Laws, Regulations and Annotations

Measure of Tax = [(($100×.47)-$10)/(1+.08)]	Total
Amount for the Sale of the Print Edition of the Newspaper Delivered (Including Sales Tax Reimbursement and Nontaxable Transportation Charges) ($100.00 x .47)	$47.00
Amount for the Sale of the Print Edition of the Newspaper Delivered Excluding Nontaxable Transportation Charges (Including Sales Tax Reimbursement) ($47.00 - $10)	$37.00
Measure of Tax for the Sale of the Mixed Newspaper Subscription ($37.00 / 1.08)	$34.26
Sales Tax Due ($34.26 x .08)	$2.74
Amount for the Nontaxable Sale of Access to Digital Content ($100.00 x .53)	$53.00

(C) Reporting Subscription Sales. Each delivery of a newspaper or periodical pursuant to a subscription sale is a separate sale transaction. When the sale is subject to tax, the retailer must report and pay the tax based upon the reporting period within which the delivery is made. The subscription price shall be prorated over the term of the subscription period.

(4) Membership Organizations. Generally, tax applies to sales of newspapers and periodicals by membership organizations. If the price is separately stated, tax applies to that amount. If the price is not separately stated, the measure of tax is the fair retail selling price of the publication.

The application of tax to distributions of newspapers and periodicals by nonprofit organizations is provided in subdivision (b)(5). The application of tax to sales of periodicals by subscription is provided in subdivision (b)(3).

(5) Nonprofit Organizations.

(A) Internal Revenue Code Section 501(c)(3) Organizations. Tax does not apply to the sale or use of any newspaper or periodical distributed by an organization that qualifies for tax exempt status under section 501(c)(3) of the Internal Revenue Code, nor tangible personal property which becomes an ingredient or component part of any such newspaper or periodical regularly issued at average intervals not exceeding three months and distributed under either of the following circumstances:

1. The issues are distributed to the organization's members in consideration of the organization's membership fee; or

2. The issues are of a newspaper or periodical which neither receives revenue from, nor accepts, any commercial advertising.

For purposes of this subdivision, any governmental entity established and administered for the purposes provided in Internal Revenue Code section 501(c)(3) shall be considered to be an organization that qualifies for tax exempt status under that section.

(B) Other Nonprofit Organizations. Tax does not apply to the sale or use of any newspaper or periodical regularly issued at average intervals not exceeding three months and distributed by a nonprofit organization, nor tangible personal property that becomes an ingredient or component part of any such newspaper or periodical, only as to issues distributed pursuant to both of the following requirements:

1. The issues are distributed to the organization's members in consideration, in whole, or in part, of the organization's membership fee;

2. The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than ten percent of the membership fee attributable to the period for which the newspaper or periodical is distributed, whether the publication is printed within or without this state. The cost of printing shall be determined as follows.

The cost of printing includes costs of tangible personal property purchased to become an ingredient or component part of the newspaper or periodical (e.g., ink and paper) and costs of labor to print the newspaper or periodical. The cost of printing does not include costs not attributable to actual printing, such as costs of special printing aids, typography, and preparation of layouts.

If the organization contracts with an outside printer to print the newspaper or periodical, the organization shall obtain and retain documentation segregating the costs of printing from the printer's other charges.

If the organization is the printer of the newspaper or periodical, the cost of printing includes the aggregate of the cost of tangible personal property purchased to become an ingredient or component part of the newspaper or periodical; labor of printing, including fringe benefits and payroll taxes; and other costs attributable to the actual printing of the newspaper or periodical.

If an organization has published the newspaper or periodical for a period exceeding twelve months and the method of printing has not changed, the organization may elect to consider the cost of printing for a reporting period to be equal to the amount paid or incurred for the same reporting period for the previous fiscal or calendar year.

(6) Newspaper Carriers. A newspaper carrier is not a retailer. The publisher or distributor for whom the carrier delivers is the retailer of the newspapers delivered. The publisher or distributor shall report and pay tax measured by the price charged to the customer by the carrier.

(7) Consumption of Property. Tax applies to the sale to or use by a newspaper or periodical publisher of tangible personal property consumed in the manufacturing process. Tax does not apply to the cost of tangible personal property lost or wasted in the manufacturing process when that property was purchased for the purpose of incorporation into a newspaper or periodical to be sold or to be distributed in accordance with subdivision (b)(2).

(8) School Catalogs and Yearbooks. Public or private schools, county offices of education, school districts, or student organizations are the consumers of catalogs and yearbooks prepared for or by them, and tax does not apply to their receipts from the distribution of the publications to students.

Tax applies to charges for the preparation of such publications made to public or private schools, county offices of education, school districts, or student organizations by printers, engravers, photographers and the like.

(c) Exemption Certificates. Any seller claiming a transaction as exempt from sales tax pursuant to Revenue and Taxation Code sections 6362.7 or 6362.8 should timely obtain in goo faith an exemption certificate in writing from the purchaser. The exemption certificate will be considered timely if obtained by the seller at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property.

(1) Certificate A. Certificate to be used for purchases of tangible personal property for incorporation into newspapers or periodicals for sale in accordance with subdivisions (b)(1) or (b)(3), above.

(2) Certificate B. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed without charge in accordance with subdivision (b)(2), above.

(3) Certificate C. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed by organizations which qualify for tax-exempt status under Internal Revenue Code section 501(c)(3) in accordance with subdivision (b)(5)(A), above.

(4) Certificate D. Certificate to be used for purchases of tangible personal property that becomes an ingredient or component part of newspapers or periodicals that are distributed by nonprofit organizations in accordance with subdivision (b)(5)(B), above.

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* This definition is based upon Houghton v. Payne (1904) 194 U.S. 88 [48 L.Ed 888] and Business Statistics Organization, Inc. v. Joseph (1949) 299 N.Y. 443 [87 N.E.2d 505].

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History—Originally published April 2, 1945 (Title 18).

Amended August 8, 1945, effective September 15, 1945.

Amended July 25, 1949, as an emergency.

Amended June 8, 1960, effective July 9, 1960.

Amended March 9, 1966, effective April 9, 1966.

Amended and renumbered April 8, 1970, effective May 10, 1970.

Amended February 6, 1975, effective March 15, 1975. Further defined "periodical" and added that a corporate annual report is not a periodical when done in different style from quarterly reports.

Amended December 7, 1977, effective January 19, 1978. Clarified in (b)(2) the tax status of school publications.

Amended March 1, 1989, effective June 9, 1989. Amended to add county offices of education to the list of organizations considered consumers and not retailers of catalogs and yearbooks prepared by and for them and distributed to students. Also amended to provide a signature and title line in the example of a publisher's exemption certificate.

Amended May 26, 1994, effective September 4, 1994. Deleted an obsolete effective date in subdivision (a)(2) and deleted an old footnote relating to subdivision (a)(2). Amended subdivision (a)(3) to clarify that newsprint and ink are ingredients of a newspaper. Added subdivisions (a)(4)–(6) and (7) to provide respective definitions for "publisher," "distributor," "newspaper carrier," and "third party retailer" as those terms are used in the regulation. Added references to the California Code of Regulations to subdivision (b)(1). Amended subdivision (b)(1) to clarify that there is no longer a general exemption for the sale and use of newspapers and periodicals. Added subdivisions (b)(2)–(9) to incorporate new statutory requirements enacted in 1991. Amended subdivision (c) to delete an obsolete exemption certificate and to provide for four new exemption certificates to be used depending on the applicable exemption. Deleted subdivision (d) as obsolete.

Amended June 14, 2016, effective October 1, 2016. Added new subdivisions (a)(8), (9), and (10); deleted "Effective July 15, 1991," in subdivision (b)(1); deleted "Effective October 2, 1991," in subdivision (b)(2). In subdivision (b)(3), deleted the first paragraph, and "Effective November 1, 1992," in the second paragraph and designated the second paragraph as subdivision (b)(3)(A) with the heading "Exempt Subscriptions," and deleted the third paragraph. Added new subdivision (b)(3)(B), and designated the former fourth paragraph as subdivision (b)(3)(C) with the heading "Reporting Subscription Sales". In subdivision (b)(5)(A), in the first paragraph deleted "Effective November 1, 1991, until October 31, 1992," and replaced ", only as to issues" with "regularly issued at average intervals not exceeding three months and" and deleted the second paragraph. In subdivision (b)(5)(B), deleted "Effective November 1, 1991," and added "regularly issued at average intervals not exceeding three months and,". Deleted former subdivision (b)(8), and renumbered former subdivision (b)(9) as (b)(8). Deleted ", 19__" following the "Date" line in Certificates A, B, C and D; added "seller's" before the second reference to "permit" in Certificate C; added "which is regularly issued at average intervals not exceeding three months" before "The tangible personal property described herein" in Certificates C and D; and deleted "6362.3," from the regulation's reference note.

Amended December 6, 2021, effective December 6, 2021. The amendments added new subdivisions (a)(1), (2), (5), (6), (10), (12), and (14); renumbered old subdivisions (a)(1), (2), (3), (4), (5), (6), (7), and (10), as subdivisions (a)(7), (9), (4), (13), (3), (8), (15), and (11), respectively; deleted old subdivisions (a)(8) and (9); deleted "considered as" from before "component" in the last sentence in renumbered subdivision (a)(4); deleted "conforms to the definition of a newspaper as set forth in a ruling of the United States Treasury Department published in the Federal Register, December 29, 1960. Under this definition, the term" after "herein" in and replaced "subparagraph" with "subdivision" throughout renumbered subdivision (a)(7); replaced "price a customer would pay to have the print edition of a newspaper delivered to their home, exclusive of any promotions or discounts, without any access to digital content" with "average … (a)(12)" in renumbered subdivision (a)(11); replaced "sells at retail" with "makes retails sales of" in and deleted the third sentence from renumbered subdivision (a)(15), which provided that "The term includes persons commonly known as direct mail, school, paid during service, cash, catalog, and telephone agents"; deleted "(18 CCR 1574)" from after "1574" and "(18 CCR 1628)" from after "1628" in subdivision (b)(1); deleted "(b)(3)" from after "this subdivision" in subdivision (b)(3)(A); revised subdivision (b)(3)(B) to replace "In the sale of" with "When a newspaper publisher sells," "is applied" with "applies," "tangible personal property portion" with "sale," and "transaction" with "print edition … delivered to … the customer," insert "not" before and delete "right to" after "the" before "access," replace "the" with "to" before and delete "is not subject to tax" after "digital content," and add a new second sentence; revised subdivision (b)(3)(B)1 to add "a newspaper publisher’s … percentage is presumed to be" before "forty-seven," and add a period and delete "of the charge for the mixed newspaper subscription is presumed to be the taxable measure from the sale of tangible personal property and tax applies to that amount; the remaining" after "percent," add "of the mixed newspaper subscription rate" after "(53) percent," insert "for" before "the nontaxable," and delete "the right to" before and replace "the" with "to" after "access"; revised subdivision (b)(3)(B)2 to replace "This presumption may be overcome" with "A newspaper publisher may … establish a lower … allocation percentage," delete "evidence" from after "by," replace "Board" with "Department," "the digital-only" with "its print-only," and "the" with "its" after "sum of," delete "the" before "digital-only," replace "greater" with "less," "fifty-three" with "forty-seven," "53" with "47," and "Taxpayers" with "A newspaper publisher," insert "pursuant to Regulation 1698, Records," and replace "a nontaxable allocation greater than fifty-three (53) percent" with "that the presumption is rebutted," and "Rates" with "Percentages"; added subdivision (b)(3)(B)3; added "in good faith" to subdivision (c); deleted "*" from after "the newspaper or periodical" in Certificate A and after "publishing" in Certificates B through D, and deleted "* Insert name and type of newspaper or periodical" from the ends of Certificates A through D; inserted "(Name and Type of Newspaper or Periodical)" under the blank field after "the newspaper or periodical" in Certificate A and each blank field after "publishing" in Certificates B through D; inserted "any applicable sales and use" before "tax" in Certificate B; and added references to Government Code sections 15570.22 and 15570.24 to the regulation’s authority note.

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Regulation 1591. Medicines and Medical Devices.

Reference: Sections 6006 and 6369, Revenue and Taxation Code, and sections 1200, 1200.1, 1204.1, and 1250, Health and Safety Code.

(a) Definitions.

(1) Administer. "Administer" means the direct application of a drug or device to the body of a patient or research subject by injection, inhalation, ingestion, or other means.

(2) Dispense. "Dispense" means the furnishing of drugs or devices upon a prescription from a physician, dentist, optometrist, or podiatrist. Dispense also means and refers to the furnishing of drugs or devices directly to a patient by a physician, dentist, optometrist, or podiatrist acting within the scope of his or her practice.

(3) Furnish. "Furnish" means to supply by any means, by sale or otherwise.

(4) Health Facility. "Health Facility" as used herein has the meaning ascribed to the term in section 1250 of the Health and Safety Code, and also includes "clinic" as defined in sections 1200 and 1200.1 of the Health and Safety Code.

(A) Section 1250 of the Health and Safety Code provides that "health facility" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer.

(B) Section 1200 of the Health and Safety Code provides that "clinic" means an organized outpatient health facility which provides direct medical, surgical, dental, optometric, or podiatric advice, services, or treatment to patients who remain less than 24 hours, and which may also provide diagnostic or therapeutic services to patients in the home as an incident to care provided at the clinic facility. A place, establishment, or institution which solely provides advice, counseling, information, or referrals on the maintenance of health or on the means and measures to prevent or avoid sickness, disease, or injury, where such advice, counseling, information, or referrals does not constitute the practice of medicine, surgery, dentistry, optometry, or podiatry, shall not be deemed a clinic for purposes of this subdivision.

