Could an interstate sale remain exempt when the out-of-state purchaser chose and hired the common carrier picking up goods in California?

Plain-English summary

A redacted seller's September 13, 1995 letter described merchandise shipped from California. The purchaser chose a carrier to pick it up and deliver it to the purchaser in another state, which treated the sale as taxable; the seller asked whether California also taxed it. The request did not state the business, but Board staff reviewed the seller's permit and identified sales of computer hardware and canned software. The letter and permit are absent.

Counsel assumed that neither the purchaser nor any agent or representative took possession or control in California, the purchaser hired a genuine common carrier, the purchaser was not a California resident, and the merchandise was bought for outside use. No contract, carrier, residency, possession, delivery or tax record proves those assumptions.

Section 6396 and Regulation 1620 allowed either party to hire the common carrier. A carrier had to regularly transport other persons' tangible property for compensation, and merely designating someone to receive and ship goods did not turn that person into a carrier or forwarding agent.

The exemption still required the sales contract to mandate outside shipment and actual outside delivery without possession, control or in-transit diversion to the buyer or representative in California.

Because the requester did not say whether the contract required outside shipment, counsel gave only a conditional exemption answer. The letter supplies no completed transaction, California or destination-state tax amount, assessment or later result and does not decide the other state's law.

The stated Regulation 1620 enclosure is absent. The live annotation preserves the facts, assumptions and conditions but omits the permit-review provenance, computer business, other-state tax question, detailed carrier limits, missing contract and records, source wording defect and unapplied outcome.

Common questions

Could the purchaser choose and pay the carrier?

Yes. Counsel said either party could hire a qualifying common carrier.

Did any person designated by the purchaser become a carrier?

No. The quoted regulation required an actual transportation or forwarding business; designation alone was insufficient.

What two core conditions controlled?

The contract had to require outside shipment, and the property had to reach the outside point without purchaser or representative possession or control in California.

What if the goods were diverted to the buyer in California?

The quoted rule said tax applied after California diversion or any other failure of outside delivery.

Did the destination state's tax make California tax apply?

The letter did not decide the other state's law. Its California answer depended on California's own exemption conditions.

Was the proposed sale definitively exempt?

No. The seller had not stated whether the sales contract required shipment outside California.

Citations and references

• Revenue and Taxation Code sections 6051 and 6396; Regulation 1620(a)(3)(A) and (B) — cited California sale, carrier and outside-shipment rules
• September 13 request and seller's permit — described but not reproduced
• Regulation 1620 — stated enclosure absent
• Official Annotation 325.0664 — publishes the conditional result while omitting material provenance and proof limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0664
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0664.pdf

Original ruling text

325.0664

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 327-2291
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

November 2, 1995
BURTON W. OLIVER
Executive Director

Mr. D--- J. E--B--- Systems
XXXX --- --- Court
---, California, XXXXX
Re:

Interstate Sales
SR -- XX-XXXXXX

Dear Mr. E---:
This is in response to your letter dated September 13, 1995, in which you inquire about the application of California’s Sales and Use Tax Law on interstate purchases. Although you have not stated the nature of you company’s business, a review of the company’s seller’s permit reveals that B--- Systems is engaged in the business of selling computer hardware and canned software. Your inquiry is based on the following scenario: “A company ships from a location within California. The purchaser chooses the carrier, who picks up the merchandise and delivers it to the purchaser’s location in another state. The state into which the merchandise was delivered considers the sale taxable in their jurisdiction.” You inquire: “Is this sale also taxable in California?” Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempted by statute. (Rev. & Tax. Code § 6051.) Revenue and Taxation Code section 6396 provides an exemption for sales in interstate commerce. This exemption is explained in subdivision (a)(3)(B) of Sales and Use Tax Regulation 1620 (copy enclosed): “Shipments Outside the State--When Sales Tax Does Not Apply. Sales tax does not apply when the property pursuant to a contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer, by means of: “l. Facilities operated by the retailer or

Mr. D--- J. E---

-2-

November 2, 1995
325.0664

“2. Delivery by the retailer to a carrier, customs broker or forwarding agent whether hired by the purchaser or not, for shipment to such out-ofstate 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. The term ‘forwarding agent’ means a person or firm regularly engaged in the business of preparing property for shipment or arranging for its shipment. An individual or firm not otherwise so engaged does not become a ‘carrier’ or ‘forwarding agent’ within the meaning of this regulation simply by being designated by a purchaser to receive and ship goods to a point outside this state ....” Regulation 1620(a)(3)(A) cautions that regardless of the intent to deliver the property outside of this state, “tax will apply if the property is diverted in transit to the purchaser or his representative in this state or for any other reason is not delivered outside this state.” For purposes of this opinion, we assume that neither the purchaser nor its agent or representative will take possession or control of the tangible personal property in this state. We also assume the purchaser hires a common carrier to take delivery of the merchandise in California, the purchaser is not a resident of California, and the merchandise is purchased for use outside of California. The two requirements of the interstate exemption are: the contract of sale must require shipment outside of California, and the property must be shipped outside of California without the purchaser or its agent or representative taking possession or control of the property in California. When a common carrier transports the property outside of California, either party can hire the carrier. Thus, the transaction as posed in your letter satisfies this condition of the exemption. You have not stated, however, whether the contract of sale requires the merchandise to be shipped out of state. If the shipment outside of the state is pursuant to a contract provision requiring the shipment, the transaction posed in your letter would be exempt from sales tax. If we can answer any other questions please feel free to write again. Sincerely,

Patricia Hart Jorgensen
Senior Staff Counsel
PHJ:cl
Enclosure (Regulation 1620)
cc:

San Diego District Administrator