of allocated values of public utilities shall be as required by Sections 746, 747, 748, and 749 of the Revenue and Taxation Code. (3) The time for filing of and hearing and decision on petitions for reassessment of private railroad cars shall be as required by Sections 11338, 11339, 11340, and 11341 of the Revenue and Taxation Code. Note: Authority: Section 15606(a), Government Code; and Section 11651, Revenue and Taxation Code. Reference: Sections 110, 721, 741, 742, 743, 744, 746, 747, 748, 749, 11251, 11291, 11293, 11294, 11336, 11338, 11339, 11340, 11341 and 11353, Revenue and Taxation Code. s 5041. Filing and Contents of Petition; Request for Oral Hearing; Written Only Petitions; Staff Response; Extension of Time. (a) Board Staff shall send a notice to each assessee setting forth the amount of assessed value and the date by which a petition for reassessment may be filed. (b) The appropriate Board Staff capitalization rate study and final calculations of the value indicators shall be made available, between the time that the Board values the subject property and the deadline for filing a petition, to any petitioner submitting a written request therefor to the Chief, Valuation Division, State Board of Equalization. (c) Petition; Oral Hearing; Written Only. (1) The petition shall be in writing and shall provide the following information: (A) The name and address of the petitioner. (B) The name and address of the petitioner's agent, if any. If the petitioner is represented by an agent, both the petitioner's actual mailing address and the agent's mailing address shall be provided on the petition. (C) The petitioner's opinion of value. (D) The Board adopted value. (E) The facts relied upon to support the requested change in value. (F) For nonunitary property, the property identification information and location. (G) Whether the petition constitutes a claim for refund under Revenue and Taxation Code section 5148, subdivision (f). (H) Whether an oral hearing is requested. (I) A statement of the precise elements of the Board's valuation being contested. (J) Petitioner's appraisal reports, financial studies, and other supporting documents relevant to value. (K) The signature of the petitioner or petitioner's agent. If a petition is signed by an agent, including an attorney licensed to practice law in the State of California, the agent must be authorized by the petitioner prior to the time the petition is filed. The following language shall be contained in the signature block of the petition: I, certify (or declare) under penalty of perjury under the laws of the State of California that the foregoing and all information herein, including any accompanying statements or documents, is true, correct, and complete to the best of my knowledge and belief and that I am: (1) an officer, partner, or employee of the petitioner authorized to sign this petition; (2) an agent authorized by the petitioner; or (3) an agent who is an attorney licensed to practice law in the State of California, State Bar No. _______, who has been retained by the petitioner and has been authorized by the petitioner to file this petition. (L) A statement of authorization, if required as specified herein or under subdivision (c)(2) below. If the petition is signed by an agent, other than an attorney licensed to practice law in the State of California, a statement of authorization, as described herein, or a power of attorney, as defined in Regulation 5073, subdivision (d), shall be filed with the petition. A statement of authorization shall be in writing and shall include the following information: 1. The name and address of the petitioner. 2. The petitioner's State Board of Equalization company identification number. 3. The name, address, and telephone and fax numbers of the agent(s). 4. A statement that the agent(s) is authorized to file the petition and represent the petitioner in the appeal that is the subject of the petition. 5. The signature of an officer, partner, or an employee who has been designated by petitioner in writing to sign a statement on behalf of the petitioner. (2) In the event duplicate petitions are filed with the Chief of Board Proceedings, the Chief of Board Proceedings shall determine which petition was authorized by the petitioner. The Chief of Board Proceedings may require a statement of authorization, as defined in subdivision (c)(1)(L) above, or a power of attorney, as defined in Regulation 5073, subdivision (d). The Chief of Board Proceedings shall contact the petitioner and/or the agent(s) who filed the duplicate petitions by telephone, electronic mail, or facsimile machine and by registered or certified mail with return receipt, and shall allow 10 days for a written response. In the event no written response is received after 10 days, the first petition received will be accepted and all other petitions will be rejected as duplicate petitions. For purposes of this regulation, "duplicate petition" means a petition filed by the petitioner, or its agent on its behalf, subsequent to the petition previously filed by or on behalf of the same petitioner for the same assessment year at issue. A subsequent petition that seeks to amend a previously filed petition shall not be considered a duplicate petition for purposes of this regulation. (3) Petitioner is required to submit to the Chief of Board Proceedings 10 copies of the petition and supporting documents at the time the original petition and supporting documents are filed. The petition and supporting documents, with the required 10 copies, shall be accepted for filing if addressed and transmitted to the Chief of Board Proceedings, State Board of Equalization, at Sacramento, or if deposited personally at the headquarters office of the Board in Sacramento no later than the deadline set forth in Revenue and Taxation Code sections 731, 732, 11338, and 11339. For purposes of this subdivision, transmitted means (A) posted for delivery by the United States Postal Service or a bona fide courier service; (B) sent by a facsimile machine; or (C) sent by electronic mail. If transmitted by facsimile machine or electronic mail, all original documents must be forwarded to the Chief of Board Proceedings within a reasonable period of time. (4) Written findings and decision may be requested at the time of filing the petition, or at any time prior to the commencement of the hearing. (d) The Board Staff shall submit an analysis of the petition, the related supporting documents and a staff recommendation for Board Action no later than 30 days prior to the date set for hearing or other action on the petition. The analysis and recommendation shall be submitted to the Chief of Board Proceedings, and a copy shall be sent to the petitioner. (e) The petitioner may file a written response to the staff analysis and recommendation no later than 15 days before the date set for hearing or other action on the petition. The response shall be submitted to the Chief of Board Proceedings. (f) The Chief of Board Proceedings, upon a showing of reasonable cause, may grant an extension for a reasonable period of time under (c), (d), or (e) above. The request for an extension of time shall be submitted in writing no later than 5 p.m. on the last business day set for filing the materials. (g) The Chief of Board Proceedings shall distribute the petition and related supporting documents, the staff analysis and recommendation, and the petitioner's response to the Board, the petitioner and the staff at the time agenda materials are distributed for the Board meeting at which the petition is scheduled for hearing or other action. (h) The petition and related supporting documents, the staff analysis and recommendation and related supporting documents, and the petitioner's response to the staff analysis and recommendation which petitioner timely submitted to the Chief of Board Proceedings shall be the only documents accepted for filing and distribution by Board Proceeding Division prior to the date the petition is scheduled for hearing or other action; and any documents not timely submitted to the Chief of Board Proceedings shall not be accepted for filing and shall be returned to the party submitting them. Note: Authority cited: Section 15606(a), Government Code; and Section 11651, Revenue and Taxation Code. Reference: Sections 731, 732, 733, 741, 742, 743, 744, 746, 747, 748, 11338, 11339, 11340 and 11353, Revenue and Taxation Code. s 5042. Timeliness of Filings. A petition, staff analysis and recommendation, or response to staff analysis and recommendation shall be timely if it is mailed to or received by the Chief of Board Proceedings at the headquarters office of the Board in Sacramento within the time specified by these rules. In the absence of other evidence, the post-mark date or the date of delivery to a delivery service as defined in Article 7, Regulation 5070 shall be considered as the mailing date. If the last day for mailing a petition falls on a Saturday, Sunday or holiday, the time shall be extended to the next business day. If the petition is not timely, it shall be dismissed. If it is incomplete, as through omission of any of the requirements specified in Regulation 5041, it may be dismissed. Note: Authority cited: Section 15606(a), Government Code; and Section 11651, Revenue and Taxation Code. Reference: Sections 731, 732, 733, 741, 11338, 11339 and 11353, Revenue and Taxation Code. s 5043. Assessment Factor Hearings. The Board may annually conduct hearings to be called "Assessment Factor Hearings" to receive public testimony on issues relating to capitalization rates and other factors affecting values of California state assessed property and private railroad cars. No later than 30 days prior to the hearing, state assessees and private railroad car taxpayers, or other persons wishing to be listed on the agenda, shall notify the Chief of Board Proceedings if they intend to make oral presentations at the hearing. Testimony of persons who do not notify the Chief of Board Proceedings as set forth above will be