Does California sales tax apply when a seller routes equipment through its California warehouse for assembly or consolidation before customer delivery?

Plain-English summary

Equipment shipped by common carrier directly from an out-of-state point to a California customer, f.o.b. shipping point, was normally subject to use tax because the sale occurred outside California. Local participation in rigging or installation did not by itself change that result.

The memorandum identified a narrower sales-tax case for an f.o.b.-destination shipment when the seller's local place of business participated by rigging or installing the equipment at the customer location.

Most importantly for this annotation, sales tax applied when the seller first sent the equipment to its California warehouse, the warehouse assembled or consolidated it, and the warehouse then shipped it to the customer. The seller had not completed its delivery obligation outside California, and its California warehouse participated in completing delivery and installation.

The issue arose because the seller had allocated transactions to two cities where it maintained retail outlets, while audit staff reallocated them countywide as use tax based on f.o.b.-shipping-point shipment from outside California. Counsel separated direct-to-customer shipments from property first routed through a California warehouse; the source does not identify the cities or county or supply transaction-level records.

The June 29 taxpayer letter, July 7 request, attached 1987 legal letter, contracts, f.o.b. terms, invoices, warehouse and employee records, tax computations, completed audit, and later outcome are absent. The live annotation publishes only the California-warehouse conclusion and adds a Regulation 1802 allocation reference without supplying the regulation or explaining which subdivision applied.

Common questions

Did local rigging or installation convert every outside-state shipment into a California sale?

No. For a common-carrier shipment directly from outside California to the customer f.o.b. shipping point, the memorandum said use tax ordinarily applied regardless of local rigging or installation participation.

When could local participation matter for a direct shipment?

Counsel identified a narrower sales-tax case when the seller shipped f.o.b. destination and its local place of business participated by rigging or installing the equipment at the customer's location. The source supplies no contract or transaction applying that exception.

Why did routing through the California warehouse change the tax type?

The seller had not completed its delivery obligation before sending the property to California. Its warehouse assembled or consolidated the property and then originated the customer shipment, so counsel located completion of the sale in California and treated the warehouse as participating in delivery and installation.

What was the local-allocation dispute?

The seller allocated sales to two cities containing its retail outlets. Audit staff treated the transactions as outside-state sales subject to use tax and allocated the local component countywide where customers were located. The memorandum states the governing tax-type distinctions but supplies no final transaction list or audit result.

Does the live annotation establish the exact current allocation rule?

No. It cites Regulation 1802(a) or (b)(5) for local allocation, but supplies neither the regulation's text nor the facts selecting a subdivision. The supporting memorandum itself does not cite Regulation 1802, and neither source supplies current law.

Was the audit finally resolved?

No completed audit, tax computation, assessment, petition, appeal, Board action, or later outcome appears in the official PDF.

Citations and references

• California Revenue and Taxation Code section 6010.5 — cited for the physical place of sale; complete authority, definitions, exceptions, procedures, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1620(a)(2)(A) — cited for direct outside-state common-carrier shipments; complete authority, title and delivery rules, exceptions, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1802(a) or (b)(5) — cited only by the live annotation for local allocation; complete authority, applied subdivision, procedures, amendments, later history, current law, and supporting later source not supplied
• June 29 and July 7 correspondence, attached 1987 letter, and August 11 memorandum — no underlying correspondence or attachment, transaction records, completed audit, tax calculation, assessment, petition, appeal, or later outcome supplied
• Official Annotation 325.0011.450's historical conclusion and added allocation citation — omits the dispute, audit, correspondence provenance, distinctions, missing records, later outcome, and reliance status 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/325-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0011-450.pdf

Original ruling text

State of California

Memorandum

To:

Mr. Larry Micheli, Supervisor
Local Tax Unit

From:

John Abbott

Subject:

S--- Medical Systems, Inc. – SZ --- XX-XXXXXX
Bradley-Burns tax allocations – deliveries from seller’s
California warehouse

Board of Equalization

325.0011.450

August 11, 1989

In your July 7, 1989 memorandum to me, you attached a copy of a June 29, 1989 letter from Mr. R--- H--- to you, which questions the allocation of Bradley-Burns tax on certain transactions of S---. There is no question that tax applies to these transactions, but the issue is whether the applicable tax is the sales tax or the use tax. If the sales tax applies, the local tax portion will be allocated to the cities of C--- and B---, where S--- has retail outlets. If the applicable tax is the use tax, however, the local tax portion is allocated on a countywide basis to the county in which S---’s customer is located. You relate that S--- allocated the sales to C--and B---, but our audit staff reallocated these sales countywide as use tax, because the property was shipped f.o.b. shipping point from out-of-state locations. Mr. H---, however, notes that there was involvement by California based S--- personnel prior to delivery to the purchaser, because the equipment sold often requires rigging or installation. You write: “Mr. H---’s concern is that while the majority of the equipment is shipped f.o.b. shipping point from out-of-state locations, the equipment ofter requires either rigging or installation and is dropped shipped to warehouse locations determined by the seller for assembly/consolidation prior to delivery to the customer. Does this ‘involvement’ prior to delivery to the delivery to the purchaser result in the sale occurring in the state subject to sales tax rather than use tax? “We have reviewed your July 27, 1987 letter to Mr. J--- A--- of M---, copy attached. In the last paragraph on Page 2 and following it is stated that under Revenue and Taxation Code 6010.5, the place of sale is the place where the tangible personal property is physically located at the time the act constituting the sale occurs. In this case the property was located outside California at the time of

Mr. Larry Micheli

-2-

August 11, 1989
325.0011.450

sale but shipped to warehouses in this state prior to delivery to the purchaser. Is this a sales tax transaction in which case the local sales would be allocabel to the branch offices where the sales were negotiated?” Opinion Where the taxpayer ships the property sold by common carrier from a point outside of California directly to the customer in California, the applicable tax is normally the use tax, not the sales tax, regardless of whether there is any local involvement by the taxpayer in the sale. In this case the sale occurs at the time and place of shipment out of state, and the sales tax cannot apply when the sale occurs out of state. (Reg. 1620(a)(2)(A)). The sales tax would only apply if the taxpayer ships the property f.o.b. destination and if a local place of business of the taxpayer participates in the sale by rigging or installing the property sold at the customer’s location. Otherwise, the applicable tax is the use tax, regardless of participation by the taxpayer’s local place of business in rigging or installing the property sold. On the other hand, where the taxpayer ships the property sold to its warehouse location in California, which assembles or consolidates the property sold, and that warehouse location is the point from which the shipment is made to the customer, then the sales tax is the applicable tax. This is because the sale was completed in California by the taxpayer’s shipment to the customer from a California location, and there was also participation by a place of business of the taxpayer, specifically its warehouse, in completing the delivery and installation of the property at the customer’s location. The place of sale as defined in Revenue and Taxation Code Section 6010.5 is not the taxpayer’s out-of-state location if the taxpayer does not complete its obligation with respect to delivery without first sending the property to its California warehouse.

JA:jb
cc:
Mr. E. L. Sorensen, Jr.