Did an out-of-state partnership need its own California registration when a permitted parent invoiced and collected its California sales?

Plain-English summary

Two corporate subsidiaries formed an out-of-state partnership manufacturing ceiling grid. One parent already held a California permit, performed administrative work, invoiced California sales, collected proceeds and tax, and remitted the balance to the partnership. The parties wanted the partnership to avoid separate registration.

California said the result depended on the parent's legal role. If it made California sales on the partnership's behalf as a selling agent, the partnership was engaged in business under section 6203 and had to register and collect and remit tax on its own sales. The parent's existing registration did not substitute for that duty.

If the partnership instead sold the property to the parent and the parent resold it on its own behalf, the parent was not acting as agent. The partnership's sale for resale was not taxable, and the parent's later California retail sale was the taxable transaction.

For California purchases used at the partnership's out-of-state facilities, shipment outside California under the sales contract without California possession could be exempt. Taking possession in California made the sale taxable. The source lacked enough facts for a final agency determination.

Common questions

Could the permitted parent simply report the partnership's California sales?

Not if it was acting as the partnership's agent. In that case the partnership itself had to register.

What if the parent bought the product and resold it?

Then the parent was the retailer on its own sale, and the partnership's sale to it was for resale.

Were all California purchases for the out-of-state factory taxable?

No. Contract-required shipment out of state without the purchaser taking California possession could qualify for exemption.

Citations and references

• California Revenue and Taxation Code sections 6051, 6066, 6201, 6203(a)–(b), and 6401
• California Sales and Use Tax Regulation 1620(a)(3)
• California Civil Code section 1656.1
• Parent corporation's February 10, 1994 facsimile request — facts described; facsimile not reproduced in the official PDF
• Partnership formation and subsidiary relationships — structure described; partnership and corporate records not reproduced in the official PDF
• Parent's California sales-and-use-tax registration — status stated; permit application and account records not reproduced in the official PDF
• Manufacturing, administrative services, claimed selling agency, invoices, sales proceeds, tax withholding, purchase orders, payments, reimbursements, California purchases, shipment, possession, contracts, and returns — facts and alternatives described; underlying agreements, invoices, orders, payment, reimbursement, shipping, possession, and return records not reproduced in the official PDF
• Unresolved agency-versus-resale relationship and potential partnership registration — no later agreement, registration, return, remittance, audit, or final 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/220-0178.pdf

Original ruling text

220.0178
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 322-2976

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

March 31, 1994

GRAY DAVIS
Controller, Sacramento
────────

Mr. L. J--- U---, III
Tax Department
A--- W--- I---, Inc.
XXX W. --- Street
P. O. Box XXXX
---, PA XXXXX

BURTON W. OLIVER
Executive Director

Re: SZ --- XX-XXXXXX
Dear Mr. U---:
This is in response to your facsimile transmission of February 10, 1994 in which you request our opinion as to the sales and use tax registration requirements for WAVE. A--Ventures, a subsidiary of A--- W--- I---, Inc. (A---), and W--- Ventures, a subsidiary of W--- S--l Co. (W---), have created a partnership known as WAVE. Both parent corporations are Delaware corporations. A--- is registered in California for sales and use tax purposes. WAVE manufactures ceiling grid in Pennsylvania and Maryland. Most administrative functions for WAVE, such as purchasing, computer services and accounts payable, are provided by either A--- or W---. You also state that A--- is acting as "selling agent" for WAVE. A--issues invoices for the collection and remittance of all sales proceeds, including sales in California. A--- then remits the sales proceeds, less the sales tax, to WAVE. A--- or W--- also issue the purchase orders and process payments of purchases made for WAVE, including some purchases made in California. Both parent corporations are reimbursed by WAVE at cost for purchases, including sales or use tax paid. WAVE would like to forego any sales and use tax registration in California and have A--be responsible for the collection and remittance of all sales tax. As for purchases made in California, A--- and W--- would like to pay sales tax directly to the vendor or accrue and remit use tax on their regular returns.

Mr. L. J--- U---, III

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March 31, 1994
220.0178

Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property in California. When sales tax does not apply use tax is imposed on the storage, use or other consumption of tangible personal property purchased from a retailer for use in California, measured by the purchase price of the property. (Rev. & Tax. Code §§ 6201, 6401.) Under Revenue and Taxation Code section 6066, every person desiring to engage in or conduct business as a seller within this state shall file with the Board an application for a permit for each place of business. Revenue and Taxation Code section 6203 states that every retailer engaged in business in California and making sales of tangible personal property for storage, use or other consumption of the state shall collect the tax from the purchaser. A "retailer engaged in business" in this state includes the following: "(a) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business. "(b) 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." (Emphasis added.) You state that A--- is WAVE's selling agent for the sales made in California. If A--- is acting on behalf of WAVE when making the sales in California, then WAVE is a retailer engaged in business in this state. WAVE would be required to register with the Board and would be responsible for the collection and remittance of the tax on its sales in California. However, if WAVE is selling the tangible personal property to A--- and A--- is in turn reselling the property on its own behalf, then A--- would not be WAVE's agent. Since all of the sales to A--- would be for resale, these sales would not be subject to California sales tax. Rather, A---'s subsequent retail sales in California would be subject to sales tax and as the retailer, A--would be responsible for paying that California sales tax. For purchases made in California for use by WAVE at its out of state facilities, the application of tax depends on the circumstances of the sale. If the property is shipped out of California pursuant to the contract of sale and the purchaser does not take possession in California, then the sale is exempt. (Reg. 1620 (a)(3).) If the property is sold to WAVE and WAVE takes possession in California, the sale is subject to California sales tax. The sales tax is

Mr. L. J--- U---, III

-3-

March 31, 1994
220.0178

imposed on the retailer but the retailer may collect reimbursement for its tax liability from WAVE if their contract of sale so provides. (Civ. Code § 1656.1.) If the property is sold to A--for its own account and A--- then resells the property, the sale to A--- is not taxable (as a sale for resale). The application of tax to A---'s subsequent resale will depend on the circumstances of that sale. From the facts provided in your letter, we are unable to conclusively determine whether A--- is acting as WAVE's agent when making the sales in California or whether it is making those sales on its own behalf. If A--- is acting as WAVE's agent, then WAVE is a retailer engaged in business in this state and is required to register with the Board. If A--- is not acting as WAVE's agent and WAVE has no other physical presence in this state, then WAVE is not required to register here. If you have any further questions, please do not hesitate to write again. Sincerely,

Sukhwinder K. Dhanda
Staff Counsel
SKD:plh

cc: Van Nuys District Administrator - AC