Were investment diamonds exempt from California use tax after the buyer owned and stored them with an out-of-state trust company for more than 90 days?

Plain-English summary

An out-of-state corporation sold diamonds and jewelry to California customers during July 1, 1982 through June 30, 1985. A December 30, 1986 determination asserted use-tax collection liability on a $111,554 measure; the retailer petitioned on January 21, 1987, and the hearing occurred November 6 in Sacramento.

The audit initially identified 47 California sales. A reviewing auditor removed eleven—five resale transactions and six involving property that never entered California—leaving 36. Thirty-five were described as direct out-of-state shipments into California. In the remaining transaction, one buyer acquired four apparently unfinished diamonds for investment and had them held in a sealed package by an out-of-state trust company before requesting California shipment.

The hearing officer found that the buyer owned the four diamonds while the trust company held them. Because they were stored and used for investment outside California for more than 90 days before their first entry here, the historical Regulation 1620(b)(3) rule excluded the buyer's later California use. The recommendation deleted that sale price from the deficiency.

The other transactions remained subject to use-tax collection liability. The retailer used commissioned California financial planners to solicit sales and possibly take orders. Those in-state representatives made it a retailer engaged in business here under section 6203 and supplied the constitutional connection needed to require collection and remittance, even though they were not employees. The recommendation also treated the registration application as a separate contractual commitment to collect and remit.

The evidence record was incomplete. The field auditor reviewed only the records made available, said the retailer refused to verify when California selling began, and later described its representatives as uncooperative. The hearing officer requested each California representative's identity and relationship details but did not receive them. The exact start of the retailer's California physical presence therefore remained unknown.

The recommendation summarized eleven transaction documents and a 1981 custodial agreement, including a June 10, 1983 custody receipt, June 23 paid-invoice materials, account statements, a November 2 release request, and a November 14 shipment request using $25,620 insured registered mail. Those underlying materials and the audit workpapers are not reproduced in the PDF.

The final recommendation calls the adjustment the “Levine sales price,” although the transaction is redacted elsewhere, and directs redetermination with no other adjustment. It gives neither that sale price nor a revised measure and records no final Board action. It also contains unresolved administrative-date defects: August 20 versus August 30, 1982 for the registration application and an incomplete “March 5, 198” audit-report date.

Common questions

Why did the four diamonds satisfy the historical rule?

The documents identified the California buyer as owner while the trust company held the sealed package, and the buyer used or stored the unfinished diamonds outside California for investment for more than 90 days before entry.

Did the trust company's custody mean the retailer still owned the diamonds?

Not on the hearing officer's reading of the transaction documents. Although staff had argued the trust company acted for the retailer, the recommendation found that the buyer held ownership, dominion or control.

What happened to the other 35 transactions?

They remained in the deficiency because in-state commissioned solicitors supplied statutory and constitutional nexus for the retailer's use-tax collection duty.

Was mail or common-carrier delivery alone enough for nexus?

No. The recommendation distinguished mere mail-and-carrier contact from the retailer's continuous use of California representatives to solicit and possibly take orders.

Was $25,620 the deleted sale price?

The source does not say. It identifies $25,620 as the insured value on the November 1983 shipment request, while the actual deleted sales price and revised assessment measure are not supplied.

Did the Board adopt the recommendation?

No final Board action is included. The source is a hearing officer's recommendation to delete one sale price and otherwise make no adjustment.

Citations and references

• California Revenue and Taxation Code sections 6010.5, 6011, 6015, 6017, 6051 and 6201–6204 and Regulation 1620(a) and (b)(3) — cited for sale, retailer, sales-tax, use-tax, collection and historical outside-use rules; complete authorities, amendments, later history, and current law not supplied
• U.S. Constitution Due Process and Commerce Clauses, International Shoe, Rocklin de Mexico, Sibley, and Code of Civil Procedure section 410.10 — cited for minimum contacts, personal jurisdiction and California's long-arm reach; complete authorities, comparison facts, later treatment, and current law not supplied
• Scripto and National Geographic — applied to nonemployee solicitation and use-tax collection nexus; complete opinions, comparison facts, later treatment, and current law not supplied
• National Bellas Hess, Miller Bros., General Trading, Nelson v. Sears, Felt & Tarrant, Monamotor Oil, and People v. West Publishing — cited for mail-only and continuous-representation comparisons; complete opinions, comparison facts, later treatment, and current law not supplied
• 21 U.S. 373 and 272 Ca. App.2d 728 — visible official-scan forms preserved verbatim; unresolved in list-mode citation verification and not independently relied on
• Audit reports, schedules, journals, workpapers, custodial agreement, transaction records and correspondence — summarized but not reproduced; evidence and dates remain incomplete
• December 24 recommendation — deletes one unidentified sales price without a revised measure or final Board action
• Official Annotation 325.0193 — isolates the investment transaction but omits the assessment, transaction reconciliation, nexus holding, incomplete record, date and citation defects, recommendation posture, and final outcome

