Who collected tax when an out-of-state steel seller used a California retailer only as its delivery agent to a California contractor?

Plain-English summary

A Chicago firm not engaged in business in California sold steel to a Tennessee construction contractor for installation at a California job. A California retailer acted only as the Chicago seller's agent, receiving the steel and delivering it to the contractor. Title passed in California.

The memorandum concluded that Regulation 1620(a)(2)(B) made use tax, rather than sales tax, the applicable tax because no California branch, office, or place of business of the out-of-state seller participated in the sale.

Under section 6007, however, staff treated the California person making delivery as the retailer and required it to collect the use tax from the contractor. The author recognized an argument that the section's final sentence applied only to sales-tax transactions but recommended continuing the use-tax collection position unless courts decided otherwise.

Common questions

Did title passing in California automatically make this a sales-tax transaction?

No, under the memorandum's Regulation 1620 analysis.

Who was treated as the retailer?

The California delivery agent under section 6007.

What tax did that agent collect?

Use tax.

Did the memo say the interpretation was free from doubt?

No. It expressly noted a competing argument.

Citations and references

• California Revenue and Taxation Code section 6007 — delivery person treated as retailer
• California Code of Regulations, title 18, section 1620(a)(2)(B) — use tax rather than sales tax applied despite California title passage
• July 27, 1982 handwritten correction — identifies the source's “X” manufacturer reference as a typo for “Y”

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/175-0150.pdf

Original ruling text

State of California

Board of Equalization

175.0150

Memorandum

To:

Mr. T. P. Putnam

From:

Glenn L. Rigby

Subject:

Section 6007

Date:

December 23, 1975

On December 15 we discussed the interaction of the last paragraph of Section 6007 and Regulation 1620(a) and (b). The factual situation we considered follows: X, a Tennessee construction contractor, had a contract to furnish and install steel at a California location. Y, a Chicago firm not engaged in business in California, contracted with X to sell it the steel. X [handwritten in margin: typo, should be Y (DJH 7/27/82)] then manufactured the steel and pursuant to a contract it made with Z (a California retailer), it delivered the steel to Z, who in turn delivered it to X. Z was merely acting as an agent of Y, and it was not a branch or local office or other place of business of Y. Since title passed to X in California, the question to be decided is whether the transaction is subject to sales or use tax. Notwithstanding the fact that title passed to X in California and that literally the last paragraph of Section 6007 would seem to indicate that Z would be subject to sales tax on the transaction, it was our conclusion that because of paragraph (a)(2)(B) of Regulation 1620 the only applicable tax that can be imposed is a use tax. However, since Z is the retailer under Section 6007, it is our opinion that he is required to collect the use tax from X and report it to the state. Although it could be argued that the last sentence of the last paragraph of Section 6007 is only applicable to a sales tax transaction, it is felt that we should leave the question to the courts to decide and that we will therefore continue to impose the use tax collection responsibility on the person making the delivery.

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Covina-Foothills – Dist. (IL)