Did sending property to a California buyer on approval automatically subject the out-of-state seller to California sales tax?

Plain-English summary

The Board considered whether sending property to a California buyer on approval created sales tax liability for the out-of-state seller or instead left a potential use-tax issue with the in-state purchaser.

Assistant Chief Counsel concluded that a contract to sell on approval should be treated as the "contract of sale" referenced in Regulation 1620(a)(2)(B). When that regulation's conditions were met, California sales tax did not apply merely because the buyer approved the property in California.

The letter also reasoned that without the California nexus described in the regulation, the Due Process Clause, if not the Commerce Clause, prohibited imposing sales tax on the out-of-state seller. It cited four nexus decisions, but the official source leaves the reporter citation blank after National Geographic Society v. California Board of Equalization.

The May 17 request, approval agreement, property, delivery and possession record, seller and buyer locations, representatives, price, and applied tax result are absent. The closing text also contains an incomplete reference to a June 3 writing that cannot be reconstructed.

The live annotation says sales tax would apply only with participation by a California “representative of the buyer.” The linked letter does not state that fact or phrase; it refers only to nexus described in the regulation. Neither official source resolves whether the annotation's buyer wording is intentional.

Common questions

Did California approval by itself create sales tax?

No under the letter's general conclusion. A contract to sell on approval counted as the relevant contract of sale, but the other conditions and regulation-described nexus still mattered.

What transaction facts did the source provide?

Almost none. It frames only outside-state seller sales tax versus in-state purchaser use tax and supplies no property, contract, price, shipment, delivery, seller activity, or representative details.

What constitutional rule did counsel state?

Without the nexus described in Regulation 1620, counsel believed the Due Process Clause, if not the Commerce Clause, barred seller sales tax. The source provides no full analysis applying the cited cases to facts.

Can the missing National Geographic citation be filled from this source?

No. The official text ends the case name with a visible blank. This page does not infer or insert a reporter citation not printed there.

What does the live annotation say about participation?

It says sales tax would apply only with participation by a buyer representative located in California. Because the supporting letter does not state that wording or any representative facts, the difference remains unresolved.

Is there an applied tax or procedural outcome?

No sales or use-tax amount, audit, assessment, claim, appeal, Board action, or later outcome is supplied.

Citations and references

• California Sales and Use Tax Regulation 1620(a)(2)(B) — cited for approval contracts, nexus, and sales-tax treatment; complete authority, every condition, procedures, amendments, later history, and current law not supplied
• United States Constitution Due Process and Commerce Clauses; Norton, 340 U.S. 537; American Oil, 380 U.S. 451; and Standard Pressed Steel, 419 U.S. 560 — cited for nexus; complete opinions, facts, holdings, later treatment, and current doctrine not supplied
• National Geographic Society v. California Board of Equalization — reporter citation visibly omitted in the source; opinion, docket, complete facts and holding, procedural history, and later treatment not supplied
• 1977 correspondence and June 23 response — no underlying writings, transaction, tax, audit, assessment, claim, appeal, or later outcome records supplied
• Official Annotation 325.0105's buyer-representative wording and historical summary — not explained by the supporting letter and omits provenance, constitutional authority, missing citation and records, 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/325-0105.pdf

Original ruling text

325.0105

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-3723
June. 23, 1977

Re:
Dear
As I previously informed you we would do, we have given further consideration to the question of whether a sale on approval in California results in sales tax on the out of state seller or use tax on the instate purchaser. We have concluded that, if the conditions specified in regulation 1620 (a) (2) (B) are met, sales tax will not apply to a sale on approval. For purposes of applying the regulation, we would regard the contract to sell on approval as being equivalent with the “contract of sale” referred to in the regulation. We are persuaded that in the absence of a nexus such as is described in the regulation, the Due Process Clause, if not the Commerce Clause, of the United States Constitution would prohibit the imposition of the sales tax. The cases that we have found persuasive in this regard are Norton Co. v. Department of Revenue, 340 US 537; American Oil Co. v. Neill, 380 US 451; Standard Pressed Steel Co. v. Department of Revenue of Washington, 419 US 560; and National Geographic Society v. California Board of Equalization ---.
--- to you of June 3
believe, sufficiently answers your letter of
May 17 which came to my attention only a few days ago.

Very truly yours,

Thomas P. Putnam
Assistant Chief Counsel

TPP : po
bc:

R. H. Anderson;
R. Hunes;
J. H. Hurray;
G. L. Rigby
West Los Angeles - Dist. Admin.
Out-of-State - Dist. Admin.

D. F. Brady;

G. J. Jugum;