Was an interstate purchase subject to California sales tax or use tax when goods shipped from Illinois but payment went to the seller’s California office?

Plain-English summary

A purchaser mailed its orders to a New Jersey seller. The goods went by common carrier from the seller's Illinois location directly to the purchaser in California, while payment was mailed to the seller's California address.

The bill of lading and assumed delivery contract showed title passing no later than the seller's delivery to the carrier in Illinois. The sale therefore occurred outside California, so California sales tax did not apply and the purchaser owed use tax.

Mailing payment to a California seller location was participation only after the sale and did not change that result.

The purchaser agreed that the purchase was taxable but argued that the seller owed sales tax rather than the purchaser owing use tax. Counsel rejected that allocation on the stated documentation and concluded that use tax applied to the purchaser.

That conclusion was conditional. The letter says the bill of lading identified the California purchaser as consignee and the Illinois seller as shipper, and it appears the contract required direct common-carrier delivery from Illinois. The purchase orders, contract, bill of lading, invoice, payment record, property, price, tax computation, and later outcome are not reproduced.

The district memorandum said an invoice might have been prepared and mailed from the seller's California location but acknowledged there was no evidence. The live annotation states that title passed upon Illinois carrier delivery; it does not disclose the supporting letter's contractual assumption, invoice uncertainty, evidence limits, or missing records.

Common questions

Why did counsel locate the sale outside California?

The summarized bill of lading named the purchaser in California as consignee and the seller in Illinois as shipper. Assuming the contract called for direct common-carrier delivery from Illinois, counsel applied UCC section 2401 and concluded title passed no later than delivery to that carrier.

Did mailing payment to the seller's California office create a California sale?

No under the memorandum. Counsel treated payment mailing as seller participation after the outside-state sale and therefore insufficient to make sales tax apply.

What about an invoice from the California office?

The district memorandum said the invoice might have been prepared and mailed there but expressly stated there was no evidence. No invoice or seller-office record is supplied, so this page does not treat that possibility as fact.

What two conditions did counsel describe under Regulation 1620(a)(2)(A)?

The order had to be sent to, or delivery made by, a local seller branch, and the sale had to occur in California. Counsel concluded the second condition failed because the documented sale occurred outside California.

Who did the memorandum say owed the tax?

The purchaser conceded that the purchase was taxable but disputed the tax type. Counsel concluded that use tax applied to the purchaser rather than sales tax to the seller.

Does the source provide the final assessment or payment outcome?

No. It supplies no property description, price, tax amount, assessment, return, collection record, payment, claim, appeal, or later disposition.

Citations and references

• Uniform Commercial Code section 2401 — cited for title passage under the assumed direct-carrier contract; complete authority, contract, title terms, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1620(a)(2)(A) — cited for local-branch participation and California-sale conditions; complete authority, every condition, procedures, amendments, later history, and current law not supplied
• July 23 district memorandum, purchase orders, possible invoice, bill of lading, payment and delivery contract — only summarized; the underlying records, property, price, and tax calculation are not supplied
• August 23 counsel response — no assessment, return, collection, payment, claim, appeal, or later outcome supplied
• Official Annotation 325.0110's historical summary and date — states conditional title passage categorically and omits the invoice uncertainty, evidence limits, missing records, applied outcome, and reliance status

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/325-0110.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

325.0110

To:

Mr. Joseph J. Cohen
District Principal Auditor - Hollywood

Date:

August 23, 1991

From:

David H. Levine
Senior Tax Counsel

(916) 445-5550
ATSS 485-5550

Subject:

T--- V---, Inc.
SR -- XX-XXXXXX
This is in response to your memorandum dated July 23, 1991. T--- purchased property from P--- and agrees that the purchase is subject to tax. However, T--- argues that the applicable tax is sales tax owed by P--- and not use tax owed by T---. You explain: “T--- mailed their purchase orders to P--- in ---, New Jersey. P--- shipped the property to T--- in California. The only participation in California by anyone connected with P--- was the payment by T--- was mailed to a ---, California address of P---. Note – The invoice from P--- may have been prepared and mailed from their ---, California location, but there is no evidence of this. At this point we are assuming that the sale occurred in state after the property came into California.” You believe that the mailing of payment to a California location of P--- is insufficient participation to assert the sales tax since P---’s only participation in California occurred after the sale. The initial step in this analysis is to determine whether the sale occurred in California. If it did not, sales tax does not apply. You note that you are assuming that the ssale occurred in California. However, your statement of facts indicates that the sale occurred outside California, and the documentation you have provided us appears to confirm this conclusion. The bill of lading issued by C--- indicates that the consignee was T--- in California and that the shipper was P--- in Illinois. It appears that the contract of sale was for delivery by common carrier from Illinois directly to T--- in California. Assuming this is the case, title was transferred no later than delivery by P--- to C--- in Illinois. (U.C.C. § 2401.)

Mr. Joseph J. Cohen

-2-

August 23, 1991
325.0110

Subdivision (a)(2)(A) of Regulation 1620 provides that the sales applies when: 1) the order for the property is sent by the purchaser to a local branch or delivery of the property is made by the local branch; and 2) the sale occurs in California. We agree that the mailing of payment to a California location of the seller is not sufficient for the transaction to become subject to sales tax. Nevertheless, we believe that this is simply not an issue in this case since the facts and documentation indicate that the sale occurred outside California. We therefore conclude that the use tax applies to T---’s purchase. If you have further questions, feel free to write again.

DHL:cl