Were separately stated standby charges after ready-mix concrete reached the customer's destination included in California taxable receipts?

Plain-English summary

The memorandum treated a retailer's separately stated standby charge as part of transportation. When the goods had reached their destination, were available to the buyer, and enough time had passed for tender and title to transfer, the post-tender standby amount was excluded from taxable gross receipts under the source's analysis.

For a destination-delivery contract, title passed on tender. Tender required the seller to put conforming goods at the buyer's disposal and keep them available for a reasonable time so the buyer could take possession.

Exactly when tender occurred depended on the facts. For typical ready-mix concrete deliveries, the memorandum considered it reasonable to presume—absent contrary evidence—that standby charges began only after the reasonable unloading period had passed.

Citations and references

• California Revenue and Taxation Code section 6012(c)(7) (as cited)
• Uniform Commercial Code sections 2401(2)(b) and 2503(1)(a) (as cited)
• November 21, 1974 internal memorandum asking whether to continue the standby-charge position — author, contents beyond the response's recap, and copy not supplied in the official PDF
• Former Annotation 205.0600, deleted in 1972 after expressing the ready-mix standby-charge position on which personnel and many taxpayers reportedly relied — annotation text, deletion record, and reliance records not reproduced in the official PDF
• CLD 289 directing continued use of former Annotation 205.0600 pending further notice — document, issuance date, authority, recipients, and later notice not reproduced in the official PDF
• Unidentified pending audits and petitions recommended for resolution under the memorandum — audit and petition identities, contracts, invoices, delivery and standby records, determinations, and final dispositions not supplied
• Official Annotation 295.0710's destination delivery, reasonable possession opportunity, tender, completed sale, transportation classification, rebuttable presumption, and Nov. 26, 1974 date — annotation omits the Nov. 21 request, former Annotation 205.0600 and its deletion, CLD 289, prior reliance, tentative wording, printed defects, pending audits and petitions, missing records, reliance status, and later outcome and supplies no additional transaction record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0710.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Donald J. Hennessy

From:

T. P. Putnam

Subject:

Standby Charges

295.0710
Date:

Nov. 26, 1974

This is in response to your memorandum of November 21.
To recap the situation, it is my understanding that for a considerable time prior to 1972, our position was that an extra charge for “standby” time made in connection with the delivery of ready-mix concrete was not includable in the measure of sales tax. This position was expressed in former Annotation 205.0600 In 1972, Annotation 205.0600 was deleted, causing much concern since our personnel as well as a large number of taxpayers had long relied on the annotation. Accordingly, CLD 289 was issued, stating that the provisions of the annotation should continue to be followed pending further notice. The question now is whether to continue to follow the annotation or change our position. I agree with you that we should not change our position since there is no clear basis for doing do. It appears that a charge for “standby” time is part of the charge for transportation and is includable or excludeable from taxable gross receipts in accordance with Section 6012(c)(7). Thus, where the retailer performs the transportation, separately stated charges for standing by after the sale occurs, i.e., after title passes, are excluded from the measure of tax. If the contract requires delivery at destination, title passes on tender there (U.C.C. §2401(2)(b)). Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time, and place for tender are determined by the agreement. In particular, tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession. (U.C.C. §2503(1)(a).) Exactly when tender occurs will depend on the particular facts. Tender can certainly occur and result in passage of title before unloading. I would think that it would not occur until after a period reasonably necessary to enable the buyer to take possession. That period, however, is far from clear. In the typical case of delivery of ready-mix concrete, a period of time is allowed for the position that the period “reasonably necessary” in such a case has passed before standby charges are incurred.

Mr. Donald J. Henessey

-2-

Nov. 26, 1974
295.0710

As a general proposition, it would seem appropriate to presume in the absence of evidence to the contrary that where standby charges are made with respect to any goods after they have reached their destination and are available to the buyer to take possession, tender has occurred, title has passed, and the standby charges are not includable in the measure of tax. I suggest that pending audits and petitions be resolved on the foregoing basis. I will make a CLD of this letter so that it will be annotated in our Business Taxes Law Guide.

TPP:lb

Cc:

Mr. Robert Nunes
Mr. Glenn Rigby