(C) Section 1200.1 of the Health and Safety Code provides that "clinic" also means an organized outpatient health facility which provides direct psychological advice, services, or treatment to patients who remain less than 24 hours. As provided in section 1204.1 of the Health and Safety Code, such clinics serve patients under the direction of a clinical psychologist as defined in section 1316.5 of the Health and Safety Code, and are operated by a nonprofit corporation, which is exempt from federal taxation under paragraph (3), subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, or a statutory successor thereof, and which is supported and maintained in whole or in part by donations, bequests, gifts, grants, government funds, or contributions which may be in the form of money, goods, or services. In such clinics, any charges to the patient shall be based on the patient's ability to pay, utilizing a sliding fee scale. Such clinics may also provide diagnostic or therapeutic services authorized under chapter 6.6 (commencing with section 2900) of division 2 of the Business and Professions Code to patients in the home as an incident to care provided at the clinic facility.

(5) Pharmacist. "Pharmacist" means a person to whom a license has been issued by the California State Board of Pharmacy, under the provisions of section 4200 of the Business and Professions Code, except as specifically provided otherwise in chapter 9 of the Pharmacy Law.

(6) Pharmacy. "Pharmacy" means an area, place, or premises licensed by the California State Board of Pharmacy in which the profession of pharmacy is practiced and where prescriptions are compounded. Pharmacy includes, but is not limited to, any area, place, or premises described in a license issued by the California State Board of Pharmacy wherein controlled substances, dangerous drugs, or dangerous devices are stored, possessed, prepared, manufactured, derived, compounded, or repackaged, and from which the controlled substances, dangerous drugs, or dangerous devices are furnished, sold, or dispensed at retail. Pharmacy shall not include any area specifically excluded by paragraph (b) of section 4037 of the Business and Professions Code.

(7) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(8) Physicians, Dentists, Optometrists, and Podiatrists. "Physicians," "dentists," "optometrists," and "podiatrists" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to section 2065 of the Business and Professions Code, when acting within the scope of that section.

(9) Medicines. "Medicines" means:

(A) Except where taxable for all uses as provided in subdivision (c), any product fully implanted or injected in the human body, or any drug or any biologic, when such are approved by the United States Food and Drug Administration to diagnose, cure, mitigate, treat or prevent any disease, illness or medical condition regardless of ultimate use, or

(B) Any substance or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease and which is commonly recognized as a substance or preparation intended for that use.

The term medicines also includes certain articles, devices, and appliances as described in subdivision (b) of this regulation.

For purposes of subdivision (a)(9)(A), products "approved by the United States Food and Drug Administration" means any product for which a premarket notification was cleared by the United States Food and Drug Administration or for which an application for premarket approval was approved by the United States Food and Drug Administration.

Medicines are further defined in subdivisions (b) and (c) below.

(b) "Medicines." In addition to the definition set forth in subdivision (a)(9) of this regulation, the term "medicines" means and includes the following items:

(1) Preparations and Similar Substances. Preparations and similar substances intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease and which are commonly recognized as a substance or preparation intended for such use qualify as medicines. Tax does not apply to the sale or use of such medicines sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

"Preparations and similar substances" include, but are not limited to, drugs such as penicillin, and other antibiotics, "dangerous drugs" (drugs that require dispensing only on prescription); alcohol (70% solution) and isopropyl; aspirin; baby lotion, oil, and powder; enema preparations; hydrogen peroxide; lubricating jelly; medicated skin creams; oral contraceptives; measles and other types of vaccines; topical creams and ointments; and sterile nonpyrogenic distilled water. Preparations and similar substances applied to the human body in the diagnosis, cure, mitigation, treatment, or prevention of disease qualify as medicines. "Preparations and similar substances" also include Total Parenteral Nutrition (also called TPN), Intradialytic Parenteral Nutrition (also called IDPN), and food provided by way of enteral feeding, except when the TPN, IDPN, or food provided by enteral feeding qualifies as a meal under Regulation 1503. For purposes of this regulation, TPN, IDPN, and enteral feeding are means of providing complete nutrition to the patient; TPN and IDPN are provided in the form of a collection of glucose, amino acids, vitamins, minerals, and lipids, TPN being administered intravenously to a patient who is unable to digest food through the gastrointestinal tract and IDPN being administered to hemodialysis patients as an integral part of the hemodialysis treatment; enteral feeding is the feeding of the patient directly into the gastrointestinal tract.

(2) Permanently Implanted Articles. Articles permanently implanted in the human body to assist the functioning of, as distinguished from replacing all or any part of, any natural organ, artery, vein or limb and which remain or dissolve in the body qualify as medicines. In addition, articles permanently implanted in the human body to mark the location of a medical condition, such as breast tissue markers, qualify as medicines. An article is considered to be permanently implanted if its removal is not otherwise anticipated. Except for devices excluded from the definition of "medicines," permanently implanted articles include the interdependent internal and external components that operate together as one device in and on the person in whom the device is implanted. Tax does not apply to the sale or use of articles permanently implanted in the human body to assist the functioning of any natural organ, artery, vein or limb or mark the location of a medical condition, and which remain or dissolve in the body when such articles are sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

Permanently implanted articles include, but are not limited to, permanently implanted artificial sphincters; bone screws and bone pins, dental implant systems including dental bone screws and abutments; permanently implanted catheters; permanently implanted hydrocephalus devices and their implanted pressure regulating components; implanted defibrillators and implanted leads; pacemakers; tendon implants; testicular gel implants; and ear implants, including the ear implant's interdependent internal and external components. Sutures are also included whether or not they are permanently implanted. A non-returnable, nonreusable needle fused or prethreaded to a suture is regarded as part of the suture.

Implantable articles that do not qualify as "permanently" implanted medicines include, but are not limited to, Chemoport implantable fluid systems; Port-a-Cath systems used for drug infusion purposes; disposable urethral catheters; temporary myocardial pacing leads used during surgery and recovery; and defibrillator programmer and high voltage stimulator used with an implanted defibrillator.

(3) Artificial Limbs and Eyes. Artificial limbs and eyes, or their replacement parts, including stump socks and stockings worn with artificial legs and intraocular lenses for human beings, qualify as medicines as provided by Revenue and Taxation Code section 6369 (c)(5). Tax does not apply to the sale or use of these items when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

(4) Orthotic Devices. Orthotic devices and their replacement parts, other than orthodontic devices, designed to be worn on the person of the user as a brace, support or correction for the body structure are medicines as provided under Revenue and Taxation Code section 6369(c)(3). The sale or use of orthotic devices and their replacement parts is not subject to tax when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Orthotic devices and their replacement parts do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription provided the devices are furnished pursuant to a written order of a physician or podiatrist. For the purposes of this regulation, orthotic devices furnished pursuant to a written order of a physician or podiatrist by, but not limited to, medical device retailers, clinics, physical therapists, device suppliers, intermediate care facilities, or other such persons, are deemed to be dispensed on prescription within the meaning of subdivision (d)(1).

Orthotic devices worn on the body of the person include, but are not limited to, abdominal binders and supports, ace bandages, ankle braces, anti-embolism stockings, athletic supporters (only for patients recovering from rectal or genital surgery), casts, and cast components, cervical supports, neck collars, cervical traction devices, clavicular splints, post-surgical corsets, elbow supports, head halters, pelvic traction devices, post-operative knee immobilizers and braces, legging orthoses, rib belts and immobilizers, rupture holders, sacral belts, sacro-lumbar back braces, shoulder immobilizers, slings, stump shrinkers, sternum supports, support hose (and garter belts used to hold them in place), thumb and finger splints, trusses, and wrist and arm braces. All of the above must be worn on the body of the person and act as a brace, support or correction for body structure to qualify as a medicine. If any part of the orthotic device is not worn on the person, the device is not a medicine for the purposes of this regulation.

Orthopedic shoes and supportive devices for the foot do not qualify as medicines unless they are an integral part of a leg brace or artificial leg or are custom-made biomechanical foot orthoses. "Custom-made biomechanical foot orthosis" means a device that is made on a positive model of the individual patient's foot. The model may be individually constructed from suitable model material such as plaster of paris, stone, or wax, and may be manually constructed or fabricated using electronic technology.

"Custom-made biomechanical foot orthosis" do not include:

(A) any pre-made or pre-molded foot orthosis or shoe insert even if it has been modified or customized for an individual patient by the practitioner regardless of the method of modification;

(B) any foot orthosis fabricated directly on the patient's foot regardless of the method and materials used and regardless of its individual character; or

(C) any foot orthosis fabricated inside of the patient's shoe regardless of the method of manufacture and materials used and regardless of its individual character.

(5) Prosthetic Devices. Prosthetic devices and their replacement parts designed to be worn on or in the patient to replace or assist the functioning of a natural part of the human body, are medicines as provided under Revenue and Taxation Code section 6369(c)(4). The sale or use of prosthetic devices and their replacement parts is not subject to tax when sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6). Prosthetic devices and their replacement parts do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription provided the devices are furnished pursuant to a written order of a physician or podiatrist. For the purposes of this regulation, prosthetic devices furnished pursuant to a written order of a physician or podiatrist by, but not limited to, medical device retailers, clinics, physical therapists, device suppliers, intermediate care facilities, or other such persons are deemed to be dispensed on prescription within the meaning of subdivision (d)(1). For purposes of this regulation only, prosthetic devices include bags and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense enteral feeding to the patient, including: gastrostomy tubes (also called G tubes) which are used to deliver the nutrition directly into the stomach; jejunostomy tubes (also called J tubes) which are used to deliver the nutrition directly into the intestinal tract; and nasogastric tubes (also called NG tubes) which are used to deliver the nutrition directly through the nasal passage to the stomach. For purposes of this regulation only, prosthetic devices also include needles, syringes, cannulas, bags, and tubing, as well as filters, locks, tape, clamps, and connectors which are integral to the tubing, each of which is used to dispense TPN or IDPN to the patient, provided each of these items is used primarily to dispense the TPN or IDPN.

Prosthetic devices that are considered medicines when worn on or in the patient include, but are not limited to, acetabular cups, atrial valves, cervical cuff, dacron grafts, heart valves, breast tissue expanders and tissue expanders, orbital implant, nerve cups, rhinoplasty prosthesis, neuromuscular electrical stimulators, transcutaneous nerve stimulators, urinary incontinent devices, and wigs and hairpieces prescribed by a physician or podiatrist.

Prosthetic devices that do not qualify as "medicines" include, but are not limited to, air compression pumps and pneumatic garments; noninvasive, temporary pace makers; vacuum/constriction devices used to treat male impotency; auditory, ophthalmic and ocular devices or appliances; and dental prosthetic devices and materials such as dentures, removable or fixed bridges, crowns, caps, inlays, artificial teeth, and other dental prosthetic materials and devices. Sales of such items are subject to tax in the same manner as any other sale of tangible personal property.

(6) Drug Infusion Devices. Programmable drug infusion devices worn on or implanted in the human body which automatically cause the infusion of measured quantities of a drug on an intermittent or continuous basis at variable dose rates and at high or low fluid volume into the body of the wearer of the device qualify as medicines under Revenue and Taxation Code section 6369(c)(6). The sale or use of the qualifying infusion device is not subject to tax when the device is sold or furnished under one of the conditions provided in subdivision (d)(1) through (d)(6).

(c) Exclusions from the Definition of "Medicines". Except as otherwise provided in subdivision (b), the following items are specifically excluded from the definition of medicines. Sales of these items are subject to tax in the same manner as any other sale of tangible personal property.

(1) Orthodontic, prosthetic (except as described in subdivision (b)(5)), auditory, ophthalmic or ocular devices or appliances.

(2) Articles which are in the nature of splints, bandages, pads, compresses, supports, dressings, instruments, apparatus, contrivances, appliances, devices or other mechanical, electronic, optical or physical equipment or article or the component parts and accessories thereof. "Medicines" does not include arch supports, cervical pillows, exercise weights (boots or belts), hospital beds, orthopedic shoes and supportive devices (unless an integral part of a leg brace or artificial leg), plastazote inserts, plastazote shoes, plastic shoes (custom or ready-made), sacro-ease seats, shoe modifications, spenco inserts, traction units (other than those fully worn on the patient), thermophore pads, or foot orthoses.

(3) Any alcoholic beverage the manufacture, sale, purchase, possession or transportation of which is licensed and regulated by the Alcoholic Beverage Control Act (Division 9, commencing with section 23000, of the Business and Professions Code).

(d) Application of Tax—In General. Tax applies to retail sales, including over-the-counter sales of drugs and medicines, and other tangible personal property by pharmacists and others. However, tax does not apply to the sale or use of medicines when sold or furnished under one of the following conditions:

(1) prescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a pharmacist in accordance with law, or

(2) furnished by a licensed physician, dentist or podiatrist to his or her own patient for treatment of the patient, or

(3) furnished by a health facility for treatment of any person pursuant to the order of a licensed physician, dentist or podiatrist, or

(4) sold to a licensed physician, dentist, podiatrist or health facility for the treatment of a human being, or

(5) sold to this state or any political subdivision or municipal corporation thereof, for use in the treatment of a human being; or furnished for the treatment of a human being by a medical facility or clinic maintained by this state or any political subdivision or municipal corporation thereof, or

(6) effective January 1, 1995, furnished by a pharmaceutical manufacturer or distributor without charge to a licensed physician, surgeon, dentist, podiatrist, or health facility for the treatment of a human being, or to an institution of higher education for instruction or research. Such medicine must be of a type that can be dispensed only: (a) for the treatment of a human being, and (b) pursuant to prescriptions issued by persons authorized to prescribe medicines. The exemption provided by this subdivision applies to the constituent elements and ingredients used to produce the medicines and to the tangible personal property used to package such medicines.

