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  #1  
Old 02-10-2012, 3:48 PM
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Default BOE response: out of state private party sales tax

I was quite confused about now being taxed on out-of-state private-party sales. So I asked the man. I also referenced a response letter provided by another member here. It has been generally understood and that an out of state private party sale is non-taxable when the seller is an individual (not retailer) conducting an occasional sale and no dealers were involved in pricing or finding the buyer. However, I have come to learn that the BOE now feels otherwise. The BOE has recently received "guidance" by their Legal Department, resulting in the Nov. 2011 letter to FFL's, informing FFLs of their responsibilty to collect tax for all out of state sales. Essentially, they said, "Now we want to tax all out-of-state sales, private or retail."

Quote:
...when a California FFL dealer completes the registration paperwork and delivers a firearm to a California purchaser for an out-of-state private party seller or an out-of-state retailer not registered with the BOE as a retailer engaged in business in this state, it is presumed that the California FFL dealer is the retailer of the firearm. This is due to the fact that by operation of law, only the California FFL dealer possessing the firearm has power to cause title to the property to transfer to the purchaser. Thus, the California FFL dealer owes sales tax on the total amount of the sales price of the gun, including their service charge, but excluding the Dealer’s Record of Sale (DROS) fee. The California firearm dealer should generally obtain a copy of the sales invoice from the seller or purchaser to determine the proper amount of tax due.

Thus, in your situation, where you purchased a firearm from a seller in Tennessee (out-of-state private party seller) and the seller shipped the firearm through a dealer with a Federal Firearms License (FFL) to a dealer in California with a FFL to complete the transfer pursuant to federal law, your purchase would be subject to California sales tax. The California dealer is considered the retailer and owes sales tax on the total amount of the sales price of the gun, including their service charge, but excluding the Dealer’s Record of Sale (DROS) fee.
Please see attached PDF for the citations BOE refers to.
Attached Files
File Type: pdf out of state sales tax response.pdf (32.7 KB, 424 views)

Last edited by easyPZ; 02-28-2012 at 4:37 PM..
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  #2  
Old 02-10-2012, 4:05 PM
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You had to ask...

Their legal department's application of drop shipment is fundamentally flawed because the original seller of the goods is NOT a retailer.
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Last edited by halifax; 02-10-2012 at 4:10 PM..
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Old 02-10-2012, 4:10 PM
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^^^^^ WOW
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Old 02-10-2012, 4:12 PM
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I am no tax expert, but since the FFL transfer agent never received or was involved in holding the sales proceeds, how can they argue they are the seller?

A consignment sale, yes that probably applies.

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  #5  
Old 02-10-2012, 4:39 PM
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Doesn't this somehow fall afoul of interference with interstate commerce? Since Federal law requires interstate firearms transfers to go through an FFL, doesn't CA forcing taxation on a required Federal happening go a little outside legal bounds?
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  #6  
Old 02-10-2012, 4:50 PM
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You asked and you got what you ask for. If BOE send an updated letter to FFL then we know who gave them the idea.

Last edited by seainc; 02-10-2012 at 4:52 PM..
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  #7  
Old 02-10-2012, 5:13 PM
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Quote:
Originally Posted by seainc View Post
You asked and you got what you ask for. If BOE send an updated letter to FFL then we know who gave them the idea.
I had to ask. I was being taxed on purchases when I was finding information that I shouldn't have been. I just wanted to hear it straight out of the horses mouth.

I'm just as bummed as you guys are.

Last edited by easyPZ; 02-13-2012 at 2:39 PM..
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  #8  
Old 02-10-2012, 5:21 PM
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Quote:
Originally Posted by seainc View Post
You asked and you got what you ask for. If BOE send an updated letter to FFL then we know who gave them the idea.
They already had the idea; this is from a different thread:

Quote:
Originally Posted by morrcarr67
OK, I see the problem. I just found this copy of the letter sent to LGS from the BOE

http://www.bullseyerange.com/boeletter.pdf

I found it on Bullseye Indoor Range's website.

