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Sales and Use Tax Memorandum Opinions

Fresco Sales, Inc.

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At the request of a dealer, a "home party" hostess would invite her friends and acquaintances to her home for a merchandise party at a scheduled time arranged with the dealer. That dealer would attend, display merchandise, distribute promotional materials, solicit orders for merchandise, and solicit those present to hold future merchandise parties. The hostess would be advised before the party of the general method which would be used to award her "gifts". The effort and sponsorship necessary to hold the party is good consideration for the "gifts". Therefore, the "gift" merchandise was sold to the hostesses.

BEFORE THE STATE BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA

In the Matter of the Petition of FRESCO SALES, INC. Petitioner

Appearances:

MEMORANDUM OPINION

This is a petition for redetermination of sales tax in the amount of $6,324.85, for the period January 1, 1968 to June 30, 1971.

Fresco Sales, Inc. (hereinafter "Fresco"), engaged in business as a Tupperware distributor selling Tupperware (proprietary plastic housewares) and sales materials to its independent-contractor dealers. The dealers sold the Tupperware at retail through the "Tupperware Home Party" merchandising method. During the period in question, Fresco reported its dealers' sales on its returns pursuant to the board's (R.T.C. section 6015) determination that Fresco should be regarded as the retailer for Sales and Use Tax Law purposes. The board issued a deficiency determination against Fresco for the period in question, and Fresco petitioned for a redetermination. The issues presented are: (1) whether Fresco's dealers sold "gift" merchandise to party hostesses in exchange for the parties; and (2) what amount of "gross receipts" were received by the dealers from the sales of "gift" merchandise.

The Tupperware Home Party method which Fresco urged on its dealers is illustrated by the printed materials which Fresco provided for its dealers' use. At the request of a dealer, a "home party" hostess would invite her friends and acquaintances to her home for a "Tupperware party" at a scheduled time arranged with the dealer. That dealer would attend, display Tupperware merchandise, distribute promotional materials, solicit orders for Tupperware, and solicit those present to hold future Tupperware parties. The number of persons attending, the amount of merchandise ordered, and the number of future party appointments scheduled at each party would determine "gift stars" earned by that party's hostess. Near the end of each party the dealer would compute the "gift stars" earned and offer the hostess a choice of gifts displayed in a brochure. The value of each non-Tupperware gift would be displayed in "star" rather than money amounts, and the hostess would select the gift or gifts which had "star" values which in the aggregate did not exceed the number of stars she had earned. Alternatively, the hostess could select items of Tupperware at the rate of 50 cents worth of Tupperware for each star earned. The "gifts" selected by the hostess would be delivered to her along with all the Tupperware ordered by those at her party. The hostess was expected to collect from the guests the price of the Tupperware they ordered and to deliver the Tupperware to them after it had been delivered to her.

The dealer, following the general guidelines of Fresco's distributed materials, urged prospective hostesses to hold parties. The printed brochure for hostesses who volunteered contained the method of computing the "stars" and urged them to earn "star" credits used to compute the "hostess gifts" they could receive. Guest brochures for party guests do not describe the computation, but did encourage guests to become hostesses and earn their own "gifts". In short, the text of all of the materials assumed the prospective hostess would be advised before the party of the general method which would be used to award her "gifts". The petitioner has presented no evidence that its dealers did not follow the outlined methods.

Section 6006(a) defines sales to include in part:

"Any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration."

Fresco's dealers represented to prospective hostesses that if the hostess did hold Tupperware parties, they would so earn stars entitling them to "free gifts". That constituted an offer to compensate the hostess which the hostess could accept by holding the Tupperware party. The effort and sponsorship necessary to hold the party is good consideration for the dealer's promise (cf. Civ. Code, section 1605), and therefore we hold that the "gift" merchandise was sold to the hostesses, within the meaning of section 6006.

To propose, as does petitioner, that the transfer of the "gift" merchandise was not for a consideration because the hostesses gave parties in order to enjoy themselves or in order to buy Tupperware is to confuse the consideration for the contracts with the suggested motives of the hostesses (cf. Williston on Contracts, 3rd.Ed., § 111).

If it were true that the dealers made no statements and distributed no brochures which would reasonably lead prospective hostesses to believe that they would be able to choose "gifts" as a reward for holding the party, then it would be possible to conclude that the dealers intended no offer which hostesses might accept. But Fresco's dealers' training materials and sales materials were intended to create that expectation in hostesses and that circumstance controls the matter presented by this petition.

Section 6051 imposes the sales tax on retailers at a specified percentage of their gross receipts from the sale of tangible personal property sold at retail in this state. Section 6012, defining the term "gross receipts", includes the total amount of the sales price, valued in money, whether received in money or otherwise. Having concluded that Fresco's dealers sold the "gift" merchandise in exchange for the hostesses' parties, the value of the parties must be determined so that it can be included in "gross receipts". Because the hostesses' efforts could not be directly valued, the audit assumed that the parties were worth the "stars" received for them, which were valued at 50 cents per star for the purchase of Tupperware. Therefore, all the "gift" merchandise was considered to have been sold for a value of 50 cents per "star" redeemed. No better method of valuation has appeared.

The determination, accordingly, is hereby redetermined without change.

Done at Sacramento, California, this 18th day of September, 1973.

William M. Bennett, Chairman

George R. Reilly, Member

John W. Lynch, Member

Richard Nevins, Member

Attested by: W. W. Dunlop, Executive Secretary