(e) Specific Tax Applications.

(1) Prescriptions. No person other than a licensed physician, dentist, optometrist or podiatrist is authorized to prescribe or write a prescription for the treatment of a human being. Tax does not apply to the sale or use of medicines prescribed by a licensed physician, dentist, optometrist, or podiatrist for the treatment of a human being and dispensed on prescription filled by a pharmacist.

(2) Licensed Physician, Dentist or Podiatrist. Tax does not apply to a specific charge made by a licensed physician, dentist or podiatrist to his or her own patient for medicines furnished for the treatment of the patient. Tax also does not apply to sales of medicines to licensed physicians, dentists or podiatrists for the treatment of a human being regardless of whether the licensed physician, dentist or podiatrist makes a specific charge to his or her patient for the medicines furnished.

(3) Health Facility. Tax does not apply to sales of medicines by a health facility (as defined in subdivision (a)(4)) for the treatment of any person pursuant to the order of a licensed physician, dentist or podiatrist. Tax does not apply to sales of medicines to a health facility for the treatment of a human being regardless of whether or not a specific charge is made for the medicines.

(4) Pharmaceutical Manufacturer or Distributor. Tax does not apply to the storage, use or consumption of medicines furnished by a pharmaceutical manufacturer or distributor without charge to a licensed physician, surgeon, dentist, podiatrist, or health facility for the treatment of a human being or furnished without charge to an institution of higher education for instruction or research provided the medicines furnished are of a type that can be dispensed only (1) on prescription by persons authorized to prescribe and (2) for the treatment of a human being. The exemption from tax includes the costs of the materials used to package the "sample" medicines, such as bottles, boxes, blister packs, patches impregnated with medicines, or pre-filled syringes, and the elements and ingredients used to produce the "samples" whether or not such items are purchased under a resale certificate in this state or outside this state. When a pre-filled syringe or other such delivery device is used to package and contain a sample medicine (i.e., pre-filled with the medicine) as well as to inject or otherwise administer the medicine to the patient, the exemption from tax will not be lost due to the fact that the device is used for a dual purpose. However, the use of empty syringes or other such delivery devices, furnished to the licensed physician separately or included in the packages with the medicines, is subject to tax.

This exemption applies in the same manner to the use of clinical trial medicines during the United States Food and Drug Administration's drug development and approval process. "Clinical trial medicines" are substances or preparations approved as "Investigational New Drugs" by the United States Food and Drug Administration intended for treatment of, and application to, the human body, which are furnished by a pharmaceutical developer, manufacturer, or distributor to a licensed physician and subsequently dispensed, furnished, or administered pursuant to the order of the licensed physician. "Clinical trial medicines" do not include placebos. Placebos are not used for the treatment of a human being and, as such, do not qualify for the exemption provided under this subdivision. Thus, the use of placebos is subject to tax.

(5) Antimicrobial Agents Used by Hospital Personnel. Tax does not apply to the sale or use of substances or preparations, such as antiseptic cleansers or scrubs, when such substances or preparations qualify as medicines and are used by hospital personnel on the patient or by hospital personnel on their own bodies to benefit the patient, and which constitute a critical component of the patient's treatment. Qualifying medicines used on the bodies of hospital personnel include antimicrobial agents used for preoperative scrubbing or hand cleansing prior to any patient contact such as Accent Plus Skin Cleanser; Accent Plus Perinal Cleanser; Bacti-Stat; Betadine; and Medi-Scrub. However, antimicrobial agents such as Accent Plus 1 Skin Lotion; Accent Plus 2 Body Massage; Accent Plus 2 Skin Crème; and Accent Plus Total Body Shampoo applied to the body of hospital personnel are not considered used in the treatment of the patient and the sale or use of these products is subject to tax.

(6) Vitamins, Minerals, Herbs, and Other Such Supplements. In general, sales of vitamins, minerals, herbs and other such supplements are subject to tax. However, when vitamins, minerals, herbs and other such supplements are used in the cure, mitigation, treatment or prevention of disease, and are commonly recognized as a substance or preparation intended for such use, they will qualify as medicines for the purposes of Revenue and Taxation Code section 6369. As such, their sale or use is not subject to tax when sold or furnished under one of the conditions in subdivision (d)(1) through (d)(6).

(7) Dietary Supplements and Adjuncts. Dietary supplements and adjuncts furnished to a patient as part of a medically supervised weight loss program to treat obesity qualify as medicines for the purposes of Revenue and Taxation Code section 6369 when the product does not otherwise qualify as a food product under Regulation 1602. The sale or use of such products is not subject to tax when sold or furnished under one of the conditions in subdivision (d)(1) through (d)(6) .

(8) Diagnostic Substances, Test Kits, and Equipment. Tax applies to the sale or use of diagnostic substances applied to samples of cells, tissues, organs, or bodily fluids and waste after such samples have been removed, withdrawn, or eliminated from the human body. Diagnostic substances are applied to the samples outside the living body ("in vitro") in an artificial environment. They are not administered in the living body ("in vivo"). As the substances are not applied internally or externally to the body of the patient, they do not qualify as medicines under Revenue and Taxation Code section 6369.

Except as provided in Regulation 1591.1(b)(4), tax applies to the sale or use of test kits and equipment used to analyze, monitor, or test samples of cells, tissues, organs and blood, saliva, or other bodily fluids. Such items do not qualify as medicines regardless of whether they are prescribed for an individual by a person authorized to prescribe and dispensed pursuant to a prescription.

(f) Insurance Payments.

(1) Medical Insurance and Medi-Cal. The exemption of retail sales of medicines is not affected by the fact that charges to the person for whom the medicine is furnished may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer.

(2) Medicare.

(A) Medicare Part A. Tax does not apply to the sale of items to a person insured pursuant to Part A of the Medicare Act as such sales are considered exempt sales to the United States Government. Under Part A, the healthcare provider has a contract with the United States Government to provide certain services. Therefore, to the extent allowed pursuant to Regulation 1503, sales of medicines, devices, appliances, and supplies in which payment is made under Part A qualify as exempt sales to the United States Government.

(B) Medicare Part B. Tax applies to sales of items to a person in which payment is made pursuant to Part B of the Medicare Act. Sales made under Part B do not qualify as exempt sales to the United States Government even though the patient may assign the claim for reimbursement to the seller and payment is made by a carrier administering Medicare claims under contract with the United States Government. Under Part B, the seller does not have a contract with the United States Government. The contract is between the patient and the United States Government. Unless the sale is otherwise exempt (such as a sale of a medicine under suddivision (d)), the sale is subject to tax.

(3) Employer Medical Contracts. Certain employers have contracted with their employees to provide the latter with medical, surgical, and hospital benefits in a hospital operated by or under contract with the employer for a fixed charge. Usually the charge is by payroll deduction. These contracts are not insurance plans; rather, they are agreements to furnish specified benefits under stated conditions, one of which may be that no charge is to be made to the employee for prescribed medicines. The agreements may provide for making a charge for medicines furnished to out-patients but not to in-patients. This in no way affects the exemption of sales of medicines.

(g) Records. Any pharmacy whether in a health facility or not must keep records in support of all deductions claimed on account of medicines. Section 4081 of the Business and Professions Code requires that all prescriptions filled shall be kept on file and open for inspection by duly constituted authorities.

Pursuant to section 4081 of the Business and Professions Code, physicians and surgeons and podiatrists must keep accurate records of drugs furnished by them. Any deduction on account of sales of medicines shall be supported by appropriate records.

(1) The following written information constitutes acceptable documentation for retailers in those cases where sales are made of supplies which are "deemed to be dispensed on prescription" within the meaning of section 6369:

Name of purchaser
Name of doctor
Date of sale
Item sold
The sale price

(2) "Double Deduction" Unauthorized. The law does not, of course, permit a double deduction for sales of exempt medicines. For example, if an exemption is claimed on account of a sale of a prescription medicine, no additional deduction for the same sale may be taken as a sale to the United States Government under the Medicare Program.

(3) Persons making purchases of items in which their sale or use is exempt under this regulation should give their suppliers an exemption certificate pursuant to Regulation 1667.

History—Effective January 1, 1962.

Amended May 16, 1962.

Amended September 18, 1963, effective as amended September 20, 1963.

Amended and renumbered December 10, 1969, effective January 11, 1970.

Amended May 4, 1971, effective July 1, 1971.

Amended September 14, 1972, effective September 15, 1972.

Amended January 18, 1973, effective January 26, 1973.

Amended October 20, 1977, effective October 28, 1977. Changed to conform to Revenue and Taxation Code section 6369 and 6369.2. Added orthotic and prosthetic devices to definition of "medicines;" excluded "dentures" from the definition of "medicines;" added mammary prostheses and ostomy appliances to items to be dispensed on prescription; added wheelchairs, crutches, canes, quad canes and walkers as exempt items. Changed all references to the term "hospital" to "health facility" as defined in section 1250 of the Health and Safety Code.

Amended March 1, 1978, effective April 29, 1978. In (b)(4) added list of specific orthotic devices; in (b)(5) added list of prosthetic devices; in (c)(1), (2) and (3) included specific items excluded from the term "medicines"; in (g) made grammatical change; in (i) added list of specific items to be included under this section; in (j) added leases to transactions to which tax does not apply and provided that tax applies to all replacement parts; in (m) deleted references to former section 280 of Title 17, California Administrative Code, and added (1) specifying acceptable documentation for exempt sales and (3) suggesting use of Regulation 1667 "Exemption Certificates."

Amended July 27, 1978, effective July 31, 1978. In (b)(5) deleted dental crowns, caps and inlays from definition of "medicines"; in (c)(1) added crowns, caps, inlays and other dental prosthetic materials and devices to exclusions from term "medicines"; in (c)(2) added orthodontic appliances to exclusions from term "medicines"; in (i) provided that orthotic and prosthetic devices shall be deemed to be dispensed on prescription; in (k) exempted replacement parts for wheelchairs, crutches, canes, quad canes and walkers from tax.

Amended September 27, 1978, effective November 18, 1978. In (b)(5) added intraocular lenses and ear implants; moved general exclusionary language from (c)(3) to (c); to (c)(2) added reference to footnote 3; and added reference to orthodontic appliances and devices to footnote 3.

Amended September 26, 1979, effective November 16, 1979. Adds (1); reletters former (1) and following subdivision.

Amended July 27, 1983, effective November 17, 1983. Added subdivision (b)(7); changed reference in first sentence of (c) from (b)(6) to (b)(7). Added "and, on or after January 1, 1983, "insulin syringes" to subdivision (h) and added subdivision (m); relettered former subdivisions (m), (n), (o) to (n), (o), (p).

Amended August 24, 1988, effective October 7, 1989. In subdivision (b)(4) added provisions to include "custom made biomechanical foot orthoses" within the definition of the term medicines.

Amended October 26, 1993, effective February 17, 1994. Amended subdivision (k) to provide the exemption from tax for white canes used by the legally blind; removed obsolete dates in subdivisions (b)(4), (b)(7), (h), and (m).

Amended June 27, 1996, effective August 23, 1996. Amended subdivisions (b)(4) and (5) to correct spelling errors; added new subdivision (n), and renumbered former subdivisions (n), (o), and (p) as (o), (p), and (q), respectively.

Amended November 19, 1996, effective December 19, 1996. Added new (a)(7) to incorporate provisions of Assembly Bill 3836 (Chapter 857, Statutes of 1994).

Amended August 10, 1998, effective October 17, 1998. Amended subdivisions (a)(6), (d), (e) to reflect changes in sections of the Business and Professions Code; corrected spelling errors in subdivisions (b)(4)(A) and (b)(5); changed "which" to "that" in subdivision (g); removed obsolete date in subdivision (k); amended subdivisions (l)(1) and (l)(3)(B) to reflect changes in sections of the California Vehicle Code.

