When CA FFLs should collect SALES TAX from consumers.

[EBR Works]

Thanks for the clarification.

5000% increase in California FFL03 applications in 3, 2, 1.....

[kemasa]

Update for sales tax from an out of state private party sale of a C&R handgun to a CA resident with a C&R FFL.

In a transaction where an out-of-state private party sells a C&R firearm to a California resident who has a C&R FFL and the firearm is shipped to a California FFL dealer who only completes the paperwork and registration for the California purchaser, the transaction may be considered an exempt occasional sale provided the out-of-state private party seller and in-state purchaser with a C&R FFL agreed to the sale of the C&R firearm without any assistance from the California FFL dealer (i.e., the California FFL simply registers the firearm without taking title to it at any time). The California FFL dealer would not be considered the retailer and would not be responsible for the tax. Thus, the sale of a firearm by an out-of-state private party to a resident of California who holds a C&R FFL may be an exempt occasional sale when the sale is made through a California FFL firearm dealer as explained above.

Please note that in a transaction involving a C&R firearm it is our understanding that there is no Federal law which requires the firearm to be licensed through a California FFL dealer. Rather it is a California law that requires the firearm to be licensed through a California FFL dealer. Based on these assumptions it is possible for the transaction to qualify as an occasional sale as explained above.

On the contrary, in a transaction involving a regular firearm (i.e. not a C&R firearm) when a California FFL dealer completes the registration paperwork and delivers a firearm to a California purchaser for an out-of-state private party seller or an out-of-state retailer not registered with the BOE as a retailer engaged in business in this state, it is presumed that the California FFL dealer is the retailer of the firearm. This is due to the fact that by operation of Federal law, only the California FFL dealer possessing the firearm has power to cause title to the property to transfer to the purchaser.

Attached is a copy of the complete response with personal information removed.

BOE letter

[kemasa]

The BOE response to what sales tax to collect on penny auction sites:

In your email you state you are a California Federal Firearms Licensed (FFL) gun dealer and you have a question about sales made through the website, bidgunner.com. You explained that people purchase bids from the website and then use these bids on items they want to purchase. The site noted that the average bid cost is $0.65 and when a bid is placed the price of the item being auctioned goes up by $0.01. There are also other bidders and other types of “auctions.”

Specifically you asked what should the California sales tax be based on for firearms purchased through bidgunner.com’s website when they are shipped to you for registration and delivery to the purchaser, the purchase price? the total the person paid to purchase the product? or the retail value of the firearm?


Below is information from the bidgunner.com website:

“Welcome to Bidgunner.com,*an exciting new*online*penny auction site dedicated to offering firearms and outdoor sporting equipment at deeply discounted prices. All firearms are shipped from a Federal Firearms Licensee ("FFL") to a local FFL near you.* Further, the local FFL will require you to complete the normal paperwork ATF Form 4473 and complete an NICS E-check online to verify that you are eligible to own a firearm.** Bids are on average 65 cents on our most popular and larger packages and slightly higher for smaller bid packs.* Packs range between 30 and 500 bid packs. Remember, though, that each bid you place is a bid you've purchased.”**

Per bidgunner’s website, in order to participate in the auction, users must first purchase bids which are sold in packages. These bids are spent on the auctions. Once an auction has been won, the auctioneer (bidgunner.com) collects the auction price of the item (final bid) in addition to the monies already collected from the pre-purchased bids placed during the auction.

RTC section 6012 defines “Gross receipts” to mean the total amount of the sale or lease or rental price, as the case may be, of the retail sales of retailers, valued in money, whether received in money or otherwise, without any deduction on account of any of the following:

The cost of the property sold.
The cost of the materials used, labor or service cost, interest paid, losses, or any other expense.
The cost of transportation of the property, except as excluded by other provisions of this section.

The total amount of the sale or lease or rental price includes all of the following:

Any services that are a part of the sale.
All receipts, cash, credits and property of any kind.
Any amount for which credit is allowed by the seller to the purchaser.

Therefore, in accordance with the above citation, for products being auctioned at these type of “penny auctions,” sales tax is due on the total amount received by the auctioneer for all the bids placed plus the amount of the final auction price (winning bid) for the product. Basically, bidgunner.com receives payment for the product in the form of the final auction price plus the amount of all bids placed for the specific product being auctioned. Thus, in most instances, allowing bidgunner.com the ability to provide their products to the final bidder for lower prices.