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/325-0193.pdf

Original ruling text

325.0193
STATE OF CALIFORNIA
BOARD OF EQUALIZATION
In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax taw

Petitioner

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)
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)
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DECISION AND RECOMMENDATION

The
above
entitled matter came
hearing on November 6,
1987, in Sacramento,
Stephen A. Ryan, Hearing· Officer.

on regularly for
California, before

Appearing for Petitioner:

Appearing for the Board: Mr. Landon Carter, Senior Tax Auditor Protested Items On January 21, 1987, petitioner filed a petition for redetermination of a Notice of Determination issued by the Board on December 30, 1986, for the period July l, 1982 through June 30, 1985. The protest involves tax deficiencies determined on the following audit items: A. “Taxable sales understated”

Measure
$111,554

Petitioner's contentions

1. No tax liability or use tax collection liability exists
   because:
   (i) No nexus exists.
   (ii) Petitioner had no office and did not engage in business in California.

(iii) Petitioner is not a retailer engaged in business in California pursuant to Revenue and Taxation Code sections 6015 or 6203. (iv) The Begin deleted text REDACTED TEXT End deleted text transaction is excluded from California use tax under Regulation 1620(b)(3) because the diamonds sold were obtained and used by the purchasers outside California for more than 90 days before initial entry into California. Summary Petitioner is a Begin deleted text REDACTED TEXT End deleted text corporation which sells diamonds and jewelry to customers located throughout the United States. It has possessed a Certificate of Registration-Use Tax from the Board since August 30, 1982. This was the first Board audit. The Board’s field auditor in the out-of-state office prepared a four-page report dated February 6, 1986 as part of his work papers which generally described his findings of petitioner and its activities. He found that petitioner operated out of state selling jewelry and diamonds to customers who desired them for personal use or investment. Petitioner had no locations or inventory in California. It solicited sales in California through mailers, magazine advertisements, and independent sales representatives located in California known as “financial planners” who received commissions for sales generated by them. The field auditor examined the portion of petitioner’s records which petitioner made available to him and discovered numerous sales to California purchasers. He wrote that he examined sales orders, cash receipts journal #1, cash receipts journal #2, and an accountant’s work papers. He wrote that he was unable to verify when petitioner began selling to California purchasers because petitioner “refused to provide verification of the starting date.” Schedule 12A prepared by the field auditor identified 47 California retail sales to California purchasers which he concluded subjected the gross receipts of petitioner to California “sales tax”. Based upon the evidence made available

to him, he found that 43 of these sales involved a shipment of the property sold directly from out of state to the California purchaser. He found that the property sold in the other four sales was first shipped by petitioner to the Begin deleted text REDACTED TEXT End deleted text Trust Company in Delaware. His description of the tangible personal property sold includes the following: round diamonds, diamonds, small diamonds, diamond ring, wedding band, diamond earrings, stud earrings, diamond pendant, diamond ring set, bracelet, gold ring set, and jewelry. The auditor found that petitioner maintained a “custodial account” with Begin deleted text REDACTED TEXT End deleted text for petitioner’s customers who wished “to have their diamonds kept in safe keeping.” He wrote that Begin deleted text REDACTED TEXT End deleted text would only subsequently ship the property to a California purchaser pursuant to a written request from petitioner and not solely at the request of any purchaser. The auditor found that petitioner did not ship any products sold to any location until it received full payment from the purchaser. He added that “[w]hen payment is received, taxpayer makes an entry in cash receipts journal #2 in the exchange section which would indicate that the sale is final and items should now be shipped.” On Schedule 414A prepared by the field auditor on February 6, 1986, he wrote as follows: Information was conveyed to auditor that California sales were consummated through financial planners in state which TP pays a commission to for “respective sales made by them.” The auditor concluded that petitioner was liable for California sales tax measured by its gross receipts generated from these sales. He concluded that none of this property was functionally used outside California while owned by any California purchaser. Board supervising auditor Begin deleted text REDACTED TEXT End deleted text in the Begin deleted text REDACTED TEXT End deleted text office prepared a report dated March 5, 198 which is also contained in the audit work papers. He concluded that the California purchaser became liable for California use tax upon receipt of the property in California. He added that in the transactions involving initial deliver to the Begin deleted text REDACTED TEXT End deleted text the sale by petitioner did not occur until the property was shipped by Begin deleted text REDACTED TEXT End deleted text to the California purchaser. He also described a telephone conversation with Begin deleted text

