Was tax on separately stated repair parts hand-delivered by an out-of-state vendor's California field employees sales tax or use tax?

Plain-English summary

An out-of-state vendor separately charged for parts used in time-and-material repairs. It sent parts to California field employees, who hand-carried them to the customer and delivered the repaired property in California.

The parts were sold in California because the vendor completed delivery there. Whether the applicable levy was sales tax or use tax depended on local participation. Sales tax applied if a California branch, office, outlet, agent, or representative participated as described in Regulation 1620(a)(2)(A). Without that participation, use tax applied instead.

If use tax applied and the vendor did not collect it as a retailer engaged in business in California, the customer had to self-report the tax. The letter could not give a final classification because the request did not describe the vendor's in-state business connections.

The two parts flows differed. Frequently failing parts were sent to California field employees before the ultimate customer was known; infrequently failing parts were sent only after an initial field visit. Both were personally carried to the customer during the repair, completing delivery in California.

The live annotation goes beyond the supporting letter: it says the field employee operated from a California vendor location and therefore sales tax applied. The letter instead says the request did not indicate any in-state participation and that the tax could not be determined. No additional source or vendor-location record resolves that difference.

Common questions

Why were the parts treated as separately sold property?

The response expressly assumed the vendor separately stated its parts charges in time-and-material repairs under Regulation 1546(b)(1). It also assumed no optional or mandatory warranty or maintenance agreement governed the work.

Where did the parts sales occur?

Counsel said the vendor completed physical delivery when its California field employees handed the parts and repaired items to the customer here. On that assumption, title and the retail sale occurred in California.

What fact separated sales tax from use tax?

The letter required participation in the order or delivery by a California branch, office, outlet, other vendor place, or a connected agent or representative for sales tax. Without that participation, it selected use tax despite California delivery.

Why could the letter not give a final answer?

The request described in-state employees but did not say whether the vendor had a California place of business or whether the employees operated from or were connected to one in the way Regulation 1620 required. Those omitted facts controlled the tax type.

What did the live annotation add?

It asserts that the in-state employee operated from a California location of the vendor and concludes sales tax applied. That fact and conclusion are absent from—and conflict with the unresolved posture of—the linked supporting letter.

When did the customer have to self-report?

Under the conditional letter, if use tax applied, the vendor did not collect it, and the vendor was not otherwise a retailer required to collect, the customer had to report the parts use tax. The source supplies no return, amount, payment, or audit.

Does the printed “section 202” citation establish a separate rule?

No additional rule can be grounded from it. The closing paragraph prints “Rev. & Tax. Code §§ 202, 6203,” while the earlier discussion cites section 6202 for consumer liability. The source supplies no explanation, so the apparent citation irregularity remains verbatim and unresolved.

Citations and references

• Regulations 1546(b)(1) and (b)(3) and 1655(c) — cited for separate parts and excluded warranty or maintenance facts; complete authorities, conditions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6051, Civil Code section 1656.1, and Regulation 1700 — cited for sales tax, retailer liability, and reimbursement; complete authorities, conditions, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6201, 6401, 6202, and 6203 — cited for use tax, consumer liability, collection, and self-reporting; the source also prints unexplained “section 202”; complete authorities, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6011, 6012, 6006, and 6010.5 and California Uniform Commercial Code section 2401 — cited for measure, sale, title, and delivery; complete authorities, exclusions, procedures, amendments, later history, and current law not supplied
• Regulation 1620(a)(2)(A) and (B) — cited for sales-tax versus use-tax participation; complete authority, place and connection tests, amendments, later history, and current law not supplied
• April 12 request and May 20 response — no request, contracts, transaction or vendor-place records, applied tax calculation, audit, assessment, claim, appeal, or later outcome supplied
• Official Annotation 325.0057's added California-location fact and sales-tax conclusion — conflicts with the supporting letter's unresolved posture and supplies no source for that fact or additional transaction record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0057
• Original supporting opinion: 325.0057 PDF

Original ruling text

325.0057

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 324-2637
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento
────────

May 20, 1996

E. L. Sorensen, Jr.
Executive Director

Mr. P--- E. N--S--- and U--- T--- A--- of
C---, Incorporated
XXXX XXth Street, #XXX
---, California XXXXX
Re:

