Yet Another Tax Thread

[ugimports]

(If you're not an FFL please don't reply unless you work for the BOE)

This was is pretty basic (for FFLs) and I think I know the answer, but wanted to verify.

Situation: I'm doing transfers for another dealer at the gun show. The dealer is collecting CA sales tax on the firearms. I'm charging my transfer fee on a totally separate invoice.

Should I be collecting tax on my transfer fee?

I'm assuming the answer is Yes as I have been, but would rather the answer be no if possible.

I know the section of BOE reads that when we collect tax on the firearm the service fee is charged, but in my scenario the other CA vendor is collecting the tax on the firearm so I wasn't sure if I was also to be charging tax on the FFL fee since I'm not collecting that portion of the CA Sales Tax.

Thanks,

[halifax]

Because this is an otherwise taxable retail sale, I collect tax on my fee. I do adjust it down so that when tax is added it becomes a round number (i.e., $22.99 + 8.75% = $25.00). Don't know how others handle this though.

[tenpercentfirearms]

Yes it is just like the out of state transfer. The added cost of your transfer fee is part of the retail sale of tangible goods and tax must be paid.

[ugimports]

Because this is an otherwise taxable retail sale, I collect tax on my fee. I do adjust it down so that when tax is added it becomes a round number (i.e., $22.99 + 8.75% = $25.00). Don't know how others handle this though.

That's basically what I'm doing now..

[ugimports]

Yes it is just like the out of state transfer. The added cost of your transfer fee is part of the retail sale of tangible goods and tax must be paid.

Yeah I figured that. I was just sitting next to another FFL at the last show and they weren't collecting tax...well, maybe they were, but not writing it on their receipt... they were part of an actual retail gun store, so I wasn't sure if I just missed the no tax memo or something... sounds like I didn't miss any memos, unfortunately...

[kemasa]

I think you should check with the BOE. In your case, you are not charging sales tax on the firearms and you are just doing the labor/service for the transfer, much like a PPT. You are not the retailer of the firearm, so I do not think that sales tax should be collected by you. Yes, I know there is a difference when the firearm comes from out of state and sales tax is not collected by the shipping FFL.

See:

http://www.boe.ca.gov/sutax/annotations/pdf/295.1675.600.pdf

[ugimports]

I think you should check with the BOE. In your case, you are not charging sales tax on the firearms and you are just doing the labor/service for the transfer, much like a PPT. You are not the retailer of the firearm, so I do not think that sales tax should be collected by you. Yes, I know there is a difference when the firearm comes from out of state and sales tax is not collected by the shipping FFL.

See:

http://www.boe.ca.gov/sutax/annotati...5.1675.600.pdf

We'll see what they come back with:

Thank you for contacting the Board of Equalization. Your message has been received. A Board representative will be responding to your proposal or inquiry within 12 calendar days. If we are unable to answer your specific request within the 12 days, we will send you an acknowledgement notifying you that we have received your request and are working on a response to you.

Your comment has been recorded on: Monday January 25, 2010 at 2:17 pm.

[tenpercentfirearms]

I think you should check with the BOE. In your case, you are not charging sales tax on the firearms and you are just doing the labor/service for the transfer, much like a PPT. You are not the retailer of the firearm, so I do not think that sales tax should be collected by you. Yes, I know there is a difference when the firearm comes from out of state and sales tax is not collected by the shipping FFL.

See:

http://www.boe.ca.gov/sutax/annotati...5.1675.600.pdf

I don't think so. Whatever you pay for a retail item from a retailer, is considered taxable. That is the basis for their whole argument from the out of state guns.

So you are not doing labor when you transfer a gun, you are adding cost onto the sales price of the tangible goods. If you could simply do a transfer fee, then I would have customers buy their guns from the wholesalers direct and just charge them a $200 transfer fee that isn't taxable. We know that is no good.

No links to back myself up tonight. I am tired and will work on it later.

[kemasa]

You need to consider the difference between a PPT and a transfer from another FFL. In the case of a PPT, there is no sales tax on the FFL fee since the FFL is not considered the retailer. In the case of a transfer from an out of state FFL, no sales tax was collected and someone needs to collected it (according to the state). That makes the transfer dealer considered the retailer.

In the case above, the FFL is only doing the paperwork, is not involved in finding the buyer nor the sales price. The FFL is only doing the transfer paperwork, exactly like it is done with a PPT where sales tax is not collected unless the FFL finds the buyer or gets involved with the sales price.

If the BOE says that sales tax has to be collected, it would be interesting to see what the basis is since this case seem to be exactly like a PPT (although the fee is not limited).

[tenpercentfirearms]

You need to consider the difference between a PPT and a transfer from another FFL. In the case of a PPT, there is no sales tax on the FFL fee since the FFL is not considered the retailer. In the case of a transfer from an out of state FFL, no sales tax was collected and someone needs to collected it (according to the state). That makes the transfer dealer considered the retailer.

