Did temporary California custody for a buyer's visual inspection or operational testing defeat exemption when the seller still had to ship outside the state?

Plain-English summary

W--- R---, accounts-payable supervisor for a redacted California university, wrote on November 6, 1964 about freight charges and several outside-shipment scenarios. The request and two stated ruling enclosures are absent.

On freight, Tax Counsel E. H. Stetson said only that enclosed Ruling 58 explained tax application. Because the ruling copy and the university's exact question are missing, the published response does not support a more specific freight answer.

The university also asked about materials bought for outside use. If an out-of-state vendor shipped directly to an outside-state or overseas destination and the property never entered California, counsel said there was no California sale. If an in-state vendor shipped at the customer's request to such a destination, counsel treated it as an interstate- or foreign-commerce shipment.

Both direct-shipment answers rested on an express assumption that the property was not bought for California use. If that assumption was correct, counsel said use tax was inapplicable. He cited an enclosed Ruling 55, which is not published with the letter.

Items 3 and 4 of the absent request asked about equipment sent first to the university for visual inspection or inspection and operational testing. Counsel framed the issue as whether the buyer's California possession or custody relieved the seller of its contractual duty to ship outside California.

Temporary inspection or testing did not itself defeat the interstate-sale exemption. The contract still had to require seller shipment, and after temporary custody the seller actually had to make the required shipment outside the state. The live annotation makes the sequence more explicit by requiring the property to return to the seller before that shipment; the PDF speaks of the seller shipping after temporary custody but does not state the return step as directly.

The source documents no actual purchase, inspection, test, shipment, freight charge or tax proceeding. The live annotation publishes only the inspection/testing issue and omits the freight question, both direct-vendor scenarios, overseas destinations and no-California-use assumption.

Common questions

Did visual inspection by the university end exemption?

No, if custody was temporary and the seller remained obligated and actually shipped the property outside California under the sales agreement.

Could the university test equipment for proper operation?

Yes under the same conditions. Counsel said even operational testing did not itself make the sale taxable.

What did the live annotation add to the sequence?

It expressly says the property must return to the seller for the contract-required outside shipment. The PDF requires seller shipment after temporary custody but phrases the return less directly.

What if an out-of-state vendor shipped property that never entered California?

Counsel said there could be no California sale, assuming the property was not purchased for California use.

What if an in-state vendor shipped directly outside California or overseas?

Counsel treated customer-requested vendor shipment as interstate or foreign commerce, again assuming no California use.

How did Ruling 58 treat the freight charges?

The source does not say. It refers the university to an enclosed copy, but that enclosure and the detailed freight question are missing.

Citations and references

• Sales and Use Tax Ruling 58 — historical freight authority stated to be enclosed but absent
• Sales and Use Tax Ruling 55 — historical interstate/foreign-shipment authority stated to be enclosed but absent
• November 6, 1964 university request — identified but not reproduced
• November 16, 1964 Tax Counsel response — conditional answers for direct shipment and temporary custody
• Official Annotation 325.0920 — adds an express return-to-seller condition while omitting the other issues

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0920
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0920.pdf

Original ruling text

STATE OF CALIFORNIA

325.0920

STATE BOARD OF EQUALIZATION

November 16, 1964

Mr. W--- R---, Supervisor
Accounts Payable
--- University
---, California

[XX-XXXXXX]
-- - XXXX

Dear Mr. R---:

This is in reply to your letter of November 6, 1964 concerning the application of sales and use tax to freight charges. Ruling 58, copy enclosed, explains the application of the tax. You also inquire concerning the application of sales or use taxes with respect to material purchased for use outside the state (a) if shipped by an out-of-state vendor to an out-of-state or overseas destination; and, (b) if shipped by an in-state vendor to an out-of-state or overseas destination. Both (a) and (b) present nontaxable sales. Under (a), it appears that the property involved is never in the State of California. There can, therefore, be no California sale involved. Under (b), it appears that the in-state vendor ships the goods at the customer’s request to an out-ofstate or overseas destination. This qualifies as a shipment in interstate or foreign commerce. It is assumed in both cases that the property was not purchased for use in this state and this assumption, if correct, renders the use tax inapplicable. Enclosed is a copy of Ruling 55, which covers the subject of interstate and foreign shipments. You then ask, in items 3 and 4, whether the application of the tax is affected if the property to be ultimately shipped outside the state is first shipped to --- University for visual inspection, or for inspection and testing for proper operation. The basic question to be determined is whether the purchaser, --- University in this case, by taking physical possession or custody of the property in this state relieves the seller of the seller’s obligation to ship the property to a point outside the state. A sale in interstate commerce, under ruling 55, exempt because the seller under the contract of sale ships the property to a point outside this state, is not rendered taxable by the mere fact that prior to the seller’s shipping the property to a point outside the state in fulfillment of the sales agreement, the buyer is authorized to inspect, or even test for proper operation, the equipment. If following this

Mr. W--- R--Re: -- - XXXX

-2-

November 16, 1964
325.0920

temporary change in custody, the seller actually makes the shipment as required by the sales agreement to the out-of-state point, the exemption will not be lost. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:fb
Enclosures
cc:

--- --- – District Administrator