Unidentified Taxpayer

Dear Mr. N---:
This is in response to your April 12, 1996 letter to Assistant Chief Counsel Gary J. Jugum regarding the application of tax on parts used in various repair operations. You state: “The client is an in-state consumer of repair parts and the vendor is an out-of-state manufacturer/retailer. After a sale is made, the vendor provides repair services on the products. The billings for these repair services are on a time and material basis.... “The vendor keeps the repair parts at its out-of-state plant. The repair parts are sent to California by one of two methods: 1) repair parts which break somewhat frequently are sent by the out-of-state vendor to its in-state field service employees prior to knowing who the ultimate customer is; 2) repair parts which break infrequently are sent by the out-of-state vendor to its in-state field service employees only after an initial field visit to the ultimate customer. “In both of these methods of delivery, the field service employee personally hand carries the repair part to the customer’s location at the time the repair is made.”

Mr. P--- E. N---

-2-

May 20, 1996
325.0057

You ask whether this transaction is subject to sales tax or whether your client should self report use tax on this property on its sales and use tax return. For purposes of this opinion, we assume that the vendor separately states its charges for the parts it provides in performing its repairs (see Reg. 1546(b)(1)) and that it is not performing the repairs pursuant to an optional or mandatory warranty/maintenance agreement (see Regs. 1546(b)(3), 1655(c)). Discussion California imposes a sales tax on a retailer’s gross receipts from the retail sale of tangible personal property in this state unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) This tax is imposed on the retailer who may collect reimbursement from its customer where the contract of sale so provides. (Civ. Code § 1656.1; Reg. 1700.) When sales tax does not apply, use tax is imposed on the sales price of property purchased from a retailer for the storage, use, or other consumption of property in California. (Rev. & Tax. Code
§§ 6201, 6401.) This tax is imposed on the person actually storing, using, or otherwise consuming the property. (Rev. & Tax. Code § 6202.) A retailer engaged in business inside this state is required to collect this tax from its customers and remit it to this Board. (Rev. & Tax. Code §§ 6202, 6203.) Taxable gross receipts or sales price include all amounts received with respect to the sale, with no deduction for the cost of the materials, service, or expense of the retailer passed on to the purchaser, unless there is a specific statutory exclusion. (Rev. & Tax. Code §§ 6011, 6012.) A sale of tangible personal property takes place where the property is physically located at the time title is transferred for consideration. (See Rev. & Tax. Code §§ 6006, 6010.5; Cal. U. Com. Code § 2401.) Title to property generally passes no later than the time when the seller completes its responsibilities with respect to physical delivery of the property. (Cal. U. Com. Code § 2401.) In this case, the vendor completes its responsibilities with respect to physical delivery of the parts when its in-state field employees provide the part (and repaired item) to your client inside this state. This means that the vendor is making a retail sale of property inside this state. Sales tax applies to this transaction if the order for, or the delivery of, the part is made by any local branch, office, outlet or other place of business of the vendor inside this state, or by any agent or representative of that vendor operating out of or having any connection with such local branch, office, outlet or other place of business. (Reg. 1620(a)(2)(A).) Where there is no such participation by the vendor or its agent/representative as set forth above, use tax applies to the transaction. (See Reg. 1620(a)(2)(B).) Your client is required to self report any applicable use tax unless the vendor is a retailer engaged in business inside this state. (Rev. &. Tax. Code §§ 202, 6203.) Your letter does not indicate whether there is any in-state participation by the vendor in the transaction. Thus, the application of sales or use tax to the facts of your letter cannot be determined. If, however, the vendor meets the requirements of Regulation 1620(a)(2)(A), sales tax applies on the sale of the repair part. Where there is no local participation by the vendor in the transaction and your client has not paid use tax to the vendor (assuming the vendor is a

Mr. P--- E. N---

-3-

May 20, 1996
325.0057

retailer engaged in business inside this state), your client must self report use tax on the parts furnished as part of the repair. If you have any further questions, please write again. Sincerely,

Warren L. Astleford
Staff Counsel
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--- District Administrator - (--)