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California has Revised its Publication that Addresses the Taxability of Combination Packages and Gift-Wrapping


Retail

The California State Board of Equalization has revised its publication on gift-wrapping charges to include the taxability of gift packages with a combination of food and nonfood items. Gift packages that contain only food, such as cheese, crackers, or fruit, are generally exempt from tax. However, it may be necessary to determine the taxable portion of a package if nonfood products are included in the gift basket.

For “combined” packages where records verify 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, you must separate the retail value of the nonfood products. The tax should be based on the retail sales price of the nonfood products, not including the value of the container. On the other hand, if you do not have records to verify the cost of the individual items (combination package preassembled from your supplier) and the retail value of the nonfood product exceeds 10 percent of the retail price of the entire package, not including the container, you must calculate the tax based on the retail sales price of the entire package, including the value of the container. The sales price of a combination package is nontaxable 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.

Generally sales tax does not apply to gift-wrapping charges for products sold in a nontaxable transaction. However, if you gift-wrap items that you did not sell or items that are taxable, all of your gift-wrapping charges—including charges for labor—are taxable. Certain gift-wrapping supplies like wrapping paper, tape, gift boxes, and tissue may be purchased using a resale certificate if they become a physical part of the packages you wrap. (BOE Publication 106, Combination Packages and Gift-Wrapping, California State Board of Equalization, December 2009)

(02/05/2010)
(Archived)
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