Amended November 18, 1999, effective March 10, 2000. Deleted the references to sections 6369.1, 6369.2, 6369.4 and 6369.5 for those parts of former Regulation 1591 that were repromulgated as Regulations 1591.1, 1591.2, 1591.3 and 1591.4. Subdivision (a) formerly titled "Generally" was deleted and replaced with new subdivision (a) titled "Definitions." Subdivision (b) retitled "Medicines;" also added the phrase "the following items" to the end of the first sentence. Subdivision (b)(1) added new title "Preparations and Similar Substances" and amended language for clarity; new sentence added to the end of the first paragraph; also added new unnumbered paragraph. Subdivision (b)(2) added new title "Permanently Implanted Articles;" amended the first sentence for clarity; former second sentence deleted; new second and third sentences added; also two new unnumbered paragraphs added. Subdivision (b)(3) added new title "Artificial Limbs and Eyes;" amended the first sentence for clarity; new last sentence added. Subdivision (b)(4) added new title "Orthotic Devices;" amended first sentence for clarity; deleted the part of the former first sentence after the semi-colon; deleted former second, third and fourth sentences and replaced them with new sentences which define when orthotic devices qualify as exempt medicines; examples (A), (B) and (C) consisting of items which do not qualify as custom-made biomechanical foot orthosis, were moved to become the new third unnumbered paragraph; the former second unnumbered paragraph, becomes the first unnumbered paragraph and is amended for clarity; new last sentence added; also new'second unnumbered paragraph added. Subdivision (b)(5), added the title "Prosthetic Devices;" deleted the phrase "other … devices" from the first sentence and included its content in a new third unnumbered paragraph; added the phrase "are … 6369(c)(4)" to the end of the first sentence; also added new second, third and fourth sentences to the first paragraph; and new second and third unnumbered paragraphs added. Subdivision (b)(6) deleted and prior content moved to subdivision (b)(3). Former subdivision (b)(7) renumbered (b)(6) and retitled "Drug Infusion Devices;" added the phrases "a drug on … volume" and "qualify … section 6369(c)(6)." to the first sentence; also added a new second sentence. Subdivision (c), deleted the word "Term" in the title and replaced it with the phrase "the Definition of;" in the first paragraph deleted the cross-reference "(b)(2) through (b)(7) above" and replaced it with "subdivision (b)" in the first sentence; remainder of first sentence amended for clarity; also new second sentence added. In subdivision (c)(1) added cross-reference to new subdivision (b)(6). Subdivision (d) formerly titled "Who is a Registered Pharmacist" was deleted and its content transferred to new subdivision (a)(5) titled "Pharmacist." The language of former subdivision (a) "General" was moved to new subdivision (d) titled "Application of Tax —In General." New subdivisions (d)(1) through (d)(6) added. Subdivision (e) formerly titled "What Constitutes a Prescription" deleted and most of its content repromulgated as subdivision (a)(7). New subdivision (e) retitled "Specific Tax Applications." New subdivision (e)(1) added, detailing who can write a prescription. Subdivision (f) "Licensed Physician, Dentist or Podiatrist" renumbered as subdivision (e)(2). Subdivision (g) "Health Facility" renumbered as new subdivision (e)(3); the first sentence up to the colon deleted; also deleted the first unnumbered paragraph in former subdivision (g) and repromulgated it as (a)(4); and added the phrase "by a health facility" and a reference to (a)(4) in the first sentence. New subdivision (e)(4) added. New subdivision (e)(5) added to conform the regulation to the decision in Purdue Frederick Co. v. SBE (1990) 218 Cal.App.3d 1021 and to codify in regulatory form interpretations of the case now contained in annotations. New subdivisions (e)(6) and (e)(7) added. Former subdivisions (h) through (n) deleted. Former subdivision (o) redesignated as subdivision (f) "Insurance Payments." New subdivision (f)(1) titled "Medical Insurance and Medi-Cal" added, using the language of former subdivision (o). New subdivision (f)(2) titled "Medicare" added. Former subdivision (p) relettered (f)(3). Former subdivision (q) "Records," relettered (g); changed reference from section 4331 to section 4081 of the Business and Professions Code and added the words "and surgeons" in the second sentence; also changed the reference from section 4051 to section 4081 of the Business and Professions Code in first unnumbered paragraph. Subdivision (g)(1) added the phrase "Revenue and Taxation Code" to the first sentence. Subdivision (g)(3) added the phrase "in which their sale or use is" to first sentence; also changed the term "exempt" to "not taxable."

Amended December 13, 2000, effective April 12, 2001. Subdivision (b)(1), unnumbered paragraph—third and fourth sentences added to include liquid nutrition products in the definition of "substances and preparations." Subdivision (b)(2), first unnumbered paragraph, phrase added to clarify that dental implant systems, including dental bone screws and abutments are considered "permanently implanted articles." Subdivision (b)(5), fifth and sixth sentences added to clarify that specified devices used to administer liquid nutrition are included in the term "prosthetic devices."

Amended December 4, 2003, effective February 25, 2004. Subdivision (b)(2), second un-numbered paragraph—word "and" added before words "defillibrator programmer" and phrase "and tissue and breast expanders" deleted. Subdivision (b)(4)—word "ORTHODIC" corrected to "ORTHOTIC" in title. Subdivision (b)(5)—phrase "breast tissue expanders and tissue expanders" added to first un-numbered paragraph.

Amended May 17, 2006, effective August 26, 2006. Subdivisions (a)(9) and (b), added language to explain that subject to certain qualifications, the term "medicines" includes certain items approved by the U.S. Food and Drug Administration (FDA) to diagnose, cure, mitigate, treat or prevent any disease, illness or medical condition. Corrected reference in subdivision (c)(1).

Amended December 12, 2006, effective July 30, 2007. Amended subdivision (a)(4) to incorporate statutory language, which defines "clinic" for purposes of including "clinic" in the definition of "health facility." In subdivisions (f)(2)(B) and (g)(3), corrected words "non-taxable" and "not taxable" to "exempt."

Amended September 17, 2008, effective December 14, 2008. In subdivision (e)(7), added language to clarify that dietary supplements and adjuncts furnished to a patient as part of a medically supervised weight loss program to treat obesity qualify as medicines. Previous language in subdivision (e)(7) is new subdivision (e)(8).

Amended February 3, 2009, effective May 29, 2009. Amended subdivision (b)(2) to clarify that "permanently implanted articles" include interdependent internal and external components that operate together as one device in and on the person in whom the device is implanted. Amendments also clarify that an ear implant includes the ear implant's interdependent internal and external components.

Amended April 28, 2015, effective October 1, 2015. Amended subdivision (a)(9)(A) to replace "U.S." with "United States"; added two sentences to the end of subdivision (a)(9) to define "approved by the United States Food and Drug Administration" and cross reference subdivisions (b) and (c). In subdivision (b) replaced "section" with "regulation". In subdivision (b)(2): in the first paragraph, added a new second sentence regarding "articles permanently implanted in the human body to mark the location of a medical condition" and added "or mark the location of a medical condition," to the last sentence; in the third paragraph, deleted the last sentence which provided that "The sale or use of these items is subject to tax". Deleted "of Regulation 1591" from the end of subdivision (e)(7). Additionally, non-substantive punctuation and grammatical changes were made throughout the regulation.

Amendments filed with the Secretary of State March 17, 2021, and effective March 17, 2021. The amendments added "to the extent allowed pursuant to Regulation 1503," to subdivision (f)(2)(A).

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Regulation 1591.1. Specific Medical Devices, Appliances, and Related Supplies

Reference: Sections 6006, 6369, and 6369.1, Revenue and Taxation Code.

(a) Definitions.

(1) Physicians, Dentists, Optometrists, and Podiatrists. "Physicians," "dentists," "optometrists," and "podiatrists" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to section 2065 of the Business and Professions Code, when acting within the scope of that section.

(2) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(b) Specific Applications.

(1) Hemodialysis Products. Tax does not apply to the sale or use of hemodialysis products supplied on order of a licensed physician and surgeon to a patient by a pharmacist or by a manufacturer, wholesaler, or other supplier authorized by section 4054 or 4059 of the Business and Professions Code to distribute such products directly to the patient.

(2) Mammary Prostheses and Ostomy Appliances and Related Supplies. Tax does not apply to the sale or use of mammary prostheses and ostomy appliances and related supplies required as a result of any surgical procedure by which an artificial opening is created in the human body for the elimination of natural waste when sold or furnished under one of the conditions provided in Regulation 1591 subdivision (d)(1) through (d)(6). The mammary prostheses devices and ostomy appliances and related supplies do not need to be furnished by a pharmacist, within the meaning of subdivision (d)(1), to be considered dispensed on prescription as long as they are furnished pursuant to a written order of a person authorized to prescribe.

Ostomy appliances and related supplies must be used in postoperative situations or sold as an accommodation to patients following surgery in order to qualify as medicines. When used as an adjunct to surgical procedures, the sale or use of these items is subject to tax unless the appliances remain in the patient for postoperative purposes.

Qualifying mammary prostheses and qualifying ostomy appliances and related supplies include, but are not limited to, bras to hold a mammary prosthesis in place, filler pads, lymphedema arm sleeves, adhesive spray and remover: catheters used as a result of an artificial opening created in the human body; colostomy bags; deodorant used on the person of the user; karaya rings; antacid used externally as a skin ointment; skin gel; nonallergic paper tape and gauze; skin bond cement; tincture of benzoin applied topically as a protective; urinary drainage appliances; closed stoma bags; drainable stoma bags; loop ostomy supplies and tubing; and endotracheal and tracheotomy tubes and tracheostomy tubes used for the evacuation of metabolic waste when used post-operatively or for home care.

(3) Kidney Dialysis Machines. The term "ostomy appliances" and "related supplies" includes kidney dialysis machines, replacement parts for the kidney dialysis machines, and the catheters, dialysis fluid additives, volumetric infusion pumps, tubing, blood sets, fistula sets, and shunts used in conjunction with such machines. In order to qualify as a "related supply," an item must be a necessary and integral part of the machine itself, or a substance or preparation intended for external or internal application to the human body of the patient undergoing dialysis.

(4) Catheters. Generally, sales of catheters are subject to tax in the same manner as other sales of tangible personal property. However, sales of the following types of catheters are not subject to tax.

(A) Intra-aortic balloon pump catheters and coronary angioplasty balloon catheters.

However, sales of related supplies are subject to tax. The term "related supplies" includes, but is not limited to, coronary guiding catheters, coronary guide wires, guide wire introducers, sheath introducer systems, torquing devices, hemostatic valves, inflation devices, and syringes.

(B) Catheters which are permanently implanted in the human body and assist the functioning of a natural organ, artery, vein, or limb and remain or dissolve in the body.

(C) Catheters used for drainage purposes through which an artificial opening is created in the human body. Such catheters qualify as ostomy materials and related supplies.

(D) Catheters or similar types of devices used for drainage purposes through natural openings in the human body to assist or replace the functioning of a natural part of the human body. Such catheters are designed to be worn on or in the body of the user and qualify as prosthetic devices.

(5) Insulin and Insulin Syringes. "Insulin" and "insulin syringes" furnished by a pharmacist to a person for treatment of diabetes as directed by a physician shall be deemed to be dispensed on prescription within the meaning of Revenue and Taxation Code section 6369(e). As such, the sale or use of insulin and insulin syringes furnished by a pharmacist to a person for treatment of diabetes, as directed by a physician, is exempt from tax.

Glucose test strips and skin puncture lancets furnished by a registered pharmacist that are used by a diabetic patient to determine his or her own blood sugar level and the necessity for and amount of insulin and/or other diabetic control medication needed to treat the disease in accordance with a physician's instructions are an integral and necessary active part of the use of insulin and insulin syringes or other anti-diabetic medications and, accordingly, are not subject to sale or use tax pursuant to subsection (e) of Revenue and Taxation Code section 6369. These medical supplies are not medicines and their sale or use does not qualify for tax exemption under subsections (a) or (b) of Revenue and Taxation Code section 6369.

History—Promulgated December 9, 1999, effective March 10, 2000.

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Regulation 1591.2. Wheelchairs, Crutches, Canes, and Walkers.

Reference: Sections 6006, 6369, and 6369.2, Revenue and Taxation Code, and Sections 1200, 1200.1, 1204.1, and 1250, Health and Safety Code.

(a) Definitions.

(1) Physician. For purposes of this regulation, "physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical

Board of California, the Osteopathic Medical Board of California, or the California Board of Podiatric Medicine. Physician, as defined, includes doctors of medicines (MD), doctors of osteopathy (DO), and doctors of podiatric medicine (DPM).

(2) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(3) Health Facility. "Health Facility" as used herein has the meaning ascribed to the term in section 1250 of the Health and Safety Code, and also includes "clinic" as defined in sections 1200 and 1200.1 of the Health and Safety Code.

(A) Section 1250 of the Health and Safety Code provides that "health facility" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer.

(B) Section 1200 of the Health and Safety Code provides that "clinic" means an organized outpatient health facility which provides direct medical, surgical, dental, optometric, or podiatric advice, services, or treatment to patients who remain less than 24 hours, and which may also provide diagnostic or therapeutic services to patients in the home as an incident to care provided at the clinic facility. A place, establishment, or institution which solely provides advice, counseling, information, or referrals on the maintenance of health or on the means and measures to prevent or avoid sickness, disease, or injury, where such advice, counseling, information, or referrals does not constitute the practice of medicine, surgery, dentistry, optometry, or podiatry, shall not be deemed a clinic for purposes of this subdivision.

(C) Section 1200.1 of the Health and Safety Code provides that "clinic" also means an organized outpatient health facility which provides direct psychological advice, services, or treatment to patients who remain less than 24 hours. As provided in section 1204.1 of the Health and Safety Code, such clinics serve patients under the direction of a clinical psychologist as defined in section 1316.5 of the Health and Safety Code, and are operated by a nonprofit corporation, which is exempt from federal taxation under paragraph (3), subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, or a statutory successor thereof, and which is supported and maintained in whole or in part by donations, bequests, gifts, grants, government funds, or contributions which may be in the form of money, goods, or services. In such clinics, any charges to the patient shall be based on the patient's ability to pay, utilizing a sliding fee scale. Such clinics may also provide diagnostic or therapeutic services authorized under Chapter 6.6 (commencing with section 2900) of Division 2 of the Business and Professions Code to patients in the home as an incident to care provided at the clinic facility.

(b) Tax Application. Tax does not apply to the sale or use, including leases that are continuing sales and purchases, of wheelchairs; crutches; canes; quad canes; white canes used by the legally blind; walkers; and replacement parts for these devices when sold to an individual for the personal use of that individual as directed by a licensed physician. Electric three-wheel scooters that are similar in both design and function to a conventional electric wheelchair, qualify as a wheelchair for the purposes of Revenue and Taxation Code section 6369.2. When the scooters are sold or leased to an individual for the personal use of that individual as directed by a licensed physician their sale or use qualifies for an exemption from tax.

