Could a contractor take California delivery of materials for an out-of-state job without sales tax?

Plain-English summary

Under the 1961 rule, a contractor holding a California seller's permit could present a section 6386 exemption certificate for materials delivered in California but intended for an out-of-state construction contract.

A contractor without a California permit could sometimes use a resale certificate supported by permits from other states, but only when it could not determine at purchase whether the property would be resold or incorporated into realty. Materials bought for a particular construction job remained taxable.

Even inventory treatment required a genuine stock from which both outright sales and construction-contract withdrawals were made.

The later official memorandum published under Annotation 190.2700 adds that, after section 6072 took effect in 1965, a contractor could not obtain a seller's permit solely to qualify for section 6386.

Common questions

Did California delivery automatically make the sale taxable?

Not when the purchaser held the required permit and valid section 6386 certificate under the historical rule.

Could known-job materials be bought for resale?

No.

What inventory qualified for uncertain-use resale treatment?

Actual mixed-use inventory supporting both outright sales and construction withdrawals.

Could a contractor obtain a permit solely for the exemption?

Annotation 190.2700 later said no after the 1965 permit-law change.

Citations and references

• California Revenue and Taxation Code section 6386 — historical out-of-state-use exemption discussed in the letter
• State Board of Equalization letter of January 24, 1961 — earlier explanation expressly clarified; not reproduced in the official PDF
• Requester's correspondence stating that Montana had no sales or use tax law — statement addressed conditionally; the correspondence is not reproduced in the official PDF
• Business Taxes Law Guide Annotation 190.2700, August 10, 1966 — later official permit-eligibility limitation after section 6072 took effect

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/190-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/190-2675.pdf

Original ruling text

190.2675

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 7, 1961

B--- M--- Company
XXXX East XXth Street
--- --- XX, Missouri

Attention:

Mr. G--- E. H---, Jr.
Tax Department

Gentlemen:

We regret that our letter of January 24 did not sufficiently apprise you of the application of California sales tax to the sales of materials by California vendors to construction contractors for out-of-State use. The thought we intended to convey was that contractors holding California sellers’ permits may present exemption certificates as authorized in Section 6386 of the Sales and Use Tax Law and thereby cause the sale to be exempt from sales tax even though the contractor might take delivery of the property in this State. If the contractor does not hold a California seller’s permit, it is still possible that he could purchase the materials under a resale certificate by presenting information as to sellers’ permits held by him in other states. The use of such a certificate is authorized only in those instances in which the contractor cannot at the time of purchase determine whether the property will be sold or incorporated into realty in the process of performing a construction contract. If the property is purchased for a particular job rather than for addition to an inventory, tax would apply. Even if the property is placed in inventory, said inventory must be of the type from which outright sales are made and from which withdrawals are made in connection with construction contracts. If, as you state, Montana does not have a sales or use tax law, there is no possibility that a construction contractor would be defined as a retailer of the items used by him in the process of improving real property. Sales will, therefore, be taxable unless within the exemption mentioned

B--- M--- Company

-2-

February 7, 1961
190.26750

above or unless the out-of-State person’s transfers, in fact, qualify as retail sales under the California Act even though they are not made in this State. Very truly yours,

J. J. Delaney
Associate Tax Counsel

JJD:o’b
cc:

Chicago – (CFH)