It says:

Quote:

If you register and deliver a firearm to a California purchaser for an out-of-state seller, you are considered the retailer of the firearm and you are responsible for reporting and paying the sales tax on the total sales price of the firearm excluding Dealer's Records of Sales (DROS) fees.
So, as it is written the dealers are to collect tax on sales from all OOS sellers; not just OOS retailers.

However, I do believe what has been said here before is correct. You should not have to pay sales tax from a non-dealer out of state. I COULD BE WRONG though.

If this is truly the case you would still need to pay use tax on your taxes as that law is written in such a way that anything you buy out of state and bring back to CA with plans on using it in CA you must pay the use tax.

The BOE letter has a phone number to call with more questions. The number is 800-400-7115. You should call them and see what they have to say.
In their original letter the did not separate retail and private sellers.
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  #9  
Old 02-10-2012, 5:24 PM
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Originally Posted by Maltese Falcon View Post
I am no tax expert, but since the FFL transfer agent never received or was involved in holding the sales proceeds, how can they argue they are the seller?

A consignment sale, yes that probably applies.

.
This is how:

Quote:
Originally Posted by BOE

In situations where an in-state federal firearm licensed dealer registers and delivers a firearm
to a California purchaser for an out-of-state retailer or out-of-state private party, RTC section
6007, provides, in part:
  • When tangible personal property is delivered by an owner or former owner thereof, or by
  • a factor or agent of that owner, former owner or factor to a consumer or to a person for
  • redelivery to a consumer, pursuant to a retail sale made by a retailer not engaged in
  • business in this state, the person making the delivery shall be deemed the retailer of that
  • property. He or she shall include the retail selling price of the property in his or her
  • gross receipts or sales price.
It doesn't matter who sold or ship the gun to the CA FFL. The CA FFL is the one doing the final transfer to the end user and CA considers them the seller.
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  #10  
Old 02-10-2012, 8:29 PM
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The BOE is not following their own laws, annotations, and definitions in this case.

First "occasional sales" are exempt from sales tax:

Quote:
BOE 410-D http://www.boe.ca.gov/pdf/boe410d.pdf

Occasional and Nontaxable Sales - Occasional sellers are usually people who are not required to hold a seller’s permit because they will not be making a series of qualifying sales. A person who has cleared their garage of used items accumulated for their own use and who sells only those items would usually qualify as an occasional seller, provided they make sales no more than twice in a 12-month period.
Indeed, the BOE recognizes that firearms sold between private individuals in CA are exempt as long as the dealer didn't arrange or negotiate the sale.

Further, the BOE recognizes occasional sales between private individuals of different states are still occasional sales for the purposes of being exempt from sales tax:

Quote:
Sales And Use Tax Law CHAPTER 1. GENERAL PROVISIONS AND DEFINITIONS
Section 6006.5
6006.5. "Occasional sale." "Occasional sale" includes all of the following:

(a) A sale of property not held or used by a seller in the course of activities for which he or she is required to hold a sellers permit or permits or would be required to hold a sellers permit or permits if the activities were conducted in this state, provided the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which he or she is required to hold a sellers permit or would be required to hold a sellers permit if the activity were conducted in this state.
The BOE is relying on their definition of Drop Shipment here to claim that since the otherwise exempt sale is being shipped it becomes taxable. That won't work either because the sale is still an exempt occasional sale and drop shipments apply ONLY to retail sales and retailers:

Quote:
What is a drop shipment?

A drop shipment is the delivery of tangible personal property by a California retailer on behalf of an out-of-state retailer to a consumer in California. If you make a drop shipment to a California consumer, you are responsible for reporting and paying sales tax on the retail selling price if:
• The sale is on behalf of an out-of-state retailer, and
• The out-of-state retailer does not hold a California seller’s permit or a California Certificate of Registration-Use Tax.
Typically, drop shipment transactions involve two businesses, two sales, and one consumer:
If the firearm in our scenario could pass directly between private persons across state lines, there would be no question that this occasional sale would be exempt from any measure of sales/use tax. Unfortunately, both Federal and State law mandate that the sale be conducted through an FFL. I firmly believe, in this instance, the BOE has misapplied the law and, as such, has put an undue burden on both the consumer and dealer just because of the dealer's mandated involvement.

