Did title passing in California turn a direct interstate sale-on-approval shipment into a California sales-tax transaction?

Plain-English summary

Board counsel considered a sale-on-approval transaction in which a California purchaser sent its order directly to an out-of-state retailer, the retailer shipped the goods across the state line directly to the purchaser, and title passed in California after approval.

The memorandum treated that arrangement as subject to use tax under Regulation 1620(a)(2)(B), rather than California sales tax. Title passage in California did not end the transaction's interstate character because the order, cross-border shipment, and approval were parts of one continuous transaction.

Counsel agreed that sales tax could apply after goods had genuinely come to rest in California. In this direct sale-on-approval pattern, however, the title transfer being considered for tax was still integral to the interstate order and shipment, so the goods had not come to rest in the constitutional sense described by the memorandum.

The source is an internal disagreement: Jugum said the unidentified cases in Anderson's August 3, 1976 hearing report did not support Anderson's conclusion and framed his response as his personal continuing opinion. The report, cases, and underlying redacted matter are absent.

No contract, order, property, shipment, title evidence, seller activity, hearing outcome, or Board adoption is supplied. The live annotation states the use-tax result but omits the nonfinal and contested provenance.

Common questions

What facts made the transaction continuous in counsel's view?

The California purchaser sent its order directly to a retailer outside California, the retailer shipped directly across the state boundary, and California approval and title transfer remained part of that same transaction.

Did California title passage alone create sales tax?

No under this memorandum. Counsel treated title transfer as integral to the interstate transaction rather than a new transaction after the goods came to rest.

When did counsel agree sales tax could apply?

After goods had genuinely come to rest in California and a later sale occurred. The source provides no concrete example, authority, or factual boundary beyond that statement.

What authorities supported the competing view?

They cannot be identified. The memorandum refers only to cases relied on by Mr. Anderson in a missing hearing report and gives no names or citations.

Was this the Board's adopted position in the source?

No. It is a counsel-to-counsel memorandum explicitly stating a personal opinion. No Board order, final hearing result, assessment, claim, appeal, or later outcome is supplied.

Citations and references

• California Sales and Use Tax Regulation 1620(a)(2)(B) — cited for use-tax treatment; complete authority, every condition, procedures, amendments, later history, and current law not supplied
• Unidentified cases and August 3, 1976 hearing report — no names, citations, opinions, report, facts, holdings, procedural history, later treatment, or final outcome supplied
• May 13 counsel memorandum — no underlying transaction or proceeding records, tax calculation, Board adoption, audit, assessment, claim, appeal, or later outcome supplied
• Official Annotation 325.0107's historical summary and date — omits the personal-view dispute, missing authorities and records, Board-adoption gap, 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/325-0107.pdf

Original ruling text

State of California

Memorandum

To:

Mr. T. P. Putnam

From:

Gary J. Jugum

Subject:

Sale on Approval

Board of Equalization

325.0107

May 13, 1977

This is to advise you that I personally remain of the opinion that sale-on-approval transactions are properly subject to use tax under Regulation 1620 paragraph (a)(2)(B). The cases relied upon by Mr. Anderson in his hearing report of August 3, 1976, concerning the L--- A--- C--- M--- of A---do not in my opinion support his conclusion. I fully agree that sale tax may be applied to sales of goods after they have come to rest in this state. In my opinion a transaction retains its characteristics as an interstate transaction even though title may pass to the purchaser in this state, if the title transfer is an integral part of a transaction involving an order sent by the purchaser directly to a retailer at a point outside this state and involving direct shipment to the purchaser across a state boundary. In otherwords, I don’t think that “the goods have come to rest” in this state within the constitutional meaning of that phrase when the title transfer we are seeking to tax is a part of a continuous transaction involving interstate transmission of orders and transit of goods.

j:alicetilton

cc:

Mr. Glenn L. Rigby
Mr. Robert Nunes
Mr. Donald F. Brady