Yet Another Tax Thread

[kemasa]

There is another section which mentions that the retailer is to collect the sales tax for the transfer fee. I was looking up quite a bit and so I don't recall all of the specifics of where it is stated. I need to find it again. If you search for "firearm" in the BOE web page you find interesting things :-).

Take a look at 295.1675.600 in:

http://www.boe.ca.gov/business/Vol2/suta-d-g.pdf

They are aware that it is two FFLs who are registered since the transfer dealer has to be registered and the if the retailer collects the sales tax, then clearly they are registered.

The bottom line is that the tax has to be collected and unless you have a resale permit from the out of state FFL and a document saying that they are collecting sales tax, then you will have a problem.

The problem gets worse when they seem to claim that the retailer has to collect sales tax on the transfer fee.

[tenpercentfirearms]

There is another section which mentions that the retailer is to collect the sales tax for the transfer fee. I was looking up quite a bit and so I don't recall all of the specifics of where it is stated. I need to find it again. If you search for "firearm" in the BOE web page you find interesting things :-).

Take a look at 295.1675.600 in:

http://www.boe.ca.gov/business/Vol2/suta-d-g.pdf

They are aware that it is two FFLs who are registered since the transfer dealer has to be registered and the if the retailer collects the sales tax, then clearly they are registered.

The bottom line is that the tax has to be collected and unless you have a resale permit from the out of state FFL and a document saying that they are collecting sales tax, then you will have a problem.

The problem gets worse when they seem to claim that the retailer has to collect sales tax on the transfer fee.

Oh I fully get you on the retailer is supposed to collect sales tax on the transfer fee. That makes perfect sense when in regards to an out of state transfer where clearly the BOE thinks we are the retailer and we should be collecting the sales tax on the firearm and the transfer fee.

The part that makes no sense is when I send a gun to a customer of yours. I charge the customer the sales tax on the firearm and the shipping (if not itemized to the exact amount). Why in the heck do I care what you charge the customer for a transfer fee and why in the heck would I want to collect sales tax on a sale I did not receive when it would clearly be easier for you to do so?

And that was the basis of my letter. For in state transfers, why force me to find out what your transfer fee is and collect the sales tax on that (which might actually hurt the BOE since I live in a low tax district) when you can easily collect the sales tax on the transfer fee?

Again, I will let you know what they say. Part of me is scared that ignorance was bliss on this one. I have a feeling their answer will be rather stupid and illogical.

[kemasa]

Since the transfer dealer is not the retailer, they would not have to collect sales tax on it, so instead the BOE claims that the seller FFL has to collect. Only the retailer has to collect sales tax and this present a problem with the statements made in regards to a PPT since it said that the FFL does not collect sales tax as they are not the retailer.

Now, how do you know what the transfer dealing is going to charge? Same problem as when a firearm comes from out of state and you don't know what the buyer paid.

I agree it is best for the transfer dealer to collect the sales tax, if sales tax has to be collected, but it seems to me that if you look at a PPT, the transfer dealer should not collect sales tax and neither should the seller FFL. That is why I think the BOE is saying what they are since otherwise they will lose money.

[tenpercentfirearms]

I agree it is best for the transfer dealer to collect the sales tax, if sales tax has to be collected, but it seems to me that if you look at a PPT, the transfer dealer should not collect sales tax and neither should the seller FFL. That is why I think the BOE is saying what they are since otherwise they will lose money.

This is the case. A transfer on a PPT should not be taxed. I read that in one of your links in this thread. In all honesty I think I still tax the $50 on a PPT transfer, but out of sheer laziness more than anything else. I use the same POS code for both.

[kemasa]

$50 PPT? The fee is limited to $35 for a PPT and $25 of that is the DROS and should not be taxed. Was that a typo?

Correct, a PPT is not taxed and it is stated that it is not taxed, in part, because the FFL is not the retailer. If it is not taxed due to the FFL not being the retailer, then a FFL who does a transfer, which happens to not be a PPT. should not be taxed, but the BOE seems to try to get around this by claiming that the retailer should have to pay the sales tax. That is my point. Either the FFL should always be taxed or it should never be taxed.

[tenpercentfirearms]

I meant out of state or in state private transfer that isn't a PPT. A PPT Transfer!

Read some of those links you sent me. They clearly say if it is an occasional sale you do not tax the transfer fee.

[kemasa]

I understand that an occasional sale is not subject to sales tax. If you look as to why it is said that the FFL is not the retailer. In the case of a transfer dealer, the FFL is not the retailer.

So, if the the firearm comes from a FFL and the transfer dealer has no involvement with the sales price or finding the buyer, the transfer FFL is not the retailer and it seems to me that it should be the same with respect to the sales tax of the FFL fee as a PPT or occasional sale and not be taxed.

[tenpercentfirearms]

I understand that an occasional sale is not subject to sales tax. If you look as to why it is said that the FFL is not the retailer. In the case of a transfer dealer, the FFL is not the retailer.

