Could a construction contractor obtain a seller's permit only to claim the out-of-state-use exemption?

Plain-English summary

Section 6386 required the purchaser to hold a valid seller's permit but did not itself require actual retail sales. Section 6072 separately prohibited a person from holding a permit unless actively engaged in business as a seller of tangible personal property.

A construction contractor therefore could not legally obtain a seller's permit solely to qualify for the section 6386 exemption.

If the contractor already held an unrevoked permit, the permit remained valid for section 6386 purposes. The permit was nevertheless subject to revocation if the contractor was not actually conducting a selling business.

Common questions

Could exemption planning alone justify issuing a permit?

No.

Did section 6386 require the permit holder to make retail sales?

Not by its own language, according to the memorandum.

What if the contractor already held an unrevoked permit?

It could receive the exemption while the permit remained valid, but the permit could be revoked under section 6072.

Citations and references

• California Revenue and Taxation Code section 6072 — active-seller requirement and revocation rule applied in the memorandum
• California Revenue and Taxation Code section 6386 — historical out-of-state-use exemption discussed in the source
• Headquarters Audit Review memorandum of August 9, 1966 — identified as the memorandum answered; not reproduced in the official PDF

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/190-2700.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Headquarters – Audit Review (RN)

From:

Tax Counsel (EHS) - Headquarters

Subject:

Sales of Materials to California Contractors
for Use Out of State

190.2700

Date:

August 10, 1966

We offer the following comments regarding the subject of your memo of August 9, 1966. Section 6386 does not require that a purchaser to obtain the exemption shall actually make retail sales. He need only be the “holder of a valid seller’s permit.” However, since the addition of
§ 6072, effective September 17, 1965, a person cannot hold a seller’s permit unless he is actively engaged in or conducting a business as a seller of tangible personal property. Therefore, a person not so engaged is not entitled to hold a permit and a California contractor could not legally be issued a permit solely to permit him to take advantage of § 6386. Any contractor holding an unrevoked permit would be entitled to the benefits of § 6386, but the permit is subject to revocation under § 6072 if the person is found to be not actively engaged in or conducting a business as a seller of tangible personal property.

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