How did California tax one order of annual reports split between a New York destination and a California destination?

Plain-English summary

The request posed two prospective situations. In each, the seller would sell 14,000 annual reports, sending 10,000 to New York and 4,000 to the purchaser in California. Counsel assumed the New York reports would be used outside California; no order, customer, contract, price, production or shipment record is supplied.

If the reports were printed in California and shipped from here, section 6396 exempted the 10,000 sent to New York in accordance with Regulation 1620. Sales tax applied to the 4,000 delivered in California.

If the reports were instead printed and shipped from outside California, no California use tax applied to the 10,000 delivered and used outside the state. Use tax applied to the sales price of the 4,000 delivered here, and the retailer engaged in business in California had to collect and report it.

Section 6396's shipment rule required the purchaser to direct out-of-state shipment and the seller actually to ship by its own facilities or deliver to a carrier, customs broker or forwarding agent for that destination. Counsel assumed compliance rather than reviewing any shipping records. The enclosed copy of Regulation 1620 is not included in the PDF.

The letter also said sales-tax reimbursement was a contract question under Civil Code section 1656.1. It provides no reimbursement agreement and no facts supporting its premise that the requester was a retailer engaged in business in California.

No completed sale, sales price, taxable measure, return, audit, payment, claim, appeal, or later outcome is recorded.

Common questions

Did one tax treatment apply to all 14,000 reports?

No. The result was divided by destination and, for the California portion, by whether printing and shipment originated inside or outside California.

Why were the 10,000 New York reports untaxed?

Counsel assumed they were used outside California and, for California printing, that the seller satisfied section 6396 and Regulation 1620's shipment requirements.

What applied to the 4,000 reports delivered in California?

Sales tax applied when they were printed and shipped from California. Use tax applied to their sales price when they were printed and shipped from outside the state.

Who had to collect use tax in the second situation?

The requester did, on counsel's premise that it was a retailer engaged in business in California. The source supplies no underlying nexus or registration facts.

Was tax reimbursement automatically part of the charge?

No. The letter says reimbursement depended on the seller's contract with the customer under Civil Code section 1656.1.

Were these orders actually completed?

The source does not say. It records hypothetical future situations and no invoice, shipping proof, tax filing, audit or later result.

Citations and references

• California Revenue and Taxation Code section 6051 — cited for California retailer sales tax; complete statute, rate, exemptions, amendments, later history, and current law not supplied
• California Civil Code section 1656.1 — cited for contractual tax reimbursement; complete statute, contract rules, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6396 and Regulation 1620 — cited for purchaser-required out-of-state shipment; complete authorities, proof, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6201 and 6203 — cited for purchaser use tax and retailer collection; complete statutes, nexus, rate, amendments, later history, and current law not supplied
• January 18 request and transaction records — not reproduced or absent; the orders, use, shipment, nexus, measure and applied tax outcome remain unproved
• March 8 response — hypothetical and assumption-bound, with no completed transaction or later result
• Official Annotation 325.0250 — states the two conditional examples but omits their provenance, express assumptions, reimbursement issue, missing records, 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/325-0250.pdf

Original ruling text

325.0250

STATE OF CALIFORNIA
0B

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

March 8, 1993

BURTON W. OLIVER
Executive Director

----Dear Ms. ---:
This is in reply to your January 18, 1993 letter regarding the application of sales tax to your charges for annual reports. You described two situations and asked whether you should charge sales tax to your customer on the sale. We understand that, in each situation you would sell 14,000 annual reports and ship them to two separate destinations. You would ship 10,000 to New York and 4,000 to California. We assume the 10,000 shipped to New York would be used outside California. In the first situation, you would print the annual reports in California and ship them from within this state. California sales tax is imposed upon all retailers at the applicable rate of the gross receipts from the sale of all tangible personal property sold at retail in this state. (Rev. & Tax. Code § 6051.) Whether or not you collect reimbursement from your customer for the sales tax is a matter of contract between you and the customer. (Civ. Code § 1656.1.) When you print annual reports in California and ship them to the purchaser in this state, your sale is subject to sales tax. Revenue and Taxation Code section 6396 provides an exemption from sales tax for your sale of tangible personal property which the purchaser requires you to ship, and you do ship, to a point outside this state by your facilities or by delivery to a carrier, customs broker, or forwarding agent, whether hired by the purchaser or not, for shipment to the out-of-state point. We are enclosing a copy of Sales and Use Tax Regulation 1620, Interstate and Foreign Commerce, for your further information.

Ms. ---

-2-

March 8, 1993
325.0250

When you sell 14,000 annual reports and ship 10,000 to the purchaser in New York in accordance with Regulation 1620, and ship 4,000 to the customer in California, your sale of the 10,000 is exempt from sales tax, and tax applies to your sale of the 4,000. In the second situation, you would have the annual reports printed outside California and ship them from the out-of-state point. California imposes a use tax on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer for storage, use, or other consumption in this state at the applicable rate of the sales price of the property. (Rev. & Tax. Code § 6201.) As a retailer engaged in business in this state, you are required to collect the use tax from the purchaser and report and pay it to this Board. (Rev. & Tax. Code § 6203.) When you have the annual reports printed outside California and shipped to the purchaser in this state, the use tax applies, and you are required to collect the tax from the purchaser. When you have the annual reports printed outside California and shipped to the purchaser outside California for use outside the state, the use tax does not apply. Using your example, where you have 14,000 annual reports printed outside this state and have 10,000 shipped to New York and 4,000 shipped to the purchaser in this state, you are required to collect and report and pay use tax on the sales price of the 4,000 annual reports shipped to the purchaser in this state. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr
bc: San Jose District Administrator