BOE Reaches Out to CA Dealers

[halifax]

Got this in my CFD renewal package today:

[FourLoko]

nice example lol

trying to squeeze out every last cent

[Librarian]

Geez - the shipping fee? AND the 'handling fee' - won't the FFL report that in profit/loss and get it taxed anyway?

And BOE forgot the "$1.00 Firearms Safety Testing fee and a $5.00 Safety and Enforcement fee."

[kemasa]

Saying that there should be sales tax on the shipping seems to conflict with other BOE statements:

557.0005 Actual Cost of Transportation. One of the requirements for the exclusion of separately stated transportation charges from the measure of tax is that the cost of transportation is the actual shipping cost. This actual cost is determined on a transaction by transaction basis. Thus, to be entitled to the exclusion, in addition to the requirement set forth in Regulation 1628(a), the retailer will need to keep records showing the actual cost of transportation for each transaction. The amount of each individual cost of transportation is the amount excludable. 7/24/91.

557.0690 Use of Average Shipping Costs. A retailer requires payment from the customer prior to shipping the goods sold. It charges a flat fee of $3.00 for shipping and separately states it on the invoice of sale. The actual cost of shipping is not known until the order is filled and the property shipped. Under the circumstances, an average cost of shipping cannot be used to calculate the exclusion from tax for transportation charges. Only the actual cost of transportation on each order may be excluded from tax under section 6011(c)(7) and 6012(c)(7). 4/21/89.

[ontargetrange]

So today I rec'd a nice letter (PDF attached)from the California State Board of Equaliztion.

I am now to collect sales tax on all firearm transfers from out of State. ALL transfers purchased from out of State.

Talking with Jason D. now about the next step

[jdberger]

Looks like they're digging deep.

[halifax]

Originally Posted by ontargetrange

So today I rec'd a nice letter (PDF attached)from the California State Board of Equaliztion.

I am now to collect sales tax on all firearm transfers from out of State. ALL transfers purchased from out of State.

Talking with Jason D. now about the next step

It has been that way for a while now. The letter is misleading in that only retail sales are taxable. If the firearm comes from a private party it's an "occasional" sale and isn't subject to sales tax.

[Santa Cruz Armory]

We received the same letter today as well..... even though we've been collecting the tax already, it still pisses me off.

I still can't wrap my head around this:

If the purchaser buys a gun from say, Florida and pays the dealer in FL for the firearm, how in the hell can the BOE say that the CA FFL is responsible to collect the tax???? The sale was between the buyer and the FL Dealer. The CA FFL is only doing the required paperwork.

I get it, but I just don't see how someone hasn't sued the crap out of the State (BOE). Let the BOE go after the buyer. We as dealers shouldn't be strong armed into doing CA's debt collecting.

[AJAX22]

Wait, they are taxing the tax and they put it in writing?

I'm pretty sure the law is clear that they can't tax the 19 DROS fee.

I believe They are opening themselves up to a very decent class action suit.

[kemasa]

Well, a purchaser can't "buy" a gun from an out of state dealer since "buy" implies a change in ownership. What they are dong is "paying" for the firearm. The ownership only changes when the paperwork is finished. The required paperwork is the change in ownership, which means that the sale of the firearm actually happened in CA. Part of the problem is how do you really know what the person paid for it? How does the BOE know?

[kemasa]

Originally Posted by AJAX22

Wait, they are taxing the tax and they put it in writing?

I'm pretty sure the law is clear that they can't tax the 19 DROS fee.

I believe They are opening themselves up to a very decent class action suit.

Huh? They state that the DROS fee is not subject to sales tax. They do get the amount wrong though.

[igorts]

Shipping is taxable now?

[AJAX22]

Originally Posted by kemasa

Huh? They state that the DROS fee is not subject to sales tax. They do get the amount wrong though.

That they do....

On re-examination its probably just a typo...

Trust the BOE to screw up even the simplest explanation.

[wheels]

Sounds like a lot of gifts will be heading into CA in the near future. Merry xmas!

[allpoint]

Originally Posted by kemasa

Well, a purchaser can't "buy" a gun from an out of state dealer since "buy" implies a change in ownership. What they are dong is "paying" for the firearm. The ownership only changes when the paperwork is finished. The required paperwork is the change in ownership, which means that the sale of the firearm actually happened in CA. Part of the problem is how do you really know what the person paid for it? How does the BOE know?

This is a coincidence, I was going to ask this. I have a military guy that paid for a rifle in Virginia with tax and then he was transferred to CA before it arrived in the Virginia store. They contacted him to let him know it arrived and he wants it transferred to CA. Now the question is, "does he have to pay tax again on this rifle?"

[GoingQuiet]

As inconsistent as the enforcement statements are, you have to admire the fact that they are putting it in in black and white that says PAY MONEY.

[shark92651]

I don't understand the tax on shipping either. Everything I have read is that the BOE wants dealers to charge tax only on the portion of the shipping that is greater than the actual shipping charges - for example if you have flat rate shipping and the actual shipping charge on an order is a little less so you would pay tax on the profit on the shipping. Most dealers with flat rate shipping lose money on the shipping of some orders, but make money on others. This letter says "tax the shipping" with no justification at all.

