Could an out-of-state contractor buy California-delivered materials ex-tax because another state treated it as a retailer?

Plain-English summary

An out-of-state construction contractor could not buy materials delivered in California ex-tax merely because the state where the work occurred treated contractors as retailers. The 1987 memorandum said California law governed the California purchase, and under that law the contractor consumed rather than resold the materials.

The legal staff concluded that a resale certificate was improper and that the section 6386 exemption applied only to holders of California seller's permits. A seller's permit issued by another state did not satisfy that California requirement.

If the contractor faced tax both in California and in the state where construction occurred, the memorandum identified two possible courses: take delivery in the other state or seek relief there under an offset statute comparable to California section 6406.

Common questions

Did another state's contractor classification control the California purchase?

No. The memorandum said California transactions had to follow California law and definitions.

Could the contractor issue a resale certificate?

No, not for materials it consumed as a construction contractor under California law.

Did an out-of-state seller's permit satisfy section 6386?

No. The source said the exemption specifically required a California seller's permit.

Why does the PDF also contain a more qualified 1961 answer?

The 1987 memorandum revisited that older letter, confirmed the legal staff's narrower position, and said the annotation would be brought into agreement with it.

Citations and references

• California Revenue and Taxation Code section 6068 — California seller's permit provision cited in the 1961 letter
• California Revenue and Taxation Code section 6386 — exemption discussed in both documents and limited by the 1987 memorandum to California permit holders
• California Revenue and Taxation Code section 6406 — California offset statute cited as an analogy for possible relief in the other state
• Former California Sales and Use Tax Rule 11 — historical construction-contractor rule cited; an enclosed copy is identified but not reproduced in the official PDF
• Former California Sales and Use Tax Ruling 68 — historical resale-certificate rule cited; an enclosed copy is identified but not reproduced in the official PDF
• California Sales and Use Tax Law pamphlet — identified as enclosed with the 1961 letter; not reproduced in the official PDF
• January 23, 1961 telephone conversation — opinion confirmed by the January 24 letter; no separate record is reproduced in the official PDF
• Torrance District inquiry made several weeks before July 24, 1987 — out-of-state-contractor question identified and answered; the inquiry is not reproduced in the official PDF
• Legal staff's interim response and Principal Tax Auditor Glenn Bystrom's review — described as the internal review supporting the 1987 position; no separate records are 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/190-2720.pdf

Original ruling text

190.2720

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 24, 1961
--- --- ----- --- ----- --- --Attention:

Mr. --- --- ---

Re:

Gentlemen:
This is to confirm the opinion expressed to you during our telephone conversation of January 23, 1961 regarding the application of California sales tax to sales of materials to out-of-state construction contractors. Enclosed is a copy of Sales and Use Tax Rule 11 relating to contractors generally. You will recall that we stated such sales were subject to the California tax if the delivery of the property to the contractor was effected in this state. In making this statement, we assumed that the out-of-state contractor does not have a valid Seller’s Permit issued under Section 6068 of the California Sales and Use Tax Law, pamphlet copy enclosed, and could not therefore qualify for the exemption granted by Section 6386 of the Law. It should be understood that even if the particular contractor has a Seller’s Permit issued by the state of Montana, the requirements of Section 6386 would not be fulfilled. If the person to whom you are selling the materials is in fact a retailer, as well as a construction contractor, then it would be proper to accept a resale certificate as described in Ruling 68, copy enclosed, provided the person to whom you sell is unable to tell at the time of purchase whether the property will be consumed or resold. Very truly yours,

J. J. Delaney
Associate Tax Counsel
JJd:ls
Enclosure
cc:

Chicago (OFH)

State of California

Memorandum

To:

Torrance – District Principal Auditor

From:

Headquarters – Tax Counsel (HLC)

Subject:

Exemption Under Section 6386

Board of Equalization

190.2720

July 24, 1987

Several weeks ago you inquired whether an out-of-state construction contractor who does not hold a California seller’s permit could purchase materials ex-tax under section 6386 in California if the state in which the construction contract is performed treats construction contractors as retailers of materials. You cited language from Business Taxes Law Guide, Annotation 190.2720 (January 24, 1961) as indicating that the out-of-state contractor could purchase ex-tax under section 6386. At that time I told you that it was the position of the legal staff that a resale certificate was improper since under California law, the contractor consumes and does not resell materials. An exemption certificate is also improper because section 6386 specifically applies only to holders of California seller’s permits. I also told you that in view of the language of the cited annotation, I would verify our position with Principal Tax Auditor Glenn Bystrom. Mr. Bystrom has reviewed this problem and concurs with the position of the legal staff. When transactions take place in California, they must be bound by California law and definitions. To do otherwise would put us in the position of attempting to apply and interpret the tax laws of other states. A contractor’s remedy if he is taxed in the state in which the construction takes place as well as in California is to take delivery of the material in the other state or seek relief in the other state under an offset statute similar to section 6406. We will take steps to put the annotation into agreement with this position.

HLC:md
cc:

Mr. G. A. Bystrom
Mr. D. J. Hennessy