REDACTED TEXT End deleted text when he was informed that the California financial planners referred potential California customers to petitioner for which they received commissions. Board auditor Begin deleted text REDACTED TEXT End deleted text wrote in a memorandum dated February 2, 1987 that petitioner retained ownership and control over the property held for safe keeping by the Begin deleted text REDACTED TEXT End deleted text. He identified that petitioner delivered the property to Begin deleted text REDACTED TEXT End deleted text Trust Company in sealed containers. He wrote that petitioner paid all charges made by Begin deleted text REDACTED TEXT End deleted text with the California purchasers not paying for any storage, shipment, or other costs. He reiterated that petitioner had to request Begin deleted text REDACTED TEXT End deleted text to ship property to the California purchasers and that such shipment would not be made solely upon a California purchaser’s request. He added that shipments to the California customers were by common carrier. He concluded that there was no functional use of the property outside California. Board reviewing auditor Begin deleted text REDACTED TEXT End deleted text in Sacramento met with Begin deleted text REDACTED TEXT End deleted text and obtained additional evidence in several transactions which apparently was not previously submitted to the field auditor. He deleted 11 sales from the measure of the audit deficiency. He concluded that five sales were for resale and that six sales involved property which had never entered into California. These deletions included all four transactions which the field auditor found involved initial delivery to Delaware. The new evidence indicated that one other sale (Begin deleted text REDACTED TEXT End deleted text) involved property initially shipped to Delaware but this remained in the audit deficiency. After Begin deleted text REDACTED TEXT End deleted text work was completed, the Notice of Determination was issued for use tax collection liability measured by the $111,554 sales prices on the remaining 36 sales. At the preliminary hearing, auditor informed the hearing officer that the Board is holding petitioner liable for failing to collect and remit the use taxes on the 36 remaining transactions in which it sold diamonds and/or jewelry to California customers. He said that the products sold in 35 of these 36 transactions had been delivered directly from out of state into California based upon evidence made available to the Board. He said that this information indicates that only one of these sales (the sale of four diamonds to Begin deleted text REDACTED TEXT End deleted text) involved a prior delivery to the

Begin deleted text REDACTED TEXT End deleted text from petitioner’s Begin deleted text REDACTED TEXT End deleted text location prior to delivery to California. Begin deleted text REDACTED TEXT End deleted text explained the reasons why the Board denied petitioner’s claim of exemption under the 90-day rule in Regulation 1620(b)(3) in the Begin deleted text REDACTED TEXT End deleted text transaction involving initial delivery to Begin deleted text REDACTED TEXT End deleted text. He found that such sale from petitioner to a California customer occurred at the time the Begin deleted text REDACTED TEXT End deleted text delivered the goods to a carrier for shipment to California. He concluded that the Begin deleted text REDACTED TEXT End deleted text acted as an agent for petitioner in holding petitioner’s property. He said that Begin deleted text REDACTED TEXT End deleted text had told him petitioner paid Begin deleted text REDACTED TEXT End deleted text the fees for maintaining the custodial account. Thus, he concluded that no out-of-state use by Begin deleted text REDACTED TEXT End deleted text for more than 90 days had occurred. Begin deleted text REDACTED TEXT End deleted text said that petitioner’s representatives were not cooperative with the Board’s field auditor which resulted in the lack of evidence on various points. Begin deleted text REDACTED TEXT End deleted text initially spoke to the hearing officer in July of 1987. He argued that no nexus exists between his client and the State of California. He then submitted a letter dated October 2, 1987 attaching copies of documents of the Begin deleted text REDACTED TEXT End deleted text transaction and of his prior letter dated February 6, 1986 to the Board’s Begin deleted text REDACTED TEXT End deleted text office. Begin deleted text REDACTED TEXT End deleted text represented therein that the diamonds sold to Begin deleted text REDACTED TEXT End deleted text were first delivered by petitioner to the Begin deleted text REDACTED TEXT End deleted text in Delaware. He argued that petitioner made the sale at the time petitioner shipped the package containing the diamonds to Begin deleted text REDACTED TEXT End deleted text has written that petitioner delivered the diamonds to Begin deleted text REDACTED TEXT End deleted text at Begin deleted text REDACTED TEXT End deleted text request. He believes that Begin deleted text REDACTED TEXT End deleted text sold her diamonds in Begin deleted text REDACTED TEXT End deleted text for her rather