So, if the the firearm comes from a FFL and the transfer dealer has no involvement with the sales price or finding the buyer, the transfer FFL is not the retailer and it seems to me that it should be the same with respect to the sales tax of the FFL fee as a PPT or occasional sale and not be taxed.

You need to be more specific here. If the firearm is sold by another FFL, then it is a retail sale and subject to sales tax. The question is who is responsible for the sales tax on the $50 transfer fee? You have shown code where the BOE is saying the selling FFL is. Which means the selling FFL has to contact the transfer FFL and ask what the transfer fee is, claim it as part of their sales receipts, and collect the sales tax. This seems rather silly as the transfer FFL can collect the sales tax on their portion of the retail sale.

Occasional sales are only between private citizens. By default if you have an FFL at all, you are in the business of selling firearms and are a retailer and all of your sales of tangible property are subject to sales tax, if delivered in the State of California.

The BOE makes it clear that the transfer fee is taxable from out of state sales from other retailers. They also make it clear that if a private party out of state makes an occasional sale to a private party in the state, sales tax does not need to be collected on any of the transaction.

I think you might be referring to if some idiot out of state or even in state will only accept firearms from another FFL and a private citizen comes in and says, "Will you ship this for me?", then yes we are in agreement that the shipping FFL is still not the retailer. However, it would be in the receiving FFLs best interests to get something in writing that states the firearm is not coming from another FFL, but only be shipped by one because the receiving FFL is an idiot and wants to keep track of a CFLC number and also have to explain to the BOE why they are receiving firearms from another dealer and not collecting sales tax.

That is why my general policy is if it comes from an FFL, I am collecting sales tax. If it comes from a private citizen and is logged into my A&D as such, I don't collect sales tax as it is an occasional sale.

I think we are on the same page Ken. I think our miscommunication is coming from the complexity of the situation and neither of our using common language to describe the different players in the situation.

I am still anxiously waiting to see what the BOE will say. I so have a feeling they are going to instruct us to let the original in state retailer to collect the sales tax on the transfer fee. Which will make me want to sell firearm in state even less. Talk about a mess on my part. More phantom sales to keep track of.

[kemasa]

The basic summary of what I am saying is that the transfer fee should not be taxed at all, but is not how the BOE says it is. The FFL fee is taxed when the firearm comes from a business out of state because the CA FFL becomes the retailer of the firearm.

Why should the FFL fee not be taxed on a PPT, but taxed when the firearm comes from a CA business which already collects sales tax on the firearm? The FFL transfer dealer is acting in the same capacity, which is just doing the required transfer paperwork, not involved in finding a buyer, not involved in the price.

It is just one of those things that places the FFL in a bad position. According to the BOE the retailer is responsible for collecting the sales tax, not the transfer dealer, but what transfer dealer wants to tell the other FFL what their fee is? Also, I give a discount to those who belong to a firearms rights organization, so what fee should I tell the retailer FFL? What if I don't know if the buyer is entitled to the discount or not? What if the person joins between buying it and doing the transfer? Clearly, it is easier if I collect the sales tax, but that is not what the BOE says.

With regards to deciding whether to collect sales tax based on whether you are given a FFL or not, that could be a problem. What if the person shipping it is a FFL, but does not give you a copy of their FFL? I charge sales tax unless I get a letter stating that it is a private sale, an occasional sale and that the seller does not have a business. It does not matter to me who ships it to me, it is the seller that matters and if I get the letter.

I think we are basically on the same page, although I am talking about what should be and I think you are talking about what the BOE expects. Currently I collect sales tax on the transfer fee if the firearm is taxed, regardless of whether I collect the sales tax on it or not. I just think it is wrong and does not make any sense, as well as who is expected to collect the sales tax on the transfer fee. It is just a wonderful FFL thing.

Oh, I am not sure of how to do it, but you might want to consider a sticky for sales tax since that question gets asked all the time.

[tenpercentfirearms]

The basic summary of what I am saying is that the transfer fee should not be taxed at all, but is not how the BOE says it is. The FFL fee is taxed when the firearm comes from a business out of state because the CA FFL becomes the retailer of the firearm.

Yep and the BOE considers us the retailer because they want to be able to go after us easier than seeing if someone is paying their use tax or not.

Why should the FFL fee not be taxed on a PPT, but taxed when the firearm comes from a CA business which already collects sales tax on the firearm? The FFL transfer dealer is acting in the same capacity, which is just doing the required transfer paperwork, not involved in finding a buyer, not involved in the price.

This actually logically makes sense and here is why. If I sold a gun to Kestryll and had you do the transfer, that is a retail sale. The transfer fee Kestryll pays to you to acquire the firearm is part of that retail sale. If the BOE allowed that $50 transfer fee to just be "labor", then it would open a Pandora's Box where I would have the customer order guns from Acusport or RSR Group and I would just do the "transfer". So a $440 Glock would be taxable, but the $135 transfer fee would not be. The BOE doesn't want to open up that game and I don't blame them.

