The State Board of Equalization has been updating and deleting many sales and use tax annotations as part of what is called the historic annotation project. This Herculean effort by the Board of Equalization staff has resulted in many new proposed annotations. These annotations are published by the Board of Equalization and are circulated for 30 days for comments. Once the Board approves them, they are converted into a digest of opinion and become official.

Following is a paraphrased version of some of the more interesting annotations:

Yacht charters that supply food, beverages, and dancing are liable for tax only on the selling price of the food and beverages and not the yacht charter or other entertainment. This is true even if the price is all inclusive (Annot. 550.0828).

A security alarm system leased after it is installed is taxable. The optional fee for monitoring the system is not (Annot. 330.2830). This is distinguished from contracts for the installation and service of burglar alarms which may be regarded as service agreements rather than leases. In the later case, if the value of the equipment is low in comparison to the total charge, the burglar alarm company will be regarded as the consumer of all property it uses or installs under those contracts.

Inventory purchased for resale and subsequently shipped out of state free of charge as a promotional gift is subject to California use tax. If, however, it is shipped to an out of state branch of the same company and then given away, the use (gift) is made out of state and not subject to tax. An additional caution per annotation 570.0435 (5/19/95) is that if at the time of purchase, the purchaser knew the items were to be given away, they are subject to tax even if they are shipped to an out of state branch of the purchaser. Example - A business purchases 1000 watches under a resale certificate. The purchaser's logo is on the face of 100 of the watches and at the time of purchase, the purchaser knew that these 100 were to be given away. The purchaser took delivery in California and stored them in California. Subsequently all 1000 were shipped to their out of state branch and given away for promotional purposes. In this case, 100 of these watches are taxable since they should never have been purchased for resale.

When a taxpayer prepares drawings for architects, engineers, and other persons based on specifications they have provided, the taxpayer does not perform exempt architectural services but is making taxable sales of tangible personal property (Annot. 515.0374).

And last but not least of the "top 5" is annotation 455.0750 which states, that even though Regulation 1698 authorizes destruction of records after 4 years, that does not apply to records needed to show that rented property was purchased tax paid. It is the taxpayer's burden to show tax does not apply to current rental receipts. Keep those records forever!