than for petitioner. Begin deleted text REDACTED TEXT End deleted text contends that that Begin deleted text REDACTED TEXT End deleted text maintained “exclusive control” over the diamonds while held by Begin deleted text REDACTED TEXT End deleted text with petitioner holding no possession, ownership, dominion, or control over them. He concluded that Begin deleted text REDACTED TEXT End deleted text is excluded from California use tax under Regulation 1620(b)(3) because her purchase was for investment purposes with the diamonds used outside California during the time Begin deleted text REDACTED TEXT End deleted text had possession for more than 90 days before first entering into California. Begin deleted text REDACTED TEXT End deleted text wrote that petitioner’s “procedure when it sells a diamond to a customer who requests that it be delivered to” Begin deleted text REDACTED TEXT End deleted text in Begin deleted text REDACTED TEXT End deleted text is as follows: sale to

1. The company sells the diamond and delivers a bill of
   the purchaser.

2. At the time of the sale, the purchaser instructs the
   company to deliver the diamonds to Begin deleted text REDACTED TEXT End deleted text to be held in a custodial account in the name of the purchaser.

3. The company sends the diamond in a box to the
   diamond which is stated to be the “pink-owner copy.”
4. The company delivers the pink owner’s copy to the
   purchaser and retains a customer invoice.
5. When the purchaser desires to sell or transfer the
   diamond, the purchaser delivers the pink owner’s copy, duly endorsed to the Company and the Company in turn forwards it along with its customer invoice to Begin deleted text REDACTED TEXT End deleted text. Begin deleted text REDACTED TEXT End deleted text then sends the diamond directly to the owner. The specific documents presented by Begin deleted text REDACTED TEXT End deleted text on the Begin deleted text REDACTED TEXT End deleted text matter include the following:
6. A November 19, 87 letter from Begin deleted text REDACTED
   TEXT End deleted text to Begin deleted text REDACTED TEXT End deleted text of petitioner regarding petitioner’s Custody Account 20417. She set forth some of the terms of their

separate “agreement” regarding this account. Petitioner would send sealed packages containing diamonds to Begin deleted text REDACTED TEXT End deleted text for storage in its safe deposit box for a fee to be paid by petitioner. She requested that petitioner notify Begin deleted text REDACTED TEXT End deleted text of the name and address of the “owner” of the property prior to delivery to Begin deleted text REDACTED TEXT End deleted text she identified labeling a receipt as a “miscellaneous asset”. She acknowledged that Begin deleted text REDACTED TEXT End deleted text would ship the diamonds to the “owner” upon request and receipt of certain documentation from petitioner.