heard after those on the agenda have completed their oral presentations. The Board may place reasonable time limits on any presentation. In lieu of oral presentations, state assessees or private railroad car taxpayers may submit written presentations to the Chief of Board Proceedings no later than the date of the hearing. Note: Authority cited: Section 15606(a), Government Code; and Section 11651, Revenue and Taxation Code. Reference: Sections 110, 721, 11251, 11291, 11292, 11293 and 11294, Revenue and Taxation Code. s 5050. Definitions; Board Hearing Procedures; Application for Review, Equalization, and Adjustment. (a) The definitions in Article 7, Regulation 5070 shall apply to this Article, and Board hearings on applications filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7, commencing with Regulation 5070. (b) A county, city, city and county or municipal corporation may secure the review, equalization and adjustment of an assessment of its lands and improvements by the Board in pursuance of Section 11 of Article XIII of the Constitution by application therefor made in accordance with this Article and Section 1840 of the Revenue and Taxation Code. Note: Authority: Section 15606(a), Government Code. Reference: Section 11, Article XIII, California Constitution; and Section 1840, Revenue and Taxation Code. s 5051. Form of Application. The application shall be made in writing to the Board and shall be authorized by the governing body of the county, city, city and county or municipal corporation seeking relief. The official document authorizing the application shall be included. The application need not be under oath. The application shall show the facts claimed to require action by the Board, and shall include or be accompanied by a statement of legal authorities, including relevant statutes and regulations. Note: Authority: Section 15606(a), Government Code. Reference: Section 1840, Revenue and Taxation Code. s 5052. Time and Place of Filing; Copies. (a) If the assessment objected to is one made during the regular period for such assessments, the application shall be filed with the Chief of Board Proceedings of the Board at its headquarters office in Sacramento on or before the third Monday in July of the year in which the assessment is made, or within two weeks after the completion of the local roll containing the assessment, whichever is later. The regular assessment period is from January 1 to and including July 1 or to such later date for completion of the roll as may be authorized by the Executive Director of the Board. If the assessment objected to is one made outside the regular period for such assessments, the application shall be filed within 60 days from the date the tax bill is mailed to the assessee. (b) A copy of the application, together with any separate statement of legal authorities, including relevant statutes and regulations, shall be filed by the applicant with the assessor whose assessment is questioned and with the governing body of the tax agency. A statement of the fact of filing with the assessor and the taxing agency shall be endorsed upon the application. Note: Authority cited: Section 15606(a), Government Code. Reference: Section 1840, Revenue and Taxation Code. s 5053. Answer to Application. Prior to the hearing by the Board, the assessor whose assessment is questioned and the taxing agency shall file a written answer to the application and a statement of legal authorities, including relevant statutes and regulations. The failure to file an answer shall not constitute a default or an admission of any matters set forth in the application. Copies of the answer and of the legal authorities shall be mailed to the applicant. A statement that mailing was made shall be endorsed upon the answer. Note: Authority: Section 15606(a), Government Code. Reference: Section 1840, Revenue and Taxation Code. s 5054. Prehearing Conference. A prehearing conference shall be held for each application for which a hearing is to be held under these regulations. The conference shall be conducted at the headquarters office of the Board in Sacramento at a time to be arranged by Board Staff suitable for the parties or their representatives. A Board Attorney shall preside at the conference. The purpose of this procedure is to clarify and define the issues, examine the application and answer for necessary amendments, place the case in focus so that the defined and precise issues may be resolved as quickly as possible, give notice of matters not necessarily revealed by the application and answer, enter into stipulations on matters on which agreement has been reached by the parties, and arrange for the exchange of copies of appraisal reports and exhibits prior to the hearing. Board Staff shall prepare a concise and descriptive statement of the nature of the case and summary of the matters agreed upon or admitted at the conference. This statement shall be placed in the record at the commencement of the hearing. Note: Authority: Section 15606(a), Government Code. Reference: Section 1840, Revenue and Taxation Code. s 5055. Notice of Hearing. Notice of hearing shall be sent in accordance with the procedures set forth in Article 7, Regulation 5076(b). The notice shall contain a statement that (subject to the limitations of Sections 3(b) and 11, Article XIII of the Constitution) the Board is required to find the full cash value of the property that is the subject of the hearing and that this finding may exceed the value on which the assessment is based. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 3(b) and 11, Article XIII, California Constitution; and Section 1840, Revenue and Taxation Code. s 5056. Board Appraised Property. If a property that has been appraised by Board Staff becomes the subject of a proceeding under this Article, both parties to the proceeding shall be informed of the fact that the appraisal has been made. Each party, upon request, shall have access to the appraisal records. Either party or the Board Staff may call the appraiser or the appraiser's supervisor as a witness and may offer the appraisal records as an exhibit. A party desiring to call the appraiser or the appraiser's supervisor as a witness shall, at least ten days prior to the hearing, notify the Chief of Board Proceedings of its intention to call such witness. Note: Authority cited: Section 15606(a), Government Code. Reference: Section 1840, Revenue and Taxation Code. s 5060. Definitions; Board Hearing Procedures; Application. (a) The definitions in Article 7, Regulation 5070 shall apply to this Article, and Board hearings on petitions filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7, commencing with Regulation 5070. (b) The provisions of this Article shall apply to property tax welfare exemption clearance certificate claims received by the Board pursuant to Section 254.6 of the Revenue and Taxation Code. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 254.6 and 270, Revenue and Taxation Code. s 5061. Supplementary Material; Application for Additional Time to Submit Supplementary Material. (a) Where, after analysis of a claim, Board Staff determines that the requirements of Section 214 and following sections of the Revenue and Taxation Code have not been met one of the following reasons will be indicated on the Board's clearance certificate finding sheet to the claimant: (1) Religious Aspect Not Apparent (Coded - R.N.A.) (2) Hospital Aspect Not Apparent (Coded - H.N.A.) (3) Scientific Aspect Not Apparent (Coded - S.N.A.) (4) Charitable Aspect Not Apparent (Coded - C.N.A.) (5) Management Authority of Nonprofit Managing General Partner Not Apparent (Coded - M.G.P.) A preliminary notice shall accompany the finding sheet sent to the claimant informing the claimant that it has 30 days from the date of the notice to submit supplementary material supporting the claim. (b) Upon written application filed within the noticed time limit, the claimant shall be granted an additional 30 days to submit the material. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 214, 214.01, 214.02, 214.05, 214.1, 214.2, 214.3, 214.4, 214.5, 214.6, 214.7, 214.8, 214.9, 214.10, 214.11, 214 .13, 214.14, 214.15, 254.6 and 270, Revenue and Taxation Code. s 5062. Petition Time Limit. Upon receipt of supplementary material, the Board staff shall conduct a complete review of the claim. A final notice informing the claimant that the supplementary material provides or does not provide a basis for changing the original finding shall be issued. A no-change notice shall advise the claimant that it has 60 days from the date of the notice to petition the Board for hearing on the claim. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 254.6 and 270, Revenue and Taxation Code. s 5063. Hearing Petition: Contents. (a) The petition for hearing shall be in writing and addressed to the Chief of Board Proceedings. It shall state all of the grounds upon which qualification is claimed, and shall include all documents the petitioner wishes the Board to consider in deciding the petition . The parties to the hearing or proceeding shall be the Board Staff and the petitioner. The parties may agree in writing to submit the matter to the Board for a decision without a hearing. The petition shall indicate whether an oral hearing is desired, and if so, petitioner's estimate of the time necessary therefor. If requested in the petition, the Board shall grant a hearing and hear the matter . The petition shall be signed by an authorized representative of the petitioner and shall be mailed to the Chief of Board Proceedings of the State Board of Equalization at Sacramento, California, or shall be deposited personally at the Board's headquarters office in Sacramento. The Chief of Board Proceedings may require the representative to demonstrate the representative's authority to represent the petitioner. (b) No later than 30 days after the date that the petition for hearing is received pursuant to subdivision (a), the Board Attorney assigned to the case shall schedule a meeting or telephone conference, at a time suitable for the petitioner, for the purpose of establishing the agreed upon and contested facts and the legal issues under consideration. (c) The Board Staff shall submit an analysis of the petition, related documents and a staff recommendation for Board Action no later than 30 days prior to the date set for hearing or other action on the petition. The analysis and recommendation shall be submitted to the Chief of Board Proceedings and a copy shall be sent to the petitioner. (d) The petitioner may file a written response to the staff analysis and recommendation no later than 15 days before the date set for hearing or other action on the petition. The response shall be submitted to the Chief of Board Proceedings. (e) The provisions of subdivisions (b) of Regulation 5075 shall apply to materials submitted pursuant to (a), (c) or (d) of this regulation. (f) The Board Staff shall also prepare a summary for Board hearing, which shall be a neutral statement of the relevant facts, the issues, and the positions of the Legal Department and the petitioner. The summary for Board hearing shall not be written by any staff person or persons who reviewed the claim and determined it should be denied, or who participated in the preparation of the staff analysis and recommendation. (g) The Board Proceedings Division shall distribute the petition and related documents, the staff analysis and recommendation, the petitioner's response, if any, and the summary for Board hearing to the Board, the petitioner and the staff at the time agenda materials are distributed for the Board meeting at which the petition is to be considered. (h) The Chief of Board Proceedings, upon a showing of reasonable cause, may grant a reasonable extension of time for filing materials under (c) or (d) above. The request for an extension of time shall be submitted in writing before the scheduled due date of any materials. (i) The petition and related documents, the staff analysis and recommendation and related documents, and the petitioner's response to the staff analysis and recommendation shall be the only documents accepted for filing and distribution prior to a scheduled hearing. The Board Proceedings Division shall return any other documents received to the person submitting the documents. (j) The provisions of Regulation 5081.2 shall apply regarding the Board's issuance of written findings and decision. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 254.6 and 270, Revenue and Taxation Code. s 5064. Oral Hearings; Waiver. The Board shall schedule an oral hearing on a property tax welfare exemption clearance certificate petition. The petitioner shall receive 60 days notice of the hearing date and time, and the procedures shall be governed by Article 7. Oral hearing may be waived by the taxpayer and the matter submitted for decision on the basis of the written petition. Note: Authority cited: Section 15606(a), Government Code. Reference: Section 254.6, Revenue and Taxation Code. s 5070. Definitions. The following definitions apply to this Chapter: (a) "Appeals Staff," "Appeals Attorney," or "Appeals Auditor" means an employee of the Board of Equalization assigned to the Appeals Division of the Legal Department. (b) "Board" means the members of the State Board of Equalization meeting as a body. (c) "Board Staff" or "Board Attorney" means an employee of the Board of Equalization charged with a responsibility under this Chapter or appearing before the Board in any proceeding. (d) "Brief" means a written document that includes discussion of, or citations to, laws or regulations or an argument of how the laws or regulations apply to the facts supporting the party's position. Notwithstanding this definition, affidavits or declarations submitted by the parties and documents produced by the Appeals Division, including, but not limited to, a Hearing Summary or Final Action Recommendation, are not briefs. (e) "Delivery Service" means any delivery service provided by a trade or business if such service is available to the general public and records electronically to its data base, kept in the regular course of its business, or marks on the cover in which any item is delivered, the date on which such item was given to the trade or business for delivery. (f) "Department" means the Property and Special Taxes Department, Sales and Use Tax Department, Energy Commission, Department of Fish and Game, Franchise Tax Board, Department of Health Services, Department of Insurance, Integrated Waste Management Board, Public Utilities Commission, Department of Toxic Substances Control and Water Resources Control Board. (g) "Party" means the taxpayer and the taxpayer's representative; and the Department as defined in this section. In local tax reallocation and district tax redistribution appeals, the term "party" means those persons defined as parties in Regulation 1807 or 1828. (h) "Petition" means any petition, including a petition for redetermination; claim, including a claim for refund; appeal from an action of the Franchise Tax Board on a claim for refund, deficiency assessment, or jeopardy assessment; request for administrative hearing; petition for rehearing; petition for reconsideration of successor liability; petition for review of local tax reallocation inquires; petition for review of district tax redistribution inquires; and any other matter for administrative decision or adjudication by the Board in any program listed in Regulation 5071. Any correspondence from a taxpayer directed to Board Staff, mailed within 30 days after the notice of determination has been issued, that includes a statement that the taxpayer (1) disagrees with an assessment and/or determination or (2) requests a hearing, shall be accepted as a petition for redetermination. Staff shall indicate to the taxpayer any specific deficiencies in the petition and offer the taxpayer a reasonable period of time to perfect the petition. (i) "Tax" means any tax, fee, surcharge, assessment, assessment review, or exemption program administered by the Board. (j) "Taxpayer" means a taxpayer, feepayer, surcharge payer, appellant, petitioner, claimant, or any other person who has a liability, assessment or other matter for Board hearing or who is a person directly interested in any matter before the Board under any of the programs listed in Regulation 5071. A taxpayer is not a party to a local tax reallocation or district tax redistribution appeal except as provided in Regulation 1807 or 1828. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7209, 7270, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19335, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5071. General. (a) This article applies to Board hearings under any of the following programs: Administration of Income and Franchise Tax Laws Revenue and Taxation Code Sections 18401-19802 Alcoholic Beverage Tax California Constitution Article XX, Section 22; Revenue and Taxation Code Sections 32001-34557 California Tire Fee Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381 Childhood Lead Poisoning Prevention Fee Health and Safety Code Section 105310; Revenue and Taxation Code Sections 43001-43651 Cigarette and Tobacco Products Tax California Constitution Article XIIIB, Section 12; Revenue and Taxation Code Sections 30001-30481 Diesel Fuel Tax Revenue and Taxation Codes Sections 60001-60709 Emergency Telephone Users Surcharge Revenue and Taxation Code Sections 41001-41176 Energy Resources Surcharge Revenue and Taxation Code Sections 40001-40216 Hazardous Substances Tax Revenue and Taxation Code Sections 43001-43651 Insurance Tax California Constitution Article XIII, Section 28; Revenue and Taxation Code Sections 12001-13170 Integrated Waste Management Fee Revenue and Taxation Code Sections 45001-45984 Marine Invasive Species Fee Collection Law Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381 Motor Vehicle Fuel Tax California Constitution Article XIX, Sections 1-9; Revenue and Taxation Code Sections 7301-8526 Natural Gas Surcharge Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381 Occupational Lead Poisoning Prevention Fee Health and Safety Code Section 105190; Revenue and Taxation Code Sections 43001-43651 Oil Spill Response, Prevention, and Administration Fees Revenue and Taxation Code Sections 46001-46751 Private Railroad Car Tax California Constitution Article XIII, Section 19; Revenue and Taxation Code Sections 11201-11702 Publicly Owned Property California Constitution Article XIII, Section 11(g); Revenue and Taxation Code Sections 1840 and 1841 Sales and Use Tax (including State-administered local sales, transactions, and use taxes) Revenue and Taxation Code Sections 6001-7279.6 Senior Citizens Homeowners and Renters Property Tax Assistance Revenue and Taxation Code Sections 20501-20646 State-Assessed Property California Constitution Article XIII, Section 19; Revenue and Taxation Code Sections 721-868, 4876-4880, 5011-5014 Timber Yield Tax Revenue and Taxation Code Sections 423.5, 431-437, 38101-38908 Underground Storage Tank Maintenance Fee Revenue and Taxation Code Sections 50101-50162 Use Fuel Tax Revenue and Taxation Code Sections 8601-9355 Welfare Exemption California Constitution Article XIII, Section 4(b); (b) This article sets forth rules of general application that apply to hearings before the Board in all of the programs listed above. Where the procedure for a specific program differs from the general rule, the specific program and procedure are described in a subdivision of the general rule. In addition, prior articles include regulations that address specific procedures for appeals from the Franchise Tax Board (Article 1), Business Taxes and Timber Yield Tax (Article 2), Hearings on Jeopardy Determinations (Article 3), State Assessees and Private Railroad Car Companies (Article 4), Taxable Property of a County, City, or Municipal Corporation (Article 5), and Property Tax Welfare Exemptions (Article 6). (c) To the extent that regulations in this Article are in conflict with the International Fuel Tax Agreement, the provisions of the International Fuel Tax Agreement are controlling. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5072. Quorum. Except as otherwise provided in this Chapter, any three members of the Board present at a meeting shall constitute a quorum. When a member is disqualified from participating in a decision under the provisions of the contribution disclosure statute (Government Code Section 15626), or the conflict of interest provisions of the Political Reform Act (Government Code Sections 81000, et seq.) the member may not be counted for a quorum. If a deputy of the State Controller is not authorized by Section 7.9 of the Government Code to participate because the matter before the Board is a Constitutional matter, the deputy of the State Controller may not be counted for a quorum. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5073. Representation at Hearings and Powers of Attorney. (a) Taxpayers may be represented at all levels of review by any person of the taxpayer's choosing, including, but not limited to an attorney, appraiser, accountant, bookkeeper, employee or business associate. (b) Except as provided in subdivision (c) below, the Board shall recognize all representatives who are identified in writing or orally by the taxpayer, and all those who advise the Board in writing that they represent the taxpayer. Recognized representatives shall be permitted to receive confidential information relating to the taxpayer they represent, and to perform on behalf of the taxpayer all acts that the taxpayer may perform with respect to the review of the matter. (c) The Board, or Board Staff, may require a party to complete a Power of Attorney on a form provided by the Board. Such Power of Attorney shall be a standard form adopted in conjunction with the Franchise Tax Board to be used in either Board of Equalization or Franchise Tax Board matters. (d) The Power of Attorney form shall include the following information: taxpayer's name, telephone number, taxpayer identification number(s), account or permit number(s) and mailing address; the name, address, and telephone and FAX number of the appointed representative(s); the tax matters in which the representative is authorized to represent the taxpayer; the extent of the representative's authority; the tax period(s) for which the authorization is granted; a statement that the Power of Attorney revokes all prior Powers of Attorney with any exceptions to the revocation; the time period during which the Power of Attorney shall be in effect; the signature(s) and title of all affected taxpayers and the date of signature. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5074. Consolidation for Hearing or Decision. Upon the request of the Board or the Board Staff or any party, any matters pending before the Board may, at the discretion of the Board or the Board Staff, be consolidated for hearing or decision if the Board finds that the facts and issues are similar and no substantial right of any party will be prejudiced. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5074.5. Timeliness of Documents. A document shall be timely if it is mailed to or received at the headquarters office of the Board within the time specified by the particular statute or regulation under which the document is filed. In the absence of other evidence, the post-mark date or the date of delivery to a delivery service, as defined in Article 7, Regulation 5070, shall be considered the mailing date. If the last day for mailing or delivering the document falls on a Saturday, Sunday or holiday, the time shall be extended to the next business day. Note: Authority cited: Section 15606(a), Government Code; Sections 105310 and 105190, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5075. Briefs. (a) Briefs are required in appeals of decisions of the Franchise Tax Board and are optional in all business taxes matters before the Board. This regulation applies to all briefs filed with the Board, except that the briefing schedule of Regulation 5075.1 shall apply to appeals from actions of the Franchise Tax Board and the schedule in subdivisions (e) through (h) of Regulation 5041 shall apply to the filings required by Regulation 5041. In property tax matters, the petition, the staff analysis, the petitioner's response to the staff analysis, and, where appropriate, a non-party brief submitted pursuant to subdivision (h), are briefs within the meaning of this regulation, and only these documents will be accepted for filing and distribution; however, where circumstances warrant, the Board may request that additional briefs be filed, and will set the briefing schedule. Except in those circumstances, additional briefs are not accepted in property tax matters. (b) General. Any brief filed with the Board shall be filed within the time required by these regulations or, if not time is so specified, as directed by the Board or the Chief of Board Proceedings. All briefs shall be addressed and mailed to the Chief of Board Proceedings, at the headquarters office of the State Board of Equalization at Sacramento, or deposited personally at the headquarters office of the Board in Sacramento. In addition, except as otherwise provided in the Rules of Practice, all briefs shall be mailed or personally delivered to the other parties. Excluding the Table of Contents and exhibits, no brief shall exceed 30 typed or handwritten, double-spaced, or 15 typed or handwritten, single-spaced, 8 1/2" by 11" pages, printed only on one side in a type-font size of at least 10 points or 12 characters per inch (CPI), or the equivalent, excluding exhibits. Exceptions to the 30-page limit may be granted prior to the deadline for filing the brief by the Chief of Board Proceedings, upon written application that establishes reasonable circumstances that justify the necessity for additional pages. In the event the brief does not conform to the form and page limit specified above, the Board Proceedings Division may return the submitted brief. The party shall be given 10 days to comply with the form and page limit. Failure to comply within 10 days shall constitute a waiver of the opportunity to submit the brief. (c) Opening Briefs. Any party may file an opening brief. An opening brief shall contain, along with any other information required by these regulations, a statement of the issue(s), a statement of the facts, and a discussion of the legal authorities, including statutes and regulations, relied on by the party submitting the opening brief. Opening briefs shall be filed with the Chief of Board Proceedings no later than 45 days before the Board hearing. (d) Reply Briefs. A reply brief is a brief that is filed by any party in response to any opening brief and shall contain a statement of the issue(s), including relevant issues not raised by the opening brief, a statement of the facts as understood by the party submitting the reply brief, a discussion of the legal authorities, including relevant statutes and regulations, relied on by the party submitting the reply brief, and presentation of any affirmative defenses. Reply briefs shall be filed with the Chief of Board Proceedings no later than 30 days before the Board Hearing. (e) Briefs Filed by Unrepresented Taxpayer. A taxpayer who appears at a Board hearing without a representative, and who has not employed a representative to prepare a brief, may, at the discretion of the Board, submit a brief on the day of the hearing. (f) Post-Hearing Briefs. The Board may permit the filing of post-hearing briefs and memoranda of legal authorities, including relevant statutes and regulations, on any matters considered at a hearing. However, any post-hearing brief shall only be permitted by order of the Board at the conclusion of a hearing, on the subject matter specified and within the time limits prescribed by the Board. (g) Extensions Of Time. A reasonable extension of time for the filing of briefs may be granted by the Chief of Board Proceedings, upon a showing of extreme hardship. The request for an extension of time shall be submitted in writing before the scheduled due date of any brief. (h) Non-Party (Amicus) Briefs. A pre-hearing brief or letter from a non-party shall be filed with the Chief of Board Proceedings no later than 30 days before the Board hearing, and the parties may file responses with the Chief of Board Proceedings no later than 15 days before the hearing. The response by the party shall address only the points of disagreement the party has with the non-party brief or letter. A non-party post-hearing brief or letter may be filed only if the Board has requested post-hearing briefing from the parties and no later than the end of the post-hearing briefing period prescribed by the Board for the parties. A non-party brief shall conform to the general requirements set forth in (b) above. A non-party brief or letter shall contain a statement regarding the nature of the non-party's interest in the outcome of the proceeding. (i) Additional Briefing. In extraordinary situations, the Board or the Board Staff may request additional briefing from either party after the briefing period is ordinarily complete. Any such requested brief shall be filed within the time specified by the Board or Board Staff. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5075.1. Appeals from Actions of the Franchise Tax Board: Briefing Schedule. (a) Appeals From Actions Of The Franchise Tax Board: General; Non-party (Amicus) Briefs. In all appeals from actions of the Franchise Tax Board, other than appeals contesting a finding of jeopardy status, the parties shall adhere to the following schedules and procedures for filing briefs. In jeopardy status appeals, the Board Proceedings Division shall notify the parties of the schedule and procedure for filing briefs. Non-party (Amicus) briefs or letters may be filed up to and until the time that the briefing period, established pursuant to this Rule, for both the taxpayer and the Franchise Tax Board has ended. Either party may file a response to the non-party brief or letter no later than 30 days prior to the hearing. The response by the party shall address only the points of disagreement the party has with the non-party brief or letter. The response shall not extend the briefing period. (b) Appeals From Actions Of The Franchise Tax Board: Opening and Reply Briefs. (1) If the appeal is filed within the statutory period but is incomplete, the taxpayer shall be granted 90 days from the date of the acknowledgement letter from the Board Proceedings Division within which to perfect the appeal by submitting information requested in the letter from the Board Proceedings Division. Two copies of all submissions shall be mailed to the Board Proceedings Division, who will forward one copy to the Franchise Tax Board. The Chief of Board Proceedings may dismiss the incomplete appeal if it is not perfected within the 90-day period. (2) After an appeal is perfected, the Board Proceedings Division will mail a notification letter to all parties of the taxpayer's perfected appeal. Except as provided in subdivision (b)(3), the Franchise Tax Board shall be allowed 90 days from the date of the notification letter in which to file a reply brief. The Franchise Tax Board shall mail a copy of the reply brief to the taxpayer. (3) For Senior Citizens Homeowners and Renters Property Tax Assistance appeals, after an appeal is perfected, the Franchise Tax Board shall be allowed 60 days from the date of the notification letter in which to file the reply brief. The Franchise Tax Board shall mail a copy of the reply brief to the taxpayer. (c) Appeals From Actions Of The Franchise Tax Board: Supplemental Briefs. (1) The Taxpayer may file a supplemental brief, addressing only the points of disagreement the taxpayer has with the Franchise Tax Board's reply brief, within 30 days from the date of the Board's letter acknowledging receipt of the Franchise Tax Board's reply brief. The taxpayer shall mail two copies of the supplemental brief to the Board Proceedings Division, who will forward one copy to the Franchise Tax Board. This brief shall ordinarily complete the briefing. (2) In extraordinary circumstances, the Franchise Tax Board may be permitted to file a supplemental brief, addressing only the points of disagreement the Franchise Tax Board has with the taxpayer's supplemental brief, but only pursuant to previous written permission from Board Staff. Any such permissive supplemental briefs shall be filed within 30 days after receipt of permission to file. If the Franchise Tax Board is allowed to file a supplemental brief, the taxpayer shall have 30 days after receipt of the brief is acknowledged by the Board to file a response. This response shall then complete the briefing. (d) Appeals From Actions Of The Franchise Tax Board: Extensions of Time. At the discretion of the Chief of Board Proceedings, extensions of time for the filing of briefs may be granted upon a showing of extreme hardship or when the parties agree in writing to an extension of time and the request or agreement is filed with the Board Proceedings Division before the scheduled due date of any brief. (e) Additional Briefing or Evidence. If the Board or Board Staff, in either's discretion, determines that insufficient briefing or evidence has been provided, the Board or Board Staff may request additional briefing or evidence from either party. A request for additional briefing or evidence may be made during the briefing period or after the briefing period is ordinarily complete. Any such requested briefs or evidence shall be submitted within the time specified by the Board or Board Staff. If Board Staff requests additional briefing from the Franchise Tax Board, the taxpayer shall have 30 days after receipt of the brief is acknowledged by Board staff to file a final response. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 19045, 19046, 19047, 19048, 19072, 19084, 19085, 19087, 19331, 19332, 19333, 19334, 19345, 19346 and 20645, Revenue and Taxation Code. s 5076. Notice of Board Hearing; Waiver or Postponement of Hearing; Failure to Respond to Hearing Notice or to Appear for Hearing; Place of Hearing. (a) This regulation applies to all Board hearings, except that the more specific provisions of Regulation 5076.1 apply to appeals from actions of the Franchise Tax Board. (b) Notice of Board Hearing and Waiver -General Procedure. Board Proceedings staff shall send notice of the Board hearing to the taxpayer and the Department at least 60 days in advance of the hearing date, giving the parties 15 days to respond to the hearing notice. The 60-day notice period may be waived upon agreement among the parties and the Chief of Board Proceedings. If the 60-day notice period is waived, the Chief of Board Proceedings shall modify the briefing schedule set forth in Regulation 5075. The taxpayer shall respond to the hearing notice by indicating: that the taxpayer will appear at the time and place noted; or, that the taxpayer waives oral hearing and requests that the case be submitted to the Board for decision without oral hearing and based upon the written record; or, that the taxpayer requests that the hearing be postponed, stating the reason the postponement is requested. (c) Notice of Board Hearing and Waiver -State Assessee and Private Railroad Cars Matters. Board staff shall send notice of the Board hearing to the taxpayer and the department at least 45 days in advance of the hearing date, giving the parties 15 days to respond to the hearing notice. The 45-day notice period may be waived upon agreement among the parties and the Chief of Board Proceedings. If the 45-day notice period is waived, the Chief of Board Proceedings shall modify the briefing schedule set forth in Regulation 5041. The taxpayer shall respond to the hearing notice by indicating: (1) that the taxpayer will appear at the time and place noted; or (2) that the taxpayer waives oral hearing and requests that the case be submitted to the Board for decision without oral hearing and based upon the written record; or (3) that the taxpayer requests that the hearing be postponed, stating the reason the postponement is requested. (d) Postponement Of Board Hearing. The Chief of Board Proceedings may grant one postponement of a hearing upon agreement of the parties if the request for postponement is made by the deadline stated in the hearing notice, provides sufficient justification for the postponement, and the parties commit to a specific subsequent hearing date. The Chief of Board Proceedings may grant a postponement requested after response to the hearing notice upon agreement of the parties and a showing of extreme hardship. A postponement of a hearing may also be granted at the discretion of the Board. (e) Removal From Calendar. The Chief of Board Proceedings may remove hearings or related proceedings from the hearing calendar upon a showing of reasonable cause. (f) Failure To Respond Or Appear. If the taxpayer fails to respond to the hearing notice by the deadline stated in the notice, or responds to the hearing notice but fails to appear for the hearing on the date and time stated in the notice, the case shall be submitted to the Board for decision without oral hearing and on the basis of the written record. At the discretion of the Chief of Board Proceedings, exceptions may be made upon a showing of extreme hardship. (g) Place of Hearing. Except for a hearing on a property tax petition, a hearing involving a taxpayer or taxpayer's representative residing in the Southern part of the State shall ordinarily be held in the Los Angeles area. Other hearings and hearings on property tax petitions shall ordinarily be held in Sacramento. At its discretion, the Board may hold hearings at other locations. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5076.1. Appeals from Actions of the Franchise Tax Board: Voluntary Dismissal; Negotiations; Deferrals; Submission for Decision; Oral Hearings. (a) Appeals From Actions Of The Franchise Tax Board: Voluntary Dismissal; Negotiations. At any time, the Chief of Board Proceedings may dismiss an appeal from an action by the Franchise Tax Board at the written request of the taxpayer, at the request of the Franchise Tax Board when it concedes the deficiency or the refund, or on the basis of a written stipulation between the taxpayer and the Franchise Tax Board. At any time prior to a final decision by the Board, the taxpayer and the Franchise Tax Board may enter into negotiations for settlement of an appeal. (b) Appeals From Actions Of The Franchise Tax Board: Deferrals. The Board Proceedings Division may defer hearings or related proceedings, including briefing, for an indefinite period upon the filing of a written stipulation between the taxpayer and the Franchise Tax Board, or, upon a showing of reasonable cause, for a specified period. The Board Proceedings Division shall notify the parties whether a deferral has been granted. (c) Appeals From Actions Of The Franchise Tax Board: Submission For Decision; Oral Hearings, After all briefs have been filed in a Franchise Tax Board matter, the appeal shall be submitted for decision on the basis of the written record unless the taxpayer requests an oral hearing. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346 and 20645, Revenue and Taxation Code. s 5076.2. Property Tax Petitions: Oral Hearings; Waiver, Notice of Hearing; Welfare Exemption Hearings; Waiver. Note: Authority cited: Section 15606(a), Government Code and Section 11651, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840 and 11340, Revenue and Taxation Code. s 5077. Allocation of Hearing Time. The Chief of Board Proceedings shall allocate hearing time for each party, including response time, and reserve time for questions by the Board. Before the hearing, the Chief of Board Proceedings shall inform the parties and the Board in writing of the allocations. At the hearing, the Chief of Board Proceedings shall announce the hearing time allocations and inform the Board Chair when each of the allocations has elapsed. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5078. Scope of Hearing. (a) An oral hearing shall be limited to consideration of the issues, values, or precise elements set forth in the petition, except that the Board may inquire into relevant new matters and afford the parties an opportunity to respond. (b) Except in the case of appeals from actions of the Franchise Tax Board and hearings on publicly owned property, hearings before the Board under the applicable statutory provisions are not in the nature of trials or contests between adverse parties. They are meetings of the Board at which the taxpayer presents orally to the Board the taxpayer's arguments for a reduction or cancellation of a tax liability, a refund of tax previously paid, or a reduction in assessed value, or other relief. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5079. Hearing Procedure: Order of Presentation; Witnesses; Presentation of Evidence; Stipulation of Facts; Official Notice, Conclusion of Hearing. (a) Except as to more specific requirements set forth in other regulations of these Rules of Practice, this regulation applies to all Board hearings. (b) Order of Presentation. The hearing shall ordinarily proceed in the following manner. A member of the Board Staff shall report on the record whether campaign contribution disclosure statements have been filed in accordance with the requirements of Title 18, Division 2.2, Regulation 7011, and whether any disqualifying contributions have been reported. A Board Attorney shall summarize by oral statement the issues. Taxpayers shall then state their position, and present evidence as they see fit, including by means of visual aids, subject to rulings by the Board Chair. The Department shall thereafter state its position and present its evidence. Taxpayers shall then be given an opportunity to reply. (c) Witnesses. (1) The taxpayer and the Department may offer witnesses to testify. The Board encourages the parties to provide the Board Proceedings Division with the name and address of any witness who is going to testify and a brief description of the purpose of their testimony, in advance of the hearing. In addition, the Board Chair may, at the Board Chair's discretion or upon the request of a party, direct witnesses to testify under oath or affirmation. Each party may cross-examine opposing witnesses. (2) Board Staff may, upon recognition by the Board Chair, question the parties, cross-examine persons called as witnesses, and explain Board Staff's view as to the validity of any argument made, the value of evidence submitted, and any other relevant matter. (d) Presentation of Evidence. Any relevant evidence, including affidavits, declarations under penalty of perjury, and hearsay evidence, may be presented if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs. Each party shall be permitted to comment on or respond to any affidavits or declarations submitted. Items of documentary evidence and citations to judicial decisions issued after the briefing period has ended, and an analysis, discussion or arguments concerning the relevance of the evidence or decision, may be submitted to the Chief of Board Proceedings at any time prior to or at the hearing on the matter, or at any time prior to the matter being submitted for decision if no hearing is held on the matter. The Chief of Board Proceedings, will send a copy of the evidence or citations and any analysis, discussion or arguments concerning the relevance of the evidence or decision to the members of the Board and to the other party. The Board or Board Staff will permit the other party an opportunity to submit a response that shall be limited to points of disagreement with the analysis, discussion or arguments. The Board shall be liberal in allowing the presentation of evidence, but objections to the presentation of and comments on the weaknesses of evidence shall be considered in assigning weight to the evidence. The Board may refuse to allow the presentation of evidence that it considers irrelevant, untrustworthy or unduly repetitious. (e) Submission of Exhibits into Evidence. Any materials presented by any party which have been marked as exhibits during the matter and which the party elects to be entered into the record must be moved into evidence. The Chair will ask the parties if the exhibits are to be submitted. A party must make a motion to move the exhibits into evidence. If there are no objections, the exhibit will be entered into evidence and made a part of the record of the pending matter. If any member or party objects to the admission of evidence, the question shall be discussed and voted upon by the Board. (f) Stipulation of Facts. The taxpayer and the Department may file, at any time prior to submission of the case for decision, a stipulation of the facts upon which they agree, the facts that are in dispute, and the reasons for the dispute. The Board or Board Staff may require the parties to file such a stipulation. (g) Official Notice. The Board may take official notice of: (1) the records maintained by the Board; (2) tax returns filed with the Franchise Tax Board for or on behalf of the taxpayer or an affiliated company, together with related records on file with the Franchise Tax Board; (3) any fact which may be judicially noticed by the courts of this State. The parties may, at the hearing or through a petition for rehearing, request permission to refute any matter thus noticed. (h) Conclusion of Hearing. That portion of the hearing in which evidence and argument are presented to the Board shall be concluded: upon a vote of the Board Members to conclude that portion of the hearing; by a declaration of the Board Chair that such portion of the hearing is concluded if there is no challenge to the Chair; or upon the making of a motion and a second that any action be taken on the matter. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5079.2. Property Tax Petitions: Presentation of Evidence. Note: Authority cited: Section 15606(a), Government Code and Section 11651, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840 and 11340, Revenue and Taxation Code. s 5080. Burden of Proof. (a) Except as otherwise specifically provided by statute or in these regulations, the burden of proof shall ordinarily be upon the taxpayer as to all issues of fact. (b) In any proceeding involving the issue of fraud with intent to evade tax, the burden of proof as to that issue shall be upon the Department. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5081. Decision and Voting Procedure: Majority Vote Requirement; Voting. (a) General. After the hearing, the Board may decide the matter, take it under consideration and decide it later at the same meeting or at a subsequent meeting, or continue the hearing to a later date. (b) Majority Vote Requirement. A majority vote of the quorum is required for all decisions or actions of the Board. If there is no objection by a Board Member, a matter may be decided by unanimous consent. (c) Voting. (1) To call for a vote, a motion setting forth the proposed decision or action of the Board shall be made by one Board Member and seconded by another. A motion calling for a vote on a matter noticed on the Board's agenda shall not be made until after the matter has been presented to, or, in the case of a closed session matter, discussed by, the Board at the meeting. (2) Once the roll call for the vote has begun, the discussion of a motion shall end, the roll shall be called, and the motion shall be passed or defeated at that time unless one or more Board Members are absent and the voting Members are tied, in which case the Chairman may leave the roll open until the conclusion of the Board meeting in order to allow the absent Member or Members to be present and vote. (3) Except as provided in subdivision (c)(2), in order to cast a vote, a Board Member, or, when authorized by statute, the deputy of the State Controller, shall be personally present at the time the roll for the vote is called. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7262, 7270, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5081.2. Notice of Board Decision; Findings. (a) Notification of Decision. All parties to a proceeding shall be notified in writing of the Board's decision. (b) Excepted as provided in subdivision (c), if requested in a Property Tax petition, written findings and decision shall be rendered and sent to the petitioner. (c) When the review, equalization and adjustment of the taxable property of a County, City, or Municipal corporation are completed, Board Staff shall mail to the assessor, the governing body and the auditor of the taxing agency, and the taxpayer a copy of the Board's findings and decision with respect to the assessment. (d) Whether or not a Welfare Exemption hearing has been granted, a written notice of the decision shall be sent to the taxpayer and to the assessor concerned. Note: Authority cited: Section 15606(a), Government Code; and Section 11651, Taxation Code. Reference: Sections 254.5, 270, 744, 1841, 11341 and 38445, Revenue and Taxation Code. s 5082. Finality of Decision; Petition for Rehearing. (a) Except as provided in Regulation 5082.1 for appeals from actions of the Franchise Tax Board and in Regulations 5082.2 for Property Tax petitions, the decision is final 30 days from the date the official notice of Board action is mailed unless a petition for rehearing is filed pursuant to this regulation. If a petition for rehearing is timely filed, the decision is final either: (1) 30 days after the mailing of the official notice of Board action that reflects the Board's denial of the petition for rehearing; or (2) if the Board grants a rehearing, 30 days after the mailing of the official notice of Board action that reflects the Board's decision on the rehearing. Each party may file only one petition for rehearing. (b) A petition for rehearing shall clearly state the legal and/or factual basis for the request. Reasons for requesting a rehearing include arguments that the Board made an error of law reaching its decision or that there is newly discovered evidence that was unavailable prior to the Board decision. Failure to state the legal and/or factual basis for a rehearing may result in denial of the petition for rehearing. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6562, 6564, 7711, 7712, 8852, 8853, 12429, 12431, 30262, 30263, 32302, 32304, 38443, 38445, 40093, 40095, 41087, 41089, 43303, 43305, 45303, 45305, 46353, 46355, 50116, 50118, 55083, 55085 and 60352, Revenue and Taxation Code. s 5082.1. Appeals From Actions of the Franchise Tax Board: Formal Written Opinion; Finality of Decision; Petition for Rehearing. (a) When the Board votes to take a matter under submission and directs that a formal written opinion be drafted, the matter is not decided until the Board votes to adopt the formal opinion or subsequently decides the matter without adopting a formal written opinion. (b) The Board's decision is final 30 days from the date the Board decides the matter unless a petition for rehearing is filed within that period by either party. A copy of the petition for rehearing shall be mailed to the other party. If a petition for rehearing is filed, the decision is final either: (1) 30 days after the Board denies the petition for rehearing; or (2) if the Board grants a rehearing, 30 days after the Board decides the matter on rehearing. (c) A petition for rehearing shall clearly state the legal and/or factual basis for the request. Reasons for requesting a rehearing include arguments that the Board made an error of law reaching its decision or that there is newly discovered evidence that was unavailable prior to the Board decision. Failure to state the legal and/or factual basis for a rehearing may result in denial of the petition for rehearing. (d) If a petition for rehearing is timely filed, but is incomplete, the filing party shall be granted 30 days from the date of the acknowledgement letter from the Board Proceedings Division to perfect the petition for rehearing. (e) The opposing party shall be given 30 days from the date of the letter from the Board Proceedings Division acknowledging receipt of a perfected appeal in which to file a reply brief. Note: Authority cited: Section 15606(a), Government Code. Reference: Sections 19048, 19072, 19084, 19087, 19334, 19346 and 20645, Revenue and Taxation Code. s 5082.2. Property Tax Petitions: Finality of Decision; Petition for Rehearing. (a) Property tax petitions include petitions filed pursuant to Article 4 (State Assessees and Private Railroad Car Companies), Article 5 (Taxable Property of a County, City, or Municipal Corporation), and Article 6 (Property Tax Welfare Exemptions). (b) The decision of the Board upon a Property Tax petition is final. The Board shall not reconsider or rehear a petition. The Board may modify a decision on a petition to correct a clerical error. Note: Authority cited: Section 15606(a), Government Code and Section 11651, Revenue and Taxation Code. Reference: Sections 254.5, 270, 744, 1841 and 11341, Revenue and Taxation Code. s 5083. Fees: Filing, Subpoenas, Transcripts, and Copies. The Board shall not charge a fee for the filing of any paper or the issuance of a subpoena. Charges for transcripts of testimony heard before the Board shall be made at the rates specified in Section 69950 of the Government Code. Copies, including certified copies, of records that the Board is permitted by law to divulge shall be furnished to litigants or other interested persons at costs as specified in Section 6253 of the Government Code and Section 1798.33 of the Civil Code. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 6253 and 15613, Government Code; and Section 1798.33, Civil Code. s 5084. Transcripts. Note: Authority cited: Section 15606(a), Government Code; Sections 105310 and 105190, Health and Safety Code; Section 48650.2, Public Resources Code; and Sections 7051, 7202(d), 7202(h)(4), 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 42004(d), 43501, 43807, 45851, 46601, 50152 and 55301, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19334, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116 and 55083, Revenue and Taxation Code. s 5085. Public Record. Public meeting agendas, minutes of public meetings of the Board including exhibits incorporated by reference, and documents distributed to Board Members for discussion or consideration at a public meeting are public records and open to public inspection unless exempted from disclosure by state or federal law. Documents exempted from disclosure include, but are not limited to, confidential taxpayer information, and memoranda from Board Legal Staff and the Attorney General to Board Members that are confidential communications between client and lawyer as defined in Section 952 of the Evidence Code. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202, 7203, 7261, 7262, 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 952 and 954, Evidence Code; Sections 6252, 6253, 15619 and 15641, Government Code; and Sections 833, 7056, 8255, 9255, 11655, 30455, 32455, 38705, 38706, 43651, 45982, 46751, 50159, 55381 and 60609, Revenue and Taxation Code. s 5086. Subpoenas. Subpoenas for the attendance of witnesses or the production of books, records, accounts and papers may be issued in accordance with Section 15613 of the Government Code. Except where the subpoena is issued at the request of the Board, a subpoena shall be served on behalf of and at the expense of the person requesting its issuance. An application for a subpoena for the production of books, records, accounts and papers shall be supported by an affidavit as prescribed by Section 1985 of the Code of Civil Procedure. Any affidavit filed in support of an application for a subpoena shall be served with the subpoena. Note: Authority cited: Section 15606(a), Government Code. Reference: Section 15613, Government Code. s 5087. Withdrawal of Exhibits. Note: Authority cited: Section 15606(a), Government Code; Sections 105190 and 105310, Health and Safety Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 7202(d), 7202(h)(4), 7270, 8251, 9251, 11651, 13170, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 254.5, 270, 742, 1840, 4877, 6562, 7711, 8852, 11340, 12429, 19047, 19048, 19072, 19084, 19085, 19087, 19333, 19345, 19346, 20645, 30262, 32302, 38443, 40093, 41087, 43303, 45303, 46353, 50116, 55083 and 60352, Revenue and Taxation Code. s 5090. Definitions, Board Hearing Procedures; Taxes Affected by This Article. (a) The definitions of Article 7, Regulation 5070 shall apply to this Article, and Board hearings on claims filed pursuant to this Article shall be conducted pursuant to the hearing procedures set forth in Article 7 commencing with Regulation 5070, except as otherwise noted. (b) This Article applies to reimbursement claims under any of the following programs: Corporate Franchise Income Tax - Personal Income and Bank and Corporation Income Tax Revenue and Taxation Code Sections 18401-19802 Business and Property Taxes - Alcoholic Beverage Tax California Constitution Article XX, Section 22; Revenue and Taxation Code Sections 32001-32557 California Tire Fee Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381 Childhood Lead Poisoning Prevention Fee Health and Safety Code Section 105310; Revenue and Taxation Code Sections 43001-43651 Cigarette and Tobacco Products Tax California Constitution Article XIIIB, Section 12; Revenue and Taxation Code Sections 30001-30481 Diesel Fuel Tax Revenue and Taxation Code Sections 60001-60709 Emergency Telephone Users Surcharge Revenue and Taxation Code Sections 41001-41176 Energy Resources Surcharge Revenue and Taxation Code Sections 40001-40216 Hazardous Substances Tax Revenue and Taxation Code Sections 43001-43651 Integrated Waste Management Fee Revenue and Taxation Code Sections 45001-45984 Marine Invasive Species Fee Collection Law Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381 Motor Vehicle Fuel Taxes California Constitution Article XIX, Sections 1-9; Revenue and Taxation Code Sections 7301-8526 Natural Gas Surcharge Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381 Occupational Lead Poisoning Prevention Fee Health and Safety Code Section 105190; Revenue and Taxation Code Sections 43001-43651 Oil Spill Response, Prevention and Administration Fees Revenue and Taxation Code Sections 46001-46751 Private Railroad Car Tax California Constitution Article XIII, Section 19; Revenue and Taxation Code Sections 11201-11702 Sales and Use Tax (including State-administered local sales, transactions, and use taxes) Revenue and Taxation Code Sections 6001-7279.6 Timber Yield Tax Revenue and Taxation Code Sections 423.5, 431-437, 38101-38908 Underground Storage Tank Maintenance Fee Revenue and Taxation Code Sections 50101-50162 Use Fuel Tax Law Revenue and Taxation Code Sections 8601-9355 (c) To the extent that regulations in this Article are in conflict with the International Fuel Tax Agreement, the provisions of the International Fuel Tax Agreement are controlling. Note: Authority cited: Section 15606(a), Government Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 8251, 9251, 11651, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 7091, 8269, 9269, 11657, 21013, 30458.9, 32469, 38708, 40209, 41169, 43520, 45865, 46620, 50156.9, 55330 and 60630, Revenue and Taxation Code. s 5091. Eligible Claims. Only those expenses that were incurred after the date of the notice of determination, jeopardy determination or claim for refund in business or property tax cases and after the date of filing an appeal to the Board in corporate franchise and income tax cases are eligible for reimbursement. Expenses incurred in a business tax or Timber Yield Tax case are "related to a hearing before the board" and reimbursable only if the claimant sought Board review of an unfavorable Decision and Recommendation issued by the Appeals Division and only if the Board finds that the action taken by Board Staff was unreasonable. To determine