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Originally posted by My Original Question
I am a firearms dealer and have heard 2 different answers regarding a tax issue. If a consumer purchases a firearm from out of state and utilizes my services am I required to collect sales tax from them? I would only be handling the firearm in an escrow fashion while their background check is being completed. I handle any part of the transaction between the consumer and the party they purchased the firearm from. The only fee I would be collecting would be a service fee of anywhere from $40-75 which would include the state mandated background check fee of $25 + my fee for holding the firearm during the 10 day wait. Some firearm dealers have been told that they are liable for the use tax on the item in question and not the consumer. I wanted to clarify this as there is no way for me to know the cost of the firearm unless the consumer chooses to disclose that information.
Thank You for any information you can provide.
Thank You for any information you can provide.
Originally posted by Response from Irma Ortiz Business Taxes Compliance Specialist, Mic: 44
Thank you for your recent e-mail requesting our advice regarding the proper application of the California Sales & Use Tax Law.
As a preliminary matter, section 6596, “Excusable Delay-Reliance on Advice,” of the California Sales and Use Tax Law grants taxpayers relief from future liabilities if the underreported tax is based on incorrect written advice provided by a Board representative. However, without specific details regarding the transactions in question, I cannot provide you with a specific opinion. The answer given is intended to provide general information regarding the application of tax based on the information you have provided and will not serve for relief of liability under section 6596.
For your general information, the Revenue and Taxation Code provides that sales tax is imposed on the gross receipts from the retail sales of tangible personal property in this state. The sales tax is imposed upon the retailer for the privilege of selling tangible personal property at retail in California. The use tax is complementary (and mutually exclusive) to the sales tax and is imposed upon the storage, use, or other consumption in this state of tangible personal property, not subject to the sales tax. The obligation to pay the use tax is on the consumer.
Revenue and Taxation Code Section 6007 defines the term ‘‘retail sale’’ or ‘‘sale at retail’’ to mean a sale for any purpose other than resale in the regular course of business in the form of tangible personal property. 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.
Sales and Use Tax Annotation 495.0843, Deliveries by California Firearm Dealers for Out-of-State Retailers. California residents order firearms from out-of-state retailers and the retailers ship the firearms to an authorized California firearm dealer for delivery to the customer. The California firearm dealer charges a fee to register each firearm in California. When the California firearm dealer completes the registration paperwork and delivers a firearm to a California purchaser for an out-of-state retailer not registered with the Board as a retailer engaged in business in this state, it is presumed that the firearm dealer is the retailer of the firearm under the second paragraph of section 6007. In such a case, the firearm dealer would owe sales tax on the total amount of the retail sales price of the gun to the customer, including the Department of Justice fee if passed on to the customer, and including any service charge made by the firearm dealer. If the firearm dealer establishes to the satisfaction of the Board that the out-of-state retailer was engaged in business in this state under section 6203, its deliveries for that retailer will not be considered taxable retail sales by the firearm dealer, even if the out-of-state retailer has not registered with the Board as a retailer engaged in business in this state. In such cases, as well as in situations in which the retailer is in fact registered as a retailer engaged in business in this state, the out-of-state retailer has a duty to collect the use tax under section 6203. The retailer should collect use tax on the invoice price of the firearm, plus the service fee, even if paid directly to the firearm dealer by the customer. Also, the Department of Justice fee passed onto the customer should be included in the measure of tax. 12/7/95. (Am. 99–2).
(Note: On and after January 1, 1999, the Department of Justice fee is not includible in the measure of tax, but all other charges remain subject to tax.)
Annotations are summaries of the conclusions reached by staff counsel as applied to specific factual situations. They are a research tool and intended to provide guidance regarding the interpretation of Board statutes and regulations. Annotations are not regulations of the Board and do not have the force or effect of law. In any instance where there is an inconsistency between the statutory law and an annotation, statutory law is controlling.
According to your email, you state that you are a firearm dealer in California. You question the application of tax on a firearm received from an out-of-state dealer for the purpose of holding and issuing it to their customer once a background check is cleared. You inquire whether you are liable for tax upon issue of the firearm to the seller’s customer. The answer is based on the out-of-state dealer not being registered for the collection of tax in California. Should this not be the case, my answer will differ.
When a licensed firearm dealer is utilized for the process of transferring a firearm to a purchaser, the licensed firearms dealer may be regarded as the retailer under certain circumstances. Whether the licensed firearms dealer is regarded as the retailer or not would depend on whether the person actually selling the firearm is a retailer and also whether the person selling the firearm is considered to be a retailer engaged in business in this state
A California licensed firearm dealer that processes the transfer for a customer would be liable for the tax in situations where the seller is a retailer that is not engaged in business in the state of California. As such, you will be considered liable for the tax if the out-of-state seller is not registered with the State of California.
