How did California tax parts used in medical-equipment repairs performed out of state and shipped back to California hospitals?

Plain-English summary

The repair company collected medical equipment from California hospitals through independent sales representatives, sent it to out-of-state vendors, and had the repaired equipment returned directly to the hospitals by common carrier.

When the retail value of furnished parts exceeded 10 percent of the total repair charge, or the repairer separately stated the parts charge, the repairer was the retailer of those parts. The sale occurred outside California when the vendor shipped on the repairer's behalf, so use tax rather than sales tax applied to the parts sale.

When parts were 10 percent or less and not separately stated, the repairer was their consumer and tax applied to its purchase or California use as provided by the repair rules.

The company's independent California sales representatives made it a retailer engaged in business in the state. It therefore had to register and collect the applicable use tax from California customers.

If the company was a retailer but did not separately itemize the parts, the letter said tax applied to the parts' fair retail selling price as determined by the Board from available information. If it was instead the consumer of low-value, unstated parts, tax applied to its purchase or California use when it consumed them here.

The request, repair and representative contracts, invoices, parts values, percentage calculations, common-carrier and return records, collections, remittances, and attached Regulation 1546 are absent. The live annotation publishes the retailer-and-collection result but omits the 10-percent, separate-statement, fair-value, and consumer branches.

Common questions

When was the repair company the retailer of parts?

Under the letter's historical Regulation 1546 description, when the retail value of parts and materials exceeded 10 percent of the total repair charge or when the company separately stated a charge for them.

What amount was taxed when a retailer did not itemize the parts?

Counsel said the fair retail selling price as determined by the Board using available information. No parts values, repair totals, allocation method, or actual Board calculation is supplied.

When was the repair company the consumer instead?

When parts and materials were 10 percent or less of the total charge and no separate charge appeared. If consumed in California, tax applied to the sale to the repairer or its use, but the source supplies no applied low-value transaction.

Why did use tax rather than sales tax apply to retailer parts sales?

The response assumed outside-state vendors shipped the repaired equipment directly to California hospitals on the company's behalf. Counsel located the parts sale outside California when that common-carrier shipment began.

Why did independent representatives create a collection duty?

Section 6203 as quoted included authorized representatives, agents, salesmen, canvassers, or solicitors operating here to sell, deliver, or take orders. Counsel treated the company's California representatives as enough, though their agreements and precise authority are absent.

Is there an actual tax calculation or audit result?

No. The official PDF supplies no invoices, percentage or fair-value calculation, tax amount, return, collection, remittance, audit, assessment, claim, appeal, or later outcome.

Citations and references

• California Revenue and Taxation Code sections 6051, 6201, and 6401 — cited for sales and use tax; complete authorities, measures, exceptions, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6202, 6203, 6204, and 6226 — cited for retailer status, purchaser liability, registration, collection, and remittance; complete authorities, agency tests, procedures, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1546 — described for retailer, consumer, percentage, separate-statement, and fair-value rules; missing enclosure, complete authority, calculation procedures, amendments, later history, and current law not supplied
• December 16 request and February 10 response — no request, enclosure, contracts, transaction or tax records, applied audit, assessment, claim, appeal, or later outcome supplied
• Official Annotation 325.0083's historical analysis and date — omits classification alternatives, most authority, assumptions, missing enclosure and records, later outcome, and reliance status and supplies no additional repair record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0083
• Original supporting opinion: 325.0083 PDF

Original ruling text

325.0083

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 10, 1995

Dear:
I am responding to your letter of December 16, 1994. You ask how tax applies to your repairs of medical equipment for hospitals in California. You contract with hospitals in California to repair their medical equipment. Your independent sales representatives pick up the equipment in California and send it to one of your out-of-state vendors to perform the repairs. After the equipment has been repaired, it is returned to the hospital and you bill the hospital for the repairs. For purposes of this opinion, we assume that the out-of-state vendors ship the repaired equipment by common carrier directly to the hospitals. Sales tax is imposed on a retailer's gross receipts from the retail sale of tangible personal property in California unless the sale is specifically exempted by statute. (Rev.
& Tax Code § 6051.) When sales tax does not apply, use tax is imposed on the storage, use or other consumption of tangible personal property purchased from a retailer for use in California. (Rev. & Tax. Cede §§ 6201, 6401). Although the use tax is imposed on the purchaser, if the retailer is engaged in business in this state, it is required to collect the applicable use tax from the purchaser and pay it to the Board. (Rev. & Tax. Code §§ 6202, 6203, 6204.) Here, if you are regarded as selling tangible personal property to the hospitals, those sales would occur outside California when the vendors ship the repaired property to the hospitals on your behalf. Thus, the applicable tax would be use tax. As explained in Regulation 1546, a copy of which is attached, you are regarded as the retailer of the parts and materials you furnish in connection with your repairs if the retail value of that property is more than 10 percent of your total charge, or if you separately state the charge for that property. When you are a retailer of the parts, tax applies to your separately itemized charge for the parts. If you do not separately itemize the charge, tax applies to the fair retail selling-price of the parts as determined by the Board based on information available to it. When the retail value of the parts and materials furnished in connection with the repairs is 10 percent or less of your total charge and you do not separately state a charge for that property, you are regarded as the consumer of the parts and materials. If you are regarded as consuming the parts in California, tax applies to the sale to you or to your use of such property in this state.

If you are a retailer selling tangible personal property for storage, use, or other consumption in this state and you are engaged in business in this state, you must register with this Board for purposes of collecting use tax from your customers and paying the tax to the Board. (Rev. & Tax. Code §§ 6203, 6226.) As relevant here, “retailer engaged in business in California” is defined by subdivisions (a) and (b) of Revenue and Taxation Code section 6203 as follows: “(a) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business. “(b) Any retailer having any representative, agent, salesman, canvasser, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, or the taking of orders for any tangible personal property." You have "independent sales representatives" in California. Thus, you are a retailer engaged in business in this state. You are required to register with the Board for collection of use tax, and you are required to collect the applicable use tax on your sales of parts and materials to California purchasers, as explained above, and remit that tax to this Board. If you have any questions, please do not hesitate to write again.

Very truly yours,

Victor G. Matl
Tax Counsel

VGM:cl
Enclosure
cc: Out-of-State District Administrator