Did later out-of-state transport make an 'as is, where is' equipment sale exempt from California sales tax?

Plain-English summary

An equipment retailer challenged a July 18, 1974 determination from an October 1970 through September 1973 audit. The disputed interstate-sales measure was $340,000, comprising a $175,000 asphalt-plant equipment sale and a $165,000 off-highway-equipment sale to a Hawaii company. At the petitioner's C.P.A.'s request, the matter was submitted and decided on the file rather than a described evidentiary hearing.

For the first sale, a December 1, 1972 bill of sale marked the machinery “as is where is.” The buyer later hired a common carrier to remove it from California, and it remained in use outside the state, but the bill of sale did not require the seller to ship it to an out-of-state point.

The hearing officer accepted the broker's explanation that "as is, where is" concerned equipment condition rather than shipment. Even so, the broker also said the parties negotiated who would ship and how only after the sale. The contract therefore imposed no seller obligation to make an outbound delivery, and later removal by the buyer's carrier did not satisfy Regulation 1620.

The second sale involved $165,000 of off-highway equipment bound for Hawaii. Its purchase order required the seller to deliver the equipment to a designated Oakland berth for transfer to a carrier supplied by the buyer. That contractual seller delivery satisfied the regulation.

The hearing officer recommended deleting the Hawaii sale from the taxable measure but making no adjustment to the as-is sale.

Regulation 1620 required shipment pursuant to the sale contract and retailer delivery to a qualifying carrier, customs broker or forwarding agent. The quoted rule defined those roles by regularly conducted transportation or forwarding business and said purchaser designation alone did not create them. It also included an effective-date note for purchaser-hired carriers serving places such as points in the Pacific Ocean.

The bill of sale, Hawaii purchase order and broker statement were labeled Exhibits A through C but are not reproduced. Nor are the equipment lists, first-sale destination, carrier records, audit schedules, tax amount or final Board action. The recommendation directs the Petition Unit to make the adjustment, while the audit-review signature and date remain blank.

CDTFA's live annotation summarizes only the taxable as-is sale and says the phrase implies no qualifying contract. The supporting recommendation was narrower: it accepted for discussion that the phrase concerned equipment fitness, then relied on the contract's silence and the broker's statement that shipment terms were negotiated after sale.

Common questions

Did “as is where is” alone decide the first sale?

Not in the supporting recommendation. The hearing officer accepted the broker's fitness explanation but found no contractual seller-delivery duty and post-sale negotiation of shipping details.

Did later removal by the buyer's common carrier cure that omission?

No. Regulation 1620 required qualifying shipment pursuant to the contract of sale, not an arrangement made only after the sale.

Why did the Hawaii sale qualify?

Its May 29, 1973 purchase order required the seller to deliver the equipment to a designated Oakland berth for transfer to the buyer-supplied carrier to Hawaii.

Could a purchaser hire the carrier?

Yes under the quoted rule, if the seller's contractual delivery and the carrier qualifications were otherwise satisfied.

Did the recommendation eliminate the entire $340,000 item?

No. It recommended deleting the $165,000 Hawaii sale and no adjustment for the $175,000 as-is sale; it does not state a final adjusted measure.

Did the Board finally adopt the recommendation?

No final Board action is supplied, and the audit-review signature and date are blank.

Citations and references

• California Sales and Use Tax Regulation 1620(a)(3)(B)2 — quoted for contract-required retailer delivery to a qualifying carrier, broker or forwarder; complete regulation, definitions, proof, amendments, later history, and current law not supplied
• Exhibits A through C — bill of sale, purchase order and broker statement described but not reproduced; contract, equipment, destination and delivery facts remain incomplete
• July 18 determination and audit — $340,000 measure supplied without schedules, rate, tax amount, workpapers, payment or complete procedure
• August 29 recommendation — deletes the $165,000 Hawaii sale only, with no dated audit review, final Board action or later outcome
• Official Annotation 325.0257 — generalizes the as-is phrase and omits the accepted fitness explanation, two-sale comparison, Hawaii result, amounts, provenance, missing evidence, posture, 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/325-0257.pdf

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION

In the Matter of the Petition
for Redetermination of State
and Local Sales and Use Taxes

S--- I---, INC.
Petitioner

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325.0257

DECISION AND RECOMMENDATION
OF HEARING OFFICER

Acct. No.

SZ --- XX XXXXXX

The above-entitled matter came was submitted and decided on the facts contained in the file at the request of Mr. R. E. D---, Petitioner’s C.P.A.