In the case above, the FFL is only doing the paperwork, is not involved in finding the buyer nor the sales price. The FFL is only doing the transfer paperwork, exactly like it is done with a PPT where sales tax is not collected unless the FFL finds the buyer or gets involved with the sales price.

If the BOE says that sales tax has to be collected, it would be interesting to see what the basis is since this case seem to be exactly like a PPT (although the fee is not limited).

Think of it this way. A Private Party Transaction is an occasional sale. A retail sale of a firearm where it comes from another retailer, is subject to tax.

If you use your own example, then they couldn't make us claim the sales tax from out of state retail sales as we aren't setting anything up and we are just "doing the paperwork".

Basically, a retail sale is subject to use tax. If your customer buys it from a retailer and you deliver it, the transfer fee is taxable. It is not like a PPT because it is not an occasional sale, it is a retail sale.

If an individual in state sends me a gun to transfer to a private individual, I wouldn't need to collect the tax as it is an occasional sale like a PPT. If it comes from another retailer, the sales tax on the transfer fee must be collected.

Oh I think I remember where I saw it. In my own e-mail from the BOE.

http://www.calguns.net/calgunforum/showthread.php?t=34694&highlight=boe+retail+ffl

Enjoy.

[kemasa]

I called the BOE and they said that sales tax should be collected, but referenced 295.1243, which is old and applies to the DROS fee. There is also mention of Senate Bill 591, Chapter 922, Statues of 1998, effective January 1, 1999, which talks about fees being exempt, but it seems to be applied to the DROS fee, see:

http://www.boe.ca.gov/annual/pdf/1999/salesusetax.pdf

and search for "firearm". There was also mention of firearm locks and safes being exempted from sales tax, but it is unclear if that actually passed or not.

In investigating this issue, you are really not going to like the answer. Sales tax has to be collected BUT it is the responsibility of seller (the FFL who collects the sales tax for the firearm not the transfer dealer) to collect the sales tax on the firearm, as well as on the transfer fee, even if the transfer fee is directly charged to the customer. Read the whole section of 495.0848. There are multiple places this is mentioned on the BOE website.

[tenpercentfirearms]

In investigating this issue, you are really not going to like the answer. Sales tax has to be collected BUT it is the responsibility of seller (the FFL who collects the sales tax for the firearm not the transfer dealer) to collect the sales tax on the firearm, as well as on the transfer fee, even if the transfer fee is directly charged to the customer. Read the whole section of 495.0848. There are multiple places this is mentioned on the BOE website.

For the rest of you who looked up tax code 495.0848, it doesn't exist. I did a Google search and found kemasa is actually referring to a BOE annotation 495.0848.

Therefore, if M--- is the retailer, the sales tax it owes is measured by the total amount of the sale price of the gun, which includes the Department of Justice fee if passed on to the customer, and which also includes the registration service charge.

As Ken points out, the BOE in an old annotation that no longer is accurate about taxing DROS states that the retailer is expected to collect the "registration service charge". However, what is a registration service charge? Long guns aren't registered, so it wouldn't be talking about my transfer fee.

Back to seriousness, does the BOE understand that a transfer takes place at two separate shops? I don't think they realize there could be two retailers in the state of California. The selling dealer and the transfer dealer. I think they are assuming that the customer drop ships a firearm to M--- and M--- is accepting the firearm as a retailer.

I will go ahead and e-mail the BOE and ask for a clarification. That makes no sense that if I sell a firearm in the State of California, that I would have to claim that $50 transfer fee and collect the sales tax on a sale I did not make. It makes perfect sense that the receiving FFL be responsible for that transfer fee and its sales tax.

[tenpercentfirearms]

My e-mail to BOE.

In regards to BOE Annotation 495.0843 (http://www.boe.ca.gov/sutax/annotati...f/495.0843.pdf), the Board states that "It is not clear whether or not M--- is the retailer of the firearms. If it is the retailer of the guns, it owes sales tax on its gross receipts from the sales of the firearms. The fee imposed by the Department of Justice for processing Dealer’s Record of Sale of Revolver or Pistol (DROS) forms in accordance with section 12076 of the Penal Code is imposed directly on the firearms dealer. If a dealer chooses to pass that fee on to the purchaser, the fee is includable in that dealer’s taxable gross receipts. (Business Taxes Law Guide Annotation 295.1243 (8/30/82).) Therefore, if M--- is the retailer, the sales tax it owes is measured by the total amount of the sale price of the gun, which includes the Department of Justice fee if passed on to the customer, and which also includes the registration service charge."