"Replacement parts" include, but are not limited to, batteries for electric wheelchairs; belts and cushions sold to replace or supplement the basic items originally sold with wheelchairs, lap boards and trays attached to wheelchairs and considered a part of the wheelchair; and rubber tips, wheels, and other such items prescribed for an individual to replace an original component of the device sold. "Replacement parts" do not include items such as mechanical devices that aid the patient in eating or writing unless the items are part of the device itself, or restraints or other such items sold to an individual, but which do not become a part of the wheelchair or other such prescribed device.

(c) Sales to Health Facilities. Sales, or leases that are continuing sales and purchases, of wheelchairs, crutches, canes, and walkers to hospitals or other health facilities for use by patients while at the facilities are subject to tax. Such sales or leases are not considered sold to an individual for the individual's personal use as directed by a physician. However, when wheelchairs, crutches, canes, and walkers are ordered by a hospital or health facility on behalf of a specific patient, as directed by a physician, the items may be considered to be purchased by an individual for his or her own personal use as required under Revenue and Taxation Code section 6369.2 and, therefore, the sale will qualify for exemption from tax.

(d) Sales to Insured Persons. The exemption for qualifying retail sales of wheelchairs, crutches, canes, quad canes, white canes used by the legally blind, walkers, and replacement parts for these devices is not affected by the fact that charges to the individual to whom such items are sold, may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer.

History—Promulgated November 18, 1999, effective March 10, 2000.

Amended December 12, 2006, effective July 30, 2007. Amended subdivision (a)(3) to incorporate statutory language, which defines "clinic" for purposes of including "clinic" in the definition of "health facility."

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Regulation 1591.3. Vehicles for Physically Handicapped Persons.

Reference: Sections 6006, 6369, and 6369.4, Revenue and Taxation Code.

(a) Definitions.

(1) Physically Handicapped Persons. For purposes of this regulation, "physically handicapped" persons include disabled persons described in Vehicle Code section 5007 as qualified for special parking privileges.

(2) Vehicle. For purposes of this regulation, "vehicle" includes all devices that qualify under Vehicle Code section 670 as "vehicles" including, but not limited to, automobiles, vans, trucks, mobilehomes and trailercoaches. "Vehicles" qualifying under this regulation mean and include:

(A) Vehicles which are owned and operated by physically handicapped persons and,

(B) Vehicles which are used in the public or private transport of physically handicapped persons and which would otherwise qualify for a distinguishing license plate pursuant to Vehicle Code section 5007 if the vehicle were registered to the physically handicapped person or persons.

(b) Application of Tax. Tax does not apply to the sale or use of items and materials used to modify a vehicle for physically handicapped persons when such items are necessary to enable the vehicle to be used to transport a physically handicapped person or persons. Tax does not apply whether the property is installed by the retailer or is sold for installation by other persons. However, sales or purchases of tools and supplies used in modifying the vehicle and which are not incorporated into, attached to, or installed on the vehicle are subject to tax.

Items and materials considered necessary to enable a vehicle to be used to transport a physically handicapped person include, but are not limited to, an interlock system; upper torso restraint; an airbag of a unique type to raise or lower the vehicle for loading or unloading; running boards on lower side of vehicle; a bolt cam used to restrain a wheelchair inside a van; seat belts; a tire carrier to hold a spare and which is installed within reach of a handicapped person; AC lights to illuminate the ramp or elevator area; hardware for privacy curtains; air compressor for use with medical equipment; a 12-volt receptacle to supply power to medical equipment; a 4-point tie down system to restrain a wheelchair; and an allocable portion(s) of the various interior packages, interior materials, and conversions necessary to modify the vehicle for transport of physically handicapped persons.

Items and materials that are generally not considered necessary to enable a vehicle to be used to transport a physically handicapped person include, but are not limited to, an upper torso durable pad (unless part of the restraint); portable ramps (telescopic); air conditioners (unless necessary for the transport of certain types of disabled persons); a fire extinguisher; a CB radio (unless shown to be necessary to the transport of certain types of disabled persons); leather seat covers; extra windows and their accessories; upgrades to the interior (upgrade to leather seats); and an engine cover. The sale or use of such items, whether installed on a vehicle to be used for transport of physically handicapped persons or not, are generally subject to tax.

(c) Sales of Modified Vehicles. Tax does not apply to the gross receipts attributable to the portion of a vehicle that has been modified to enable the vehicle to be used to transport a physically handicapped person or persons when the modified vehicle is sold to a physically handicapped person, as defined.

(d) Repairs to Modified Vehicles. Tax does not apply to the sale or use of items and materials used to repair the modified portion (the portion that contains equipment previously used to modify the vehicle) of a vehicle used to transport a physically handicapped person or persons. Once installed, such "repair parts" qualify as items and materials used to modify a vehicle in order for the vehicle to be used to transport a physically handicapped person or persons.

History—Promulgated November 18, 1999, effective March 10, 2000.

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Regulation 1591.4. Medical Oxygen Delivery Systems.

Reference: Sections 6006, 6369, and 6369.5, Revenue and Taxation Code, and Sections 1200, 1200.1, 1204.1, and 1250, Health and Safety Code.

(a) Definitions.

(1) Physician. "Physicians" are persons authorized by a currently valid and unrevoked license to practice their respective professions in this state. "Physician" means and includes any person holding a valid and unrevoked physician's and surgeon's certificate or certificate to practice medicine and surgery, issued by the Medical Board of California or the Osteopathic Medical Board of California and includes an unlicensed person lawfully practicing medicine pursuant to section 2065 of the Business and Professions Code, when acting within the scope of that section.

(2) Prescription. "Prescription" means an oral, written, or electronic transmission order that is issued by a physician, dentist, optometrist, or podiatrist licensed in this state and given individually for the person or persons for whom ordered. The order must include all of the following:

(A) The name or names and address of the patient or patients.

(B) The name and quantity of the drug or device prescribed and the directions for use.

(C) The date of issue.

(D) Either rubber stamped, typed, or printed by hand or typeset, the name, address, and telephone number of the prescriber, his or her license classification, and his or her federal registry number, if a controlled substance is prescribed.

(E) A legible, clear notice of the conditions for which the drug is being prescribed, if requested by the patient or patients.

(F) If in writing, signed by the prescriber issuing the order.

(3) Health Facility. "Health Facility" as used herein has the meaning ascribed to the term in Section 1250 of the Health and Safety Code, and also includes "clinic" as defined in sections 1200 and 1200.1 of the Health and Safety Code.

(A) Section 1250 of the Health and Safety Code provides that "health facility" means any facility, place or building that is organized, maintained, and operated for the diagnosis, care, prevention, and treatment of human illness, physical or mental, including convalescence and rehabilitation and including care during and after pregnancy, or for any one or more of these purposes, for one or more persons, to which the persons are admitted for a 24-hour stay or longer.

(B) Section 1200 of the Health and Safety Code provides that "clinic" means an organized outpatient health facility which provides direct medical, surgical, dental, optometric, or podiatric advice, services, or treatment to patients who remain less than 24 hours, and which may also provide diagnostic or therapeutic services to patients in the home as an incident to care provided at the clinic facility. A place, establishment, or institution which solely provides advice, counseling, information, or referrals on the maintenance of health or on the means and measures to prevent or avoid sickness, disease, or injury, where such advice, counseling, information, or referrals does not constitute the practice of medicine, surgery, dentistry, optometry, or podiatry, shall not be deemed a clinic for purposes of this subdivision.

(C) Section 1200.1 of the Health and Safety Code provides that "clinic" also means an organized outpatient health facility which provides direct psychological advice, services, or treatment to patients who remain less than 24 hours. As provided in section 1204.1 of the Health and Safety Code, such clinics serve patients under the direction of a clinical psychologist as defined in section 1316.5 of the Health and Safety Code, and are operated by a nonprofit corporation, which is exempt from federal taxation under paragraph (3), subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, or a statutory successor thereof, and which is supported and maintained in whole or in part by donations, bequests, gifts, grants, government funds, or contributions which may be in the form of money, goods, or services. In such clinics, any charges to the patient shall be based on the patient's ability to pay, utilizing a sliding fee scale. Such clinics may also provide diagnostic or therapeutic services authorized under Chapter 6.6 (commencing with section 2900) of Division 2 of the Business and Professions Code to patients in the home as an incident to care provided at the clinic facility.

(4) Medical Oxygen Delivery System. A system used to administer oxygen directly into the lungs of the patient for the relief of conditions in which the human body experiences an abnormal deficiency or inadequate supply of oxygen. Devices that only assist the patient in breathing, but do not deliver air or oxygen directly into the lungs of the patient, do not qualify as medical oxygen delivery systems.

(b) Tax Application.

(1) Medical Oxygen Delivery Systems. Tax does not apply to the sale or use of medical oxygen delivery systems when sold, leased or rented to an individual for the personal use of that individual as directed by a licensed physician.

Medical oxygen delivery systems include, but are not limited to, liquid oxygen containers, high-pressure cylinders, regulators, oxygen concentrators, tubes, masks and related items necessary for the delivery of oxygen to the patient. The term also includes repair and replacement parts for use in such a system.

(2) Ventilators and Other Respiratory Equipment. For the purposes of this regulation, ventilators that produce a form of controlled respiration in which compressed air is delivered under positive pressure into the patient's airways qualify for the exemption provided under section 6369.5 for medical oxygen delivery systems. Pressure ventilators and volume ventilators provide assisted respiration and intensive positive pressure in which compressed air, a component of which is oxygen, is administered into the breathing systems of patients to help them breathe. The sale or use of ventilators, as described, is exempt from tax when sold or leased to an individual for the personal use of that individual as directed by a physician.

Respiratory equipment that induces air into the lungs of a patient, through the application of pressure to the chest area, also qualifies for the exemption provided for medical oxygen delivery systems, regardless of whether the pressure applied is negative pressure or positive pressure. The sale or use of respiratory equipment, as described, is exempt from tax when sold or leased to an individual for the personal use of that individual as directed by a physician. Included within the scope of the exemption are exsufflation belts, iron lungs, chest shells, pulmo wraps, and the pumps and regulators necessary for the operation of the listed equipment.

(c) Sales to Health Facilities and Health Care Providers. Sales of medical oxygen delivery systems are exempt when sold to an individual for his or her own use under the direction of a licensed physician. Sales of medical oxygen delivery systems to hospitals, immediate care facilities, physicians, or other health care providers for use on their premises are subject to tax in the same manner as other sales of tangible personal property.

A rental or lease of a medical oxygen delivery system to a health facility qualifies for an exemption from tax when the facility intends to lease or rent the system to an individual for the personal use of that individual as directed by a licensed physician and the system is then leased or rented as intended. However, the transaction between the health facility and the individual must constitute an actual lease or rental. When the patient's use of the medical delivery system is limited to the health facility's premises, the direction and control of the equipment does not transfer to the patient. Therefore, an actual lease or rental of the system to the patient does not occur even when a separate billing is made to the patient for the use of the system. As such, the lease or rental of the system to the health facility does not qualify for the exemption provided under section 6369.5.

(d) Sales of Medical Oxygen. Medical oxygen and other gases sold to a licensed physician and surgeon, podiatrist, dentist, or health facility for treatment of human beings are considered medicines. Therefore, their sale or use is not subject to tax when (1) furnished by a licensed physician and surgeon, podiatrist, or dentist to his or her own patient or (2) furnished by the health facility pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist.

Medical oxygen sold by distributors of compressed gases to an individual for use as part of the individual's treatment, pursuant to a physician's prescription, is regarded as a medicine furnished by a licensed physician to his or her own patient for treatment of the patient as provided by Regulation 1591(b)(2). Sales of medical oxygen to individuals under the "Casey Bill" (i.e., the retailer bills the service acting as a fiscal agent for the State of California) are regarded as sales of medicines to this State for use in the treatment of human beings as provided by Regulation 1591(b)(5). Therefore, sales of medical oxygen by distributors, under these conditions, are not subject to tax whether or not the distributor is a medical supply house.

(e) Sales to Insured Persons. The exemption for qualifying retail sales of oxygen delivery systems and replacement parts is not affected by the fact that charges to the individual for whom such items are sold, leased, or rented may be paid, in whole or in part, by an insurer. This is so even though a joint billing may be made by the retailer in the name of both the person and the insurer.

History—Promulgated November 18, 1999, effective March 10, 2000.

Amended December 12, 2006, effective July 30, 2007. Amended subdivision (a)(3) to incorporate statutory language, which defines "clinic" for purposes of including "clinic" in the definition of "health facility."

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Regulation 1592. Eyeglasses and Other Ophthalmic Materials.

Reference: Sections 6006 and 6018, Revenue and Taxation Code.

(a) Physicians and Surgeons and Optometrists.

(1) In General. A physician and surgeon or optometrist is the consumer of ophthalmic materials including eyeglasses, frames, and lenses used or furnished in the performance of his/her professional services in the diagnosis, treatment or correction of conditions of the human eye. Tax applies with respect to the sale of such materials to physicians and surgeons and optometrists.

(2) Filling Prescription of Another Physician and Surgeon or Optometrist. When an optometrist fills a prescription prepared by another optometrist or by a physician and surgeon, the optometrist who fills the prescription is the consumer of the glasses, frames, and other materials and tax applies with respect to the sale of such materials to him/her.

(3) Replacement Lenses and Frames. A physician and surgeon or optometrist is also the consumer of lenses and frames furnished to patients as duplications or replacements of parts of eyeglasses or contact lenses which were previously prescribed for the patient pursuant to an eye examination, and tax applies to the sale thereof to him/her.

(4) Plano Lenses or Sunglasses (Without Correction).