That is all. I'll leave you with this snippet from their website:

Quote:
The mission of the State Board of Equalization is to serve the public through fair, effective, and efficient tax administration.
boe.ca.gov
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Last edited by halifax; 02-10-2012 at 9:05 PM..
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  #11  
Old 02-12-2012, 12:07 AM
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So BOE is basically using selective interpretation of tax law to force taxation of occasional sales?

If they are forcing the FFL to transfer the item and didn't initiate the sale how in the heck can the FFL be considered the retailer?

I cant wait till they tax use for the polluted air we breathe here.

Wow... Just WOW!
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  #12  
Old 02-12-2012, 12:52 AM
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Originally Posted by OniKoroshi View Post
I cant wait till they tax use for the polluted air we breathe here.

Wow... Just WOW!
Don't give them any ideas.....actually, they are because of carbon dioxide out-gassing. We're all gonna have to buy carbon credits soon.
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  #13  
Old 02-12-2012, 4:55 AM
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Unbelievable. So, just to be clear, the bottom line is that now the BOE has decided that California FFLs are now going to be required to collect tax on all interstate transfers regardless of the seller's status as a private party or dealer (unless dealer has a presence in California). We are also required to collect tax for intrastate, non-PPT sales originating from private parties. Correct?
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  #14  
Old 02-12-2012, 7:06 AM
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Quote:
Originally Posted by EBR Works View Post
Unbelievable. So, just to be clear, the bottom line is that now the BOE has decided that California FFLs are now going to be required to collect tax on all interstate transfers regardless of the seller's status as a private party or dealer (unless dealer has a presence in California). We are also required to collect tax for intrastate, non-PPT sales originating from private parties. Correct?
The text specifically says out-of-state private party seller, no mention of intrastate private party sellers. Somehow an otherwise exempt sale becomes taxable when it crosses state lines. Their logic, however, could easily be applied to non-PPT intrastate sales. Very poor application of the law.

Quote:
Based on the above citations, when a California FFL dealer completes the registration paperwork and delivers a firearm to a California purchaser for an out-of-state private party seller or an out-of-state retailer not registered with the BOE as a retailer engaged in business in this state, it is presumed that the California FFL dealer is the retailer of the firearm. This is due to the fact that by operation of law, only the California FFL dealer possessing the firearm has power to cause title to the property to transfer to the purchaser.
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Last edited by halifax; 02-12-2012 at 7:13 AM.. Reason: added content
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Old 02-12-2012, 7:20 AM
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OK, thanks. There are going to be a lot of pissed off transferees, especially those doing interstate intra-familiar transfers.

I have to wonder if this would be considered to be retroactive to the date of the 11/11 letter. I think the majority of FFLs assumed that interstate PP transactions we're exempt due to their occasional nature.
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  #16  
Old 02-12-2012, 7:22 AM
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It does say pursuant to a retail sale made by a retailer not engaged in
business in this state
so it's all smoke and mirrors but I'm not seeing the part about in-state sellers.
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Last edited by halifax; 02-12-2012 at 7:29 AM..
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  #17  
Old 02-12-2012, 7:24 AM
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Quote:
Originally Posted by EBR Works View Post
OK, thanks. There are going to be a lot of pissed off transferees, especially those doing interstate intra-familiar transfers.
Wouldn't those still be gifts?

Quote:
Originally Posted by EBR Works View Post
I have to wonder if this would be considered to be retroactive to the date of the 11/11 letter. I think the majority of FFLs assumed that interstate PP transactions we're exempt due to their occasional nature.
I guess at our next inspections we will need both a gun-law attorney and a tax-law one.
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Last edited by halifax; 02-12-2012 at 7:34 AM..
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Old 02-12-2012, 7:29 AM
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Originally Posted by halifax View Post
Wouldn't those still be gifts?
Where does it state that gifts are exempt?
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Old 02-12-2012, 7:34 AM
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When I called and talked to a person on the phone about this, she claimed that the reason why a private party sales from out of state had to have sales tax collected is because Federal law required the firearm to go through a FFL. It made no difference that CA requires that all firearm transfers go through a FFL. It seems that they wanted to blame the Federal law for some reason.