I hope this information is helpful. If you have any further questions regarding this or any other issue, please write or call our Taxpayer Information Section at (800) 400-7115. You may also visit our website at www.boe.ca.gov.
To assist with sales and use tax return filing, the Board of Equalization offers a free, web-based, electronic filing service.* It is easy to use and will provide an online record of all of your returns.* To learn more and to register for BOE-file, please visit our Sales and Use Tax E-File Information Center.
As a preliminary matter, section 6596, “Excusable Delay-Reliance on Advice,” of the California Sales and Use Tax Law grants taxpayers relief from future liabilities if the underreported tax is based on incorrect written advice provided by a Board representative. However, without specific details regarding the transactions in question, I cannot provide you with a specific opinion. The answer given is intended to provide general information regarding the application of tax based on the information you have provided and will not serve for relief of liability under section 6596.
For your general information, the Revenue and Taxation Code provides that sales tax is imposed on the gross receipts from the retail sales of tangible personal property in this state. The sales tax is imposed upon the retailer for the privilege of selling tangible personal property at retail in California. The use tax is complementary (and mutually exclusive) to the sales tax and is imposed upon the storage, use, or other consumption in this state of tangible personal property, not subject to the sales tax. The obligation to pay the use tax is on the consumer.
Revenue and Taxation Code Section 6007 defines the term ‘‘retail sale’’ or ‘‘sale at retail’’ to mean a sale for any purpose other than resale in the regular course of business in the form of tangible personal property. 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.
Sales and Use Tax Annotation 495.0843, Deliveries by California Firearm Dealers for Out-of-State Retailers. California residents order firearms from out-of-state retailers and the retailers ship the firearms to an authorized California firearm dealer for delivery to the customer. The California firearm dealer charges a fee to register each firearm in California. When the California firearm dealer completes the registration paperwork and delivers a firearm to a California purchaser for an out-of-state retailer not registered with the Board as a retailer engaged in business in this state, it is presumed that the firearm dealer is the retailer of the firearm under the second paragraph of section 6007. In such a case, the firearm dealer would owe sales tax on the total amount of the retail sales price of the gun to the customer, including the Department of Justice fee if passed on to the customer, and including any service charge made by the firearm dealer. If the firearm dealer establishes to the satisfaction of the Board that the out-of-state retailer was engaged in business in this state under section 6203, its deliveries for that retailer will not be considered taxable retail sales by the firearm dealer, even if the out-of-state retailer has not registered with the Board as a retailer engaged in business in this state. In such cases, as well as in situations in which the retailer is in fact registered as a retailer engaged in business in this state, the out-of-state retailer has a duty to collect the use tax under section 6203. The retailer should collect use tax on the invoice price of the firearm, plus the service fee, even if paid directly to the firearm dealer by the customer. Also, the Department of Justice fee passed onto the customer should be included in the measure of tax. 12/7/95. (Am. 99–2).
(Note: On and after January 1, 1999, the Department of Justice fee is not includible in the measure of tax, but all other charges remain subject to tax.)
Annotations are summaries of the conclusions reached by staff counsel as applied to specific factual situations. They are a research tool and intended to provide guidance regarding the interpretation of Board statutes and regulations. Annotations are not regulations of the Board and do not have the force or effect of law. In any instance where there is an inconsistency between the statutory law and an annotation, statutory law is controlling.
According to your email, you state that you are a firearm dealer in California. You question the application of tax on a firearm received from an out-of-state dealer for the purpose of holding and issuing it to their customer once a background check is cleared. You inquire whether you are liable for tax upon issue of the firearm to the seller’s customer. The answer is based on the out-of-state dealer not being registered for the collection of tax in California. Should this not be the case, my answer will differ.
When a licensed firearm dealer is utilized for the process of transferring a firearm to a purchaser, the licensed firearms dealer may be regarded as the retailer under certain circumstances. Whether the licensed firearms dealer is regarded as the retailer or not would depend on whether the person actually selling the firearm is a retailer and also whether the person selling the firearm is considered to be a retailer engaged in business in this state
A California licensed firearm dealer that processes the transfer for a customer would be liable for the tax in situations where the seller is a retailer that is not engaged in business in the state of California. As such, you will be considered liable for the tax if the out-of-state seller is not registered with the State of California.
I hope this information is helpful. If you have any further questions regarding this or any other issue, please write or call our Taxpayer Information Section at (800) 400-7115. You may also visit our website at www.boe.ca.gov.
To assist with sales and use tax return filing, the Board of Equalization offers a free, web-based, electronic filing service.* It is easy to use and will provide an online record of all of your returns.* To learn more and to register for BOE-file, please visit our Sales and Use Tax E-File Information Center.
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