Could display materials be bought tax-free when delivered and warehoused in California, then added to the buyer's out-of-state wine shipments?

Plain-English summary

A California winery said it currently bought point-of-sale displays from a California vendor, received and warehoused them here, and used more than half outside California. To reduce tax, it proposed having a related company buy the displays for resale, warehouse them, and sell them to the winery as needed. The June 3 inquiry and all transaction records are absent.

Tax counsel explained that the interstate exemption required the retailer to deliver the goods to a carrier for shipment outside California under the contract of sale. A bill of lading was not the only acceptable proof; other documents could establish the retailer's qualifying carrier delivery.

The described arrangement did not meet that test. The related company would deliver the displays to the winery in California, and the winery would later add them to railcars carrying its wine. That buyer-controlled later shipment did not convert the related company's completed California delivery into an exempt interstate sale.

The practical documentation issue was that only one shipper name apparently could appear on a railcar bill of lading. Because wine was the basic shipment, the winery rather than the related display seller had to be named. Counsel said a bill of lading was not the only acceptable proof, but some document still had to establish retailer delivery to a carrier for outside shipment.

Counsel's conclusion was expressly conditional on the stated facts suggesting delivery to the winery for inclusion in its own wine shipment. No related-company contract, purchase or resale order, warehouse record, invoice, railcar, bill of lading, alternative carrier proof, tax filing, audit or later outcome is supplied.

Common questions

Did later outside use of more than half the displays create an exemption?

No by itself. The issue was whether the related retailer made contract-required delivery to a carrier for outside shipment rather than first delivering to the winery in California.

Why did the winery's later rail shipment not qualify?

The related seller's sale and California delivery were already complete before the winery placed the displays into its own outbound wine shipment.

Was a bill of lading the only permitted proof?

No. Counsel said other documentary evidence could work if it established retailer delivery to a carrier for outside shipment.

Why could the related seller not appear as shipper?

The request said only one shipper name could appear and the basic railcar shipment was wine, so the winery's name had to be used.

Was the proposed structure ever implemented or audited?

The source does not say. It records no executed contract, sale, carrier delivery, tax filing, audit or later result.

Citations and references

• California Sales and Use Tax Ruling 55(a)(1)(C)2 — quoted for contract-required retailer delivery to a carrier; enclosed rule, complete conditions, replacement, later history, and current law not supplied
• Ruling 55(a)(1)(C) — quoted for retained bills of lading or other carrier-delivery evidence; complete record rules, replacement, later history, and current law not supplied
• June 3 request and transaction records — not reproduced or absent; materials, contracts, relationships, warehouses, rail shipment, evidence, measure and outcome remain unproved
• September 23 response — proposed and conditional, with no applied tax proceeding or later result
• Official Annotation 325.0380 — compresses the taxable result but omits the related-company proposal, warehousing, rail and documentation facts, provenance, missing evidence, 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/325-0380.pdf

Original ruling text

325.0380

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 23, 1969

Mr. J. D. S--Vice President & Controller
--- & --- --- Winery
P.O. Box XXXX
---, CA XXXXX
Dear Mr. S---:

Re:

SR --- XX XXXXXX
SR -- XX XXXXXX
G--- G--- Company

Your inquiry of June 3, 1969, which you directed to Mr. Clint Ostrom of our Sacramento office, has been referred to this office for reply. Please excuse our delay in responding. You inquire concerning the application of the tax to sales of certain point of sale display material. We understand that you now purchase display material from a California vendor. The material is delivered to you in this state and warehoused until needed. Over half of this material is used outside this state. To minimize your tax liabilities, you would like to cause this display material to be purchased for resale by a related firm, G--- G--- Company. G--- G--- would warehouse the displays and resell them to you as you needed them. There would thus be no California tax liability with regard to those sales which qualify under our ruling 55 (copy enclosed) as sales in interstate commerce. As ruling 55 provides, sales tax does not apply to sales of property shipped to a point outside this state, pursuant to a contract of sale, by delivery by the retailer to such point by means of delivery by the retailer to a carrier for shipment to a consignee at such point. [Ruling 55(a)(1)(C)2.] Ruling 55 further provides that “Bills of lading or other documentary evidence of the delivery of the property to a carrier…for shipment outside the State must be retained by the retailer to support deductions taken under [ruling 55(a)(1)(C)].” Your difficulty in qualifying for the exemption outlined above results from the fact that the display material is usually added to rail cars on out-of-state shipments after you have loaded the car at your winery. Apparently only one shipper’s name can be on the rail car bill of lading; and, since the basic shipment is wine, you name, and not the name of G--- G---, must appear as shipper.

Mr. J. D. S--(SR ---C XX XXXXXX)
SR -- XX XXXXXX

-2-

September 23, 1969
325.0380

As ruling 55 indicates, a bill of lading is not the only kind of documentary evidence which we will accept in support of a claim for exemption under paragraph (c). What is required is any documentary evidence that the delivery is to a carrier for shipment outside the state. The facts, as you have stated them, suggest that the material is delivered to you for inclusion in your shipment of wine. If this is the case, then the sale of the material to you is subject to tax, even though you subsequently ship the material to a point outside this state. Very truly yours,

Gary J. Jugum
Assistant Tax Counsel

GJJ:ab
Enclosure