Was asphalt exempt as an interstate shipment when the Utah buyer supplied leased rail cars that were loaded at the California refinery?

Plain-English summary

A redacted California asphalt seller's June 13, 1995 letter said it currently sold to a Utah customer. The seller kept the customer's valid Utah seller's permit and a letter stating it had no California customer base and intended to resell the asphalt strictly in Utah. The request, permit, letter and sales records are absent. Staff counsel's July 21 response confirmed telephone advice Senior Tax Counsel Ronald L. Dick gave the seller one day earlier; the call record is absent.

The customer arranged transportation by leasing rail cars. The seller loaded asphalt at a refinery in a redacted California county, and ownership became the customer's on loading. No lease, rail car, refinery, loading, title or shipment record is supplied.

The interstate-shipment exemption did not apply because the seller delivered the asphalt into the purchaser's own leased rail cars in California. That was delivery to the buyer, not delivery to a carrier hired by the buyer.

The sale could still be nontaxable as a sale for resale if the seller timely accepted a valid resale certificate in good faith. An out-of-state permit number could be used, but the certificate had to contain Regulation 1668's required elements and specifically identify the property if it was not normally resold in the buyer's business.

Without a timely certificate, the seller needed satisfactory evidence that the specific asphalt was actually resold without other use; was still held for resale without other use beyond retention, demonstration or display; or had been used or consumed and the buyer had paid California use tax directly. A customer's refusal to reimburse sales tax did not relieve the seller. The source provides none of those documents or any later tax result.

The live annotation preserves the principal facts and two main results but omits the request and phone-call provenance, alternative proof routes, good-faith and specific-property rules, reimbursement-refusal warning and evidence gaps.

The PDF's Re: line names Regulations 1620 and 1628, but the question and analysis name 1620 and 1668. The source does not resolve that apparent header error; the live annotation uses 1668.

Common questions

Why were the leased rail cars not a hired carrier?

The customer itself leased them, so loading asphalt into the cars transferred it to the purchaser in California.

Did immediate transportation to Utah change the delivery point?

No. Regulation 1620 treated California delivery to the purchaser as taxable even if outside transport immediately followed.

Could the Utah permit alone serve as a resale certificate?

The out-of-state permit number could appear on a certificate, but the certificate still needed Regulation 1668's required elements and good-faith acceptance.

What if asphalt was not normally resold in the customer's business?

The certificate needed to state specifically that the asphalt was bought for resale.

Was other proof possible without a certificate?

Yes. Counsel listed actual resale, continued holding for resale without disqualifying use, or purchaser payment of California use tax as alternative evidence paths.

Did refusal to pay tax reimbursement protect the seller?

No. Counsel expressly said the customer's refusal did not relieve the seller of sales-tax responsibility.

Citations and references

• Regulation 1620(a)(3)(A) and (B) — California delivery and interstate-shipment rules
• Regulation 1668(b), (c) and (d) — certificate elements, alternative proof and good-faith acceptance
• Regulation 1628 — printed only in the Re: line; the operative question and analysis instead use 1668
• BTLG Annotation 475.0139 — cited out-of-state-resale certificate position
• June 13 request, July 20 call and transaction records — described but not reproduced
• Official Annotation 325.0662 — publishes the main rules while omitting material proof paths and limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0662
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0662.pdf

Original ruling text

325.0662

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone No.: (916)
Facsimile No.: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

July 21, 1995

KATHLEEN CONNELL

Controller, Sacramento

BURTON W. OLIVER

Executive Director

T--- S--- O--- Company
P.O. Box XXX
---, CA XXXXX
Attn: J--- L. P--Re:

Sales and Use Tax Regulations 1620 and 1628
SZ -- XX-XXXXXX

Dear Ms. P---:
This is in reply to your June 13, 1995 letter and to confirm the advice Senior Tax Counsel Ronald L. Dick gave you over the telephone on July 20, 1995 regarding the application of sales tax to your sales of asphalt to a Utah customer. You stated the following facts: “We are currently selling asphalt to a customer based in Utah. They have a valid seller's permit for Utah which we have on file in our office. They do not have a customer base in California and intend to resell the asphalt strictly in Utah. A letter to that effect is also on file in our office. Transportation of the asphalt was arranged by our customer through the leasing of rail cars. The product is loaded into the rail cars at the refinery located in --- County California. Ownership of the product becomes our customer's at that time.” Given this information you asked whether your sale is nontaxable under either Sales and Use Tax Regulation 1620, Interstate and Foreign Commerce, or 1668, Resale Certificates.

T--- S---

-2-

July 21, 1995
325.0662

Regulation 1620 provides an exemption from sales tax for the sale of tangible personal property when pursuant to the contract of sale, the retailer is required to ship the property and does ship the property to a point outside this state by means of the retailer's facilities or by delivery to a carrier, whether hired by the purchaser or not, for shipment to the out-of-state point. (Reg. 1620, subd. (a)(3)(B).) Sales tax applies when the property is delivered to the purchaser or the purchaser's representative in this state whether or not the purchaser immediately transports the property to an out-of-state point. (Reg 1620, subd.(a)(3)(A).) As we understand your facts, you do not deliver the property to a carrier hired by the purchaser but deliver the asphalt to rail cars leased by the purchaser; that is, you deliver the asphalt to the purchaser in this state. Therefore, your sale does not qualify for exemption under Regulation 1620. Regulation 1668 provides the application of tax to sales for resale. A sale for resale is not subject to sales tax. In order for you to document a sale for resale, you must timely obtain a resale certificate from the purchaser. Otherwise, you are required to present satisfactory evidence that the specific property sold: (1) Was in fact resold by the purchaser and was not used by the purchaser for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business, or (2) Is being held for resale by the purchaser and has not been used by the purchaser for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business, or (3) Has been used or consumed by the purchaser and the purchaser has paid the use tax directly to this State. (Reg. 1668, subd. (c) The Board of Equalization's legal staff has taken the position that a California retailer may accept a valid resale certificate from a purchaser for property delivered in California which is purchased for resale out-of-state. The certificate must contain the elements required by Regulation 1668, subdivision (b). If the purchaser does not have a California seller's permit number, the out-of-state permit number must be noted on the certificate. If the out-of-state retailer is purchasing property not normally resold in his business, the resale certificate must state that the specific property is being purchased for resale. As provided in subdivision (d) of Regulation 1668, the certificate must be accepted in good faith. (Bus. Taxes Law Guide Annotation 475.0139.)

T--- S---

-3-

July 21, 1995
325.0662

If your out-of-state customer does not issue you a valid resale certificate, your company is not relieved of the responsibility for the sales tax on the basis that the out-of-state customer refuses to pay sales tax reimbursement to you. I trust this answers your questions, however if you need additional advice please do not hesitate to write. Yours very truly,

Anthony I. Picciano
Staff Counsel
AIP:es