When plano lenses and frames or plano sunglasses, including clip-on sunglasses, are furnished by a physician and surgeon or optometrist pursuant to a prescription for a particular class of plano or for the treatment or correction of conditions of the human eye following, and as a result of, a diagnosis made by him/her in an examination and refraction he/she is the consumer of the plano lenses and frames or sunglasses and tax applies with respect to the sale thereof to him/her. In all other instances the physician and surgeon or optometrist is the retailer of such lenses and frames or sunglasses, and tax applies to the gross receipts from such a retail sale.

(b) Dispensing Opticians.

(1) In General. A registered dispensing optician is the consumer of ophthalmic materials including eyeglasses, frames, and lenses dispensed pursuant to a prescription prepared by a physician and surgeon or optometrist. Tax applies with respect to the sale of such materials to the dispensing optician.

(2) Replacement Lenses and Frames. A dispensing optician is also the consumer of lenses and frames furnished as duplications or replacements of parts of eyeglasses or contact lenses which were previously prescribed by a physician and surgeon or optometrist.

(3) Plano Lenses or Sunglasses (Without Correction).

When plano lenses and frames or plano sunglasses, including clip-on sunglasses, are dispensed pursuant to a prescription prepared by a physician and surgeon or optometrist for a particular class of plano, the dispensing optician is the consumer of the lenses and frames or sunglasses, and tax applies to the sale thereof to him/her. In all other instances the dispensing optician is the retailer of such lenses and frames or sunglasses, and tax applies to the gross receipts from such a retail sale.

(c) Pharmacists.

(1) In General. Operative January 1, 1998, a licensed pharmacist is the consumer of replacement contact lenses dispensed pursuant to a prescription prepared by a physician or optometrist. Tax applies with respect to the sale of such contact lenses to the pharmacist.

(2) Replacement Contact Lenses. For purposes of this subdivision, "replacement contact lenses" means soft contact lenses that require no fitting or adjustment, and that are dispensed as packaged and sealed by the manufacturer.

(d) Definition of Prescription. For the purposes of this regulation a "prescription" means a written formula for ophthalmic lenses or contact lenses prepared by a physician and surgeon or optometrist.

With respect to plano lenses and frames or sunglasses without correction, prescription means a written order for a distinctive type or class of plano identified by numbers or symbols descriptive of a specific tint, color or characteristic.

The prescription shall bear the name and address of the prescriber, the name and address of the patient, and the date of issue.

Pursuant to section 4124 of the Business and Professions Code, with respect to replacement contact lenses dispensed under subdivision (c) above, in addition to the above requirements, operative January 1, 1998, a prescription must:

(1) Include the state license number of the prescribing practitioner,

(2) Explicitly state an expiration date of not more than one year from the date of the last prescribing examination, and

(3) Explicitly state that the prescription is for contact lenses and include the lens brand name, type, and tint, including all specifications necessary for the ordering of lenses.

History—Section (a)(1) effective September 19, 1947.

Section (b) effective August 1, 1933.

Adopted as of January 1, 1945 as a restatement of previous rulings.

Amended and renumbered March 24, 1970, effective April 29, 1970.

Amended May 4, 1971, effective July 1, 1971.

Amended March 25, 1998, effective April 24, 1998. Added new subdivision (c) and amended renumbered subdivision (d) to incorporate the provisions of Chapter 184, Statutes of 1997.

Amended April 23, 2003, effective August 17, 2003. Subdivisions (a)(4) and (b)(3)—word "his" changed to "the" to remove gender reference. Subdivisions (a)(4) and (b)(3)—phrase "including clip-on sunglasses," added to clarify that clip-on sunglasses are treated in the same manner as eyeglasses, frames, and lenses. Subdivision (d)—first words of items (1)–(3) capitalized to conform to current formatting principles.

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Regulation 1593. Aircraft and Aircraft Parts.

Reference: Sections 6091, 6366, 6366.1, and 6421, Revenue and Taxation Code.

(a) Definitions.

(1) "Aircraft." As used herein, the term "aircraft" means any contrivance designed for powered navigation in the air except a rocket or missile.

(2) "Common Carrier." As used herein, the term "common carrier" means any person who engages in the business of transporting persons or property for hire or compensation and who offers his or her services indiscriminately to the public or to some portion of the public.

(3) "Component Part." As used in subdivision (b)(2), the term "component part" means an item incorporated by securing to the aircraft in compliance with Federal Aviation Administration (FAA) requirements, or United States military equivalent, related to the maintenance, repair, overhaul, or improvement of the aircraft which part is essentially associated with the functional aspects of the aircraft, including those related to safety and air worthiness.

(A) Examples of property which are component parts are engines, passenger seats, and landing gear; items replaced, repaired, or overhauled according to manufacturer service bulletins; items required by air worthiness directives issued by the FAA; life limited parts; and cargo and baggage containers which are designed to be secured, and which are secured, to the aircraft during flight.

(B) Examples of property which are not component parts are general expense items or comfort-related items such as attendant carts, blankets, pillows, or serving utensils.

(b) Application of Tax.

(1) Aircraft. Tax does not apply to the sale of and the storage, use, or other consumption of aircraft sold, leased, or sold to persons for the purpose of leasing, to:

(A) a person who operates the aircraft as a common carrier of persons or property, provided:

1. the person operates the aircraft under authority of the laws of this state, of the United States, or of any foreign government, and

2. the person's use of the aircraft as a common carrier is authorized or permitted by the person's governmental authority to operate the aircraft;

(B) foreign government for use of the aircraft by that government outside of California; or,

(C) a nonresident of California who will not use the aircraft in this state other than to remove the aircraft from California.

(2) Aircraft Parts.

(A) When tangible personal property becomes a component part of an aircraft described in subdivision (b)(1) as a result of the maintenance, repair, overhaul, or improvement of that aircraft in compliance with FAA requirements, or United States military equivalent, the charges for such tangible personal property, as well as for labor and services rendered with respect to that maintenance, repair, overhaul, or improvement are exempt from tax provided the aircraft will continue to be used in a manner described in subdivision (b)(1).

(B) The exemption described in subdivision (b)(2)(A) applies with respect to tangible personal property purchased and placed in inventory with the intent to thereafter remove the property from inventory and incorporate it as a component part of an aircraft under the conditions specified in subdivision (b)(2)(A), provided the property is so incorporated into a qualifying aircraft. If instead the property is removed from inventory for use in some other manner, the purchaser owes the applicable sales or use tax at that time.

(C) The exemption described in subdivision (b)(2)(A) shall apply only under the following circumstances:

1. the tangible personal property which becomes a component part of the aircraft is purchased on or after October 1, 1996; or,

2. the tangible personal property which becomes a component part of the aircraft was purchased prior to October 1, 1996, but the property first enters California on or after October 1, 1996.

(c) Use of Aircraft.

(1) Common Carriers. In determining whether a purchaser or lessee of an aircraft is using that aircraft as a common carrier of persons or property, only that use of the aircraft by the carrier during the first 12 consecutive months commencing with the first operational use of the aircraft will be considered. This test period does not include, and is extended by, the amount of time, prior to the first use of the aircraft as a common carrier, during which the aircraft is in the physical possession of a repair station certified by the FAA or a manufacturer's maintenance facility undergoing modification, repair, or replacement. The period of this extension/exclusion shall not exceed 12 months. If the purchaser does not own the aircraft for 12 consecutive months commencing with the first operational use, as may be extended as provided herein, then only the period of time commencing with the first operational use that the purchaser owns the aircraft will be considered.

(A) "Operational use" means the actual time during which the aircraft is operated in powered navigation in the air. Operational use includes positioning or repositioning aircraft by flying the aircraft from one point to another ("ferry flights") except when such flights are solely for purposes of having the aircraft repaired. Ferry flights solely for the purpose of transporting the aircraft to a repair location, or solely to return from a repair location, are not operational use, nor are test flights as described in subdivision (d)(2) or personnel training as described in subdivision (d)(4).

(B) If the aircraft is used as a common carrier for more than one-half of the operational use during the test period the carrier's principal use of the aircraft will be deemed to be that of a common carrier except as provided in subdivisions (c)(1)(D) and (c)(1)(E). Each flight of the aircraft is examined separately for purposes of determining common carrier use. For these purposes, a flight is the powered navigation of the aircraft from one location on the ground or water to the first point on the ground or water at which the aircraft lands.

(C) A flight qualifies as a common carrier use of the aircraft for purposes of the exemption only if the flight is authorized or permitted by the governmental authority under which the aircraft is operated and involves the transportation of persons or property. Where the aircraft does not itself transport the person or property to a location on the ground (or water), the flight does not qualify as a common carrier flight for purposes of the exemption.

1. Following are examples of flights that do not qualify as common carrier use:

a. Student instruction or training flights.

b. Flights to position or reposition aircraft by flying the aircraft from one point to another ("ferry flights").

c. Aerial work such as crop dusting, seeding, spraying, bird chasing, towing of banners and gliders, and fire fighting by dropping water or flame retardant.

d. Aerial photography or surveying, and powerline and pipeline patrol, without regard to whether the flight carries persons or property while the pilot or other crew member engages in the photography, surveying, or patrol.

e. Helicopter operations to perform construction or repair work, or in the lumber industry to reposition fallen lumber within the same general location.

f. Flights carrying persons or property for the purpose of parachute jumps or air drops.

g. Flights for the purpose of search and rescue, without regard to whether the flight carries persons or property while the search and rescue operation is conducted.

2. Following are examples of flights that do qualify as common carrier use when such services are offered indiscriminately to the public or to some portion of the public, provided the flights are authorized or permitted by the governmental authority under which the aircraft is operated:

a. Flights whose purpose is to transport persons or property from the location on the ground or water at which the aircraft takes off to another point on the ground or water at which the aircraft lands, including flights to transport fire fighting personnel, search and rescue personnel, construction workers, and equipment during fire fighting, search and rescue, and construction operations.

b. Sightseeing flights, even if they begin and end at the same airport, area of land, or water that was used for takeoff.

c. Helicopter flights to move large equipment from one location to another where the transportation is the purpose for the flight. For example, a flight with the purpose of moving a large air conditioning unit from a storage facility to the work site could qualify as common carrier use, but a flight with the purpose of positioning the air conditioning unit while it is being attached to the real property would not qualify as a common carrier use even if the positioning occurred as part of the flight moving the unit from the storage facility to the work site.

d. Flights to transport injured persons to medical facilities.

(D) With respect to aircraft sold during the period from January 1, 1987 through December 31, 1996, it shall be presumed that a person is not using the aircraft as a common carrier of persons or property if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed ten percent (10%) of the purchase cost of the aircraft to him or her, or twenty-five thousand dollars ($25,000), whichever is less. With respect to aircraft sold on or after January 1, 1997, it shall be presumed that a person is not using the aircraft as a common carrier of persons or property if the person's yearly gross receipts from the use of the aircraft as a common carrier do not exceed 20 percent of the purchase cost of the aircraft to him or her, or fifty thousand dollars ($50,000), whichever is less. These presumptions may be rebutted by contrary evidence satisfactory to the board showing that the person is using the aircraft as a common carrier of persons or property for hire.

(E) With respect to aircraft leased, or sold for the purpose of leasing, during the period from January 1, 1987 through December 31, 1996, it shall be presumed that the aircraft is not used as a common carrier of persons or property if the lessor's yearly gross receipts from the lease of that aircraft to persons for use as common carriers of persons or property do not exceed ten percent (10%) of the cost of the aircraft to the lessor, or twenty-five thousand dollars ($25,000), whichever is less. With respect to aircraft leased, or sold for the purpose of leasing, on or after

January 1, 1997, it shall be presumed that the aircraft is not regularly used as a common carrier of persons or property if the lessor's yearly gross receipts from the lease of that aircraft to persons for use as common carriers of persons or property do not exceed 20 percent of the cost of the aircraft to the lessor, or fifty thousand dollars ($50,000), whichever is less. These presumptions may be rebutted by contrary evidence satisfactory to the board showing that the aircraft is used principally as a common carrier of persons or property for hire.

(F) For purposes of subdivisions (c)(1)(D) and (c)(1(E), "gross receipts" do not include compensation paid by the owner or lessor of the aircraft or by related parties for use of the aircraft as a common carrier. "Related parties" include the owner's or lessor's immediate family, entities in which the owner or lessor, or the immediate family of the owner or lessor, hold one-half or more interest, and employees of the owner or lessor while on company business.

(G) For purposes of subdivisions (c)(1)(D) and (c)(1)(E), "contrary evidence" includes sworn oral or written testimony that is offered to prove that a person is engaged in the business as a common carrier. Such testimony would include evidence that a person was engaged in the business as a common carrier but was unable to meet the minimum yearly gross receipts requirements because the aircraft was unfit to fly.

(2) Foreign Governments. A foreign government will be deemed to have acquired an aircraft for use outside of California if the aircraft is promptly removed from the state and the foreign government as owner or lessee does not return the aircraft to this state within 12 months after its removal from this state.

(3) Nonresidents. A nonresident will be considered as not using the aircraft other than to remove the aircraft from California if the aircraft is promptly removed from the state and is not returned to California within 12 months after its removal from this state.

(d) Activities Not Affecting Exemption.

(1) Repair or Warranty Service. The exemption described by subdivision (b) will not be affected if the aircraft is returned to California within the 12-month period solely for repair or service covered by warranty.

