Who was the gasoline retailer when an oil company owned the fuel but independent operators ran the stations and sold it?

Plain-English summary

An oil company leased the premises and owned gasoline until sale, while individual operators ran the stations. The operators could hire others to operate the stations and earned commissions or a flat fee for selling fuel.

Senior tax counsel disagreed with a hearing officer's conclusion that the operators were employees. The absence of personal-service contracts, freedom to hire others, and compensation structure supported treating them as operators selling on the oil company's behalf rather than employees under its absolute control.

The memorandum also applied Regulation 1569. The oil company left its fuel with people who possessed it and could transfer title to customers without any further action from the company. That made the transactions consignment sales and made the station operators the retailers of the gasoline.

Counsel added an alternative point: even if the operators were employees, they had obtained seller's permits for operating the stations and, in counsel's view, should be estopped from denying liability.

Common questions

Did the oil company's ownership of the gasoline make it the retailer?

Not under the memorandum's analysis. The operators possessed the fuel and exercised the power to sell it to customers.

Why did counsel reject employee status?

The operators were free to hire others, did not appear bound by personal-service contracts, and earned commissions or flat operating fees.

Was seller-permit estoppel the main holding?

No. It was an alternative reason offered after the consignment analysis.

Citations and references

• California Sales and Use Tax Regulation 1569 (as cited)
• Gipson v. Davis Realty Company, 215 Cal.App.2d 190 (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/185-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/185-0350.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Glenn A. Bystrom

From:

Ronald L. Dick
Senior Tax Counsel

Subject:

T--- R. and B--- L. M--B--- L---

185.0350

November 28, 1990

SR -- XX-XXXXXX-010
SR -- XX-XXXXXX-010

This is in reply to your request for our opinion as to a hearing report concerning the above named petitioners. Hearing Officer William Burkett has concluded that the petitioners were employees of S---. In a June 4, 1990 memorandum, I concluded, under similar facts, that the person who operated the station was the retailer. After reviewing the files on these cases, I remain of the opinion that the retailer in each case is the person who operated the station. In reaching his conclusion, Mr. Burkett relied partly on the case, Gipson v. Davis Realty Company, 215 Cal.App.2d 190, for the proposition that, “[o]ne who is subject to the absolute control and direction of his principal in regard to any act, labor or work is an employee and not an agent.” I believe that the rule cited, applied to the facts of this case, calls for the opposite result. There is no evidence that there were personal service contracts in these cases. It appears that the station operatiors were free to employ others to operate the stations so long as the motor vehicle fuel was sold. The petitioners do not appear to be hired as employees. Rather, they earned commissions or earned a flat fee for operating and selling motor vehicle fuel to customers on behalf of the oil company. Although S--- may be the lessee of the premises, the fact remains that S--- left fuel in the possession of persons with the power to transfer title to the fuel to third persons without any further action on the part of S---. I believe that Sales and Use Tax Regulation 1569, Consignees and Lienors of Tangible Personal Property for Sale, dictates the conclusion that the transactions are consignment sales whereby the operators of the service stations are retailers of the fuel. Further, even were we to find that petitioners acted as employees, I believe that they should be estopped from denying liability where they obtained seller’s permits for the stated purpose of operating the service stations.

RLD:sr