2. A June 1, 1983 letter from the president of petitioner,
   Begin deleted text REDACTED TEXT End deleted text to Begin deleted text REDACTED TEXT End deleted text notifying the latter that petitioner sent the four diamonds in a sealed by to Begin deleted text REDACTED TEXT End deleted text company to be held in the name of Begin deleted text REDACTED TEXT End deleted text. He further indicated the Begin deleted text REDACTED TEXT End deleted text would hold the property “in safekeeping”.
3. A June 10, 1983 receipt from Begin deleted text REDACTED
   TEXT End deleted text acknowledging receipt and storage with it of the package in custodial account number 20417 “to be delivered” to Begin deleted text REDACTED TEXT End deleted text or to the owner certified by Begin deleted text REDACTED TEXT End deleted text. Begin deleted text REDACTED TEXT End deleted text name and address were identified thereon.
4. A June 14, 1983 “Customer Transaction Advice” on
   stationery identifying “account Begin deleted text REDACTED TEXT End deleted text “ for Begin deleted text REDACTED TEXT End deleted text and the package.
5. A June 23, 1983 letter from petitioner to Begin deleted
   text REDACTED TEXT End deleted text regarding these four diamonds identifying the enclosure of the following: (i) copies of petitioner’s letter of instruction to Begin deleted text REDACTED TEXT End deleted text; (ii) Begin deleted text REDACTED TEXT End deleted text as “official receipt” for the property; (iii) petitioner’s “paid invoice”; and (iv) original and Gem Audit Certificates.
6. A June 23, 1983 document on petitioner’s stationery
   addressed to Begin deleted text REDACTED TEXT End deleted text but without a salutation. Begin deleted text REDACTED TEXT End deleted text name but without a signature was at the end of the

two paragraph content of the document. It indicated a sale to Begin deleted text REDACTED TEXT End deleted text of the diamonds. It added “[a]bove described diamonds are being held in safekeeping, under the name of Begin deleted text REDACTED TEXT End deleted text at Begin deleted text REDACTED TEXT End deleted text.

7. A Statement of Account for Begin deleted text REDACTED
   TEXT End deleted text, which was further identified as a Principal Asset Summary as of June 30, 1983 for account Begin deleted text REDACTED TEXT End deleted text was listed as “agent under agreement” dated November 4, 1981 with Begin deleted text REDACTED TEXT End deleted text percent of market value, estimated annual total, and the cash income yield for “miscellaneous assets” were listed as zero.
8. Page six of an undated Statement of Account of
   for account Begin deleted text REDACTED TEXT End deleted text indicated two diamond custody receipts of Begin deleted text REDACTED TEXT End deleted text “representing” sealed packages for diamonds held by two people one of whom was Begin deleted text REDACTED TEXT End deleted text.
9. A handwritten letter dated November 2, 1983 apparently
   containing a signature of a Begin deleted text REDACTED TEXT End deleted text to Begin deleted text REDACTED TEXT End deleted text which reads that she requested release of the diamonds to her with delivery to California.
10. A November 14, 1983 letter from petitioner to Begin
    deleted text REDACTED TEXT End deleted text requesting Begin deleted text REDACTED TEXT End deleted text to ship the diamonds via insured ($25,620) registered mail to Begin deleted text REDACTED TEXT End deleted text in California. Petitioner referenced that Begin deleted text REDACTED TEXT End deleted text had “requested that her stones being held in Begin deleted text REDACTED TEXT End deleted text Custodial Account Begin deleted text REDACTED TEXT End deleted text be released and forwarded to her.” Petitioner indicated that it enclosed “the pink Owner invoice and thee yellow Customer invoice” to Begin deleted text REDACTED TEXT End deleted text.
11. A copy of a September 14, 1986 letter from Begin deleted
    text REDACTED TEXT End deleted text to petitioner providing that these four diamonds were purchased for investment and that the intended first use in California was investment and not for jewelry or any other purpose.

