Did registering an out-of-state seed seller with California's agriculture department alone create a use-tax collection duty?

Plain-English summary

California legal staff said an out-of-state mail-order seed seller did not become a retailer engaged in business in California merely by registering itself or its products with the California Department of Agriculture.

The conclusion assumed registration was the seller's only California contact: it had no office, warehouse, employee, agent, sales representative, or in-state inventory, and filled orders from outside California by mail or common carrier. Other activities listed in section 6203 could produce a different result.

California purchasers remained responsible for applicable use tax if the seller did not collect it. The letter noted that certain seed sales could be exempt under Regulation 1588. It did not answer the corporate income-tax question and provided no section 6596 reliance relief because the taxpayer was unidentified.

Common questions

Did agriculture registration alone create a collection duty?

No, on the stated facts.

Could other California activity create one?

Yes.

Did customers still owe use tax?

Yes, unless a seed exemption or another exception applied.

Did this letter decide corporate income-tax nexus?

No. That question was forwarded to the Franchise Tax Board.

Citations and references

• California Revenue and Taxation Code section 6203 — retailer engaged in business provisions applied
• California Revenue and Taxation Code section 6596 — reliance relief unavailable to the unidentified taxpayer
• California Commercial Code section 2401 and Revenue and Taxation Code sections 6006(a) and 6010.5 — passage of title and sale location discussed
• California Code of Regulations, title 18, section 1588 — certain seed sales noted as potentially exempt

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/175-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/175-0145-850.pdf

Original ruling text

175.0145.850

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 322-2976
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

May 16, 1996
E. L. SORENSEN, JR.
Executive Director

REDACTED TEXT

Re:

Unidentified Taxpayer

Dear REDACTED TEXT:
This is in response to your letter dated April 18, 1996 regarding the application of tax to the activities of your client. I note that the only basis for the Board to relieve a person of otherwise properly due taxes is pursuant to the provisions of Revenue and Taxation Code section 6596. To come within the provisions of that section, the taxpayer must have reasonably relied on the Board's written advice which was in response to a written request for advice that disclosed all relevant facts, including the identity of the taxpayer. Since your client is not identified, this opinion does not come within the provisions of section 6596. You state: “Please confirm in writing at your earliest opportunity that our client, the out-of-state mail order company described below, will not acquire California sales and use tax or corporate income tax nexus based solely on registration of the mail order company with the California Department of Agriculture, as required by the applicable California agriculture laws.” This letter will explain how the California Sales and Use Tax Law applies to your client’s situation. I am forwarding a copy of this opinion and a copy of your letter to the Franchise Tax Board’s Legal Division for response to the income tax portion of your inquiry. You state: “Our client is an out-of-state mail order seller of garden seeds that is not currently registered to do business in the State of California and does not otherwise have taxable nexus with the state. Our client does not and never has had any office,

REDACTED TEXT

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May 16, 1996
175.0145.850

assembly or warehouse operation or other place of business in California. It does not have and never has had any person, employee, agent or representative conducting sales on its behalf in the state. Our client solicits sales primarily through advertisements placed in trade magazines and in selected business, travel and family-oriented magazines and through catalogues distributed to individuals and retailers such as garden shops. Potential customers call our client’s ‘800’ telephone number to obtain product information and to place orders. Orders are also received by our client by fax and mail. Our client fulfills the orders by shipping merchandise to the customers through the mail or by common carrier, from inventories located outside of California. “The mail order company recently was advised by one of its suppliers that the mail order company is required by provisions of the California agriculture laws to register the company or its products with the California Department of Agriculture before it may make mail order sales of the products for shipment to customers located in California....” DISCUSSION As you know, retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) When sales tax does not apply, such as when sales take place outside of California, the use tax, measured by the sales price of the property sold, applies to the use of property purchased from a retailer for storage, use, or other consumption in California unless the use is specifically exempt from taxation by statute. (Rev. & Tax. Code §§ 6201, 6401, Reg. 1620.) In a sale, title passes from the vendor, and thus the sale occurs, no later than the time at which the vendor completes its performance with respect to physical delivery of the property. This generally occurs upon the seller's delivery of the property to a common carrier for shipment to the customer. (Cal. U. Com. Code § 2401; Rev. & Tax. Code §§ 6006(a), 6010.5.) Since it appears that the sales you describe take place outside of California, the use tax, rather than the sales tax, applies. Although the purchaser is liable for the use tax, a retailer engaged in business in this state is required to collect the use tax from the purchaser and to pay that tax to this state. (See Rev. & Tax. Code §§ 6202, 6203, 6204.) We have enclosed a copy of Revenue and Taxation Code section 6203 for your information. You state that your client does not have an office or other place of business in California, and that your client does not have an agent or other representative “conducting sales” on its behalf in this state. “Retailer engaged in business in this state” includes any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property. (Rev. & Tax. Code § 6203(b).) Even if your client is not actually making sales inside of California, if your client enters California for any of the purposes listed in subdivision (b) of section 6203, your client is engaged in business in this state under section 6203(b). The other provisions of section 6203 are also relevant to the determination of whether your client is engaged in business in this state.

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May 16, 1996
175.0145.850

On the other hand, if your client does nothing more than register with the California Department of Agriculture as you have described in your letter, that act alone will not constitute sufficient presence in this state for your client to be considered a retailer engaged in business in this state under section 6203. As long as your client is not otherwise engaged in business in this state under section 6203, it will not be considered as engaged in business in California for sales and use tax purposes when it registers with the California Department of Agriculture. Regardless of whether your client is a retailer engaged in business in California required to collect use tax, its California purchasers are liable for the applicable use tax (tax does not apply to sales of certain seeds--see Reg. 1588, copy enclosed). If your client is not required to collect the use tax, its purchasers are required to report their own purchases subject to use tax. If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel
KWC:cl
Enclosures (Rev. & Tax. Code § 6203; Reg. 1588)
cc:

Mr. Glenn Rigby, Franchise Tax Board
Out-of-State District Administrator