Protest
Pursuant to an audit covering the period 10/1/70 through 9/30/73 and a determination issued on July 18, 1974, Petitioner protests the assessment of sales tax on sales in interstate commerce. The measure of the assessment is: Audit Item A - - Sales in interstate commerce disallowed,
$340,000.
Contentions
Petitioner contends that the two sales in question are exempt from California sales tax under Regulation 1620(a)(3)(B)2. Summary Petitioner is a corporation engaged in the business as a highway construction contractor and retailer of ready-mix concrete and related products. Petitioner also is a retailer of construction equipment. The measure of tax includes the following two transactions: (1) U--- S--- & G--- Company purchased of certain machinery and equipment of an asphalt plant owned by Petitioner for
$175,000; and (2) P--- C--- Company of Hawaii purchase of certain off-highway vehicles from Petitioner for $165,000. Although both sales were claimed as exempt interstate sales, the audit staff disallowed the claimed exemption as not conforming to the provisions of Regulation 1620(a)(3)(B)2.

S--- I---, Inc.
SZ --- XX XXXXXX

-2-

August 29, 1975
325.0257

1.

On December 1, 1972, Petitioner issued a Bill of Sale (Exhibit A) to U--- S--- & G--Company for its sale of the equipment in question. The Bill of Sale makes no mention of the fact that the goods are to be shipped out of state nor is there any written requirement which obligates the Petitioner-seller pursuant to the contract of sale to deliver the equipment to the out-of-state point. In fact the Bill of Sale provides that the goods are sold “as is where is”. The effect of this particular phrase will be considered under the Analysis and Conclusion of this report. After the sale, the equipment in question was removed by the buyer from California by a common carrier hired by the buyer. The equipment has been in use outside the state since its removal.

2.

On May 29, 1973, P--- C--- Company of Hawaii submitted its purchase order to Petitioner for several pieces of off-highway equipment (Exhibit B). The purchase order provided that the Petitioner was to deliver the equipment at a designated berth in Oakland for shipment via a carrier supplied by the purchaser to Hawaii. This equipment was picked up by the carrier in Oakland and delivered to Hawaii and has been used there since the delivery. Analysis and Conclusions

Regulation 1620(a)(3)(B)2 provides:
“Sales tax does not apply when the property pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer, by means of:

“Delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point. As used herein the term ‘carrier’ means a person or firm regularly engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term ‘forwarding agent’ means a person or firm regularly engaged in the business of preparing property for shipment or arranging for its shipment. An individual or firm no otherwise so engaged does not become a ‘carrier’ or ‘forwarding agent’ within the meaning of this regulation simply by being designated by a purchaser to receive and ship goods to a point outside this state. (This subsection is effective on and after September 19, 1970, with respect to deliveries in California to carriers, etc., hired by the purchasers for shipment to points outside this state that are not in another state or foreign country, e.g., to points in the Pacific Ocean.)” (Emphasis added.)

S--- I---, Inc.
SZ --- XX XXXXXX

-3-

August 29, 1975
325.0257

Since all of the other provisions of the section of the regulation have been met, the only question is whether the seller, pursuant to the contract of sale, was obligated to deliver the property to the out-of-state destination. There is nothing indicated in the contract of sale of the equipment to U--- S--- & G--- that would in any way indicate that the Petitioner was obligated to ship the goods to the out-of-state destination. In fact the words “sold as is where is” seem to negate such a conclusion. However, in an attempt to explain the meaning of those words, Petitioner submitted a statement from Mr. C---, the broker involved in the sale (Exhibit C). He states on page two that this terminology is only concerned with the fitness of the equipment and in no way indicates how shipment is to be made. For the sake of this discussion, we will accept this conclusion. However, the question still remains whether the Petitioner is obligated to ship the goods to the out-of-state destination. We believe that this is also fully answered by Mr. C--- on page two. He states, in part, that the particulars as to who is to ship and how is always negotiated after the sale is made. Accordingly, it is clear that Petitioner is no obligated pursuant to the contract of sale to deliver the goods or do anything else with them. In regard to the P--- C--- sale, it is our opinion that the required delivery responsibility of the Petitioner-seller is met by the terms of the purchase order requiring the goods to be delivered to an Oakland berth to the carrier supplied by the purchaser. Recommendation Delete the $165,000 sale to P--- C--- Company. No other adjustment recommended. Petition Unit to make adjustment.

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Glenn L. Rigby, Hearing Officer

Aug. 29, 1975
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Date

REVIEWED FOR AUDIT:

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Principal Tax Auditor

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Date