When you buy an item, the total price you pay is taxable. So if Kestryll buys a Glock from me for $440 and you charge a $25 transfer fee, that is a $465 Glock. The retail sale cost Kestryll $465. That makes sense to me. Other than itemizing exact shipping, if you let people start taking out their "transfer fee" as labor, then the sky is the limit.

It is just one of those things that places the FFL in a bad position. According to the BOE the retailer is responsible for collecting the sales tax, not the transfer dealer, but what transfer dealer wants to tell the other FFL what their fee is? Also, I give a discount to those who belong to a firearms rights organization, so what fee should I tell the retailer FFL? What if I don't know if the buyer is entitled to the discount or not? What if the person joins between buying it and doing the transfer? Clearly, it is easier if I collect the sales tax, but that is not what the BOE says.

We are in complete agreement if you are talking about having the receiving FFL collect sales tax on the transfer fee. Your points are right on. What about discounts? Do you call the retailing FFL and notify them that you gave them a discount and they need to refund the customer the sales tax? What a pain!

With regards to deciding whether to collect sales tax based on whether you are given a FFL or not, that could be a problem. What if the person shipping it is a FFL, but does not give you a copy of their FFL? I charge sales tax unless I get a letter stating that it is a private sale, an occasional sale and that the seller does not have a business. It does not matter to me who ships it to me, it is the seller that matters and if I get the letter.

If the name is that of a private party and comes from an address, is the BOE going to investigate every one to make sure that it isn't a retailer using their personal information? If so, that is fine. I asked the customer, they said it was a private party, it says it was a private party, it was logged in from a private party. Quite true getting it in writing would back you up even more in an audit.

Oh, I am not sure of how to do it, but you might want to consider a sticky for sales tax since that question gets asked all the time.

I am supposed to be working with CAFR to get a comprehensive sales tax document pegged out that they can present to the BOE and get some definitive answers for us. Once we get that done, then we can sticky it.

[kemasa]

I have always collected the sales tax on my fee. I only recently came across the information which says that the retailer is supposed to collect it. Also, most firearms that I transfer come from out of state or are from a private party. Therefore, I have not informed the retailer of my fee or my discount. One way to bypass this is to have the money go through the transfer FFL to the seller as a dealer to dealer sale, then the transfer dealer becomes the retailer and collects all sales tax, but that is a pain.

The letter from the seller is cheap insurance against problems with the BOE. Take a look at 475.0055 in the BOE info:

http://www.boe.ca.gov/sutax/annotations/pdf/475.pdf

475.0055 Federal Firearms License. A federal firearms license does not qualify as a resale certificate even though this license, combined with a copy of a seller's
permit, contains all the essential elements specified for a resale certificate. Regulation 1668 not only requires that the purchaser hold a seller's permit, but also that the writing, within the certificate, expressly recite that the purchase was``for resale.'' Although the federal regulatory act requires the purchaser to be a ``dealer'', it cannot be implied that the property was in fact purchased for resale.4/20/90.

[TripleT]

Not to muddy the water, and only to try and clarify the BOE's position on transactions and local tax.

In my other business, we were informed by the BOE that any product we shipped via a freight service (usps, ups, ltl) needed to have our local sales tax rate applied as the sale was complete once it was delivered to the shipping company. Now, here is where it gets weird. If the product is delivered by one of our trucks, then the sale is deemed to be completed at the point of delivery and the local sales tax rate at the delivery address would apply.

I have one girl that does invoicing that knows every tax rate for every jurisdiction our trucks deliver to. Some address's are close to city limits where a sales tax rate can change. It is a major PITA...

So, how does this apply to this thread ? At one point Wes pointed out how difficult it would be for the shipping FFL to apply the correct amount of tax. If he is using a service (usps, ups, ltl) then it doesn't matter because the sale is deemed as being complete at the ship point.

So, where does that leave us on the correct amount of tax to apply to our transfer fee,,, if any

They can't have it both ways,,, or can they ???

[kemasa]

I am aware of the delivery issue. While it is strange, it makes sense as it depends on where the company delivers it. Of course, if the shipping company is in a different tax rate area, would have have to use that? I doubt it. In the case of vehicles, it depends on where you live, not where you purchase it.

The BOE can have it both ways since they are putting the transfer fee sales tax on the retailer. It does seem that the tax rate charged should be the rate of the transfer dealer since that is where it is being delivered. In the case of a gun show, as this started with, the sales tax should either be the show location or the transfer dealer location, but who knows what rate the FFL charges.

[TripleT]

The point I'm trying to make is, if they are telling me, in another business, that I must pay the rate of tax in the jurisdiction that an item is shipped (via UPS, USPS, whatever [except for my own trucks]) because they deem the sale to be complete at the point of shipping, then they must either be wrong or they have to consider the transfer fee to be a separate transaction. Again, can they really have it both ways ???

IMHO, in their effort to extract the maximum sales tax possible, they have created a catch 22.

[kemasa]

The BOE also says that sales tax must be collected on out of state purchases (Internet, phone, etc.). In the case of firearms, there is the question as to where the sale actually occurs due to the paperwork requirements.

Yes, it is a mess.