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Are sales samples given need a sale use tax calculation?

Rich Wong's Profile

We are giving away sales samples to retailers so they're not paying anything for the goods. In this example would we the supplier be considered the final end user and therefore have to declare and calculate the sales use tax payable to California state tax board? Thanks

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

According to the CA Sales Tax Board, the Use tax is due on the cost of the items.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Richard - I do not think the company giving the samples is responsible for the tax. However, the companies receiving the sample would be responsible for the use tax, as Wayne indicates above.

Use tax is what the person receiving has to pay when sales tax isn't charge. An example would be if your company sent a sample to someone in another state where you have no nexus, then the person receiving, whether through purchase or gifting, would be responsible for paying the respective state's use tax.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Chris,

The company receiving the merchandise has a non-sales taxable event, unless they sell said merchandise.

The company giving the merchandise has the sales-taxable event.

Whether this is logical or not is immaterial, this is what the CA code states.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Thanks Wayne. Thankfully the company I work for doesn't do business in CA, but I'm sure if we could find a project manager and a big enough construction job we'd be out there. We have a project in CT and the tax laws up there are very different than in all other states where we work. CT taxes everything it seems as it related to a construction project.

Rich Wong
Title: Consultant
Company: Independent Consultant
LinkedIn Profile
(Consultant, Independent Consultant) |

Thanks Wayne and Chris. I understand both your points of view and I'm guessing that's why state sales tax can have varied opinions on the situation.

As a follow up to this for anyone wanting to chime in, what would happen then in CA if the company sells some products at wholesale prices and also gives away some other product for free?

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

I was CFO for a medical devices company that distributed free of charge millions of educational pamphlets to medical offices and pharmacies across the USA. We paid tax in most states, including California, based on the cost of the pamphlet that was distributed.

Rich Wong
Title: Consultant
Company: Independent Consultant
LinkedIn Profile
(Consultant, Independent Consultant) |

Thanks Vernon, yes I agree with how you would have accounted for that as well.

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