The November 4, 1981 Agreement between petitioner and the Begin deleted text REDACTED TEXT End deleted text company provides that Begin deleted text REDACTED TEXT End deleted text would act as “custodian” for petitioner to hold for safekeeping sealed packages of diamonds Begin deleted text REDACTED TEXT End deleted text agreed to hold each package until instructed by petitioner to deliver it according to instructions received from petitioner. Begin deleted text REDACTED TEXT End deleted text agreed to create a separate account for each package according to petitioner’s instructions and to issue quarterly statements. Petitioner agreed to compensate Begin deleted text REDACTED TEXT End deleted text for its services and indemnify it for loss, cost, or other damage arising out of the proper services of Begin deleted text REDACTED TEXT End deleted text Trust Company. The Board’s files on petitioner indicates that on August 30, 1982, Begin deleted text REDACTED TEXT End deleted text as corporate president of petitioner, signed an Application for Certificate of Registration-Use Tax with the Board. It was represented on that application that petitioner was manufacturing, jobbing or wholesaling diamonds in California as of July 1, 1982 through its sales representative, Begin deleted text REDACTED TEXT End deleted text of Begin deleted text REDACTED TEXT End deleted text California. Begin deleted text REDACTED TEXT End deleted text expressly certified that this information was correct and, further, that if petitioner was not engaged in business in California, petitioner agreed to comply with the provisions of the use tax laws, rules, and regulations in consideration for receiving the certificate of registration from the Board. The hearing officer requested Begin deleted text REDACTED TEXT End deleted text to submit the identity of each California representative and other information regarding its relationship with each, including Begin deleted text REDACTED TEXT End deleted text. Such information was not received. Analysis and Conclusions Petitioner apparently made no direct physical contact with this State through its own officers, business locations, or employees. However, it made use of non-employee representatives who were located inside this State for the purpose of soliciting its sales and possible taking orders for sales of tangible personal property. The field auditor found that each sale occurred out of state with the diamonds and/or jewelry still located out of state at the time

petitioner received full payment from the purchaser. The available evidence indicates that the property sold by petitioner in all but the Begin deleted text REDACTED TEXT End deleted text transaction was delivered directly from out of state to the California customers apparently by common carrier or postal service. It is our conclusion that each sale occurred at the time petitioner received full payment and shipped the goods from its Begin deleted text REDACTED TEXT End deleted text location. Prior to occurrence, petitioner merely recorded an agreement to sell but retained ownership and control over the diamonds/jewelry. When it received full payment, petitioner relinquished ownership and control over the goods by recording the sale in its cash receipts journal #2, preparing the “pink owner invoice”, and shipping them. The various documentation in the Begin deleted text REDACTED TEXT End deleted text transaction indicates that this result also applies when the goods were first shipped by petitioner to the trust company in Begin deleted text REDACTED TEXT End deleted text. The documents clearly identify Begin deleted text REDACTED TEXT End deleted text as the owner of the diamonds during the time the trust company held them in a safe deposit box. Begin deleted text REDACTED TEXT End deleted text had elected to have these apparently unfinished diamonds stored with the trust company. This is evidence to support her purchase for investment use rather than for physical use. Since these diamonds were used/stored outside California for more than 90 days prior to the first entry into this State, Begin deleted text REDACTED TEXT End deleted text subsequent California use was excluded from California use tax (see Regulation 1620(b)(3)). Therefore, petitioner had no liability to collect any tax from her or to pay the Board on her transaction. The available evidence appears to indicate that petitioner is not liable for California sales tax on the remaining 35 sales as was concluded by the field auditor. The incomplete evidence presented to the hearing officer indicates that deliveries were made from out of state by common carrier or the postal service directly to the California purchasers. When sales do not occur in California, California “sales tax” does not apply (see Rev. & Tax. Code §§ 6051, 6017 and 6010.5; and Regulation 1620(a)). (This conclusion would not apply and petitioner could be liable for California sales ta if the delivery of the property initially was to one or more of its representatives inside California who then delivered the goods to the California customer. California use tax liability is incurred by a person who purchases tangible personal property from a retailer for use, storage,

or other consumption in California (Rev. & Tax. Code §§ 6201 and 6202). A retailer engaged in business in this State who makes a sale to such a purchaser is required to collect the use tax at the time of the sale (Rev. & Tax. Code § 6203). The retailer then must remit the taxes so collected to the Board (Rev. & Tax. Code § 6204). Revenue and Taxation Code section 6203 defined “retailer engaged in business in this state” as follows during the period in question: (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. (c) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in this state. Since petitioner had representatives inside California for the purposes of soliciting sales and taking orders, it was a retailer engaged in business in this State. It is of no consequence that the persons soliciting were not employees (see Scripto v. Carson (1960) 362 U.S. 207, 4 L.Ed.2d 660, 80 S. Ct. 619). Accordingly, it had a duty under the Sales and Use Tax Law to collect and remit the use tax. Petitioner’s concerns about nexus as it relates to the Board’s power to require it to collect and remit use tax in light of the Constitution of the United States have been dealt with in numerous decisions of the U.S. Supreme Court and lower federal courts as well as state courts. The issues have revolved around the Due Process Clause of the Fourteenth Amendment as to a state’s power to require an out-of-state seller to collect use tax as well as the acquisition of in personam jurisdiction over the out-of-state retailer. An additional issue has concerned the Commerce Clause of the U.S. Constitution. On the substantive jurisdictional issue arising form the Due Process Clause, the constitutional test which must be met to establish the requisite nexus is whether the facts demonstrate some definite link, some minimum connection between the state and the retailer (see National Geographic v. Cal. Equalization Bd. (1977) 430 U.S. 551, 51 L.Ed.2d 631, 97 S.Ct. 1386; Hess v Illinois (1967) 386 U.S. 753 18 L.Ed.2d 50, 87 S.Ct. 1389; Scripto v Carson, supra; and Miller Bros.

