Was an off-reservation retailer's sale exempt when title passed to an Indian purchaser on a reservation but the purchaser did not reside on a reservation?

Plain-English summary

A redacted permitted retailer's absent August 12, 1996 letter pointed out that Regulation 1616(d)(4) had no explicit residency requirement but argued one could be inferred from other subdivisions. California agreed that the regulation contained that requirement when read as a whole.

An off-reservation retailer's sale negotiated off reservation could avoid sales tax when title passed to an Indian purchaser on a reservation.

Use-tax exemption required more. If the purchaser resided on a reservation, use remained exempt when the property was used on reservation more than off reservation during the first 12 months.

If the Indian purchaser did not reside on a reservation, the on-reservation transaction was subject to use tax. California rejected an interpretation that would protect a nonresident purchaser in a transaction receiving less federal protection than an on-reservation sale by an Indian seller.

The response names no federal authority for that protection comparison and supplies no property, contract, title, residence, use, audit, appeal, or later-outcome record.

What this means for you

Retailers and Indian purchasers

On-reservation title passage and purchaser residency were separate requirements.

Accountants and tax professionals

Document negotiation location, title passage, delivery, Indian status, reservation residence, and first-year use.

Common questions

Q: Did on-reservation title passage alone create full exemption?

A: No.

Q: What if the purchaser did not reside on a reservation?

A: Use tax applied.

Citations and references

• California Sales and Use Tax Regulation 1616(d)(3)(A)(2) and (d)(3)(B)(2) — cited for Indian and non-Indian seller transactions with a nonresident Indian purchaser; complete text, definitions, versions, and later history not supplied
• California Sales and Use Tax Regulation 1616(d)(4)(A) and (d)(4)(E) — cited for on-reservation title passage, reservation residence, and first-12-month use; complete text, definitions, proof rules, versions, and later history not supplied
• Federal law described generally as requiring the exemptions Regulation 1616 explained — no constitutional, statutory, treaty, case, administrative, tribal, or other federal authority identified or reproduced
• August 12, 1996 permitted-retailer letter asking about reservation delivery to a nonresident Indian purchaser — request, identities and status, property, contract, negotiation, invoice, delivery, title, residence, use, and tax records not reproduced
• October 21, 1996 Tax Counsel Charlotte Chyr response reading Regulation 1616 as a whole — no replies, transaction review, return, audit, assessment, refund claim, appeal, or later outcome supplied; copies sent to Dennis Fox, three District Administrators, and a redacted individual
• Official Annotation 305.0024's off-reservation retailer and negotiation, on-reservation Indian sale, reservation residence, first-12-month majority use, nonresident-purchaser use tax, and October 21, 1996 rules — annotation omits the request and permit, whole-text and anomaly reasoning, Indian-seller comparison, unidentified federal-law basis, absent records, copied officials, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0024
• Original supporting opinion: 305.0024 PDF

Original ruling text

305.0024

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 323-3787
FAX (916) 323-3387

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

October 21, 1996

KATHLEEN CONNELL
Controller, Sacramento
___
E. L. SORENSEN, JR.
Executive Director

Mr. J--- v--- B--P---C--XXX --- Drive
---, -- XXXXX
Re:

Seller’s Permit No. SY – XX-XXXXXX

Dear Mr. v--- B---:
This is in response to your letter dated August 12, 1996 regarding the application of Regulation 1616 to sales by P---C---, where property is delivered on a reservation to an Indian purchaser that does not reside on a reservation. You point out that there is no explicit “residency” requirement in Regulation 1616(d)(4). You believe such a requirement can be assumed by the mention of the requirement in other sections of the Regulation. We agree with your conclusion. The provisions in Regulation 1616 regarding sales by and to Indians was intended to be read as a whole. A sale by an Indian to an Indian is subject to use tax, even if the property is delivered on a reservation, if the purchaser does not reside on a reservation. (Reg. 1616(d)(3)(A)2.) The fact that the sale is made by an Indian on a reservation exempts the selling Indian from sales tax; however, the liability of the purchaser for tax is dependent on whether or not the purchaser resides on a reservation. Similarly, a sale by a nonIndian is exempt from sales tax when the sale is made on a reservation to an Indian who resides on a reservation, but such sale is subject to sales or use tax if the purchaser does not reside on a reservation, even if the purchaser is an Indian. (Reg. 1616(d)(3)(B)2.) The same basic rules discussed above apply when the seller is an “off-reservation” retailer. If the sale occurs on the reservation (i.e. title to the property passes to the Indian purchaser on the reservation), the sale is exempt from sales tax. (Reg. 1616(d)(4)(A).) The use of such property by an Indian purchaser who resides on a reservation is also exempt from use tax if the property is used on the reservation more than off the reservation during the first 12 months following the sale. (Reg. 1616(d)(4)(E).) However, if the off-reservation retailer transfers title to the property to an Indian purchaser on a reservation, but that Indian purchaser does not reside on a reservation, then the transaction is subject to use tax. Any other conclusion would result in the anomalous situation that tax is imposed in a transaction negotiated and completed on a reservation between an Indian seller and an Indian purchaser, while no tax is imposed when the seller is a non-Indian off-reservation retailer and the transaction is negotiated off a reservation.

Mr. J--- v--- B---

-2-

October 21, 1996
305.0024

Such an anomalous result is not required by federal law. Since Regulation 1616 was intended to explain the exemptions from sales and use tax which are required by federal law, it cannot be interpreted to grant an exemption to a less protected transaction than to a transaction involving only Indians on a reservation. We therefore conclude that sales of property by an off-reservation retailer negotiated off a reservation, but with the sale occurring to an Indian on a reservation, is exempt from tax if the Indian resides on a reservation, unless the purchaser uses the property off the reservation more that one-half the first 12 months after the purchase. We conclude that sales of property by an off-reservation retailer negotiated off a reservation, but with the sale to an Indian occurring on a reservation, is subject to tax if the Indian purchaser does not reside on a reservation. Please write again if you have further questions. Very truly yours,

Charlotte Chyr
Tax Counsel
CC:cl
cc:

Mr. Dennis Fox (MIC:92)
--- District Administrator
--- District Administrator
--- --- District Administrator
Mr. J--- B---