When CA FFLs should collect SALES TAX from consumers.

[tenpercentfirearms]

CA FFLs should collect sales tax on the sale of any tangible personal property sold or delivered in the State of California.

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

FFLs should not be collecting SALES TAX on transfers of occasional or private party sales.

REVENUE AND TAXATION CODE 6006.5
6006.5. "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 seller's
permit or permits or would be required to hold a seller's permit or
permits if the activities were conducted in this state, provided that
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 seller's permit or would be required to hold a
seller's permit if the activity were conducted in this state.

(b) Any transfer of all or substantially all the property held or
used by a person in the course of those activities when after the
transfer the real or ultimate ownership of the property is
substantially similar to that which existed before the transfer. For
the purposes of this section, stockholders, bondholders, partners, or
other persons holding an ownership interest in a corporation or
other entity are regarded as having the "real or ultimate ownership"
of the property of the corporation or other entity.

(c) A sale of property, other than hay, by a producer of hay,
provided that the sale is not one of a series of sales sufficient in
number, scope, or character to constitute an activity for which the
producer would be required to hold a seller's permit if the producer
were not also selling hay.

So if a person buys a gun from a private party on Gun Broker, then no SALES TAX should be collected. However, online auctions won from a retailer, SALES TAX must be paid.

[kemasa]

UPDATE NOTE: THE CA BOE CHANGED THEIR VIEW OF WHEN SALES TAX IS DUE, ALTHOUGH THE LAW HAS NOT CHANGED. This means that reading this thread the requirement changes. Currently, if the firearm comes from out of state, it is subject to sales tax unless it is a C&R firearm and the buyer has a C&R FFL and the seller is a private party, it is an occasional sale and not coming from a business.

In addition to what was said above, sales tax is to be collected on private party sales IF the FFL gets involved with the price and/or finding the buyer. Also, it needs to be documented that it is a private sale, an occasional sale and the person does not have a business (a bit of a gray area if the person does not have a firearms business)

495.0848 Delivery by Licensed Firearm Dealer. A California resident
purchased a firearm from an out-of-state retailer who is not engaged
in business in California. The California customer contacts a licensed
California firearm dealer and states that he paid money to an out-of-state
dealer and wishes for the dealer to have the firearm shipped to the
dealer's place of business and legally transfer the firearm to him. The
dealer contacts the out-of-state seller and arranges to have the firearm
sent to him. Upon receipt of the firearm (prepaid by the customer),
the dealer logs the firearm into his Federal Acquisition/Disposition
books. The customer then fills out the State Department of Justice
Firearms Dealer Record of Sale. The dealer collects the state fee of
$14.00 plus a $16.00 charge to cover the dealer's expenses.

When a licensed 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 dealer is the retailer
of the firearm. In such a case, the dealer would owe sales tax on the
total amount of the sales price of the gun, including the Department of
Justice fee passed on to the customer and including the dealers service
charge. (Section 6007)

If the out-of-state retailer was engaged in business in this state
under section 6203, the California dealer's deliveries for that retailer
will not be considered taxable retail sales by the 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, the out-of-state
retailer has the duty to collect the use tax under section 6203 and that
retailer should collect tax on the invoice price of the firearm plus
the dealer's service charges and the Department of Justice fee that is
passed on the customer. 10/26/95. (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.)

295.1675.600 Service Charge for Sale of Firearms. Since the change in
the law requiring private parties to sell firearms only through licensed
dealers, a company asks whether the fee it charges to file the required
state paperwork to the Department of Justice is subject to tax.

Whether the company is liable for sales tax on the transaction depends
upon whether the company is the retailer of the firearms. If an owner
of a firearm and a purchaser have negotiated the terms of the sale in
advance and then bring the firearm to the company to meet the statutory
requirements of the Penal Code, the company is not the retailer of the gun
and does not owe tax on the fee or any other charges for the firearm. If,
however, an owner of a firearm brings the gun to the company and requests
the company to find a buyer, the company is the consignee and the retailer
of the firearm, and is liable for sales tax on the sale. In that case, the
company must include all fees and charges in the measure of tax. 1/9/92;
2/20/92. (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.)

