Could a California manufacturer transfer engine title after 1991 completion, hold the engines until 1992 and retain exemption on later Florida shipment?

Plain-English summary

W--- V--- W--- wrote to John Abbott on February 22, 1991 for client A--- G--- Corporation. The client had contracted with M--- M--- Corporation to build a redacted number of engines in California and, under the original terms, ship them to the Florida customer before title transferred.

The manufacturer was scheduled to finish in 1991, but the customer could not accept delivery until its Florida facility was ready in 1992. The parties proposed changing the contract so title would pass to the customer upon 1991 manufacturing completion while the manufacturer kept the engines in California until the facility was ready.

Tax Counsel Stella Levy began with four provisions. Her letter describes section 6051 as a general sales-or-use-tax rule absent exclusion or exemption; section 6201 as taxing California storage, use or consumption of retailer-purchased property; and section 6009.1 as excluding retention solely for later outside transport and outside use from "storage" and "use." The source prints "statue" where the context says property must be excluded or exempted by law.

Section 6396, quoted in part, excluded gross receipts when the contract required outside shipment and the retailer shipped using its facilities or delivered the property to a carrier, customs broker or forwarding agent for that shipment, whether or not the purchaser hired the intermediary.

Levy conditionally approved the proposed sale as exempt only if:

1. The contract specified advance manufacture and holding for later outside shipment.
2. The engines actually left California within a reasonable time.
3. Shipment followed section 6396's quoted methods.

The source does not define "reasonable time" or document an executed amendment, completed engines, title transfer, 1992 facility readiness or actual shipment. The live annotation publishes the three conditions but generalizes the engines to goods and omits the original before-title shipment term and proposed-amendment posture.

Common questions

Did title passing in California automatically make the sale taxable?

No, under this conditional opinion. Exemption could remain if the contract, timing and actual shipment met all three stated requirements.

Could the manufacturer hold the engines indefinitely?

No such conclusion appears. Counsel required actual outside shipment within a reasonable time but did not define that period.

What did section 6009.1 contribute?

The quoted fragment excluded retention from "storage" and "use" when property was held for later outside transport and use thereafter solely outside California.

Who had to ship under section 6396?

The retailer had to use its own facilities or deliver to a carrier, customs broker or forwarding agent for outside shipment. The purchaser could hire the intermediary.

Was the original contract already structured differently?

Yes. It required shipment to Florida before title transfer; the proposal would move title transfer to manufacturing completion while retaining the engines here until later shipment.

Does the source show the amendment or shipment happened?

No. It supplies no executed amendment, engine records, title document, shipment proof, tax amount or later proceeding.

Citations and references

• Cal. Rev. & Tax. Code § 6051 — charging-rule discussion with a source typo
• Cal. Rev. & Tax. Code § 6201 — use tax on California storage, use or consumption
• Cal. Rev. & Tax. Code § 6009.1 — quoted exclusion for retention solely before outside transport and use
• Cal. Rev. & Tax. Code § 6396 — quoted required outside-shipment methods
• February 22, 1991 representative request and proposed amendment — described but absent
• Official Annotation 325.0925 — publishes the three conditions while omitting material transaction timing

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0925
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0925.pdf

Original ruling text

325.0925

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 327-3400

April 26, 1991
Mr. W--- V--- W--P--- W--P.O. Box XXXX
--- ---, California XXXXX-XXXX
Re:

SR -- XX-XXXXXX
A--- G--- Corporation

Dear Mr. V--- W---:
I have been asked to respond to your February 22, 1991 letter to Mr. John Abbott requesting a legal opinion regarding the applicability of California sales and use tax to certain transactions of your client A--- G--- Corporation (A---). Specifically, A--- has a contract with M--- M--Corporation to build --- engines in California. Under the contract, A--- would ship the engines to the customer in Florida prior to transfer of title. A--- is scheduled to complete the engines in 1991, however, M--- cannot take delivery of the property until 1992. The parties propose to amend the contract so that title is transferred to M--- in 1991, when the manufacturing process is complete. A--- will keep the property in California until M---’s Florida facility is ready. You have asked whether the above-described transaction is exempt as a sale in interstate commerce. Unless specifically excluded or exempted from taxation by statue, all gross receipts from retail sales or purchases for use within this state of tangible personal property are subject to either sales or use tax. (Rev. & Tax. Code § 6051.) The use tax is imposed upon the storage, use or other consumption in this state of tangible personal property purchased from any retailer. (Rev. & Tax. Code § 6201.) “Storage” and “use” do not include retention of property “for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state...” (Rev. & Tax. Code § 6009.1.) Revenue and Taxation Code section 6396 exempts from the computation of sales tax: “the gross receipts from the sale of tangible personal property which, pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer by means of: (a) facilities operated by the retailer, or (b) delivery by the retailer to a carrier, customs broker or

Mr. W--- V--- W---

-2-

April 26, 1991
325.0925

forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point.” In our opinion, the sale is exempt from tax provided (1) that the contract specifies that the goods are to be manufactured in advance and held for later out-of-state shipment; (2) that the goods are in fact shipped out-of-state within a reasonable time; (3) that the goods are shipped in accordance with the requirements of section 6396 quoted above. Please feel free to contact us again if you have further questions. Sincerely,

Stella Levy
Tax Counsel
SL:cl