Could an unregistered for-hire hauler still be a carrier for California's interstate-commerce sales-tax exemption?

Plain-English summary

A corporate auctioneer sold three Caterpillar 631-8 scrapers for $180,000 at a May 8, 1975 California liquidation auction. The named Atlanta buyer apparently acted for a Venezuelan corporation. The bill of sale said “export--will furnish export papers,” but the auctioneer obtained no exemption certificate or other export evidence at sale.

A hired hauler moved the machines one at a time on May 10, June 6 and July 2. Between pickups they remained without storage fees at the liquidating construction company's premises. The hauler delivered them to a Florida shipping company, which sent them to Caracas on July 22.

The hearing officer first rejected the export exemption. The auctioneer's shipping documents named Florida as the destination, the record did not show a contractual obligation to ship to Venezuela, and the goods had not entered foreign commerce when title apparently passed at the auction.

The sale nevertheless qualified for the interstate-commerce exemption. The contract required shipment to Florida, and the evidence showed that the hauler regularly transported other people's property for compensation, used specialized heavy-hauling equipment, and made three separate trips. His failure to register with the Interstate Commerce Commission or hold a Board use-fuel permit was relevant but not conclusive; a person could actually be engaged in the carrier business while doing so illegally.

The hearing officer recommended granting the refund claim. The document records a recommendation, not a final Board decision.

The auctioneer did not report or pay tax initially. An audit asserted tax, the auctioneer ultimately paid, and it filed the refund claim. The source supplies the $180,000 measure but not the tax or refund amount, audit schedules, determination, returns, payment record or claim.

The evidentiary record was extensive but is only summarized: three California-to-Florida bills of lading signed by the claimant as shipper, a Florida-to-Caracas bill, an agency letter, a purchaser affidavit, two hauler affidavits, an independent-contractor letter and an office-manager affidavit. The source also says the hauler's equipment might have been owned or rented, a fact left unresolved.

The preliminary hearing occurred May 23, 1983 at a redacted location. The recommendation's audit-review signature and date are blank, and no final refund order, payment, appeal, or later outcome is supplied.

Common questions

Why did the export exemption fail?

The claimant's bills named Florida as the destination, no contract required claimant shipment to Venezuela, and the record did not show certain foreign destination when title apparently passed at auction.

Why did interstate treatment still apply?

The claimant-signed bills established contract-required shipment to Florida, and the weight of evidence showed delivery through a person regularly hauling other-owned property for compensation.

Did missing ICC registration defeat carrier status?

No by itself. The recommendation treated missing registration and a Board use-fuel permit as significant but not conclusive because someone could actually conduct a carrier business illegally.

What evidence supported regular carrier activity?

Repeated for-hire work for this purchaser and others, independent-contractor and office-manager statements, specialized heavy-hauling equipment, accepted cargo liability, and three separate trips.

Did the source establish who owned the hauling equipment?

No. It expressly says the hauler might have owned or rented the truck or equipment.

Was the refund finally paid?

The source does not say. It recommends granting the claim but supplies no final action or refund amount.

Citations and references

• California Sales and Use Tax Regulation 1620(a)(3)(C) — cited for export sales; complete regulation, contract, title, certainty, proof, amendments, later history, and current law not supplied
• Richfield Oil and Gough Industries — cited for certainty of foreign destination at title passage; complete opinions, comparison facts, later treatment, and current law not supplied
• California Sales and Use Tax Regulation 1620(a)(3)(B) — cited for interstate shipment through a qualifying carrier; complete regulation, qualifications, proof, amendments, later history, and current law not supplied
• Bill of sale, four bills of lading, letters and affidavits — summarized but not reproduced; contracts, carrier, freight, delivery and export evidence remain incomplete
• Audit, payment and refund materials — omitted; tax and refund amounts and procedure remain incomplete
• June recommendation — grants the claim without dated review, final action, payment or later outcome
• Official Annotation 325.0331 — isolates illegal nonregistration but omits the transaction, export/interstate distinction, evidence, provenance, missing records, refund 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/325-0331.pdf

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION

In the Matter of the Claim for
Refund Under the Sales and Use
Tax Law of:

Taxpayer

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325.0331
6/28/83

DECISION AND RECOMMENDATION
No. ---

The preliminary hearing on the above taxpayer's claim for refund was held on May 23, 1983, in

Hearing Officer:

James E. Mahler

Appearing for Petitioner:

Appearing for the Board:
Supervising Auditor

Subject of Claim
Item

Measure

Sale to ---

$180,000

Taxpayer's Contention
The scrapers were sold in foreign commerce.
Summary
Petitioner is a corporation engaged in business as an auctioneer. On May 8, 1975, it auctioned off the assets of a construction company which was going out of business. The auction occurred on the premises of the construction company in --- California. The assets sold at the auction included three Caterpillar 631-8 scrapers. The bill of sale for the scrapers indicates that they were sold to --- of Atlanta Georgia --- operates a company