[tenpercentfirearms]

Somewhere on drop shipments it says shipping is not taxable if it is itemized.

http://www.boe.ca.gov/sutax/faqpurch.htm#10

Tax does not apply to the delivery charges under these conditions if the charges are clearly stated as a separate entry on the invoice or other bill of sale. If the delivery charges are not stated separately, they are taxable.

Example.

You sell a refrigerator and have it delivered by an independent contract carrier. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery (the amount charged you by the carrier). Since the delivery charge is stated separately, tax applies only to the charge of the refrigerator ($750). If the invoice had shown a single charge of $800, tax would apply to the entire amount.

This is a little different since it is coming from another retailer and I really don't know what they were actually charged for shipping. I see a $20 shipping fee on the customer's invoice, I just assume that was actual shipping and per the FAQ, I just collect tax on the price of the item.

[kemasa]

Originally Posted by shark92651

I don't understand the tax on shipping either. Everything I have read is that the BOE wants dealers to charge tax only on the portion of the shipping that is greater than the actual shipping charges - for example if you have flat rate shipping and the actual shipping charge on an order is a little less so you would pay tax on the profit on the shipping. Most dealers with flat rate shipping lose money on the shipping of some orders, but make money on others. This letter says "tax the shipping" with no justification at all.

One thing that I noticed with some of the issues with shipping and sales tax is whether the item is directly delivered to the customer, which clearly can't be the case for firearms.

If you order a firearm for inventory, you include the shipping in the price of the firearm, so it would be taxable. If you do a special order, you could break out the shipping. Perhaps this is an issue which needs to be directly asked of the BOE. I suspect that the answer would be to tax the person.

Originally Posted by allpoint

This is a coincidence, I was going to ask this. I have a military guy that paid for a rifle in Virginia with tax and then he was transferred to CA before it arrived in the Virginia store. They contacted him to let him know it arrived and he wants it transferred to CA. Now the question is, "does he have to pay tax again on this rifle?"

My personal opinion would be that the VA place needs to refund the tax and CA tax would need to be collected. The transfer (aka sale) is actually happening in CA. The firearm as never transferred in VA, so there should not be any sales tax there.

[igorts]

Not taxable:
You ship directly to the purchaser by common carrier, contract carrier, or US Mail;
• Your invoice clearly lists delivery, shipping, freight, or postage as a separate charge;

[kemasa]

Firearms typically can not be shipped directly to the purchaser, which could make a difference.

[igorts]

One of descriptions is enough

[kemasa]

There are more requirements than just one. Take a closer look at the regulations. Just because you break out the shipping does not mean that you don't have to charge sales tax on the shipping, based on what I have read on the BOE site. If the customer paid for the firearm and separately paid for the shipping from another location, so that you only had a receipt for the shipping, it would create an interesting situation.

[igorts]

Whole situation is interesting.
Sales tax on something not being sold, plus out of state.
CA needs money, indeed.

[boxbro]

Well, shipping and handling is not taxable so the seller can sell a $1000 dollar gun for .01¢ with a $999.99 shipping and handling fee.
A sale of .01¢ is not taxable, handling is not taxable, and neither is shipping.

[kemasa]

Originally Posted by boxbro

Well, shipping and handling is not taxable so the seller can sell a $1000 dollar gun for .01¢ with a $999.99 shipping and handling fee.
A sale of .01¢ is not taxable, handling is not taxable, and neither is shipping.

Sorry, but you are incorrect. Shipping and handling is not taxable when the item is shipped directly to the person AND if it is the ACTUAL shipping and handling charges. So, unless the shipping actually cost $999.99, tax would have to be collected. So, if you want to claim this, please provide some support, such as a link the the CA BOE website, to prove that what you are saying is correct. What I said can be found on the BOE website.

The question is whether the actual shipping charges for a firearm delivered to a FFL is taxable.

[BigFatGuy]

Kemasa is correct: shipping charges, above what the shipping costs, is profit, and thus taxable in CA.

[DVSmith]

Originally Posted by kemasa

Sorry, but you are incorrect. Shipping and handling is not taxable when the item is shipped directly to the person AND if it is the ACTUAL shipping and handling charges. So, unless the shipping actually cost $999.99, tax would have to be collected. So, if you want to claim this, please provide some support, such as a link the the CA BOE website, to prove that what you are saying is correct. What I said can be found on the BOE website.

The question is whether the actual shipping charges for a firearm delivered to a FFL is taxable.

If the BOE is claiming that the transfer of tangible personal property occurs between the FFL and the purchaser, then I believe the shipping is taxable. Here is an example:

I am a retail store. I buy paper towels from Brawny. I have to pay shipping to get those paper towels to the store. I then sell the paper towels for my cost plus a profit. Part of my cost is shipping to my store. The entire price is taxable because the BOE does not let me break out the shipping as a separate non-taxable component. I certainly could break it out to show the consumer what my underlying costs were. It just does not make that cost non-taxable.

I will see if I can find a link to that, but over all of the years I have been selling items this has been the case.