As these are penny auctions, the bidding starts at $0.00 and goes up by a penny each time a bid is placed and bids cost on average $.65. As an example, assume the winning bid for a firearm on bidgunner’s website was $7.00, therefore there were 700 bids placed which were purchased for $.65 each. Thus, the site collected $455 (700 x $.65) in pre-sold bids. Accordingly, in this example the gross receipts subject to tax would be $462 ($455 plus the final purchase price of $7.00).

The reference number available upon request.

[BigMac]

Glock is supposed to be sending mne something in the mail about their prize guns.
If the info is any good, I will scan and post it.

[kemasa]

Yes, but if the person/company who gives the gift is outside of CA and it is shipped to CA, then it is a different issue and I don't think that sales tax is due. If the person/company brings the item to CA, then sales tax is due.

It is a mess.

[BigMac]

Jees I want to call my lawyer for a translation.

I think thats saying Glock is on the hook for the taxes becasue it's part of their gross reciepts.

I never thought I was going to need a course in Latin to sell guns..

Thanks!!

[kemasa]

How about:

http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1670.html

Regulation 1670. Gifts, Marketing Aids, Premiums and Prizes.
...
(a) GIFTS. Persons who make gifts of property to others are the consumers of the property and the tax applies with respect to the sale of the property to such persons.
...
(d) PRIZES. The operator of a game who delivers a prize to each customer is regarded as the retailer of the merchandise delivered as prizes, and the tax applies to the operator's total gross receipts. The awarding of such prizes is not regarded as dependent upon chance or skill, inasmuch as the customer for each game played is certain to receive a prize. Similarly, the tax applies to the entire receipts from operators of "grab bag" concessions by which the customer always receives some tangible personal property. If the prize consists of a food product, the tax does not apply.

[BigMac]

I found some info from the BOE Faq.

Barters ( what I see in this invoice)
8.Are barters and exchanges taxable?
Yes. The use of barter or exchanges is considered the same as making sales or purchases under the Sales and Use Tax Laws. The fair market value of the property or services received is normally the amount to which tax will apply.

For example, assume that you are a retailer of electronic equipment and owe $500 for dental care. In place of cash, you provide a television set from your inventory as full payment. The transaction is considered a taxable sale, and you must report and pay tax based on the $500.



No I need to find the prize specific info.. I do a lot of Glock prize transfers.
Thanks Again!!

[BigMac]

In this specific case I sponsor this person in 3Gun so he won't see the taxes.. but I may pay them anyway.

I'll read the other thread. Thanks for the link!!

[kemasa]

You are correct about the sales tax issues being a bigger pain, especially when the laws don't change, but the BOE's view changes, such as when the you have a letter saying that sales tax should not be collected on private sales from out of state, then now gives bogus reasons as to why you have to collect sales tax. So far I have only talk of legal action with regards to this.

As said the BOE holds you responsible, even if you have false documents stating another price that was paid. It is not worth the risk, which is why I have a policy to stop the transfer in such cases, as well as saying that they lose all rights to the firearm (let them argue that in court). Personally, I would give an opportunity to correct the price and if it does not seem reasonable, I would not do the transfer and I would not ship it to another CA FFL since you would still be considered responsible for the sales tax. There is also the issue of shipping it back knowing that they will try this scam on another FFL.

Correct, a barter is still subject to sales tax on the full value of the firearm, which can be difficult, so it is best to have an actual price.

[halifax]

Ughhh These tax rules are a bigger pain than gun rules.

So I dont collect tax on prize guns? I only collect taxes on the upgrades?


Ok, how about really expensive firearms that are delivered with an invoice with a value that is negated by an advertising payment?

Not sure what an "advertising payment" is but remember the BOE is holding the you responsible for the tax.

Here is a thread that may help.

A "bartered" agreement does not relieve you from the tax, I don't believe.

[BigMac]

Ughhh These tax rules are a bigger pain than gun rules.

So I dont collect tax on prize guns? I only collect taxes on the upgrades?


Ok, how about really expensive firearms that are delivered with an invoice with a value that is negated by an advertising payment?

[kemasa]

There are strange issues with sales tax and gifts. If the gift is shipped from out of state, then sales tax would not be due. If the company brought it to CA, then they would owe the tax.

[t0kie]

The BOE rules says that the FFL has to pay, so, no, it can not be done that way. I am pretty sure that it would not fly with the BOE and the FFL would still be in trouble.

Great, thanks kemasa. I'm still new & have a lot to learn. Special thanks to you & tenpercent that contributed a lot on this.

[randomBytes]

Glock are not located in CA.
If you get any upgrades on the free gun, the do collect sales tax on that.