Did a trucker count as an interstate carrier when its arrangement with the Las Vegas buyer treated it as an employee rather than a carrier for regulatory purposes?

Plain-English summary

A California seller made unidentified sales at its Vernon office to a Las Vegas construction contractor. The goods were loaded on a third party's truck and delivered to the buyer. The recent audit disallowed claimed resale treatment. Section 6386 did not apply because the contractor lacked the required seller's permit, so the seller argued that the transactions were exempt interstate commerce.

Tax counsel said the result depended on whether the truck operator was truly a carrier. The operator and buyer had structured their arrangement so the operator leased tractors and apparently became some kind of employee of the buyer to avoid Interstate Commerce Commission requirements. The buyer could not produce the contract.

Counsel concluded that the operator could not hold itself out as something other than a carrier to regulators while claiming carrier status for sales tax. It was therefore treated as receiving the goods for the buyer in California, making the sale taxable, and counsel recommended denial of the petition.

The letter added that future purchases might qualify under section 6386 if the out-of-state contractor obtained a seller's permit and gave the seller the required certificate for property used to improve real property outside California.

The evidentiary foundation was incomplete. Counsel said an unidentified highway-regulation specialist had been consulted, the trucker leased the tractors used in the hauls, and the trucker “apparently became some kind of employee” of the buyer. Because the buyer could not produce the contract, counsel inferred what it “must have been” to avoid ICC requirements. The source gives no lease, employment terms, control facts, ICC filings or compensation records.

CDTFA's live annotation says the trucker leased the tractor but not the trailer and entered a loose employment relationship. The supporting letter says only that tractors were leased and apparent employment existed; it does not identify trailer ownership. No audit schedules, tax amount, final Board action, appeal, or later outcome is supplied.

Common questions

Why was the trucker treated as the buyer's agent?

Counsel found the buyer and trucker structured their relationship to present the trucker as something other than a carrier for ICC purposes and would not allow the opposite status for sales tax.

Was the trucker-buyer contract available?

No. The buyer could not produce it, and counsel's description of employment and regulatory avoidance was partly inferred.

Does the supporting letter say who owned the trailer?

No. The live annotation says the tractor but not the trailer was leased; the letter itself mentions only leased tractors.

Why did section 6386 fail for these sales?

The Las Vegas construction contractor did not hold the seller's permit required by the historical provision.

Could future contractor purchases qualify?

Counsel said they might if the out-of-state contractor obtained a seller's permit and furnished a certificate stating qualifying use to improve real property outside California.

Was the petition finally denied?

The source does not say. It contains counsel's recommendation without a Board decision, tax amount or later outcome.

Citations and references

• California Revenue and Taxation Code section 6386 — cited for a permitted out-of-state contractor's certified use in improving outside real property; enclosed statute, complete conditions, amendments, later history, and current law not supplied
• California Sales and Use Tax Ruling 55 — cited for carrier delivery; rule text, definition, replacement, later history, and current law not supplied
• Trucker-buyer agreement, lease, employment and ICC records — absent; counsel inferred the relationship from incomplete information
• Audit and petition materials — absent; goods, period, measure, tax amount and procedure remain unknown
• September 3 recommendation — proposes denial without final Board action or later outcome
• Official Annotation 325.0340 — adds nonleased-trailer and loose-employment facts beyond the supporting letter and omits the audit, section 6386 alternative, missing evidence, inferential 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/325-0340.pdf

Original ruling text

325.0340

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 3, 1964

“F”
This is to inform you of our conclusions with respect to your petition for Redetermination of sales tax. We regret we must recommend to the Board that the petition be denied. Your only protest of the recent audit concerned the disallowance of claimed sales for resale involving “C”. These sales were made at your Vernon office. The goods were placed aboard the truck of one “G”, who delivered the goods to the buyer, a construction contractor, in Las Vegas. The sales were not exempt under Section 6386 of the Sales and Use Tax Law, copy enclosed, because the contractor did not hold a seller’s permit as required by the section. It is your position that the sales were exempt interstate transactions. The exempt status of the sales depends upon the nature of “G” operations. The sales are exempt under Ruling 55 if “G” qualifies as a carrier. Otherwise, we believe he is properly construed as receiving the goods on behalf of the buyer, making the sale a taxable intrastate transaction. It is our conclusion that “G” is not a carrier within the meaning of Ruling 55. After consulting with a specialist in highway regulations, “G” and the buyer, “C”, entered into an agreement whereby “G” leased the tractors used in the hauls and apparently became some kind of employee of “C”. While “C” has been unable to produce the contract in question, we think that in order to circumvent ICC requirements, the contract must have been of this nature. We think, since “G” holds himself out to these regulatory agencies as being other than a carrier in connection with the Los Angeles to Las Vegas hauls, he cannot maintain, for sales tax purposes, that he is a carrier. These positions are utterly inconsistent. “C” is a party to the contract with “G”. Since it wishes to do business in this manner and avoid ICC regulations, we think it cannot complain that its purchases from you are subject to sales tax. We would like to point out, however, that in the future it may qualify under Section 6386 as an out-ofstate contractor improving real property located outside the state. In order to do this, it must obtain a seller’s permit and furnish you with a certificate stating that it will use the property purchased from you in the manner exempted by the statute. Very truly yours,

John H. Knowles
Associate Tax Counsel

JHK:o’b

[1b]