whether Board Staff has been unreasonable, the Board shall consider whether Board Staff has established that its position was substantially justified. This means that a taxpayer whose petition for redetermination or claim for refund is not granted does not have an eligible claim. All expenses incurred in corporate franchise or income tax appeals to the Board are "related to a hearing before the board." Note: Authority cited: Section 15606(a), Government Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 8251, 9251, 11651, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 7091, 8269, 9269, 11657, 21013, 30458.9, 32469, 38708, 40209, 41169, 43520, 45865, 46620, 50156.9, 55330 and 60630, Revenue and Taxation Code. s 5092. Reasonable Fees. Reasonable fees for professional representation before the Board shall be as provided in Revenue and Taxation Code section 7156, subdivision (c)(1)(B)(iii). Note: Authority cited: Section 15606(a), Government Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; Sections 7051, 8251, 9251, 11651, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 7091, 7156, 8269, 9269, 11657, 21013, 30458.9, 32469, 38708, 40209, 41169, 43520, 45865, 46620, 50156.9, 55330 and 60630, Revenue and Taxation Code. s 5093. Claim Procedure. (a) Claim Form. The claim shall be filed with the Chief of Board Proceedings on the Taxpayers' Bill of Rights Reimbursement Claim form (7/98), which is hereby incorporated by reference. (b) One Year Filing Deadline; Complete Claim Form. The completed claim form shall be filed within one year of the date the decision of the Board becomes final. At the discretion of the Chief of Board Proceedings extensions of time for the filing of a completed claim form may be granted upon a showing of good cause if the written request is filed with the Chief of Board Proceedings prior to the schedule due date of the claim form. If the claim form filed is incomplete, the claimant shall be granted 30 days additional time to complete the claim form. Failure to file a complete claim within the time granted will result in dismissal of the claim by the Chief of Board Proceedings. (c) Dismissal of Ineligible Claim. The Chief of Board Proceedings shall dismiss a claim when the Board previously disposed of the case at hearing without granting the petition for redetermination or claim for refund. (d) Staff Statement. Within 60 days of the filing of a complete claim form, Board Staff and when applicable, Franchise Tax Board staff, shall submit a statement in response to the claim. At the discretion of the Chief of Board Proceedings, extensions of time for the filing of a staff statement may be granted upon a showing of good cause if a written request is filed with the Chief of Board Proceedings before the scheduled due date of the staff statement. (e) Claimant Response. The staff statement(s) shall be mailed to the claimant, who shall be given the opportunity to respond within 60 days of service of the staff statement with additional written argument and/or documentation, including but not limited to, declarations under penalty of perjury. At the discretion of the Chief of Board Proceedings, extension of time for the filing of a response may be granted upon a showing of good cause if the written request for extension is filed with the Chief of Board Proceedings before the scheduled due date of the response. If the claimant submits new information or documentation in the response, Board Staff or Franchise Tax Board Staff may be given an additional 30 days to respond to the new material. Note: Authority cited: Section 15606(a), Government Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 8251, 9251, 11651, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 7091, 8269, 9269, 11657, 21013, 30458.9, 32469, 38708, 40209, 41169, 43520, 45865, 46620, 50156.9, 55330 and 60630, Revenue and Taxation Code. s 5094. Oral Hearing on Reimbursement Claim. After the submission of documents as set forth in Regulation 5093, the claim shall be scheduled for oral hearing before the Board. The claimant and, when applicable, the Franchise Tax Board shall receive 60 days notice of the hearing date and time, and the procedures shall be governed by Article 7. Oral hearing may be waived by the taxpayer and the matter submitted for decision on the basis of the written submissions. Note: Authority: Section 15606(a), Government Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 8251, 9251, 11651, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 7091, 8269, 9269, 11657, 21013, 30458.9, 32469, 38708, 40209, 41169, 43520, 45865, 46620, 50156.9, 55330 and 60630, Revenue and Taxation Code. s 5095. Notice of Decision. Whether or not an oral hearing is held on the claim, the Board shall send written notice of its decision to the claimant, and, where applicable, to the Franchise Tax Board. Notwithstanding the provisions of Article 7, the Board's decision on the claim is final 30 days from the date it is mailed. Any proposed award of reimbursement shall be available as a public record for at least 10 days prior to the effect date of the award except appeals from actions of the Franchise Tax Board which shall be available as a public record for at least 10 days prior to the effective date of the determination. Note: Authority: Section 15606(a), Government Code; Section 42882, Public Resources Code; Section 893, Public Utilities Code; and Sections 7051, 8251, 9251, 11651, 30451, 32451, 38701, 40171, 41128, 43501, 44003, 45851, 46601, 50152, 55301 and 60601, Revenue and Taxation Code. Reference: Sections 7091, 8269, 9269, 11657, 21013, 30458.9, 32469, 38708, 40209, 41169, 43520, 45865, 46620, 50156.9, 55330 and 60630, Revenue and Taxation Code. s 5200. Annotations. (a) Definitions. For purposes of this regulation, the following definitions shall apply: (1) "Annotations" are published in either the Business Taxes Law Guide or the Property Taxes Law Guide and are summaries of the conclusions reached in selected legal rulings of counsel. Annotations do not embellish or interpret the legal rulings of counsel which they summarize and do not have the force and effect of law. (2) "Legal ruling of counsel" means a legal opinion written and signed by the Chief Counsel or an attorney who is the Chief Counsel's designee, addressing a specific tax application inquiry from a taxpayer or taxpayer representative, a local government agency, or board staff. (3) "Current Legal Digest" means a publication containing drafts of new annotations proposed to be added, and/or annotations proposed to be amended or deleted in the Business Taxes Law Guide or Property Taxes Law Guide. (4) "Tax" means any tax, fee, surcharge, assessment, assessment review, or exemption program administered by the Board or any tax over which the Board has oversight or advisory responsibility. (5) "Taxpayer" means person liable for the payment of any tax as the term tax is defined above. (6) "Board" means the State Board of Equalization. (b) Elements of Annotated Legal Rulings of Counsel. In order to qualify for annotation, a legal ruling of counsel must include the following elements: (1) A summary of pertinent facts, (2) An analysis of the issue(s), (3) References to any applicable statutes, regulations, or case law, and (4) A conclusion supported by the analysis of the issue(s). (c) Use of Annotations. (1) Annotations provide notice of the existence of and conclusions reached in selected legal rulings of counsel regarding the application of the statutory law, regulatory law, or judicial opinions to a particular factual circumstance. (2) Annotations are a research tool to locate selected legal rulings of counsel and thus provide guidance regarding the interpretation of statutes and Board regulations as applied by the Board staff to specific factual situations in legal ruling of counsel. (3) Except as provided in Regulation 1705, following the advice provided in an annotation is not reasonable reliance upon written advice for purposes of obtaining relief from a failure to pay tax, interest and penalty. (d) Publication of Annotations. (1) Before new annotations are added, or existing annotations are amended or deleted, the Board shall publish the proposed changes in a Current Legal Digest and shall provide interested persons not less than 30 days to comment on and, if necessary, challenge the proposed changes. (2) Any person may request, and shall be entitled to receive, Current Legal Digests. Requests to be added to the mailing list to receive Current Legal Digests may be directed to the Board's Legal Division. (e) Request for Depublication of an Annotation. An annotation published in the Business Taxes Law Guide or the Property Taxes Law Guide believed to be in error and/or appearing to conflict with another annotation may be depublished using the following procedure: (1) A request for depublication of an annotation shall be directed to the Chief Counsel. (2) A request for depublication of an annotation shall be approved or denied by the Chief Counsel within sixty (60) days from the date the request is received. (3) If a request for the depublication of an annotation is approved by the Chief Counsel, the Board shall publish the proposed depublication in a Current Legal Digest. (4) If a request for the depublication of an annotation is denied, the requestor may bring the request before the Board's Business Taxes or Property Taxes Committee for consideration. (f) Copies of Legal Rulings of Counsel. Any person may request, and shall be entitled to receive, a copy of a legal ruling of counsel, with confidential taxpayer information excised, that has been annotated in the Business Taxes Law Guide or Property Taxes Law Guide. Requests may be directed to the Board's Legal Division. Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 15606(c) and (e), Government Code; Sections 6596, 7051, 7084, 8262, 9262, 13170, 30458.2, 32462, 40202, 41162, 43513, 45858, 46613, 50156.2 and 55323, Revenue and Taxation Code; and Sales and Use Tax Regulation 1705, Relief from Liability.