California Sales Tax on Gun Purchase Question

[El Rojo]

I figure someone here might know this. I have my Board of Equalization Seller's Permit. If I sell any firearms to dealers in state, I am going to have to get a California Resale Certificate from that seller or I will have to charge them sales tax correct?

The reason I ask is if I sell someone a gun in person I collect tax, that is simple. What if I do a transfer fee for someone who buys something on an auction or from a private party out of state? Technically I am just doing a "service" and that isn't subject to tax correct?

I am currently doing a Kimber Group Buy and if I send a gun to another FFL in state, someone needs to collect sales tax. Unless the transfer FFL collects it, I need to collect it, correct? If I don't collect it then the transfer FFL needs to send me a California Resale Certificate and then they will collect it.

I would think for the purposes of my group buy it would be best for me to collect the sales tax and then the transfer dealer won't have as much claim for exorbitant fees because they are collecting the sales tax and technically they are selling the gun. Since all of the group buy funds go to me, I am the seller, I collect tax, the transfer dealer collects no tax.

Anything sent out of state collects no tax.

Thanks for your help.

 

[Marvin Gardens]

Wow. Ok, let me think about this for a second. I haven't worked an audit involving the Board of Equalization for many years. My slant on this is that the taxable event takes place when the ownership of the taxable item changes (when the item is sold). I'm saying sold here, not DROS'd. BOE isn't going to care about the DROS transaction, only about when the money changes hands and ownership of the item transfers. If I buy a gun from you and you ship the gun to another California dealer for DROS, your shipping MY gun for registration...MY gun that I purchased from you. I believe you need to charge the sales tax on these gun sales to Californians unless they are a dealer purchasing (not just transferring) and provide you a copy of their resale license (permit).

I worked for a CPA firm many years ago and saw the results of businesses not paying attention to sales tax issues. I saw a few businesses disappear after sales tax audits, the penalties and interest add up quickly...this is no joke. Even if you fold the business, you personally will still be on the hook to the B of E.

I'm not trying to scare you and am quite happy to see another (fairly) local shop in operation. I've been out of this line for awhile and am not claiming current expertise. If I was in your shoes, I'd call B of E in Bakersfield Monday and run it by them before I got too far along.

Best Wishes and Good Luck with your new enterprise.

Marvin

 

[stealthmode]

in CA also

i used a different ffl than i usually do for a recent transfer due to close proximity to my home location and was charged tax for an out of state transfer. i told the guy that i never had to pay tax before on an out of state transfer and that it is my responsibility to report the tax since i paid someone out of state for the guns and he is just the transfer agent. he said that he was and charged me tax. i will never use him again and never recommend him to anyone.

i believe he just wants to make extra money off people.

 

[Gunsnrovers]

My local FFL explained it this way:

If the FFL/seller who sent you the pistol includes a bill of sale/invoice, they will charge sales tax for the amount invoiced.

If the FFL/seller does not include that information with the shipment, they will not charge tax with the expectation that you will pay the State of California the sales tax due on April 15th.

He recommended I ask the seller to invoice seperately. That way if the firearm is lost, I have proof of purchase, shipping information, etc.

 

[Marvin Gardens]

I have a couple of friends that are dealers and they tell me that the Board of Equalization is telling them to collect tax on out of state transfers, consignments, etc. As I see it, I don't think this is legal but I don't blame the dealer for charging it since the B of E will assess these taxes after the audit and then make the dealer pay them plus penalties and interest. This seems to me to be one of these instances where the state would probably lose once it came to court but it usually takes someone with considerable resources to fight the state...that is what they count on.

Regards,

Marvin

 

[Marvin Gardens]

From the B of E website FAQ.

"If I make drop shipments on behalf of out-of-state retailers. Am I liable for sales tax?
If you make drop shipments or courtesy deliveries to consumers in California on behalf of out-of-state retailers, you are not liable for tax if the out-of-state retailer holds a California seller's permit or a Certificate of Registration - Use Tax. An out-of-state retailer who is required to hold either permit is considered the retailer and is liable for tax.

However, you are considered the retailer and are generally liable for tax if:

The out-of-state retailer is not required to hold a California seller's permit or Certificate of Registration-Use Tax, and
The retail sale of the property is subject to California sales and use tax
If the California customer is purchasing the property for resale, you are not liable for tax if you obtain a valid resale certificate from the customer.

For reporting periods on and after January 1, 2001, drop shippers may report the selling price of drop-shipped merchandise using the methods described in Regulation 1706, Drop Shipments. This regulation includes a provision that for sales and use tax reporting purposes, a drop shipper may calculate the retail selling price of its drop shipments of property based on its selling price of the property to its direct customer, the out-of-state retailer, plus a markup of 10 percent."

I'm not up to date on all of this anymore so would again suggest contacting B of E for clarification. Again, I don't blame the dealer for collecting these taxes if that's what they're being told to do by the state. Technically, sales tax is due from the seller, the seller is initially and wholly responsible for it. In the state's eye's, whether or not the seller charges the buyer a charge for sales tax reimbursement is between the seller and buyer.

Take care,

Marvin

 

[El Rojo]

Here is what I just sent the BOE.

I recently started a firearms business and have several tax questions.

1. If a person in the State of California orders a firearm from me, do I charge them sales tax even if I am not the dealer that delivers the firearm? For example, I order a pistol for you, but you live in Sacramento, I would have to send it to a local Sacramento dealer. The local Sacramento dealer will hold onto the firearm while he/she processes your ten day waiting period/background check. That dealer can charge you a fee in addition to the state mandated $25 DROS fee. Should I collect the sales tax since the customer actually bought the firearm from me?

2. If I process a firearm transaction where a individual in my area pays another dealer for a firearm, but I handle the 10 day wait/background check and chage the individual the $25 DROS fee and possibly a $30 fee I charge, what is subject to sales tax? I know the DROS fee is not subject to sales tax. What about my $30 fee to conduct the transfer? What about the cost of the firearm? If the firearm comes from in state and the purchaser already paid tax to the orginial seller, this wouldn't make any sense and would be double taxation.

What if the firearm comes from out of state and the purchaser already paid the person shipping the firearm to me? I am simply a transfer dealer charging the person a $25 DROS fee imposed by the state and $30 to do the transfer. I did not sell any tangible personal property. Do I still tax the cost of the firearm? Do I tax my $30 service charge for conducting the paperwork?

Any help you can give me answering these questions and the applicable sections where I can find the laws pertaining to these questions would be very appreciated. I would really like to make sure to follow all rules and regulations of the state. Thank you.