Did California use tax apply when optional-maintenance repair parts briefly returned to California before the warrantor installed them out of state?

Plain-English summary

A company sent customer parts from California to a Utah repairer, received the refurbished parts back, and then transported them to out-of-state customer sites where its own technicians installed them. Because the company was the consumer under optional maintenance contracts, the relevant use was its installation of the parts.

California said temporary retention in the state solely to transport the parts outside California for the company's own out-of-state installation was not taxable California use under section 6009.1.

The result changed if the company shipped a part from California for the customer to install. In that case, the source said title passed to the customer in California, so the company consumed the part in California and owed use tax.

Common questions

Did brief California possession automatically create use tax?

No, when it was solely for the company's later use outside California.

Did it matter who installed the part?

Yes.

What if the customer installed it?

The source treated the part as consumed in California because title passed there.

Citations and references

• California Revenue and Taxation Code § 6009.1

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/315-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/315-0766.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

315.0766
Memorandum

To:

Mr. L.F. Ferreira
Supervising Auditor - Oakland (CH)

From:

Sukhwinder K. Dhanda, Staff Counsel
Legal Division - MIC:82

Subject:

T--- - W--- INC.
SR -- XX-XXXXXX

Date:

December 6, 1993

This is in response to your memorandum of October 6, 1993. Under the facts provided, T--- - W--- enters into optional maintenance contracts with its purchasers of the silicon wafer inspection equipment. When a part requires repairs, the purchaser sends the part to T--- - W--which in turn sends the part to an independent Utah repairer. The refurbished part is then sent back to T--- - W---. In some cases, the part is sent out-of-state to the customer and installed by a T--- - W--- technician. In other cases the part is taken to the out-of-state site by a T--- - W--technician. In any case, T--- - W--- installs the part on the purchaser's equipment at the out-ofstate site. As already recognized in your memorandum, T--- - W--- is the consumer of the repair parts it provides to its purchasers of the inspection equipment pursuant to the optional maintenance contracts. If any tax is owing, it would be a use tax on T--- - W---'s use of the parts in California. Revenue and Taxation Code section 6009.1 states that "use" does not include "the keeping, retaining, or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state." The "use" that T--- - W--- makes of the repair parts provided by the Utah repairer is the installation of the parts onto the purchaser's equipment. Under Section 6009.1, T--- W---'s retention of the parts in California for the purpose of subsequently shipping the part outside

Mr. L. F. Ferreira

-2-

December 6, 1993
315.0766

California for T--- - W---'s own use outside California is not a California "use" subject to tax. However, if T--- - W--- did not itself install the parts but instead sent the property by common carrier from California to the customer for the customer to install, then title to the part would have passed to the customer in California. In such a case, T--- - W--- would have consumed it in California and would be required to pay use tax. This is analogous to the rules applicable when a person ships extax property as a gift to a recipient outside California.

SKD:plh

cc:

Oakland District Administrator - CH