California Gift Baskets, Taxable or Exempt?

When I was a girl, Christmas meant baskets of rich avocados and tart grapefruit, gifts from relatives in California.  They were like gusts of warm wind, briefly thawing the New England snow and ice. What I never considered as I savored the fresh produce was whether or not my relatives had paid sales tax on those tasty purchases.

But sales tax is always worth consideration, at least for the retailers who must collect it and remit it to the state.

Recently, the California State Board of Equalization (BOE) published information on the taxability of combination packages and gift wrapping. In brief:

• A gift package containing only food is generally exempt from California sales tax;
• A gift package containing both food and nonfood products may be subject to sales tax.

Retailers with accurate records

Retailers of combination gift packages should maintain accurate records detailing the “separate retail value of the nonfood products” when:

• There are records verifying the cost of the individual items in the package, and
• The retail price of the nonfood product is more than 10 percent of the retail value of the entire package, not including the container.

Sales tax is then based on the retail sales price of the nonfood products (not including the value of the container).

Retailers without accurate records

When retailers do not maintain accurate records that verify the cost of individual items, sales tax may be based on the price of the entire package, including the value of the container, if:

• The retail value of the nonfood product exceeds 10 percent of the retail price of the entire package, not including the container, and
• There are no records to establish the cost of the individual items of the combination package.

With or without records

Gift packages are exempt from sales tax if:

• The retail value of the nonfood products is 10 percent or less than the total value of the contents (not including the container), and
• The container’s retail value is 50 percent or less of the entire package value.

Examples of each situation, along with explanations of how to tax gift wrapping supplies, are provided on the BOE website.

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photo credit: Merelymel13 via photopin cc