(2) Test Flights. Test flights made for the purpose of determining whether an aircraft will fly in accordance with specifications, or whether the aircraft is in proper operating condition in all its parts, do not constitute use or consumption of the aircraft or its component parts which would disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b) of this regulation whether such flights occur before or after the sale and delivery of the aircraft. This conclusion is unaffected by the circumstance that personnel of the vendor or vendee, government officials, or other observers may be on board the aircraft during test flights.

(3) Modification, Repair, or Replacement. The work modification, repair, or replacement performed on an aircraft following its delivery and preparatory to its intended use, which is performed prior to the aircraft's being placed in regular operation by a common carrier, or in the case of a foreign government or nonresident prior to the aircraft's removal from the State of California, will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b). For purposes of this subdivision, flights for the sole purpose of positioning the aircraft at the modification, repair, or replacement facility will be considered a nonoperational use of the aircraft.

(4) Personnel Training. The operation of an aircraft in this state for the purpose of training pilots or other personnel of the aircraft's operator in the proper operation and maintenance of that particular aircraft will not disqualify the sale and use of that aircraft or its component parts from the exemptions described in subdivision (b) whether such operation occurs before or after the sale and delivery of the aircraft, provided the training period is no longer than is reasonably required for that purpose. For purposes of this subdivision, personnel training includes only such training as is necessary to familiarize the personnel with the operation of the subject aircraft. Examples of the type of activities that are not personnel training for purposes of this subdivision, and instead which are operational use, include training for a higher crew member certificate, proficiency or recurrency flights, and flight testing to observe the crew member's ability to satisfactorily perform procedures and maneuvers during the test flight.

(5) Nonrevenue Operations.

(A) The operation of an aircraft for a short period for the transportation of nonrevenue passengers or property by a common carrier for the purpose of advancing the purchaser's interests incidental to its business as a common carrier prior to placing the aircraft in regular operation will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b).

(B) The use of an aircraft following its delivery to a foreign government or nonresident to transport the personnel or property of such foreign government or nonresident during the aircraft's prompt removal from this state will not disqualify the sale and use of the aircraft or its component parts from the exemptions described in subdivision (b).

(e) Aircraft and Aircraft Parts Exemption Certificate. The law provides that for the purposes of the proper administration of the sales and use tax and to prevent the evasion of tax, it shall be presumed that all sales are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale of aircraft or aircraft parts as defined in subdivision (a) by establishing to the satisfaction of the Board that the gross receipts or sales price from the sale are not subject to the tax or by taking an aircraft or aircraft parts exemption certificate substantially in the form set forth below. The certificate shall relieve the seller from liability for the sales tax or for use tax collection only if it is taken timely and in good faith.

For special provisions affecting aircraft, see Regulation 1610 (18 CCR 1610), "Vehicles, Vessels and Aircraft".

History—Adopted September 14, 1955.

Amended and renumbered November 3, 1969, effective December 5, 1969.

Amended September 28, 1978, effective November 18, 1978. Adds (b)(1) through (5), renumbers (b) through (g) to (c) through (h).

Amended May 3, 1988, effective July 1, 1988. In subdivision (b)(1)(C) and (b)(1)(D), added provisions that aircraft is not regularly used in common carriage if yearly gross receipts, as described, do not exceed $25,000 or 10% of the cost of the aircraft to the owner or lessor. In subdivision (b)(1)(E), added a provision that defines the term "contrary evidence". The subdivision defines "contrary evidence" to include "sworn oral or written testimony that is offered to provide that a person is engaged in the business as a common carrier. Such testimony would include evidence that a person was engaged in the business as a common carrier but was unable to meet the minimum yearly gross receipts requirements because the aircraft was unfit to fly." In subdivision (a), defined the term "common carrier" to mean "any person who engages in the business of transporting persons or property for hire or compensation and who offers his services indiscriminately to the public or to some portion of the public."

Amended May 1, 1998, effective October 17, 1998. Subdivision (a) is divided into two new subdivisions, (a)(1) and (a)(2), which are amended for clarity and to delete gender-specific language. Subdivision (a)(3) is added. The last unnumbered paragraph of former subdivision (a) is transferred to a new subdivision (b) and incorporated into a new subdivision (b)(1) to which is added language defining who may make an exempt purchase of an aircraft under the regulation. New subdivision (b)(2) added. Former subdivision (b) is re-designated as (c). Redesignated subdivisions (c)(1), (c)(1)(A), and (c)(1)(B) are amended for clarity, and new subdivision (c)(1)(C) added. Former subdivision (b)(1)(C) redesignated (c)(1)(D) and revised to conform the regulation to the provisions of Chapter 954, Statutes of 1996. Former subdivision (b)(1)(D) redesignated (c)(1)(E) and revised to conform the regulation to the provisions of Chapter 954, Statutes of 1996. New subdivision (c)(1)(F) added. Former subdivision (b)(1)(E) re-designated (c)(1)(G) and amended. Subdivision (c)(3) rewritten for clarity. New subdivision (d) added. Former subdivisions (b)(3 5), (c), (d), (e), and (f) are redesignated as subdivisions (d)(1 5), respectively, and revised for clarity. Former subdivisions (g) and (h) deleted. New subdivision (e) added. An example of an exemption certificate also added.

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Regulation 1594. Watercraft.

Reference: Sections 6368, 6368.1, and 6421, Revenue and Taxation Code.

Special provisions affecting watercraft, see Regulation 1610.

(a) General Exemptions. Tax does not apply to the sale of nor to the storage, use, or other consumption of watercraft which are used, leased to a lessee for use, or sold to persons for leasing to lessees for use either in interstate or foreign commerce, in commercial deep sea fishing, or in transporting persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state.

(1) Interstate or Foreign Commerce. Tax does not apply if the watercraft for which the exemption is claimed is used either exclusively in interstate or foreign commerce involving the transportation of persons or property for hire or both in interstate or foreign commerce and in intrastate commerce provided the principal use of the watercraft is transportation for hire in interstate or foreign commerce. The exemption may apply to watercraft which operates between termini within the state, such as ferry boats or barges operating entirely within the state if they are principally used to transport interstate passengers or cargo and tugs that operate entirely within the state and are principally used to convoy or aid the departure or arrival of vessels to or from points outside the state.

(A) The tax applies with respect to watercraft making voyages both in interstate or foreign commerce and voyages that are exclusively in intrastate commerce where the principal use of the watercraft is in intrastate commerce.

(B) With respect to watercraft sold on or after January 1, 1987, it shall be presumed that the watercraft is not regularly used in the transportation for hire of property or persons if the annual gross receipts from such use of the watercraft do not exceed ten percent (10%) of the cost of the watercraft to the person using it, or twenty-five thousand dollars ($25,000), whichever is less.

(C) With respect to watercraft leased on or after January 1, 1987, it shall be presumed that the watercraft is not regularly used in the transportation for hire of property or persons, if the annual gross receipts of the lessor from the lease of the watercraft to persons using it in this manner do not exceed ten percent (10%) of the cost of the watercraft to the lessor, or twenty-five thousand dollars ($25,000), whichever is less.

(D) The presumptions explained in subdivisions (B) and (C) above may be rebutted by contrary evidence satisfactory to the board showing that the watercraft is regularly used in the transportation for hire of property or persons.

(E) When determining whether watercraft is regularly used by the owner or lessee in the transportation for hire of property or persons, the first 12-month period after the first functional use of the watercraft shall be used. Gross receipts from the transportation for hire of property or persons, whether in interstate or foreign commerce or in intrastate commerce, may be used to meet the minimum gross receipts requirements stipulated in subdivisions (B) and (C) above.

(2) Commercial Deep Sea Fishing. Tax does not apply if the watercraft for which the exemption is claimed is used in commercial deep sea fishing operations outside the territorial waters of this state by persons who are regularly engaged in commercial deep sea fishing if the principal use of the watercraft occurs outside the territorial waters of this state. It shall be rebuttably presumed that "persons who are regularly engaged in commercial deep sea fishing" do not include persons who have gross receipts from commercial deep sea fishing operations that total less than $20,000 a year with respect to watercraft sold on or after July 29, 1991, and $5,000 a year with respect to watercraft sold during the period January 1, 1980 through July 28, 1991. When determining whether a person has less than the minimum amount of $5,000 or $20,000 (as applicable) in gross receipts from commercial deep sea fishing operations, the first 12-month period after the first functional use of the watercraft shall be used if the person purchasing the watercraft was not engaged in commercial deep sea fishing at the time of purchase. If the person purchasing the watercraft is already engaged in commercial deep sea fishing operations, the person will not be considered to be regularly engaged in the business of commercial deep sea fishing unless receipts from commercial deep sea fishing operations aggregate at least the minimum amount during any consecutive 12-month period which includes the first operational use of the watercraft as to which exemption is claimed. Fish receipts from either commercial deep sea fishing within the territorial waters of this state or from commercial deep sea fishing outside the waters of California may be used to meet the minimum fish receipts requirements. The tax applies with respect to watercraft used in commercial deep sea fishing operations if the principal use occurs within the territorial waters of this state.

(3) Transporting Persons or Property to Vessels or Offshore Drilling Platforms. Tax does not apply if the watercraft is used in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state provided that the watercraft is functionally used 80 percent or more of the time in such transportation activities.

(b) Use of Watercraft.

(1) Interstate or Foreign Commerce. In addition to the requirement that the watercraft be regularly used in the transportation for hire of property and persons, the watercraft for which the exemption is claimed must actually be used principally in interstate or foreign commerce. In determining whether a purchaser or a lessee of a watercraft is using that watercraft in interstate or foreign commerce, only that use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered.

(2) Commercial Deep Sea Fishing. In addition to the requirement that the watercraft be used by persons who are regularly engaged in commercial deep sea fishing, the watercraft as to which exemption is claimed must itself actually be used principally in commercial deep sea fishing operations outside the territorial waters of this state. In determining whether a buyer or a lessee of a watercraft is using that watercraft in commercial deep sea fishing operations outside the territorial waters of this state, only that use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered.

(3) Transporting Persons or Property to Vessels or Offshore Drilling Platforms. In determining whether a purchaser or a lessee of a watercraft is using that watercraft in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state, only that functional use of the watercraft by the purchaser or lessee during the first 12 consecutive months commencing with the first operational use of the watercraft will be considered. If the purchaser does not own the watercraft for 12 consecutive months commencing with the first operational use, then the period of time commencing with the first operational use that the purchaser owns the watercraft will be considered.

(4) For purposes of this regulation:

(A) "Principal use" means more than one-half of the operational use during the test period.

(B) "Operational use" or "functional use" means the actual time during which the watercraft is operated and shall not include storage, modification, repair, or replacement.

(c) Component Parts of Watercraft. The tax does not apply with respect to tangible personal property becoming a component part of watercraft, exempt under subdivision (a) of this regulation, in the course of constructing, repairing, cleaning, altering or improving that watercraft.

(1) Items Included. To be considered a "component part" of a watercraft for purposes of the exemption the property must be an integral part of the watercraft, affixed or attached thereto in a substantial manner when in use. The following examples are illustrative only, and do not constitute a complete list:

The hull and all affixed property constituting an integral part thereof.

All property affixed or attached to the structure of the watercraft used while thus affixed or attached for navigation or operation, such as; radio transmitters, receivers and other radio equipment, radar equipment, intercommunication systems, winches, anchors, lifeboats, engines, generators, switchgear, compasses, indicators, levers, control and signal systems, lamps, chains and cables.

All property affixed or attached to the structure of the watercraft used while thus affixed or attached for the comfort or convenience of the passengers and crew, such as; built-in bunks, furniture attached by bolts, screws or otherwise, including counters, shelves, stools, railing, stairs, partitions, doors, windows, window shades and curtains, awnings, hardware, stoves, sinks and other plumbing fixtures, and paint.

(2) Items Excluded. Property is not considered a component part of a watercraft for purposes of the exemption if it is a kind commonly treated as expense items and is not affixed or attached to the watercraft in a substantial manner when in use. The following examples are illustrative only, and do not constitute a complete list:

Portable equipment, furniture, devices and other property, such as; chairs, deck chairs, table or floor radios, table or floor lamps, dishes and other utensils, tables, bedding, linen, mattresses, cots, athletic or recreational equipment (not affixed or attached), pictures, fire extinguishers (portable), tools, brooms, mops, rags, towels, oil, grease, soap, cleaning materials and other consumable supplies.

(d) Watercraft Exemption Certificate. The law provides that for the purposes of the proper administration of the sales and use tax and to prevent the evasion of the sales tax it shall be presumed that all gross receipts are subject to the tax until the contrary is established. This presumption may be rebutted by the seller as to any sale of watercraft or component parts of watercraft by establishing to the satisfaction of the Board that the gross receipts from the sale are not subject to the tax or by timely taking a watercraft exemption certificate substantially in the form set forth below. The certificate shall relieve the seller from liability for the sales tax only if it is taken in good faith.

For special provisions affecting watercraft, see Regulation 1610 (18 CCR 1610), "Vehicles, Vessels and Aircraft".

History—Adopted October 6, 1949.

Amended September 2, 1965.

Amended and renumbered August 5, 1969, effective September 6, 1969.

Amended September 28, 1978, effective November 18, 1978. Amends (a); renumbers (a)(3)(A), (B), (C) to (a)(1), (2), (3); adds (b)(1), (2), (3), (4); renumbers (b) to (c); adds (d).

Amended February 6, 1980, effective March 29, 1980. In (a)(3), first sentence, added "by persons who are regularly engaged in commercial deep sea fishing," and added everything except the last sentence. In (b)(2) added a new first sentence. Added lines for more information on signature portion of exemption certificate.