This view conflicts with their prior written view from 2009, with no changes in law. This indicates that it is all about money. The BOE has not informed everyone of this view and I posted the letter that they had sent me. It seems that legal action would be in order to correct this view.
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Old 02-12-2012, 7:37 AM
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Quote:
Originally Posted by EBR Works View Post
Where does it state that gifts are exempt?
The letter in question here doesn't but there are others that say a bonafide gift ($0.00) is not taxable. I'll look for those.
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Old 02-12-2012, 7:45 AM
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Quote:
Originally Posted by kemasa View Post
When I called and talked to a person on the phone about this, she claimed that the reason why a private party sales from out of state had to have sales tax collected is because Federal law required the firearm to go through a FFL. It made no difference that CA requires that all firearm transfers go through a FFL. It seems that they wanted to blame the Federal law for some reason.

This view conflicts with their prior written view from 2009, with no changes in law. This indicates that it is all about money. The BOE has not informed everyone of this view and I posted the letter that they had sent me. It seems that legal action would be in order to correct this view.
I wonder if they believe the firearm has to be sent by an out-of-state FFL (i.e., retailer); therefore, they can apply the "drop shipment" rule. Must be because clearly the "drop shipment" rule used in their recent letter only applies to out-of-state retailers:

Quote:
What is a drop shipment?

A drop shipment is the delivery of tangible personal property by a California retailer on behalf of an out-of-state retailer to a consumer in California. If you make a drop shipment to a California consumer, you are responsible for reporting and paying sales tax on the retail selling price if:
• The sale is on behalf of an out-of-state retailer, and
• The out-of-state retailer does not hold a California seller’s permit or a California Certificate of Registration-Use Tax.
Typically, drop shipment transactions involve two businesses, two sales, and one consumer:
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Old 02-12-2012, 7:51 AM
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I don' think that they care, they just want the money. It would be interesting to ask if that is why they want the money though.
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Old 02-12-2012, 7:59 AM
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Quote:
Originally Posted by kemasa View Post
I don' think that they care, they just want the money. It would be interesting to ask if that is why they want the money though.
That can't be true. Their own mission statement says:

Quote:
The mission of the State Board of Equalization is to serve the public through fair, effective, and efficient tax administration.
boe.ca.gov
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Old 02-12-2012, 12:30 PM
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In the face of this new inconsistent wording, it sounds like it's lawyer time.

Are there any good tax/gun attorney combo firms?
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Old 02-12-2012, 1:36 PM
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Quote:
Originally Posted by halifax View Post
That can't be true. Their own mission statement says:
Well, their name is Board of Equalization, what are they trying to equalize?
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Old 02-12-2012, 5:58 PM
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So using their logic, since a PPT in state requires the FFL to assign transfer of the title for the gun, they might as well start charging tax on those as well?
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Old 02-12-2012, 6:21 PM
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Quote:
Originally Posted by bigcalidave View Post
So using their logic, since a PPT in state requires the FFL to assign transfer of the title for the gun, they might as well start charging tax on those as well?
Don't go giving them any ideas...
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Old 02-13-2012, 9:43 AM
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You need to document the sale price. The BOE really doesn't care how you document it, but if it is wrong, the FFL is responsible for paying the money. I had a recent case where the other FFL gave a false receipt. When I talked to the BOE, they said that the receipt does not matter, the FFL owes the sales tax on the total amount. This means that if the receipt said $500, which was reasonable, but the actual sales price total was $600, even though the FFL did not know that and the BOE found out, then the FFL would owe the money based on the $600.
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Old 02-13-2012, 11:01 AM
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Quote:
Originally Posted by kemasa View Post
You need to document the sale price. The BOE really doesn't care how you document it, but if it is wrong, the FFL is responsible for paying the money. I had a recent case where the other FFL gave a false receipt. When I talked to the BOE, they said that the receipt does not matter, the FFL owes the sales tax on the total amount. This means that if the receipt said $500, which was reasonable, but the actual sales price total was $600, even though the FFL did not know that and the BOE found out, then the FFL would owe the money based on the $600.
I think in this situation they wouldn't be penalized, just made to pay the difference. The receipt DOES matter in that it shows a good faith attempt to follow the letter of the law as interpreted by the BOE.
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Old 02-13-2012, 11:12 AM
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I really don't think that the BOE cares about good faith, they just seem to want the money. Why should the FFL pay anything if they based the sales tax on the information that they had? The BOE should go after the customer for tax evasion, not force the FFL to pay and then try to collect. I don't know that this is common, but that is not the point.
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Old 02-21-2012, 12:27 PM
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I just spoke with one of the BOE tax experts. She stated that existing Federal law precludes a private party inter-state sale from being considered occasional or infrequent, unlike California intra-state private sales which are considered occasional or infrequent. She stated that we are to collect use tax on all such transactions and that there is a new advisory letter forthcoming soon. Very unfortunate....
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Old 02-21-2012, 12:32 PM
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That excuse is really bogus. Federal law does not have anything to do with CA sales tax. The laws have not changed, but the view has. All the Feds say is that it has to go through a FFL, just like a firearm shipped within CA.

