Did sales tax apply when an out-of-state seller shipped equipment f.o.b. destination and sent its out-of-state representatives to install it in California?

Plain-English summary

A California buyer sent its purchase order directly to a Maryland seller. The seller had no California branch or office involved in the transaction, shipped the equipment by common carrier with freight prepaid and f.o.b.-destination terms, and sent representatives from Maryland to install it here.

The memorandum concluded that use tax, not sales tax, applied. Under Regulation 1620(a)(2)(B), the absence of an involved California office or place of business meant sales tax did not apply on these facts.

Neither the destination-delivery terms nor installation by the seller's out-of-state representatives changed the tax from use tax to sales tax.

The seller did not collect tax. The requesting auditor also said a recent seller audit did not examine the division because an earlier audit had produced negligible results, and Board staff disagreed sharply over the tax type. Counsel distinguished three cited annotations because those retailers had local offices whose participation could be examined.

The August 29 request, purchase order, contract, invoice, freight and delivery records, installation evidence, seller returns, audit records, tax computation, and later outcome are absent. The live annotation preserves the core assumed facts and result but omits the no-collection fact, audit history, internal controversy, annotation comparisons, and missing records.

Common questions

What facts supported use tax rather than sales tax?

The California buyer sent its order directly to Maryland, no California branch or office of the seller participated, common-carrier delivery began outside the state, and Maryland-facility representatives performed installation here.

Did f.o.b.-destination and prepaid freight make it a California sales-tax transaction?

No under counsel's historical Regulation 1620 analysis. Without an involved California office or place of business of the retailer, the memorandum said those delivery terms did not make sales tax apply.

Did installation in California change the tax type?

Not when the seller's representatives came from its Maryland facility. Counsel treated their installation work as insufficient to supply the missing California place of business under the cited regulation.

Why were the other annotations different?

Counsel said Annotations 325.0020, 325.0120, and 325.0080 involved retailers with local offices or places of business, making local participation relevant. The underlying letters and complete rules are not supplied here.

Who collected or paid the use tax?

The request says the seller did not collect tax, but the memorandum addresses only which tax type applied. It supplies no purchaser payment, seller registration or return, collection action, or tax amount.

Was the audit finally resolved?

No. The source mentions prior and recent seller-audit decisions but provides no audit reports, division transactions, assessment, payment, claim, appeal, Board action, or later outcome.

Citations and references

• California Sales and Use Tax Regulation 1620(a)(2)(B) — cited for use tax when no California retailer place participated; complete authority, definitions, conditions, collection rules, amendments, later history, and current law not supplied
• Annotations 325.0020, 325.0120, and 325.0080 — cited or distinguished for local-office participation; underlying letters, complete facts and authorities, histories, later treatment, and current status not supplied
• August 29 district request and October 20 legal response — no request, transaction or audit records, tax calculation, assessment, claim, appeal, or later outcome supplied
• Official Annotation 325.0055's historical analysis and date — omits provenance, collection and audit facts, cross-references, 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/325-0055.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. R. M. Gilbertson, District Principal
Auditor – San Jose District Office

From:

John Abbott, Tax Counsel

Subject:

S--- P---, Inc. – SY -- XX-XXXXXX
K--- Company, Inc. – SZ -- XX-XXXXXX

325.0055

October 20, 1988

Use tax – participation by seller’s out-of-state representatives

In your August 29, 1988 memorandum to me, you raise the question about whether it is the sales tax or the use tax which applies to a taxable transaction between the seller, K--- Company, Inc., of Maryland, and the purchaser, S--- P---, Inc., of California. You write: “The purchase order was sent by S--- P--- direct to Maryland. The auditor has determined there was no participation by any local branch or office of the seller in the transaction. Delivery was made via common carrier freight prepaid FOB destination. The installation was performed by seller’s representatives from the Maryland plant facility. The seller did not collect the tax. In a recent audit of the seller, a decision was made not to audit the division selling this equipment because a prior audit revealed negligible results. “This transaction has generated a significant amount of controversy among members of our staff. Proponents of the application of use tax to the transaction cite Regulation 1620(a)(2)(B), annotation 325.0020 and annotation 325.0120. Proponents of the applicability of sales tax feel that the combination of the terms FOB destination, freight prepaid with installation by the seller’s representatives from Maryland result in this being a sales tax transaction.” Opinion Our opinion is that the use tax, not the sales tax, applies to this transaction. In both of the annotations you cite, and also in annotation 325.0080 (3/31/55), the retailer had a local office or place of business, and the issue of whether the sales tax or the use tax was the applicable tax depended on whether there was sufficient involvement by that local office or place of business. Under the facts you relate, however, K--- Company has no office or place of business in California involved in this transaction at all. Where this is the case, under Regulation

Mr. R. M. Gilbertson

-2-

October 20, 1988
325.0055

1620(a)(2)(B), the sales tax can never apply. It makes no difference whether the terms of delivery are FOB destination or whether the installation is performed by the seller’s out-of-state representatives.

JA:jb