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(continued)
"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. (continued)