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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Memorandum Opinions
Gift Exchange Businesses
The operator of a gift exchange is subject to sales tax on its exchanges. The measure of tax is the agreed value of the customer's trade-in plus the amount charged by the operator.
OPINION OF THE STATE BOARD OF EQUALIZATION REGARDING THE APPLICATION OF SALES TAX TO GIFT EXCHANGE BUSINESSES
A question has arisen concerning the application of sales tax to the operator of a gift exchange business. A typical operation is as follows:
The operator advertises that he will accept new items at their retail value in exchange for other items. A customer brings in a new item of tangible personal property, frequently a gift which he has received, and selects an item in the operator's stock. The operator establishes the retail value of the customer's item from a current list and allows that value against the price marked on the item in stock, adding a charge equal to 20 percent of the retail value of the customer's item. For example, if the retail value of the customer's item is $10 and the price marked on the item in stock is $10, the operator will take the customer's item plus $2 in exchange for the item selected by the customer.
The following authorities control the application of tax to transactions of the kind described above:
1. Section 6006 of the Sales and Use Tax Law, which provides that "sale" includes any transfer of title or possession, exchange or barter, of tangible personal property for a consideration.
2. Section 6012 of the Sales and Use Tax Law, which provides that "gross receipts" mean the total sale price of the retail sales of retailers, valued in money, whether received in money or otherwise, that that sale price includes any services that are a part of the sale, all receipts, cash, credits and property of any kind, and any amount for which credit is allowed to the purchaser.
3. Sales and Use Tax Ruling 65, which provides that the amount upon which tax is computed includes the agreed allowance for property traded in.
Applying the foregoing authorities to the facts described herein, it is the opinion of this board that the operator of a gift exchange is subject to sales tax on his exchanges and that the measure of tax is the agreed value of the customer's trade-in plus the amount charged by the operator as a percentage of that value. In the example given in the facts stated above, the measure of sales tax on the operator is $12.
Done at Sacramento, California, this 4th day of June, 1969, by the State Board of Equalization.
John W. Lynch, Chairman
Paul R. Leake, Member
Richard Nevins, Member
Attested by: H. F. Freeman, Executive Secretary