Did title passing on delivery in California turn a direct out-of-state vendor shipment into a California sales-tax sale?

Plain-English summary

A California roofing contractor sent purchase orders directly to out-of-state vendors. The vendors shipped materials directly from outside California by common carrier, generally had no California office or representative participating in the sales, and provided that title passed when the carrier delivered the goods.

Board counsel said the place where title passed did not by itself determine whether sales tax or use tax applied. Regulation 1620(a)(2)(B) excluded sales tax when the buyer ordered directly from an out-of-state retailer and the contract required direct shipment from outside California to the California purchaser.

Because no California sales tax applied, the contractor could not use section 6401's sales-tax overlap rule to avoid use tax. Sections 6201 and 6202 imposed use tax on the contractor's storage, use, or consumption of the purchased materials in California.

The facts were framed as typical practices, not a documented transaction-by-transaction finding. Vendors typically lacked participating California branches, offices, outlets or representatives, and sales acknowledgements typically said title passed upon carrier delivery.

The contractor had paid no tax and argued that California title passage made sales tax apply. Counsel rejected that theory and placed use-tax liability on the contractor, but the source gives no material, vendor, order, acknowledgement, contract, invoice, price, tax amount, carrier record, assessment, payment, claim, appeal, or later outcome.

The live annotation states categorically that the vendor had no California presence and describes title passing during interstate delivery or at destination. The supporting memorandum instead addresses multiple vendors through typical facts and says typical acknowledgements passed title upon delivery by the carrier.

Common questions

Why did California title passage not create sales tax?

Counsel said title location was not necessarily controlling. The stated contracts involved direct California-buyer orders to outside-state retailers and direct common-carrier shipment from outside California, bringing them within Regulation 1620(a)(2)(B).

What seller-presence fact mattered?

The memorandum says vendors typically had no California branch, office, outlet or representative participating in the sales. It does not supply vendor-specific presence records.

Why did use tax apply to the contractor?

Sections 6201 and 6202 placed use tax on the California storage, use or consumption of tangible personal property purchased from retailers and made the California user liable.

Could section 6401 eliminate the use tax?

Not on counsel's analysis. That section protected transactions subject to sales tax, while counsel concluded these direct outside-state sales were not subject to California sales tax.

Was every vendor transaction established in the source?

No. The letter uses “typically,” and no orders, contracts, acknowledgements, carrier records, vendor-presence evidence, invoices, or tax calculations are reproduced.

Did the source show a final audit result?

No. It is an internal response to audit staff, without audit schedules, an assessment, payment, claim, appeal, or later disposition.

Citations and references

• California Sales and Use Tax Regulation 1620(a)(2)(B) — cited for direct outside-state orders and shipment; complete authority, every contract and participation condition, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6201 and 6202 — cited for California use tax and purchaser liability; complete authorities, measures, exceptions, collection rules, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6401 — cited for the sales-tax overlap protection found unavailable; complete authority, proof and payment conditions, amendments, later history, and current law not supplied
• January 23 audit memorandum and underlying vendor transactions — no inquiry, vendor, material, order, acknowledgement, contract, invoice, carrier, title, presence, price, or tax record is supplied
• March 10 response — no audit schedules, assessment, payment, claim, appeal, or later outcome supplied
• Official Annotation 325.0167's historical summary and date — hardens typical presence and title facts and omits the audit provenance, 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/325-0167.pdf

Original ruling text

State of California

Memorandum
To:

San Jose - Auditing

From:

Headquarters – Legal Counsel (HLC)

Subject:

G--- M--- R--- Company
XXXX S. Xth Street
---, CA XXXXX

Board of Equalization

325.0167
March 10, 1975

This is in reply to your memorandum dated January 23, 1975, and addressed to Mr. D. J. Hennessy concerning tax due on transactions between subject taxpayer and his out-of-state vendors. We understand that taxpayer is a roofing contractor purchasing material from out-of-state vendors. He sends purchase orders directly to the vendors at the vendor’s out-of-state addresses, and the vendors ship the ordered materials directly to taxpayer from the out-of-state location via common carrier. Typically, vendors do not have California branches, offices, outlets or representatives who participate in the sales, and typically the sales acknowledgements provide that titel to the goods shall pass to taxpayer upon the carrier’s delivery. Taxpayer has paid no tax on his out-of-state purchases and contends that he is not liable for use tax because the transaction is subject to sales tax since title passes in California. It is our opinion that taxpayer is liable for use tax on materials that he purchases from out-ofstate vendors and that he stores, uses, or otherwise consumes in this state. It has been our position that the place at which title passes is not necessarily determinative as to the application of sales or use tax. Sales and Use Tax Regulation 1620(a)(2)(B) states that sales tax does not apply when an order is sent by the purchaser directly to a retailer at a point outside this state and the property is shipped, pursuant to the contract of sale, from a point outside this state directly to the purchaser in this state. Thus contrary to taxpayer’s contention, no sales tax is due on transactions of the type in which he participates. Section 6201 of the Revenue and Taxation Code imposes a use tax on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer. Section 6202 provides that every person using or otherwise consuming in this state tangible personal property purchased from a retailer is liable for payment of the use tax. Section 6401 provides that no use tax is due on transactions subject to sales tax. Since no sales tax is due on taxpayer’s transaction, use tax applies, and taxpayer is liable for the tax.

HLC:bs