ETA: Look here under "freight in": www.boe.ca.gov/pdf/pub100.pdf

[kemasa]

Yes, but there is a different issue with firearms since typically they can't be shipped directly to the person. The transfer does occur when the FFL does the transfer.

So, if a FFL buys a firearm from a company and it is shipped to the FFL, then the FFL would not have to pay for sales tax on the shipping if they purchase it themselves, but a customer would have to pay sales tax on the shipping because they can not have it delivered directly to them? Especially if the customer directly paid for the firearm.

[thedrickel]

It's too bad the CAFR is utterly worthless. This should have been handled by them years ago.

[AMDG]

Ok, so instead of purchasing, I guess I just start receiving gifts.

[FABIO GETS GOOSED!!!]

Originally Posted by kemasa

The transfer of a firearm, a physical product, is considered a sale and that is where the change of ownership occurs, so it is not considered just a service. I wish that were the case.

Do you know why BOE takes the position that the change of ownership occurs in California? Or to put it another way, why is a firearm purchase different from the purchase of goods under a "shipment contract" where title passes at the time and place of shipment (according to the Commercial Code)?

[kemasa]

A firearm is different because of the paperwork requirements. The ownership does not change until the paperwork is finished. It is similar to the transfer of a title to a vehicle, although with vehicles (excluding dealers) the location that the transaction is done does not matter.

That may be why the BOE has the view that they do, but I don't know anyone there, so it is just a guess on my part. I do know about the transfer of firearms and have asked about when ownership changes, just to confirm what makes sense to me.

[FABIO GETS GOOSED!!!]

Originally Posted by kemasa

I do know about the transfer of firearms and have asked about when ownership changes, just to confirm what makes sense to me.

Is there a specific code section, regulation, etc., that says that ownership of the firearm does not change until the required paperwork is completed?

[slikna99]

I just got a call from my FFL saying the gun I purchased and paid for transfer about 5 days ago will now need to be taxed and I will have to bring the receipt and money when I come to pick up. If I knew this I would have just bought it locally because now I am not saving any money at all, probably paying more actually. Sigh

[tenpercentfirearms]

Originally Posted by FABIO GETS GOOSED!!!

Is there a specific code section, regulation, etc., that says that ownership of the firearm does not change until the required paperwork is completed?

It's irrelevant. The BOE considers the firearms retailer who makes the final delivery the retailer. It is that simple.

If you want to spend a lot of your own money to prove that I am not the retailer so I can't collect your sales tax, that is fine. However, seeing as how it is clear you have to claim that purchase on your USE Tax at the end of the year, it really doesn't matter unless you plan on not paying your USE TAX.

I have found a really easy way to collect and track your SALES TAX so I have no problems with this at all. I am already an agent of the state by collecting SALES TAX, so collecting our transfer SALES TAX doesn't bother me. There is certainly no financial advantage to me spending my hard earned money trying to prove you can wait until later to pay your USE TAX instead of paying your SALES TAX now.

There is certainly a financial disadvantage to me not collecting the SALES TAX due as the BOE will want me to pay that SALES TAX whether I collected it or not.

I also believe there is a financial advantage to the consumer who can get FFLs not to collect the SALES TAX due as collecting SALES TAX due is optional. If I had a receipt from a gun shop that didn't show I paid SALES TAX, I would claim the FFL must have agreed to pay the SALES TAX for me and to ask them why they didn't remit the SALES TAX due to the BOE.

With that being said, the FFL has everything to lose in these situations and nothing but a few extra transfers that now have sales tax liability to gain. No thanks.

[wildhawker]

Originally Posted by FABIO GETS GOOSED!!!

Is there a specific code section, regulation, etc., that says that ownership of the firearm does not change until the required paperwork is completed?

I agree with what I presume you're leading to here. We're on it.

-Brandon

[cyrus]

HOOOOOOOOOOOOOOOOOOOOOOLLLLLLLLLLLLDDDDDD on.

If I pay I pay fine, BUT what do I have to provide as a copy of the sales invoice? Do they have to keep it? what can be black out?

[kemasa]

Originally Posted by FABIO GETS GOOSED!!!

Is there a specific code section, regulation, etc., that says that ownership of the firearm does not change until the required paperwork is completed?

As Wes said, it is not really relevant in terms of sales tax, but go look at all the code and regulations with respect to the transfer of a firearm if you want. I have investigated it and confirmed my opinion. Common sense will also tell you that it is the case. How can you legally own a firearm if the paperwork is not done? What do you think that the police would tell you if the FFL refused to delivery the firearm to you? What do you think the BATF would say?

Consider a vehicle, do you think that you can own it if you don't have any paperwork?

[kemasa]

Originally Posted by cyrus

HOOOOOOOOOOOOOOOOOOOOOOLLLLLLLLLLLLDDDDDD on.

If I pay I pay fine, BUT what do I have to provide as a copy of the sales invoice? Do they have to keep it? what can be black out?

Well, most likely the FFL is going to want a copy so that it can be documented for a BOE audit. If you don't provide it the FFL could refuse to do the transfer or use the MSRP.

What exactly do you want to hide by blacking it out? You can hide the credit card info, but realize that often the receipt comes with the firearm so guess who gets it first.