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In a ruling regarding a refund claim, California ruled that popcorn sold in movie theaters is not subject to California sales and use tax due to the fact that it is not intended to be sold as a “hot food product.” The popcorn is popped and then placed in a “cornditioner” which stores the product until it is served to a customer. The cornditioner contains a fan and heating element intended to dehydrate the popped popcorn until it is served. The popcorn’s packaging contains no elements designed to insulate the popcorn. Since it is not intended to be served warm, and is instead served at room temperature, the popcorn does not fall under the California definition of hot prepared food and is not subject to tax. (Century Theaters, Inc. California State Board of Equalization. Nov. 4, 2004)


Effective January 1, 2004, California state departments and agencies may contract only with vendors, contractors, or affiliates of vendors or contractors who are registered for sales and use tax purposes with the State of California. When offering a contract to a vendor, contractor, or affiliate, California state departments or agencies are required to collect from that vendor, contractor, or affiliate the appropriate certificate or proof of registration. Exemptions to this provision apply in the case where the contract qualifies as “necessary to meet a compelling state interest.” (Sec. 10295.1, California Codes, effective as noted above.)


Since California did not adopt a budget by the June 30, 2004 deadline, and may not be able to make payments to creditors due to the lack of budget, vendors that make sales to the state of California may request an extension to file state sales tax returns and make tax payments. The extension period will expire on the last day of the month in which a budget is adopted, or, one month from the due date of the return or prepayment, whichever comes later. A letter identifying your account number, the reporting period for which you are requesting an extension and a explanation of your request must be postmarked no later than the end of the aforementioned extension periods. (California State Board of Equalization, Special Notice, July 2004).


Effective from October 1, 2004 to July 1, 2006, vehicles, vessels, and aircraft purchased in another state by residents of California must remain outside of California for more than half of the first 12 months of ownership to be exempt from California use tax. In addition, if the vehicle is subject to registration or the vessel or aircraft is subject to property tax it will be presumed to be subject to use tax in the absence of evidence to the contrary. The exemption will also apply to vehicles, vessels, and aircraft used for interstate or international commerce and to aircraft purchased outside of the state but brought into the state for repairs or modifications, if no more than 25 hours in airtime are logged in the state. (Senate Bill 1100, effective as noted above)


Multiple states have recently passed or introduced legislation setting guidelines on who is allowed to make contracts with state agencies. States have previously made it clear that their agencies are not allowed to do business with vendors who are not registered to collect and remit sales and use tax in their state. A new trend is emerging in which states are not allowing vendors to do business with their agencies if an affiliate of the vendor is supposed to, but has not registered to collect and remit sales and use tax in their state. Legislation is pending in Georgia and legislation has been passed in California, Connecticut, Illinois, Missouri, North Carolina, and Virginia. (Georgia- HB 1240, 2004; California- SB 1009, 2003; Connecticut- HB 6802, 2003; Illinois- SB 874, 2003; Missouri- HB 600, 2003; North Carolina- HB 1433, 1999; Virginia- Ruling of Commissioner, P.D. 04-4, January 23, 2004.)



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