Sales, Use and International Tax Activity Update - January 2010

California Unwraps Mystery on Gift Wrapping & Food Basket Taxability

The California State Board of Equalization has revised sales and use tax Publication 106, which previously addressed the taxability of gift-wrapping charges, to also address the taxability of gift packages that contain a combination of food and nonfood items.

The sale of gift packages that contain only food products are generally exempt from tax. If a non-food product is included in the gift package, it may be necessary to determine the taxable portion of the combination package.

The tax is based on the retail sales price of the non-food products, not including the value of the container. The seller must separate the retail value of the food and non-food products when the seller has records that verify the cost of the individual items in the package and the retail price of the non-food products is more than 10% of the retail value of the entire package, not including the container. If the seller does not have records to verify the cost of the individual items, such as when the seller purchases a combination package preassembled from the supplier, the tax may be measured by the retail sales price of the entire package, including the value of the container, if the retail value of the non-food products exceeds 10% of the retail price of the entire package, not including the container.

Regardless of whether the seller has records to verify the cost of the individual items, the sales price of the package is non-taxable if the retail value of the non-food products is 10% or less than the total value of the contents, not including the container, and the container’s retail value is 50% or less of the entire package value.

Gift-wrapping charges for products sold in a nontaxable transaction are generally exempt from tax. Gift-wrapping charges for items that a person did not sell or for items that are taxable, including charges for labor, are taxable. However, certain gift-wrapping supplies may be purchased tax-exempt for resale.

The full publication can be viewed on the California State Board of Equalization Web site.

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