When did a New York auctioneer with California activity have to collect California use tax on out-of-state auctions?

Plain-English summary

The 1970 letter said that opening a California office whose employees solicited or took orders for art objects would make the New York auctioneer a retailer engaged in business in California under section 6203(a) and (b). On the law then applied, it had to collect California use tax on qualifying out-of-state auction purchases when the sales contract required delivery into California, including delivery by common carrier. The result did not depend on whether the California office generated that particular sale or generated many sales.

The letter did not require collection where buyers took delivery at the out-of-state auction, chose a common carrier without the auctioneer being contractually required to deliver to California, or received the property outside California.

A corporate officer's California market survey did not change that result. Two pilot California auctions, or regular California auctions, likewise did not change the specified out-of-state-sale result if they were unconnected to those sales; the letter separately said sales tax applied to taxable receipts from the California auctions.

Citations and references

• California Revenue and Taxation Code section 6203(a) and (b) (as cited)
• Scripto v. Carson, 362 U.S. 207, 212 (as cited)
• General Trading Co. v. Tax Comm., 322 U.S. 335, 338 (as cited)
• Nelson v. Montgomery Ward, 312 U.S. 373, 376 (as cited)
• Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 363–366 (as cited)
• Felt and Tarrant Co. v. Gallagher, 306 U.S. 62, 66 (as cited)
• Montgomery Ward & Co. v. State Board of Equalization, 272 A.C.A. 823 (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/115-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/115-0040.pdf

Original ruling text

115.0040
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 445-6450

March 25, 1970

Law Offices
--- & --Suite XXX --- ----- ----- ---, CA XXXXX
Attention:

ST -- XX-XXXXXX
P--- B--- G---, Inc.

Mr. Richard D. Kirshberg

Gentlemen:
Your letter dated March 4, 1970, addressed to Mr. Thomas P. Putnam has been referred to me for reply. P--- B--- G--- Inc. (PBG), a New York corporation whose principal place of business is
[City 1], is engaged in the business of conducting retail sales at auction. To date, its only direct contacts with the State of California have been two auction sales, which it conducted here, one on May 29, 1968, and the other on June 23, 1969. However, PBG is currently considering the possibility of opening an office in [City 2], California, and staffing it with employees who may engage in one or more of the following activities. 1. The contacting of California residents who may be prospective sellers of art objects, and inviting them to include such objects in auction sales conducted by PBG in [City 1]. 2. The contacting of California residents (personally or by advertisement) who may be prospective purchasers of art objects at PBG’s [City 1] auction sales, and notifying them of the time and place such objects will be available for inspection. Information regarding such objects may also be provided, upon request. 3. The appraisal of art objects for insurance or probate purposes. These objects would not by sold at auction by PBG.

Law Offices
--- & --(ST -- XX XXXXXX)

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March 25, 1970
115.0040

With the exception of these activities, PBG would have no employees, representatives, independent contractors, agents or other persons acting on its behalf in California. Relatively few of PBG’s sales would be obtained as a result of solicitations made here by the California office. Similarly, relatively few of PBG’s sales would be made to California residents, and of these sales, relatively few would be made to residents who became interested in the property sold as a result of the activities of the California office. Property sold by BPG to a California resident would be delivered by PBG to the resident at the place of auction or to a common carrier selected by the resident. Under these circumstances, some residents might not bring property they had purchased from PBG to California. You ask whether PBG would be required to collect California use tax pursuant to section 6203 with respect to sales of property purchased for storage, use or other consumption in California which occur at its auctions conducted outside California, if its future activities were limited to those described above. If PBG opens an office in California and if its employees solicit or take orders for art objects, it will be a retailer engaged in business in this state within the meaning of section 6203(a) and (b), and it will be required to collect California use tax on its sales of property purchased for storage, use or other consumption in California which occur at its auctions conducted outside California to the extent that it may constitutionally be required to do so, that is, to the extent the property sold is delivered within California. (Scripto v. Carson, 362 U.S. 207, 212; General Trading Co. v. Tax Comm., 322 U.S. 335, 338; Nelson v. Montgomery Ward, 312 U.S. 373, 376; Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 363-366; Felt and Tarrant Co. v. Gallagher, 306 U.S. 62, 66.) Thus, PBG will be required to collect California use tax on such sales where property purchased is delivered to residents in California via common carrier if it is required by the (auction) contract of sale to provide for delivery to California, regardless of whether the residents became interested in the property they purchased as a result of the activities of PBG’s office or employees, and regardless of whether the sales attributable to PBG’s office or employees are relatively few. Pursuant to Nelson v. Sears, Roebuck & Co., supra, a retailer engaged in business within a state must collect use tax on all property sold in interstate commerce, and it is our position that a state’s power to require a retailer engaged in business therein to collect use tax upon its sales may not be denied on the ground that the sales attributable to such a retailer’s office or employees are few in number. In Montgomery Ward & Co. v. State Board of Equalization, 272 A.C.A. 823, the court held that California could not require a retailer to collect use tax on sales made in its retail stores located near, but outside, the boundaries of California, where the purchasers had charge accounts bearing California addresses but took delivery of their purchases at the time of purchase. As a result of this decision, PBG will not be required to collect California use tax on its sales of property purchased for storage, use or other consumption in California which occur at its auctions conducted outside California where property purchased is delivered to residents at the places of auction, to common carriers selected by residents where PBG is not required by the (auction) contract of sale to provide for delivery to California, or to residents at points outside California.

Law Offices
--- & --(ST -- XX XXXXXX)

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March 25, 1970
115.0040

You also state that PBG is considering the possibility of conducting regular auctions in California by opening an auction gallery here. In order to evaluate this possibility, PBG may send one of its officers to California for the purpose of conducting a market survey. It is contemplated that his activities would include meetings with various art dealers and collectors, and the evaluation of existing California auction houses and practices. As part of the survey, PBG’s may hold two pilot auction sales in California, one in 1970 and one in 1971. In this regard, you ask the following questions: 1. If one of PBG’s corporate officers were to enter California and conduct the market survey described above, but thereafter PBG did not conduct any auction sales here and limited its activities in California to those other activities of the California office described above, would PBG be required to collect California use tax pursuant to section 6203 with respect to sales of property purchased for storage, use or other consumption in California which occur at auctions conducted by it outside California? 2. Assuming the same facts as set forth in 1. except that PBG did conduct the two pilot auction sales described above, would the answer be the same? 3. Assuming that PBG were to conduct regular auction sales in California, would the answer be the same? In answering these questions, we are assuming that PBG will not be required to collect California use tax on its sales of property purchased for storage, use or other consumption in California which occur at its auctions conducted outside California because the property purchased is either delivered to residents at the places of auction, to common carriers selected by residents where PBG is not required by the (auction) contract of sale to provide for delivery to California, or to residents at points outside California. 1. In view of Montgomery Ward & Co. v. State Board of Equalization, supra, PBG would not be required to collect California use tax on such sales because one of its officers enters California to conduct a market survey. 2. The answer would be the same, even if PBG did conduct pilot auction sales in California, assuming that these sales are not connected to the auction sales conducted by PBG outside California. Sales tax would apply to the taxable gross receipts from these sales.

Law Offices
--- & --(ST -- XX XXXXXX)

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March 25, 1970
115.0040

3.
Again, the answer would be the same, assuming that these sales are not connected to the auction sales conducted by PBG outside California. Sales tax would similarly apply to the taxable gross receipts from the California auction sales. Very truly yours,

J. Kenneth McManigal
Tax Counsel
JKM:smb