Did an independent California sales representative create use-tax collection responsibility for an out-of-state retailer?

Plain-English summary

An out-of-state retailer had no California office or property and did not itself travel into the state. It contracted with an independent representative who called on California customers at least monthly, held sales meetings, maintained the retailer's catalogs and price sheets, and forwarded orders for out-of-state acceptance and shipment.

California said the representative's independent-contractor status and work for other companies did not prevent attribution to the retailer. Section 6203(b)'s phrase “under the authority of” covered any relationship in which the retailer delegated any power to its California representative.

Because the representative solicited sales in California under delegated authority, the retailer was engaged in business in the state. It had to register and collect use tax on all California purchases, including orders received entirely by mail or telephone rather than through that representative.

Common questions

Did the representative have to be an employee?

No.

Did the representative have to work exclusively for this retailer?

No. The letter said representing other companies did not change the result.

Was collection limited to orders the representative generated?

No. The duty applied to all California sales while the retailer was engaged in business in the state.

Citations and references

• California Revenue and Taxation Code sections 6051, 6201, 6203(b), 6066, 6226, and 6401
• California Sales and Use Tax Regulation 1620
• Quill Corp. v. North Dakota, 504 U.S. 298; Scripto, Inc. v. Carson, 362 U.S. 207; Tyler Pipe Industries, Inc. v. Washington Department of Revenue, 483 U.S. 232
• Scholastic Book Clubs, Inc. v. State Board of Equalization, 207 Cal.App.3d 734
• Business Taxes Law Guide Annotations 220.0020, 220.0100, and 220.0230 (as cited)
• Counsel's July 20, 1995 letter — request quoted in part but not reproduced as a separate complete document in the official PDF
• Independent-representative contract requiring regular sales meetings, monthly customer calls, current catalogs and price sheets, and order forwarding — terms quoted; contract not reproduced in the official PDF
• Out-of-state work and order processing, FOB common-carrier shipments, California sales activity, mail and telephone purchases, and representative work for other companies — facts described; underlying records not reproduced in the official PDF
• Immediate Board registration instruction — no application, return, 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/220-0119.pdf

Original ruling text

220.0119

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 322-2976
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

November 2, 1995

Ms. L--- A. S--C--- S---, LLC
XXXX --- West Drive, Suite XXX
---, IN XXXXX-XXXX
Re:

Unidentified Taxpayer

Dear Ms. S---:
This is in response to your letter dated July 20, 1995 regarding the application of tax to the activities of your client. You state: “1) Client is based in midwest with no offices or property within the state of California. “2)

Client does not travel into the state of California to conduct business.

“3)
All work client performs is done in the midwest. Purchase orders are sent to our client in the midwest from an independent representative. Upon completion of the work, the product is shipped via common carrier fob shipping point, (midwest), to the California customer. “4) Client contracts with an independent representative to solicit sales. This contractor reps for various companies and is not an employee of our client. Per the contract between our client and the independent rep, the following duties have been agreed upon: A)

Representative will hold sales meetings with customers on
a regular basis.

B)

Call on customers a minimum of once a month.

C)

Maintain an up-to-date supply of client catalogs, price
sheets, etc.

Ms. L--- A. S---

-2-

D)

November 2, 1995
220.0119

Representative shall forward all orders to client.

“Upon review of the above facts, we respectfully request the state to issue a written opinion as to whether or not the above facts constitute our client having authority over the independent representative. If so, what section [of] the California code is that opinion based upon?” DISCUSSION Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) When sales tax does not apply, such as when sales take place outside of California, the use tax, measured by the sales price of the property sold, applies to the use of property purchased from a retailer for storage, use, or other consumption in California, unless the use is specifically exempt from tax by statute. (Rev. & Tax. Code §§ 6201, 6401, Reg. 1620.) Although the purchaser owes the use tax, a retailer engaged in business in this state is required to collect the use tax from the purchaser and pay that tax to this state. (Rev. & Tax. Code § 6203.) “Retailer engaged in business in this state” includes any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property. (Rev. & Tax. Code § 6203(b).) You state that your client contracts with an independent representative to solicit sales. You explain that this representative is not an employee of your client, and that the representative also “reps” for other companies. Please note that a retailer is engaged in business in this state if that retailer has any representative or agent in this state for an activity related to sales of tangible personal property. This rule is consistent with the decision in Quill Corp. v. North Dakota (1992) 504 U.S. 298, in which the Supreme Court held that a retailer must have some physical presence in the taxing state in order for that state to impose a use tax collection duty on that retailer. In a case in which the retailer’s only physical presence in a state was through the use of jobbers rather than employees to sell tangible personal property, the Supreme Court held that it was without constitutional significance that the retailer’s salespeople were not employees of that retailer. (Scripto, Inc. v. Carson (1960) 362 U.S. 207.) In Tyler Pipe Industries, Inc. v. Washington Department of Revenue (1987) 483 U.S. 232, the Supreme Court held that the showing of a retailer’s physical presence in a state cannot be defeated by the argument that the representative was properly characterized as an independent contractor. Therefore, it is not necessary for an individual to be your client’s employee, or to solicit sales exclusively for your client, in order for that individual to operate as your client’s representative within the meaning of

Ms. L--- A. S---

-3-

November 2, 1995
220.0119

section 6203(b). (See Business Taxes Law Guide Annotations 220.0100 (11/30/64), 220.0230 (4/10/70).) You ask whether your client’s activities constitute your client’s having authority over its independent representative. The phrase “under the authority of” in section 6203(b) refers to any relationship pursuant to which any power whatsoever is delegated by the out-of-state retailer to its California representative. (See Scholastic Book Clubs, Inc. v. State Board of Equalization (1989) 207 Cal.App.3d 734, BTLG Ann. 220.0020 (8/29/58.) Your client is a retailer with a sales representative who is physically located in California when that person solicits sales of tangible personal property under power delegated to that person by your client; therefore, your client is a retailer engaged in business in this state under Revenue and Taxation Code section 6203(b). As such, your client must collect the applicable use tax from all of its California purchasers and pay that tax to this state, without regard to whether the purchases are made through your client’s California solicitor, or entirely by mail or telephone. As a retailer engaged in business in this state, your client must immediately register with this Board. (Rev. & Tax. Code §§ 6066, 6226.) For information regarding registering with this Board, please contact our Out-of-State District Office at 450 N. Street, P.O. Box 188268, Sacramento, CA 95818-0268, (916) 322-2010. If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel
KWC: cl

cc:

Out-of-State District Administrator