Did a contract postponing title and final acceptance until Tennessee prevent tax when the buyer took the tooling from the California seller and hauled it away?

Plain-English summary

Representatives' August 11, 1966 letter challenged a June 3 determination that included the selling price of tooling. A buyer purchased tools and dies from a California seller for a Tennessee manufacturing plant, and the agreement could require the buyer to reimburse the seller for related sales tax. Neither letter, the determination nor the full agreement is supplied.

The seller delivered the tooling in Los Angeles to the buyer, which hauled it in its own trucks. The quoted purchase order said Tennessee F.O.B.; buyer-arranged carriage was an accommodation without vendor charge; final acceptance followed satisfactory mounting and a production run; title passed in Tennessee after acceptance; and earlier payments were only progress payments.

The buyer argued the sale occurred in Tennessee. Audit treated it as a California retail sale under historical Ruling 55 A(2)(b), which applied tax after California delivery to the buyer regardless of intended or actual outside transport.

Counsel agreed with audit. Under Commercial Code section 2401(1), seller-retained title after delivery operated only as a security interest, so delayed title and acceptance did not relocate the sale. The letter recommended redetermination without change but supplies no Board order or later outcome.

The live annotation preserves California delivery, delayed title and the security-interest result. It omits the determination and challenge, reimbursement, F.O.B., carriage, mounting, production-run and progress-payment terms, missing evidence and nonfinal posture.

Common questions

Who transported the tooling?

The buyer took delivery in Los Angeles and transported it to Tennessee in its own trucks.

What did the purchase order say about acceptance?

Final acceptance followed satisfactory mounting and a production run at the Tennessee facility.

Did the Tennessee F.O.B. and title clauses move the sale?

No according to counsel. California delivery controlled, and retained title after delivery was only a security interest.

What were payments before acceptance?

The quoted order characterized them as progress payments, not final acceptance.

Was the determination finally upheld?

The letter only recommends redetermination without change. It supplies no final Board order, payment, claim, appeal or later outcome.

Citations and references

• Sales and Use Tax Ruling 55 A(2)(b) — cited for California buyer delivery despite outside transport; full ruling and current law absent
• Commercial Code section 2401(1) — cited for retained title as a security interest; complete current authority absent
• August 11 challenge, June 3 determination and purchase order — described or excerpted but not reproduced with transaction records
• September 6 recommendation — redetermination without change, with no final Board disposition or later outcome
• Official Annotation 325.0580 — preserves the result while omitting contract detail, provenance and evidentiary limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0580
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0580.pdf

Original ruling text

325.0580

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 6, 1966

---, ---, --- & --XXXX --- Boulevard
--- ---, CA XXXXX
Attention:

Mr. N--- R. B---

SR -- XX XXXXXX
N--- T--- & D--Company

Gentlemen:
Your letter of August 11, 1966, regarding the determination of sales tax against N--- T--- & D--- Company, dated June 3, 1966, has been referred to this office for reply. It is our understanding that the determination includes the selling price of tooling which W--- K--- purchased from N--- under an agreement pursuant to which W--- K--- may be required to reimburse N--- for sales taxes incurred with respect thereto. W--- K--- purchased tools and dies from N--- to be used at W--- K---’s Tennessee manufacturing plant. The tooling was delivered by N--- in Los Angeles to W--- K--- for transportation by W--- K--- in its own trucks to its manufacturing plant in ---, Tennessee. The purchase order stated: “All items are F.O.B. ---, Tennessee. Carriage will be arranged by W--- K--- as an accommodation with our trucks (or as may be required to meet production schedules) without charge to vendor. “Final acceptance of tooling is subject to satisfactory mounting in our equipment and a production run at our --- Facility. “Title to pass in Tennessee after final acceptance. Any payments made prior to final acceptance shall be considered a progress payment only and not as an indication of final acceptance.” It is the position of W--- K--- that, since the parties agreed that title to the goods was to pass to W--- K--- in Tennessee after acceptance there, the sales occurred in Tennessee and were not taxable sales in this state. Our audit staff has concluded, however, that the sales are retail sales in this state and taxable under ruling 55 A(2)(b).

---, ---, --- & --(SR -- XX XXXXXX)

-2-

September 6, 1966
325.0580

Paragraph A(2)(b) provides that sales tax applies to the sale of property which is sold and delivered to the purchaser or his representative in this state, whether or not the disclosed or undisclosed intention of the purchaser is to transport the property outside this state, and whether the property is actually so transported. We interpret the foregoing to mean that, where goods are sold by a retailer in this state, the sales tax is applicable if such goods are delivered to the purchaser or his representative in this state. We do not believe that the agreement of the parties, that title is to pass subsequent to in-state delivery to the purchaser, precludes the application of tax under this paragraph. In our opinion, the agreement that title was to pass subsequent to in-state delivery at a point outside this state was limited in effect to a reservation by the seller of a security interest in the goods sold and did not have the effect of rendering the transaction a sale in Tennessee. This interpretation is supported by § 2401, subd. (1), of the California Commercial code, which provides: “Any retention or reservation by the seller of title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest.” In view of the foregoing, it is our opinion that the sales in question occurred in this state and were subject to sales tax. Accordingly, we are recommending to the board that the tax relative to such sales by N--- Company be redetermined without change. Very truly yours,

George A. Trigueros
Associate Tax Counsel

GAT:em
cc:

--- --- District – District Administrator
--- – Subdistrict Administrator