Links to the CA BOE info:

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

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

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

[tenpercentfirearms]

The CA BOE further believes that CA FFLs that transfer firearms from an out of state retailer are the retailer for SALES TAX purposes and are liable for the SALES TAX payment.

First, what the CA Board of Equalization (BOE) says on the matter.

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.)

The BOE quotes 6007

REVENUE AND TAXATION CODE 6007

6007. A "retail sale" or "sale at retail" means 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.

In November 2011, the BOE started to send the following document to FFLs to further inform the public of their belief that an FFL is the retailer of the firearm and will be required to remit any sales tax due. Important Notice Sales Tax Obligation

Additionally, if a customer does not provide a receipt, the dealer should use the most recent fair market value of the firearm.

Now, some people are going to argue that the BOE is wrong on this and abusing their power to force FFLs into collecting the SALES TAX when an FFL should not be doing so. Here is my response to that.

Ok, let this be a lesson to all dealers.

The BOE is clear that you are considered the retailer and must collect SALES TAX on all retail transactions through your gun shop. If Buds Gunshop sends you a firearm and you transfer it, you owe sales tax on that firearm.

Now the BOE is equally clear that you do not have to collect sales tax from your customers and it is optional whether you will collect a reimbursement for sales tax from your customers. Note the key here is the BOE permit holder is responsible, not the customer.

USE TAX is where you order something from out of state and you pay that USE TAX on your state income tax return at the end of the year. SALES TAX and USE TAX are not the same and are not interchangeable.

Now I charge $50 for any number of long guns transfered and for a single pistol. If I were not to collect the sales tax on the retail sale, then I would be losing money on any and all transfers whose purchase price exceeds $606. I would simply be breaking even at that price. Additionally, this is assuming I am not assessed penalties and interest for failing to pay my sales tax liability on time.

Personally, I have never heard of a real store ever getting audited. Some people claim stores do and some claim they don't. Personally, I don't care. What I care about is not incurring a huge sales tax liability for a customer that is going to be mine to pay with penalties and interest in the rare case I do get audited.

And this is where threads like this get interesting. Since we all know that we are supposed to pay our USE TAX on all out of state purchases (except occasional sales from private parties), the tax is supposed to get paid one way or another. The question dealers need to ask themselves is why would posters on Calguns get so upset about a dealer collecting sales tax that they would recommend you use your credit card and make a charge back, never use any FFL that ever charges SALES TAX on a transfer, or make blanket statements that all FFLs who do so are corrupt and are keeping the SALES TAX to pad their sales(*)?

The answer is these customers do not plan on paying their USE TAX. They want their guns cheaper and they want all SALES TAX liability for their cheating to fall squarely on your shoulders, which if you don't remit the SALES TAX, that is exactly where it will lie. If these posters were such upstanding, honest citizens, they would have no problems having the dealer collect the SALES TAX since it would be one less thing they have to worry about on their income taxes every year.

"Oh, I paid that SALES TAX to the gun shop and here is my receipt" in the case of an extremely rare BOE audit on the customer instead of "Yes tax man, I saved all of my receipts for all of my gun purchases and here they are" for every single gun you buy in a year.

So for those of you who don't like throwing your tax liability square on the shoulders of others, I am not sure if I would judge the complete operation of an FFL based on whether they collect SALES TAX or not. I like to follow the law and that is why I collect it. Now, if one of my competitors doesn't want to collect the SALES TAX (which I personally know some who don't) and you have no intention of paying the USE TAX which means you will get the gun cheaper, by all means use them. If you plan on paying the USE TAX anyway, then what is the difference? In that regard my shop is really no different than theirs and so hopefully you would judge a shop based on customer service, selection, and price.

Stating that you would never use a gun shop that charges SALES TAX on your taxable out of state transfer seems like faulty logic to me. Again, that would assume you plan on paying your USE TAX and that you aren't just trying to cheat the system at the expense of a business that is trying to follow the law. Stating you have no intention of paying the USE TAX and you are going to purchase the firearm from the cheapest source is a logical statement. It might not be rational considering you are breaking the law over probably less than $50 in taxes (quite rarely over $100), but hey, that is your decision to make.

