Who had to collect California use tax when a local playground consultant recommended an out-of-state supplier's equipment for a commission?

Plain-English summary

A California recreation-design and risk-management consultant recommended and estimated playground equipment for parks and schools. An out-of-state supplier set the final price, accepted orders directly, shipped directly, billed customers, and collected payment. The supplier paid the consultant a commission.

California said the consultant did not buy and resell the equipment and therefore did not owe sales tax or collect use tax on the transactions. Its recommendations, estimates, and commission instead made it the supplier's California representative or agent under section 6203(b).

The out-of-state supplier was engaged in business and had to register and collect California use tax from its customers.

Common questions

Was the consultant treated as the equipment retailer?

No.

Why did the supplier have California collection responsibility?

Its commissioned California consultant recommended and estimated the equipment to help make sales.

Who quoted prices and collected customer payment?

The out-of-state supplier.

Citations and references

• California Revenue and Taxation Code section 6203(b)
• CPA's February 15, 1988 letter — consultant and supplier relationship quoted in part; complete request not reproduced in the official PDF
• Consulting and commission arrangement, estimates, quotations, orders, shipments, billings, and collections — operations described; underlying records not reproduced in the official PDF
• Planned Out-of-State District contact with the supplier — no contact record or registration outcome supplied 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/220-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/220-0009-500.pdf

Original ruling text

220.0009.500

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6493

March 28, 1988

Mr. L--- D. J--Certified Public Accountant
C--- & J---, Inc.
P. O. Box XXX
---, CA XXXXX-XXXX
B--- A--- – SR -- XX-XXXXXX
I--- M--- F--- (no permit)
Retailer engaged in business – use tax collection
Dear Mr. J---:
In your February 15, 1988 letter to the Board’s legal staff regarding your client, B--- A---, you write that: “B--- A--- is a recreation design and risk management consulting company. Their major consumers are parks and schools. As part of the service, the B--recommend and estimate playground equipment sold by an out-of-state supplier. The supplier, I--- M--- F---, quotes final prices to the customer. The order is placed directly with the supplier who ships the product directly to the customer. Collection is also made by I--- M--- F---. The clients receive a commission for their services. “Since my client only provides consulting services and receives commissions on product sales, I believe clarification should be made only regarding sales tax collection from the out-of-state supplier.” Opinion Based on the facts stated in your letter, we agree with your contention that B--- A--- has no obligation either to report and pay sales tax on these transactions, or to collect use tax from the purchasers. There is no indication that your client is purchasing and reselling the playground equipment sold by I--- M--- F---. Rather, I--- M--- F--- is a retailer engaged in business in this state within the meaning of Revenue and Taxation Code Section 6203(b), which provides that a “retailer engaged in business in this state” includes:

Mr. L--- D. J---

-2-

March 28, 1988
220.0009.500

“(b) Any retailer having any representative, agent, salesman, canvasser, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, or the taking of orders for any tangible personal property.” A retailer who is engaged in business in California, and makes out-of-state sales of tangible personal property to consumers for storage, use or other consumption in California, is obligated to collect use tax imposed on the purchaser measured by the purchase price of the tangible property sold. Your client is a representative or agent of I--- M--- F--- for purposes of section 6203(b) since your client recommends and estimates the playground equipment sold by I--- M--- F---, and receives a commission from the seller. Accordingly, it is the obligation of I--- M--- F---, not your client, to register with the Board to collect the use tax from California customers on its out-of-state sales. I will ask the Board’s Out-ofState District office to contact I--- M--- F--- directly regarding registration with the Board for use tax collection purposes. Please feel free to contact me if you have any further questions or comments about this letter. Sincerely,

John Abbott
Tax Counsel

JA:jb