called --- which is apparently in the export business. It appears that --- purchased the scrapers as an agent of --- a Venezuelan corporation doing business in that country. The bill of sale also states: "export--will furnish export papers." However, claimant did not obtain an exemption certificate or any other evidence of export from --- at the time of sale. The Scrapers were picked up in -- by a --- was not an employee of --- or of ----. However, it appears that he had been engaged by --- on various previous occasions to haul property. The record does not reveal whether --- owned his own truck or merely rented a truck from some third party. --- was not registered with the Interstate Commerce Commission as a common or contract carrier, nor did he hold a use fuel tax permit issued by the Board. Because of the size and weight of the scrapers, --- had to haul them one at a time. He picked up the first scraper on May 10, 1975, the second on June 6, 1975, and the third on July 2, 1975. While awaiting pick-up, the scrapers sat at the construction company's premises, apparently under the care of the construction company. The construction company did not charge anyone storage fees for the scrapers.
--- delivered the scrapers to the --- Shipping Company in --- Florida. --- shipped the scrapers to --- in Caracas, Venezuela, on July 22, 1975. Claimant did not report or pay tax on the scrapers on its sales and use tax returns. An audit of claimant's records asserted tax on the sale. Claimant ultimately paid the tax and filed this claim for refund. In support of the claim, the following documents have been submitted in evidence:

1. A bill of landing for each of the three scrapers. These bills are signed by an employee
   of claimant as agent of the shipper, and by --- as agent of the carrier. --- Shipping Company is listed as the delivering carrier. The shipping destination is stated to be --, Florida and the delivery route is described as: “--- Florida, c/c--- Shipping Company for export to --- Venezuela.”
2. An additional bill of landing for the three scrapers showing that they were shipped
   from --- to Caracas by boat. The shipper named on this bill is --- Shipping Co., Inc. (as agents).”
3. A letter from --- stating that --- purchased the scrapers as agent of that company.
4. An affidavit from --- stating that --- the scrapers were transported directly from --Florida, for export to Venezuela.
5. Two affidavit from ---. The first affidavit states that --- picked up the scrapers in --and delivered them to ---, Florida. In the second affidavit, --- states that he signed the
   bills of lading for the scrapers as a for-hire carrier and accepted common carrier liability for the safety of the cargo. --- also states that he has performed similar forhire transportation for many other persons, both before and after he served as carrier of the three scrapers.

6. A letter from --- stating that --- was not an employee of --- or --- but was an independent contactor in the freight moving business. --- also states that --- has often hauled equipment for --- over the years, either in his own fright contractor business or as driver for one of the major freight contractor business or as driver for one of the major freight contractor business or as driver for one of the major freight companies.

7. An affidavit from --- officer manager stating that --- had engaged the heavy hauling
   services of --- as a for hire carrier at various times for many years. Analysis and Conclusions For the reasons expressed below, we have concluded that the sale of the three scrapers does not qualify for exemption as an export sale, but does qualify for exemption as a sale in interstate commerce. With respect to exports, subdivision (a) (3) (C) of Sales and Use Tax Regulation 1620 provides that "sales tax does not apply when the property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer to the foreign country...." In this case, although the scrapers were ultimately shipped to a foreign country, they were not shipped by claimant. The bills of lading signed by claimant's employee showed --- Florida, as the destination. There is no evidence in the record to suggest that claimant had a contractural obligation to ship the scrapers to Venezuela. Furthermore, at the time of sale, there was no certainty of export as was found in Richfield Oil Corp. v. State Board of Equalization, 329 U.S. 69 and Gough Industries v. State Board of Equalization, 51 Cal.2d 746. In the last cited case, the California Supreme Court stated that the export exemption applies "if at the time title passed the certainty of the foreign destination was plain." In this case, insofar as we can tell from the record, title passed at the time of the auction, sale on May 8, 1975. The first scraper was not shipped until May 10, 1975, and the last scraper was not shipped until July 2, 1975. Therefore, at the time title passed, the goods had not been entered into the stream of foreign commerce. However, the requirements for exemption as an interstate commerce sale differ from the requirements for export sales. Subdivision (a) (3)(B) of Regulation 1620 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...." There is no question that the scrapers were picked up in California by --- and carried by him to Florida. Also, since the bills of lading for shipment to Florida were signed by claimant as shipper, we have no doubt that the contract of sale required such interstate shipment by claimant. The only question is whether the shipment was done by a "carrier", that is, by a person regularly engaged in the business of transporting property owned by others for compensation.

The evidence of --- a status as a carrier is in conflict. On the one hand, --- was not registered as a carrier with the Interstate Commerce Commission and did not hold a use fuel tax permit issued by the Board. While this evidence is significant, however, we do not view it as conclusive. A person may be regularly engaged in business as a carrier even though he does so illegally. On the other side of the coin, --- was not an employee of the purchaser and held himself out to the purchaser as a for-hire carrier. He has signed affidavits stating that he previously hauled property, not only for the purchaser, but also for other people as well. Because of the size and weight of the scrapers in question, special equipment and expertise was needed to haul them. Although the record does not reveal whether the equipment was owned by --- or merely rented from third parties, it was nevertheless not the sort of equipment available to or usable by casual laborers. Finally, shipment of the scrapers to Florida required three separate trips. Therefore, --was clearly not just a friend of the purchaser Who happened to be in California and picked up the scrapers as a favor. The weight of the evidence establishes that --- was regularly, albeit illegally, engaged in business as a for-hire --- of property owned by others. Accordingly, we conclude that the sale of the scrapers qualifies as an exempt sale in interstate commerce. Recommendation It is recommended that the claim for refund be granted.

6/28/83
James E. Mahler, Hearing Officer

Date

REVIEWED FOR AUDIT:

Principal Tax Auditor

Date