The letter I got from the BOE claims that if the firearm is from a private party it is like a business drop shipment, which is quite strange.

I got a letter directly due to a question I asked. Until you get a letter, I would go by the 2009 letter which says that sales tax is not to be collected.
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  #33  
Old 02-21-2012, 12:39 PM
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BOE is in the wrong. They are making this stuff up as they go along and then enforcing it with the weight of law. But they get away with it because they are the 800 lb gorrilla on the block and no one wants to take them on. They can bully the FFL's by threatening their business license for "tax violations" and the FFL's really don't care about fighting it because to them it's just a cost passed on to the consumer. The consumer gets rightfully upset about this but the average consumer doesn't have the resources to take on the BOE with any hope of winning.

FFL's don't care and won't fight this. The consumer is screwed again because BOE is a bully who makes up the rules and then violates them whenever it suits them. Like the ATF they are an agency with next to zero accountability and are drunk on their own power, and really don't care about what they ought to do, but more what they can get away with.
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Last edited by bruss01; 02-21-2012 at 12:43 PM..
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Old 02-21-2012, 1:15 PM
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kemasa kemasa is offline
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It is not that the FFL's don't care, since I do care, but there is little that a FFL can do. The FFL is not being harmed as the customer is charged the sales tax typically, the customers are being harmed by being forced to pay the money.

There are people who are elected to the CA BOE board and those people are elected to represent people. People need to call and complain about this, especially since in 2009 the BOE said that sales tax was not to be collected and the law has not changed. There is strength in numbers and the end customers are much greater in number than FFLs.

Here is how you can find your board member:

https://efile.boe.ca.gov/boewebservices/findMember.jsp

If you know someone in the media, contact them and contact the media yourself to complain what the government is doing. Let your friends and family know as well, get them to call as well. Write letters to the editor of newspapers, perhaps it will get published.
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Old 02-21-2012, 1:58 PM
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Quote:
Originally Posted by EBR Works View Post
I just spoke with one of the BOE tax experts. She stated that existing Federal law precludes a private party inter-state sale from being considered occasional or infrequent, unlike California intra-state private sales which are considered occasional or infrequent. She stated that we are to collect use tax on all such transactions and that there is a new advisory letter forthcoming soon. Very unfortunate....
There is nothing in this claim that can be backed up by law: "existing Federal law precludes a private party inter-state sale from being considered occasional or infrequent". Their "advisory letter" should be interesting.

Quote:
Sales And Use Tax Law CHAPTER 1. GENERAL PROVISIONS AND DEFINITIONS
Section 6006.5
6006.5. "Occasional sale." "Occasional sale" includes all of the following:

(a) A sale of property not held or used by a seller in the course of activities for which he or she is required to hold a sellers permit or permits or would be required to hold a sellers permit or permits if the activities were conducted in this state, provided the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which he or she is required to hold a sellers permit or would be required to hold a sellers permit if the activity were conducted in this state.
Again, there is nothing in this CA law being precluded by Federal law.

I wonder if there will be a comment period on the advisory letter before it is released.
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Last edited by halifax; 02-21-2012 at 2:13 PM.. Reason: added quote
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