Did seven California sales calls by an out-of-state manufacturer's salesperson create a use-tax collection duty?

Plain-English summary

A Washington manufacturer sold switchgear to California's Department of Water Resources. Its salesperson had made seven California sales calls since 1991, including three for the project, while engineers and service personnel also entered the state for project work.

California staff said the sales occurred in Washington, so use tax rather than sales tax applied unless the state customer's use was exempt. But the salesperson's California solicitation made the manufacturer a retailer engaged in business in California under section 6203(b).

The statute imposed no minimum number of visits. Entering California through an employee or representative for the specific purpose of selling was enough under the historical rule, so the manufacturer had to collect use tax from this customer and all other California purchasers and apply for a seller's permit.

Common questions

Were seven sales calls too few to create a duty?

No. Staff said there was no minimum visit threshold.

Did sales tax apply to the Washington sale?

No, on the facts stated; use tax applied to California use unless exempt.

Did the collection duty extend beyond this one contract?

Yes, to all California purchasers while the manufacturer was engaged in business in the state.

Could the unidentified manufacturer claim section 6596 reliance relief?

No.

Citations and references

• California Revenue and Taxation Code section 6203(b) — sales-call activity created retailer nexus
• California Revenue and Taxation Code section 6596 — reliance relief unavailable to the unidentified taxpayer
• California Revenue and Taxation Code sections 6051, 6201, and 6401; Regulation 1620 — sales and use tax framework discussed
• Pamphlet No. 73, “Your California Seller’s Permit” — registration guidance cited and enclosed with section 6203

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/175-0146.pdf

Original ruling text

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175.0146

STATE OF CALIFORNIA

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JOHAN KLEHS
First District, Sacramento

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0001)
TELEPHONE: (916) 322-2976
FAX: (916) 323-3387

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

BURTON W. OLIVER
Executive Director

September 11, 1995

Mr. J--- C. G---, CPA
G--- S--- & P--XXXXX NE Xth Street, Suite XXX
---, WA XXXXX
Re:

Unidentified Taxpayer

Dear Mr. G---:
This is in response to your letter dated July 13, 1995 in which you request a ruling regarding the application of tax to the business 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: “Our client (T) is a corporation incorporated and physically located in the State of Washington. T is engaged in the business of designing, manufacturing and supplying switch gear (and other components not relevant to this case) for hydro electric energy generating systems. T is not registered to do business in the State of California. T has filed California income tax returns for fiscal years ended March 31, 1993 and March 31, 1994 paying the minimum tax. These filings now appear to have not been required and were filed unnecessarily. This is T’s first sale to a customer in California; therefore, this is the first equipment T has shipped into California. T has no employees resident in California and owns no property in California. The T salesman does not regularly visit California. Since January of 1991, he has made only 7 sales calls to California, including three for the project in question.

Mr. J--- C. G---, CPA

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September 11, 1995
175.0146

“T responded to a request for proposal from the California Department of Water Resources (DWR) for ‘Furnishing Control Switchboards to the Mojave Siphon Project.’ T was the low bidder and was awarded the contract in September 19XX. “The contract called for T to perform the following tasks: 1.

Engineer and assemble a Control Switchboard and ship same to the customer (DWR) in the State of California. Note that all engineering and assembly has been performed in the State of Washington (with the exception discussed at 5 below) and that the equipment (personal property) has been shipped via common carrier.

2.

Purchase certain spare parts for the Switchboards and Annunciator System and ship same to the customer (DWR) in the State of California.

3.

Liaison services-meetings requested by the DWR to coordinate various items in the project. This was accomplished in a one-day meeting in California by T’s Chief Engineer.

4.

Regular and overtime services of an erecting engineer requested by the DWR. Note that this engineer, on site in California for one week, provided only technical directions to the contractor installing the switchgear.

5.

After construction of the switchgear in the State of Washington and shipment by common carrier to the customer in California the DWR requested certain change orders. Portions of these change orders were required to be performed on site and it became necessary for two of T’s servicemen to travel to California to perform certain rewriting functions. One serviceman traveled to California on two separate trips for a total of three weeks and the other serviceman traveled only once for one week.

“Based on our understanding of the rules that govern interstate commerce and the applicable California statutes, regulations and cases, we believe:
•
•
•

T is not subject to California sales tax on this transaction. DWR is liable to pay California use tax on the transaction. T is not obligated to collect such use tax.” DISCUSSION

Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt 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

Mr. J--- C. G---, CPA

-3-

September 11, 1995
175.0146

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. (Rev. & Tax Code §§ 6201, 6401, Reg. 1620.) You state that T’s sales to DWR occurred in Washington. Since the sales took place outside of California, the use tax, rather than the sales tax, is applicable. DWR owes use tax on its use of the equipment in California unless the use is exempt from tax by statute. Although the purchaser owes the use tax, a retailer engaged in business in this state is required to collect the use tax from the purchaser and pay it to this state. (Rev. & Tax. Code § 6203.) “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).) You explain that a salesman for T entered California for the purpose of making sales calls; therefore, T is engaged in business in this state under subdivision (b) of section 6203. You make a point of emphasizing that the salesman “made only 7 sales calls” to California. Please note that the application of section 6203 is not conditioned on a certain minimum number of visits into this state. Rather, when a retailer, through its employees or representatives, enters California for the specific purpose of engaging in selling activities, the explicit provisions of the statute require us to impose a use tax collection duty on that retailer. As a retailer engaged in business in this state under section 6203, T must collect the applicable use tax from DWR and all its other California purchasers, and remit that tax to this state. You indicate that T is not registered to do business in California. Since T is engaged in business in California, T must apply for a seller’s permit. Please contact our Out-of-State District Office at (916) 322-2010 to request an application. For your information, I am enclosing a copy of the Board’s Pamphlet No. 73, entitled “Your California Seller’s Permit.” If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel
KWC:cl
Enclosures ( Rev. & Tax. Code § 6203, Pamphlet No. 73. )
cc:

Out-of-State Distict Administrator (OH)