Amended June 26, 1985, effective September 22, 1985. Adds new subdivision (b)(3) entitled "Transporting Persons or Property to Vessels or Offshore Drilling Platforms." This new subdivision explains the criteria to be used in determining whether a purchaser or lessee of a watercraft qualifies as using that watercraft in transporting for hire persons or property to vessels or offshore drilling platforms located outside the territorial waters of this state. Renumbers the section entitled "For Purposes of This Regulation" from subdivision (b)(3) to subdivision (b)(4). In (B) of renumbered subdivision (b)(4), provides that the terms "functional use" and "operational use" are synonymous. Deletes subdivision (b)(4)(B)(4) since the provisions referring to the operative date of the test period are outdated and no longer necessary. In subdivision (c), deletes the explanation regarding the type of watercraft exempt from tax and instead provides a reference to subdivision (a) of the regulation. Renumbers the section entitled "Watercraft Exemption Certificate" from subdivision (d) to subdivision (e) and adds new subdivision (d) entitled "Diesel Fuel Used in Operating Watercraft." New subdivision (d) provides that effective October 1, 1984, tax does not apply to the storage, use, or other consumption of diesel fuel used in operating watercraft in commercial deep sea fishing operations outside the territorial waters of the state. Sets forth the criteria for determining whether the operator is "regularly engaged in business", and whether the watercraft is "regularly operated outside the territorial waters of this state." Adds to the appendix an example of a diesel fuel exemption.

Amended October 7, 1987, effective December 25, 1987. In subdivision (a)(1), clarifies the fact that watercraft which operate entirely within California are exempt only when they are used principally as one part of a journey in interstate or foreign commerce. Added subdivision (a)(1)(A) to clarify that watercraft used principally in intrastate commerce are subject to tax. Added subdivisions (a)(1)(B), (a)(1)(C) and (a)(1)(D) which establish a rebuttable presumption that watercraft is not regularly used in interstate commerce if certain prescribed conditions are not met. Added subdivision (a)(1)(E) to explain what gross receipts shall be used to determine if watercraft is regularly used in the transportation for hire of property or persons. In subdivision (b)(1), clarifies the fact that the principal use test and minimum gross receipts test must be considered together when determining whether watercraft is principally used in interstate or foreign commerce. In subdivision (d) deleted the "Diesel Fuel Used In Operating Watercraft" and the Diesel Fuel Exemption Certificate provisions.

Amended June 2, 1988, effective August 26, 1988. In subdivision (d), added provisions that explain that diesel fuel used in operating watercraft in commercial deep sea fishing operations by certain persons is exempt from tax.

Amended August 27, 1992, effective January 20, 1993.

Paragraph (a)(2) increased the minimum amount of gross receipts from commercial fishing operations necessary to be considered regularly engaged in the business of commercial deep-sea fishing from $5,000 a year to $20,000 a year. Eliminated the Diesel Fuel Exemption Certificate and added two rebuttable presumptions to the Watercraft Exemption Certificate.

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Regulation 1595. Occasional Sales—Sale of a Business—Business Reorganization.

Reference: Sections 6006, 6006.5, 6014, 6015, 6019, 6066, 6075, 6281, 6282, 6283, 6292, 6358(b), and 6367, Revenue and Taxation Code.

(a) Activities Requiring Seller's Permit.

(1) General. Tax applies to all retail sales of tangible personal property including capital assets whether sold in one transaction or in a series of sales, held or used by the seller in the course of an activity or activities for which a seller's permit or permits is required or would be required if the activity or activities were conducted in this state. See subdivision (e) below for special rules regarding sales of property by producers of hay.

Generally, a person who makes three or more sales for substantial amounts in a period of 12 months is required to hold a seller's permit regardless of whether the sales are at retail or are for resale. Each sale of the person during the 12 month period is included in determining whether that person is required to hold a permit, or would be required to hold a permit if the activities were conducted entirely inside this state. Thus, a sale occurring outside California, whether at retail or for resale, is included, even though it would not be subject to California sales tax. A person who makes a substantial number of sales for relatively small amounts is also required to hold a seller's permit.

Tax does not apply to a sale of property held or used in the course of an activity not requiring the holding of a seller's permit unless the sale is one of a series of sales sufficient in number, scope and character to constitute an activity for which the seller is required to hold a seller's permit or would be required to hold a seller's permit if the activity were conducted in this state. If tangible personal property is leased under a lease which is a "sale" as defined in Revenue and Taxation Code Section 6006 or a "purchase" as defined in Revenue and Taxation Code Section 6010, tax applies to the lease as provided in Regulation 1660 (18 CCR 1660), and the lessor must hold a seller's permit as provided in Regulation 1699 (18 CCR 1699). The lessor is not making an occasional sale since the lessor is making a "continuing sale" and is thereby holding the leased property in an activity requiring the holding of a seller's permit. As such, the lessor's sale of the leased property at the end of the lease term is likewise not an occasional sale.

(2) Property Held or Used in an Activity, or Activities Requiring the Holding of a Seller's Permit. A seller's permit is required of a person engaged in the business of selling tangible personal property. An activity requiring the holding of that permit includes, but is not limited to, the acquisition and sale of tangible personal property, whether the person's sales are all at retail, all for resale, or include both sales at retail and sales for resale.

Acquisition includes the obtaining of the property in any manner whatsoever. For example, raw materials may be purchased or may be obtained by extraction from the earth, air or waters of the earth. These may be sold in raw form or processed or manufactured into other raw materials, component parts or finished items which are sold. Each of these activities is an activity which is so related to the sale of tangible personal property, that it is part of the activity requiring the holding of a seller's permit.

(3) Separate Businesses. A person engaged in an activity or activities requiring the holding of a seller's permit or permits may also be engaged in entirely separate endeavors which do not require the holding of a seller's permit or permits. Tax applies to the sale of tangible personal property held or used in the course of an activity requiring the holding of a seller's permit. Tax does not apply to the sale of property held or used by the seller in the non-selling endeavors which do not require the holding of a permit unless that sale is itself one of a series of sales requiring the holding of a seller's permit. For example, a person may own a hardware store at one location and a real estate brokerage business at another location, with no relationship between the two activities except that of common ownership. Under these circumstances, a sale of furniture used in the brokerage business would not be a sale of property held or used in an activity requiring the holding of a seller's permit unless it was one of a series of sales of the property of the brokerage business. A sale of tangible personal property held or used in the hardware business would be a sale of property held or used in an activity requiring the holding of a seller's permit.

(4) Series of Sales Requiring the Holding of a Seller's Permit. A person not otherwise engaged in an activity requiring the holding of a seller's permit may make a series of sales sufficient in number, scope and character to require the holding of a seller's permit. The sale in that series of sales, and subsequent sales, during any 12-month period which resulted in the requirement to hold a permit are subject to tax, unless otherwise exempt.

(A) Number.

1. Generally the minimum number of sales to require the holding of a seller's permit by a person not otherwise engaged in a selling activity is three within any 12 month period.

2. When calculating the minimum number of sales which requires a person to hold a seller's permit, the following types of sales are excluded:

a. Sales made by an auctioneer on behalf of the person. In such transactions, the auctioneer is the retailer liable for tax.

b. Sales through claiming races of horses owned by the person. In such transactions, the racing association is the retailer liable for tax.

c. Sales of vehicles, mobilehomes, commercial coaches, vessels, or aircraft which are exempted from sales tax by Revenue and Taxation Code Sections 6282 and 6283.

d. A trade-in made by the person which is incidental to a nonselling activity of the person.

(B) Scope. The extent of the sales measured by their frequency or dollar volume.

(C) Character. This relates to the similarity in type and value giving effect to the taxpayer's operations. For example, a processor of food products for human consumption is not required to hold a seller's permit for the processing and sale of food products. Sales of used lug boxes, obsolete or used machinery, food handling and similar items are of a character that three or more sales of sufficient scope will require the processor to hold a seller's permit for this selling activity.

(5) Examples Applying the Above Principles.

(A) Service enterprises which make some incidental sales.

1. Operators of service enterprises such as hospitals, hotels, theaters, schools, laundromats, car washes, transportation companies, and trucking companies may make some sales incidental to their primary service business. A hospital may operate a pharmacy and cafeteria as an adjunct to the hospital. A hotel may operate a restaurant and a bar. A theater may sell popcorn to patrons. A school may operate a cafeteria and bookstore. A laundromat may sell soap to its customers.

If any of these businesses were sold, tax would apply only to the gross receipts from the tangible personal property held or used in the selling activity.

2. If, in any 12 month period, the operator of the service enterprise makes more than two sales in substantial amounts of tangible personal property used in the service enterprise, the first two sales are exempt occasional sales, but the operator is required to hold a permit for the third and subsequent sales during any12-month period. The gross receipts from the third and subsequent sales during any such 12-month period are subject to tax, unless otherwise exempt. For example, the only sales that a service enterprise made were the following sales (each of which was "substantial" for purposes of this regulation) of tangible personal property used in the service enterprise:

Sales a. and b. are occasional sales since they were the first two sales made by the service enterprise.

Sales c. and d. are not occasional sales since they were the third and fourth sales in the series of sales commencing on February 23, 1996, which was less than 12 months prior to these sales.

Sale e. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on February 8, 1997. The January 8, 1997 sale is not relevant since it occurred more than 12 months prior to sale e.

Sale f. is not an occasional sale since it was the third sale in the series of sales commencing on February 8, 1997, which was less than 12 months prior to this sale.

Sale g. is an occasional sale since the service enterprise made no other sales in the prior 12 months.

Sale h. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on August 11, 1999.

Sale i. is an occasional sale since it was only the second sale in the series of sales commencing within the prior 12 months, on December 12, 1999.

Sale j. is not an occasional sale since it was the third sale in the series of sales commencing within the prior 12 months, on December 12, 1999.

(B) Other businesses.

1. Tax applies to the sales of assets of a business which is not essentially a service enterprise. Examples of this are sales of grocery stores and liquor stores making both exempt sales of food products for human consumption and taxable sales of other tangible personal property, service stations which sell gasoline, oil and similar items and which also perform automotive repairs and lubrication services, and computer stores which also provide training in the use of computers and repairs for computer products.

2. Where a service enterprise and a sales business are operated together so as to constitute one business, tax will apply to the sale of the assets of the business. For example, if a car wash and gasoline station are operated at the same premises and the car wash is available only to persons who buy gasoline or if the price of the car wash is reduced if gasoline is purchased, tax applies to the sale of the car wash.

3. A person purchases a hardware store with the intent of selling tangible personal property. The person must hold a seller's permit regardless of the number of sales of tangible personal property actually made. For example, if the person makes only two sales, a sale of a hammer and a sale of the business, neither sale is an occasional sale.

4. A person intends to create and sell custom furniture. The person must hold a seller's permit for all his or her sales of furniture. This is true even if, because of the time necessary to create each piece of furniture and the profit resulting from each sale, the person averages one sale of furniture per year.

(6) Transfer of Shares in a Corporation. The sale of stock of a corporation is not a sale of tangible personal property and is not subject to sales tax. A stock purchase is not a purchase of tangible personal property and is not subject to sales or use tax notwithstanding the fact that the stock purchase may be treated as an asset acquisition for federal income tax purposes pursuant to Internal Revenue Code Section 338.

(b) Sale or Reorganization of All or Part of a Business.

(1) General. In general, when a person sells a business which is required to hold a seller's permit, tax applies to the gross receipts from the retail sale of tangible personal property held or used by that business in the course of its activities requiring the holding of the seller's permit. The gross receipts from the sale of the business include all consideration received by the transferor, including cash, notes, and any other property as well as any indebtedness assumed by the transferee. It is irrelevant that the indebtedness assumed may have arisen solely in connection with the transferor's acquisition of the tangible personal property transferred, the other property transferred, or some combination thereof. That is, the transferor is selling a business, and all consideration received is for that business. The measure of tax is the price agreed to by the parties. In the absence of an agreement as to the price of the tangible personal property, the gross receipts from that sale is allocated among the taxable portion and the nontaxable portion by dividing the selling price of the tangible personal property acquired by the purchaser for use rather than resale by the selling price of the entire business sold, and then multiplying that amount by the total gross receipts (i.e., all consideration) received for the business. Book value will be regarded as establishing the price of properties sold. (See Regulation 1610 for special rules applicable to sales of vehicles, vessels, and aircraft.)

(2) Transfers of Substantially All Property Without Substantial Change in Ownership. Tax does not apply to a transfer of all or substantially all the property held or used by a person in the course of activities for which the person is required to hold a seller's permit or permits or would be required to hold a seller's permit or permits if the activities were conducted in this state, provided that after the transfer the real or ultimate ownership of the property is substantially similar to that which existed before such transfer. "Substantially all the property" means 80 percent or more of all the tangible personal property held or used by the person in the course of activities requiring the holding of a seller's permit, including tangible personal property located outside of this state. If a person engages in two or more separate selling activities, for each of which the person is required to hold a seller's permit or would be required to hold a seller's permit if the activity were conducted in this state, a transfer of 80 percent or more of the tangible personal property held or used in the combined activities must be made in order to qualify for the exemption described in this paragraph. If a person simultaneously transfers all or substantially all of its assets to more than one entity, the transfer will qualify for the exemption if the ownership remains substantially similar. Stockholders, bondholders, partners, or other persons holding an ownership interest rather than a security interest in the corporation or other entity are regarded as having the real or ultimate ownership of the property of the corporation or other entity.

The real or ultimate ownership is "substantially similar" to that which existed before a transfer if 80 percent or more of that ownership of the tangible personal property is unchanged after the transfer. In the following example, the ownership is "substantially similar" to that which existed before the transfer: