When did V---'s hospital-equipment forms sufficiently require seller shipment from California storage to outside-state hospitals for exemption?

Plain-English summary

J--- V--- wrote for V--- A---, Inc. to argue that sales of hospital equipment to outside-state hospitals qualified as exempt interstate shipments despite interim California storage. Senior Tax Counsel John Abbott twice refers to the submission as a February 5, 1990 letter but once says February 3. The source does not resolve the date conflict.

Abbott enclosed his March 2 memorandum to Paul A. Nathan of San Jose Auditing and said it answered many contentions. He had written another memorandum to San Jose audit staff on March 19, 1985. Neither memorandum appears in the published PDF.

On the first contention, Abbott agreed that where title passed did not control section 6396. The 1985 memorandum had responded to a seller claim that title passed after hospital installation and acceptance; Abbott said even such a clause would operate only as a security interest after completed delivery and would not control sales-and-use-tax treatment.

The second contention concerned who had to ship from storage. Form RAD 1652B (9/78) said delivery occurred at tender to the transportation company at V---'s or the manufacturer's plant, despite later installation. Form RAD 1934 (12/81) said shipment to storage counted as shipment under the contract and triggered payment. Those terms ended V---'s contractual shipping duty at or before California storage rather than requiring shipment to the hospital.

Form RAD 1652H (4/88) changed the analysis. It kept title in V--- until V--- delivered the stored product to the transportation company upon removal for shipment. Although framed as title language, Abbott treated it as the first at least indirect indication that V--- had to deliver from storage to the carrier. A March 1989 Form RAD 1934 revision had a similar clause.

Abbott therefore changed only the exemption start date: qualifying sales could begin under the April 1988 terms, not merely under the March 1989 authorization discussed in the absent March 2 memorandum.

The third contention cited V---'s continuing obligations to rig in, install, test and calibrate equipment after hospital delivery. Abbott said those service duties did not establish that V--- rather than the purchaser had to ship from California storage to the hospital. The older terms expressly completed delivery at plant shipment notwithstanding later installation.

The live annotation says Regulation 1620(a)(3)(B) supplied the contract requirement, though the PDF itself names only section 6396. It recasts the 1988 clause as title passing upon outside shipment and calls it minimally adequate, while omitting the detailed form chronology and correspondence-date conflict.

Common questions

Did title passage decide the interstate-shipment exemption?

No. Abbott agreed it was irrelevant to the core section 6396 question; contractually required seller shipment was what mattered.

Why did the 1978 and 1981 forms fail?

They treated delivery or shipment as complete at the plant or California storage site and did not obligate V--- to carry the equipment from storage to the outside-state hospital.

What changed in April 1988?

The new terms kept title in V--- until V--- delivered the stored product to the transportation company when removed for shipment. Abbott read that as at least indirectly imposing the necessary seller duty.

Did the March 1989 form create the first qualifying sales?

No. Abbott revised his earlier view and agreed that sales under the similar April 1988 terms could qualify.

Did hospital installation and testing prove V--- controlled shipment?

No. Post-delivery rigging, installation, testing and calibration duties did not establish responsibility for the earlier storage-to-hospital movement.

Is the March 2 memorandum available?

No. The response says it was enclosed, but the published supporting PDF omits it and the earlier March 19, 1985 memorandum.

Citations and references

• Cal. Rev. & Tax. Code § 6396 — interstate-shipment exemption discussed in the PDF
• California Sales and Use Tax Regulation 1620(a)(3)(B) — requirement identified only in the live annotation
• Form RAD 1652B (9/78) paragraph 5 and Form RAD 1934 (12/81) — earlier plant/storage completion terms
• Form RAD 1652H (4/88) paragraph 7 and Form RAD 1934 (3/89) — later carrier-delivery clauses
• March 19, 1985 and March 2, 1990 memoranda — described but absent
• February 3/5, 1990 representative letter — conflicting dates in the official PDF
• Official Annotation 325.0935 — publishes the minimally adequate obligation rule while omitting the chronology

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0935
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0935.pdf

Original ruling text

325.0935

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6493

March 28, 1990

Mr. J--- -. V--B---, L--- & M--Suite XXX --- Square
XXXXX East --- Street
---, -- XXXXX
V--- A---, Inc. – SY – XX-XXXXXX
Interstate shipments – shipment to storage in state
Dear Mr. V---:
In response to your February 5, 1990 letter to me, which sets out your contentions why V--- is entitled to regard its sales of certain hospital equipment to out-of-state hospitals as taxexempt shipments in interstate commerce, I enclose my March 2, 1990 memorandum to Mr. Paul A. Nathan, San Jose Auditing, which I believe answers many of the contentions your have raised. I did not review your February 3 letter before sending my March 2 memorandum; however, after reviewing your contentions, my opinion remains unchanged, with one exception noted below. I thought it would be helpful to respond in more detail to the issues raised in your February 5 letter. Your first contention is that the question of whether title passed in California from V--- to its customers is irrelevant for purposes of determining whether the Section 6396 interstate shipment exemption applies. I agree with this contention; see the last paragraph on page 3 of my March 2 memorandum. Nor does my March 19, 1985 memorandum to the Board’s San Jose audit staff regarding these sales by V--- indicate that the Section 6396 exemption depends upon where title passed. Rather, in that memo I responded to the audit staff’s information that V--- contended that title passed to its out-of-state customers following installation and acceptance of the equipment. I indicated that even if V--- had in its contracts such a title clause, the title clause would be limited in effect to a security interest once V--- completed its obligation to deliver the equipment, and would not affect the treatment of the transaction for sales and use tax purposes. Your second contention is that the contract documents used by V--- (prior to the March 1989 revision of the Authorization For Shipment To Storage, which I dealt with in my March 2 memorandum) obligated V--- to ship the equipment from storage to the out-of-state hospital. With one exception noted below, I do not agree. Some of these contract documents,

Mr. J--- -. V---

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March 28, 1990
325.0935

including the shipment authorizations, specifically provided that V---’s shipment obligations were satisfied when V--- shipped the property to the California storage site, rather than to the hospital at the out-of-state location. For example, Paragraph 5, Terms and Conditions of Sale, Form RAD 1652B (9/78) states in part: “As used in the clauses appearing herein or attached hereto, ‘delivery’ shall occur when Products are delivered to the transportation company at the location of V---’s or manufacturer’s plant from which the Products are shipped, notwithstanding installation by or under supervision of V---." Similarly, the Authorization for Shipment to Storage at V--- Selected Site, Form RAD 1934 (12/81), states in part: “We agree that the shipment of the equipment to storage constitutes shipment by V--- A--- for purposes of our contract and we agree that upon such shipment we shall make the payments due upon shipment as set forth in the contract.” The first indication that V--- has any contractual obligation to deliver the equipment from storage to the customer appears in Paragraph 7, Terms and Conditions of Sale, Form RAD 1652H (4/88), as follows: “Title to the stored Product will remain with V--- until delivery by V--- to the transportation company when removed from storage for shipment.” As is the case with the similar clause in the Authorization for Shipment to Storage at V--Selected Site, Form RAD 1934 (3/89), referred to in my March 2 memo, this provision at least indirectly appears to place on V--- the obligation to delivery the equipment from storage to the transportation company. In other words, nothing in these contract documents (until the April 1988 revision referred to above) ever indicated that V--- had the obligation to ship both to the storage site and also to the out-of-state hospital. However, we will agree that V---’s sales qualify as exempt shipments in interstate commerce beginning with sales made pursuant to the April 1988 Terms and Conditions, rather than the March 1989 Authorization for Shipment. Your third contention is that V--- still had obligations under the contract for the rigging-in, installation, testing and calibration of the equipment after its delivery to the hospital, and that these obligations for performance by V--- were not changed by the shipment to storage authorizations. However, none of these obligations to be performed by V--- after the equipment was delivered to the out-of-state hospital indicate that it was V---, rather than the purchaser, which had the obligation to ship the equipment from the storage site to the hospital. For example, paragraph 5 of the Terms and Conditions of Sale quoted above provides that V---’s delivery

Mr. J--- -. V---

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March 28, 1990
325.0935

obligation is complete on shipment from V---’s plant “notwithstanding installation by or under supervision of V---.” Please feel free to contact me if you have any further questions or comments about this letter. Sincerely,

John Abbott
Senior Tax Counsel

JA:cl
Enclosure