For my gun shop, we don't assume other people's tax liability and we never will, no matter how much potential back taxes we build up.

(*)I use Quickbooks Point of Sale for all of my sales transactions. The amount of work required to void your transaction, remove the SALES TAX, and then create a new receipt where I leave the SALES TAX out is not worth it. Not to mention it would be pointless because in an audit the BOE would just look at all of my voided transactions and notice the originals had SALES TAX and the follow ups didn't. I would be in prison or paying out my rear for the rest of my life. Never mind collecting sales tax and not remitting it has to be the stupidest thing ever since the customer should have a receipt that shows SALES TAX was collected and that could be turned into the BOE and the BOE could quickly discover the SALES TAX was not remitted based on the sales receipt number showing a void.

[PRKArms]

STICKY THIS.

[grammaton76]

Question for you: on the Front Sight promotional where we're getting free guns, is there something which covers guns which are free? I guess this is the same as winning one in a raffle, etc.

I have a hunch the state is going to want sales tax on the MSRP of each and every gun we get.

[ugimports]

Question for you: on the Front Sight promotional where we're getting free guns, is there something which covers guns which are free? I guess this is the same as winning one in a raffle, etc.

I have a hunch the state is going to want sales tax on the MSRP of each and every gun we get.

I've "won" prizes before. The organization doing the giveaway sends a tax form in with the value of the item and you should get a small post card with a tax form number on it stating the value of your prize. When you do your taxes there's a form you'd fill out for "gifts" or "prizes" which I think is at a different tax rate then your normal taxes. When I won this I was a kid so I was exempt from paying it ($500 monitor).

[halifax]

I've "won" prizes before. The organization doing the giveaway sends a tax form in with the value of the item and you should get a small post card with a tax form number on it stating the value of your prize. When you do your taxes there's a form you'd fill out for "gifts" or "prizes" which I think is at a different tax rate then your normal taxes. When I won this I was a kid so I was exempt from paying it ($500 monitor).

I think you're referring to income tax there.

Question for you: on the Front Sight promotional where we're getting free guns, is there something which covers guns which are free? I guess this is the same as winning one in a raffle, etc.

I have a hunch the state is going to want sales tax on the MSRP of each and every gun we get.

I asked the BOE specifically about Front Sight "gifts" and sales tax before. Their response didn't really address my inquiry regarding out-of-state gift givers.

I concluded that I am not responsible for the sales tax under 495.0843 and 6007 because, clearly, the BOE says the "giver" of the gift is.

That was just my conclusion though...not legal advice.

[tenpercentfirearms]

report use tax on the purchase price of such items. For additional information on reporting California use tax, please refer to Publication 79b.

Sounds to me like the end user should pay use tax on the purchase price at the end of the year.

[kemasa]

Why do you say that the end user should pay? All of what you quoted do not mention the person who gets the gift.

Regulation 1670, “Gifts, Marketing Aids, Premiums and Prizes,” provides that persons who make gifts of property to others are the consumers of the property and tax applies with respect to the sale of the property to such persons.

As such, those that purchase tangible personal property, i.e. firearms, for the purpose of giving as gifts should pay sales tax reimbursement to the seller or report use tax on the purchase price of such items. For additional information on reporting California use tax, please refer to Publication 79b.

The above bolded statements do not apply to the person who receives the gift. There can be a different if you take a course and part of that they include something.

[eltee]

Declaring tax collected on transfers, etc.

When an FFL is doing his taxes, what happens if the shop does alot of transfers of high end guns and therefore collects alot of California sales tax which is out of balance with the actual profit the dealership made on dealer (shop) sales?? Do the tax collectors question why the total tax collected far exceeds the amount for declared sales?

[kemasa]

I have never had a problem. I am not sure if the BOE talks to income tax people, both just want their money.

[Cash83]

You dont charge tax on the DROS, what about HSC?

[tenpercentfirearms]

You dont charge tax on the DROS, what about HSC?

I don't. It isn't tangible property.

[Cash83]

Cool, thanks. figured it wouldn't be taxed for the same reasons as the DROS

[kemasa]

The DROS used to be taxed, but that has changed. I have never seen anything in which it is said that the HSC should be taxed.