Did an out-of-state insurer have to register and collect use tax on stationery and supplies sold to its California agents?

Plain-English summary

An out-of-state insurance company sold stationery and supplies to its California agents. Compliance staff initially sought help persuading the company to register and collect use tax, but counsel concluded no tax applied on the stated facts.

The memorandum relied on the insurer in-lieu tax and a California Supreme Court decision saying a tax invalid against the insurer could not be imposed on the insurer's agent. Because the authorized agents used the materials in conducting the company's insurance business, counsel said the insurer did not have to collect use tax or register with the Board for those transactions.

The result was expressly limited. An “agent” meant a person authorized to transact insurance on the insurer's behalf, not a broker acting for someone else. The company would have to register if it sold property to brokers or other persons, or sold its agents property unrelated to the insurance business.

Common questions

Did every sale by an insurance company escape tax?

No. The memorandum limited the result to insurance-business property sold to authorized agents acting on the insurer's behalf.

How did it distinguish an agent from a broker?

An agent transacted insurance for the insurer; a broker acted for another person in dealing with the insurer.

Citations and references

• Former California Constitution article XIII, section 14-4/5 (insurer in-lieu tax, as cited)
• Groves v. City of Los Angeles (1953) 40 Cal.2d 751, 256 P.2d 309 (tax on insurer's agent, 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/135-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/135-0160.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Out-of-State – Compliance (TFJ)

From:

Tax Counsel (RHO) - Headquarters

Subject:

C--- C--- C--XXX --- --- -----, IL XXXXX

135.0160
Date:

November 17, 1966

S- -- XX XXXXXX

This is in reply to your memorandum of November 15, 1966, requesting our assistance in persuading the C--- C--- C--- that it must register under the California Sales and Use Tax Law. We take the liberty of writing to you rather than to the taxpayer because we have concluded that no tax is applicable under the facts presented. It appears from the file that C--- has made sales of stationery and supplies to its California agents. On the theory that C--- is making sales of tangible personal property, we have taken the position that it must collect use tax on these items. Mr. A---, C---’s Chief Counsel, has taken the position that C--- is not required to register with the board on the ground that the firm does not qualify as a retailer engaged in business in this state. You have asked that we write to Mr. A--- in an effort to persuade him that such registration is required. Under the facts presented, we believe that under the provisions of the California Constitution, article XIII, § 14-4/5, which provides for the taxation of insurance companies, C---’s agents are not subject to California use tax for the materials sent to them. Article XIII,
§ 14-4/5 imposes an annual tax upon each insurer doing business in this state. The tax imposed is in lieu of all other taxes and licenses, state, county, and municipal, with certain exceptions not applicable here. Interpreting this provision, the California Supreme Court has held that a tax which would be invalid if imposed upon an insurance company may not be imposed on the company’s agent. Groves v. City of Los Angeles, 40 Cal. 2d 751 [256 P.2d 309]. From the facts presented, it appears that the use tax in question would be imposed upon C---’s agents for their use of the materials in the conduct of their insurance businesses. It would clearly be invalid if asserted against C---. We conclude, therefore, that it may not be imposed upon C---’s agents and, for that reason, C--- need not collect the use tax nor register with this board.

Out-of-State – Compliance (TJF)
(S- -- XX-XXXXXX)

-2-

November 17, 1966
135.0160

The term “agent” used herein refers to a person authorized by and on behalf of an insurer to transact insurance as distinguished, for instance, from a person acting in the capacity of a broker who on behalf of another person transacts insurance with, but not on behalf of, an insurer. C--- would, of course, be required to register with this board if it were making sales in this state to persons other than its agents or were making sales to its agents of tangible personal property not connected with the insurance business.

RHO:md