Did a business owe use tax when it donated resale inventory in California for later shipment outside the state?

Plain-English summary

A business contributed inventory items in San Francisco for shipment outside California. The letter assumed the goods had been bought under a resale certificate without sales-tax reimbursement or acquired outside the state without paying use tax.

The source treated making a gift or donation as an exercise of ownership and therefore a use. Under Revenue and Taxation Code section 6094, property acquired under a resale certificate became subject to use tax when used for something other than retention, demonstration, or display while held for resale.

Because the gift occurred in California, the donor owed use tax measured by its cost. The recipient's intended and actual later transportation outside California did not create an exception for the earlier in-state use.

Citations and references

• California Revenue and Taxation Code § 6094
• Donor's Feb. 23 request — facts and question recited; year, letter, attachments, and recipient identity not reproduced in the official PDF
• Inventory acquisition, assumed resale certificates or out-of-state ex-tax purchases, San Francisco delivery, gift, donor cost, and later out-of-state transport — facts supplied or assumed; purchase invoices, certificates, tax-payment records, donation agreement and receipt, title terms, carrier documents, delivery proof, recipient records, and cost computation not reproduced in the official PDF
• Official Annotation 280.0640's in-state gift, resale-certificate or out-of-state purchase, use-tax liability, and subsequent-shipment summary — annotation supplies no additional transaction, cost, shipping, or implementation record
• Possible later shipment, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 280.0640
• Original supporting opinion: 280.0640 PDF

Original ruling text

STATE OF CALIFORNIA

280.0640

STATE BOARD OF EQUALIZATION

March 15, 1960

--- --- ----- --- ----- --- --Gentlemen:
This is in reply to your letter of February 23 requesting a ruling as to liability for sales or use tax with respect to inventory items contributed by you to “X”. You delivered these items in San Francisco for shipment. As these were inventory items, we assume that they were purchased for the purpose of resale under a resale certificate without any reimbursement for sales tax paid to vendors, or were purchased outside this state without payment of use tax. The making of a gift or donation of property is a use of that property under the law, which defines “use” as the exercise of any right or power over property incident to the ownership thereof. It is also provided in the Sales and Use Tax Law, Section 6094, that any person who purchases property under a resale certificate and makes any use of the property other than retention, demonstration, or display while holding it for resale incurs liability for use tax measured by the cost of the property to him. It appears from the facts stated in your letter that in view of the foregoing provisions of the statute, you are liable for use tax when you make a gift in this state of merchandise which was purchased by you under a resale certificate, or outside this state. The fact that the purchaser intends to, and does, transport the property to a point outside the state does not alter the fact that prior to such transportation, the donor made a use of the property in this state, and no exception is provided in the law on account of such subsequent shipment of the property outside this state. Very truly yours,

E. H. Stetson
Tax Counsel

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San Jose – Admin.