v. Maryland (1954) 347 U.S. 340 98 L.Ed. 744, 74 S.Ct. 535). This is not a direct tax upon petitioner but an administrative duty to collect the use tax from its purchasers and pay it to the Board. It is well settled that, under appropriate circumstances, a retailer’s presence within a taxing state will warrant the imposition of an obligation to collect use tax from a purchaser and pay such amount to that State when goods are sold out-of-state but delivered into that state (see National Geographic, supra Scripto, supra, General Trading Co. vs. Tax Commission (144) 322 U.S. 335, 88 L.Ed. 1309, 65 S.Ct. 1028; Nelson v. Montgomery Ward (1941) 21 U.S. 373, 85 L.Ed. 897, 61 S.Ct. 593; Nelson v Sears, Roebuck & Co. (1941) 312 U.S. 359, 85 L.Ed. 888, 61 S.Ct. 586; Felt and Tarrant Mfg. Co. v. Gallagher (1938) 306 U.S. 62, 83 L.Ed. 488, 59 S.Ct. 376; Monamotor Oil Co. v Johnson (1934) 292 U.S. 86, 78 L.Ed. 1141, 54 S.Ct. 57; People v. West Publishing Co. (1950) 35 Cal. 2d 80, 216 P.2d 441; and Montgomery Ward and Co. v State Board of Equalization (1969) 272 Ca. App.2d 728, 78 Cal.Rptr. 373). It is clear that a retailer is not required to collect this use tax from a California purchaser when its only contact with the State of California is via the U.S. mail and common carriers who deliver solicitation materials, orders, payments, and the goods purchased (Hess, supra). On the other end of the spectrum, it has been established that the retailer must collect use tax from California purchasers when it has an office or representatives (employee or independent contractor, resident or nonresident) in this State conducting continuous business here (see National Geographic, Scripto, General Trading, Sears v. Nelson, Felt and Tarrant, and West Publishing. It is our conclusion that petitioner had the requisite constitutional link/connection/nexus with the State of California sufficient to allow the Board to require it to collect use tax on its sales to California purchasers and remit it to the Board in accordance with the Sales and Use Tax Law provisions. Although the exact date when petitioner actually began its physical presence in California is not known, it is clear that, through its agents and representatives, petitioner has maintained a continuous presence. A similar conclusion results from an examination of these facts to the requirements of the Commerce Clause. The courts in National Geographic, Scripto, Hess, Miller Bros., General Trading, and Felt & Tarrant Co., all considered this issue and found that no burden is placed upon interstate commerce when only use tax collection is at issue rather than a direct (sales) tax on the retailer as long as an adequate constitutional link/connection/nexus exists as required by due process. The result is that petitioner had a duty to collect use tax from