My questions is if I, Ten Percent Firearms (TPF), sell a gun to a customer in the State of California and ship it to another California dealer, JK Supply Co (JSC), in order for JSC to do the background check, do I collect the sales tax on the fee imposed by JSC for doing the background check, referred to as a registration service charge?

To be clearer, I know TPF should collect sales tax on the purchase price of the firearm TPF sold to the customer. If TPF itemizes the exact shipping charge, that is tax exempt, but if TPF charges a flat rate for shipping, the shipping is taxable. At this point TPF's part in this transaction is over.

JSC receives the firearm from TPF to facilitate a background check to the customer. The annotation I referenced is out of date and states that the DROS fees are taxable. We know this is no longer true. However, JSC charges a $50 transfer fee to process the paperwork in addition to the $25 non-taxable DROS fee. Who is responsible for the sales tax on that $50 transfer fee or as you refer to it "registration service charge"?

I believe your annotation is unclear and might lead some people to believe that TPF is responsible for that transfer fee or "registration service charge". Once TPF ships the firearm, they are finished with the transaction. JSC is registered with the BOE, JSC can negotiate the final Transfer Fee price, and JSC should collect the sales tax on that transfer fee. It would be unreasonable for TPF to claim that $50 as part of the retail sale as TPF will not collect that money, TPF would then have to inflate their BOE sales figures in order to account for the $50 in taxes the board might imply they owe, and TPF would have to conduct further unnecessary correspondence with JSC to discover and properly collect the sales tax due on the JSC transfer fee of $50 or whatever amount JSC or any other California dealer might charge (there is no limit on what a California dealer can charge as a transfer fee, only on Private Party Transfers, therefore nearly every dealer will vary).

I believe the mentioned annotation did not realize that TPF could be the retailer of the firearm in initiating the sale directly with the customer and then transfer the firearm to another California dealer to have that dealer deliver the firearm in accordance with the penal code by having a background check performed and the accompanying ten day wait. The receiving dealer should be responsible for collecting their share of the retail sale since they are registered with the BOE as a California dealer.

Please let me know if I am reading this correctly and also considering updating some of your old annotations that still reference charging sales tax on DROS and clear up this issue. Thank you.

[kemasa]

Actually, that is not the link to what I was referring to is in:

http://www.boe.ca.gov/business/Vol2/suta-q-s.pdf

Which is a large document and I incorrectly assumed that others knew about that document. It also mentions that the DROS is not taxable, where as the letters are not updated since it is only what was sent.

The BOE knows that the transfer involves two separate FFLs. My guess is that in the case of a transfer where the seller collects CA sales tax, they need an excuse to collect sales tax on the FFL fee the transfer FFL charges. It would be more reasonable to have the transfer FFL be responsible for the sales tax, but they are not the retailer of the firearm, so they put it on the business which collects the sales tax.

This can also be a problem in that a FFL might charge a flat fee for any number of long guns, so if the firearms come from multiple locations, who would be responsible?

[tenpercentfirearms]

Actually, that is not the link to what I was referring to is in:

http://www.boe.ca.gov/business/Vol2/suta-q-s.pdf

Which is a large document and I incorrectly assumed that others knew about that document. It also mentions that the DROS is not taxable, where as the letters are not updated since it is only what was sent.

The BOE knows that the transfer involves two separate FFLs. My guess is that in the case of a transfer where the seller collects CA sales tax, they need an excuse to collect sales tax on the FFL fee the transfer FFL charges. It would be more reasonable to have the transfer FFL be responsible for the sales tax, but they are not the retailer of the firearm, so they put it on the business which collects the sales tax.

This can also be a problem in that a FFL might charge a flat fee for any number of long guns, so if the firearms come from multiple locations, who would be responsible?

Thanks for an updated link. I checked it and here is the section you referenced.It actually doesn't mention what to do if you are a CA dealer selling a CA resident a firearm and having it transfered through anothe dealer. I can see where you assume that the original selling dealer should collect the sales tax for the transfer fee as well, but I am not sure if they fully realize we are talking about two different CA dealers both registered with the BOE.

Then again, the BOE does state that they don't care if the out of state dealer is registered or not, if the CA FFL can prove to the satisfaction of the BOE that the dealer is doing business in CA based on section 6203, the out of state dealer would be responsible for all of the sales tax.

Am I the only one that thinks this is about the stupidest position for the BOE to take? How many out of state retailers are going to tell the BOE to pound sand? Then again, maybe the BOE is just setting us up as they will never find to their satisfaction that the out of state retailer meets section 6203 and then they will just hold us accountable for that money and of course the penalties that go along with it.

Just when you think this thing makes sense, Ken finds a possible chink in the BOE armor. I am going to take the cynical view that they will never find an out of state business meets section 6203 and then they will demand that uncollected sales tax and the penalties from the CA dealer.

You know I will post my reply when I get it.