all purchasers acquiring property from it for use in California (sections 6203 and 62040). Petitioner is liable to the Board for failing to remit such amounts from each sale outside California for California use (see sections 6204, 6203, and 6011). One further constitutional consideration is necessary—in personam jurisdiction over petitioner to enforce these use tax collection and remittance liabilities. This question arises from the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution and the leading case of International Shoe Co. v Washington (1945) 326 U.S. 310, 90 L.Ed. 95 66 S.Ct. 154. We have already examined the numerous U.S. Supreme Court cases which specifically examined the states’ power to impose indirect use tax collection and payment duty liabilities on retailers in light of the Due Process Clause. Several of the courts specifically discussed the “jurisdiction” necessary before these liabilities could be imposed (see particularly Miller Bros.). The various terms set forth by these courts to describe the jurisdiction necessary for the taxing state to impose these liabilities included “link”, “minimum connection”, “contacts”, “relationship”, “nexus”, and “substantial presence”. Each court basically employed a balance test to determine if the retailer had enough contact with the state wherein it derived the right to significant benefits therein to justify these tax burdens. A test is thus necessary in each case to determine if this jurisdiction exists before a state can impose either of these liabilities. None of the courts ever discussed the practical matter of the state seeking to collect these debts from the retailer. It appears that since the Due Process Clause allowed jurisdiction in the sense of the power of the states to impose these taxes and duties, it was a foregone conclusion that a state could thus enforce its powers and collect the funds. The Miller Bros. court was one of the first to concern itself with this due process subject regarding use tax collection/payment. It continually referred to the states taxing “power or jurisdiction” and specifically stated that if “some jurisdictions’ fact or event” existed “as a conductor”, the state’s taxing power or jurisdiction could reach beyond the borders of the states to reach its “extra territorial income or transactions” of the “nonresident” retailer (pages 342-343). It then set forth the basic due process test of a definite link/minimum connection between the state and the person or property (pages 344-345). For one full page, the court examined the various factors of the retailer which might provide the jurisdiction to tax or impose the use tax collection/payment duties (page 345). This specifically included “[c]ertain activities or transactions carried on within a state, such as the use and sale of property...”
[Footnote citations omitted.]

The International Shoe decision considered the issue of whether or not the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution prohibits a nonresident corporation from being amendable to an in-state court action to enforce an unemployment tax obligation of the corporation arising out of its activities in that state. The out-of-state company contended that it was not present in the state and therefore the state court lacked in personam jurisdiction to subject it to a state tax or a suit for its collection (pages 315316). The court held that:
...due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum he have certain minimum contacts with it such that the maintenance of the suit does not offend “traditional motions of fair play and substantial justice.” (Page 316.) The court examined the nature, quality, and circumstances of the acts of the corporate out-of-state company within the taxing state. It noted that the “presence” within the state by a corporation was manifested by the activities carried on in its behalf by agents authorized to act for it. It found that single, occasional, casual, and irregular acts were insufficient contacts for due process purposes. It found that the systematic and continuous sales solicitation activities of eleven resident commissioned salesmen were sufficient minimum contacts for due process purposes in that case. The in personam action to enforce and collect the tax was allowed based upon personal service on an in-state solicitor and substituted service of the company by registered mail in accordance with the applicable state statutes. A recent California appellate decision in Rocklin de Mexico S.A. v Superior Court (1984) 157 Cal.App.3d 91, 203 Cal.Rptr. 547, held the following about the status of jurisdiction in this state: California’s “long-arm” statute extends the jurisdiction of California courts to the outermost boundaries of due process. “A court of this state may exercise jurisdiction on any basis not in consistent with the constitution of this state or of the United States.” (Code Civ. Proc., § 410.10; see Sibley v. Superior Court (1976) 16 Cal.3d 442, 445 [128 Cal.Rptr. 34, 546 P.2d 322. (At page 94.) Therefore, these case law interpretations of the constitutional limits are controlling. The interesting state of the law is that the almost identical test— “minimum contacts” versus “definite link, minimum connection”—have evolved from the U.S. Supreme Court decisions both on the

power/jurisdiction of the state to impose the use tax collection duty and on the right and power to acquire in personam jurisdiction of the tax collector to enforce collection of such liabilities. Since we have found that the Board has the power to impose these liabilities upon petitioner along the lines of the use tax collection cases, we also must conclude that in personam jurisdiction over petitioner exists inn California sufficient to allow the Board to enforce these laws and collect on the debts. We also conclude that petitioner was under a contractual obligation to collect use tax from these California purchasers and to remit those funds to the Board as a result of its execution of the certificate of registration application on August 20, 1982. Petitioner failed to perform this obligation and is separately responsible for these amounts. Recommendation Delete the Levine sales price from the deficiency. Redetermine without any further adjustment. Stephen A. Ryan’s signature Stephen A. Ryan, Hearing Officer

12-24-87
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