Was a mold sale exempt when title passed after manufacture, the seller retained the molds for planned California parts production and later shipped them to Chicago?

Plain-English summary

A redacted California manufacturer wrote on June 2, 1953 after a sales-tax question arose in a recent audit. E---, Inc. had issued an August 9, 1951 purchase order for a number of molds to produce parts for its new "thin" model pen.

The parties expressly understood that E--- would acquire title when mold manufacture finished, but the seller would retain possession to make the pen parts. The molds were completed and invoiced in December 1951 and January and February 1952.

The parts-production contract apparently was canceled, and no parts were made. On February 13, 1953, E--- invoked its ownership rights under the mold contract, and the seller shipped the molds by highway carrier to E--- in Chicago.

Historical Ruling 55 A-1-(c), quoted in the letter, required the outside shipment to occur pursuant to the sales contract through retailer delivery to a carrier for an outside consignee. The original purchase order said Chicago shipment f.o.b. Pasadena, but Junior Counsel Bill Holden found that wording did not control.

The parties' actual agreement contemplated that the molds would remain with the seller for California use in making parts. Chicago shipment would occur only when and if E--- later ordered it. The February 1953 shipment therefore did not make the original mold sale constitutionally exempt from California sales tax.

The source supplies no purchase-order copy, complete agreement, invoice, price, cancellation, buyer demand, carrier record, tax amount or final audit outcome. The live annotation publishes the retention and no-exemption result but omits the conflict between the purchase-order destination and the parties' operational agreement.

Common questions

Did title passing to E--- make the mold sale exempt?

No. Title passed at manufacturing completion while the agreement still called for the buyer-owned molds to remain in California for parts production.

Did the Chicago f.o.b. Pasadena wording control?

No, according to counsel. He treated the actual agreement for California retention and shipment only on a later buyer order as controlling the exemption question.

Were any pen parts produced from the molds?

No. The source says the parts-production contract apparently was canceled and no parts were ever produced.

When were the molds completed and billed?

They were completed and invoiced across December 1951, January 1952 and February 1952; the source gives no individual mold or invoice breakdown.

Why did the later highway-carrier shipment not cure the sale?

Ruling 55 required outside shipment pursuant to the sales contract. Here, shipment followed a later exercise of ownership rights and was conditional rather than an original requirement.

Does the source show the audit adjustment?

No. It identifies a recent audit question but supplies no workpapers, assessment, tax amount, payment, claim, appeal or later outcome.

Citations and references

• Sales and Use Tax Ruling 55 A-1-(c) — historical contract-shipment rule quoted in part
• August 9, 1951 purchase order and mold-production agreement — described but absent
• December 1951 through February 1952 invoices — identified but absent
• February 13, 1953 ownership demand and highway-carrier shipment — described without records
• August 6, 1953 Junior Counsel response — rejects exemption on the parties' actual agreement
• Official Annotation 325.0960 — publishes the retention result while omitting the order/agreement conflict

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0960
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0960.pdf

Original ruling text

325.0960

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 6, 1953
T--- I--XXX-XXX --- --- Avenue
--- X, California
Your letter of June 2
Account No. -- XXXXX
Gentlemen:
In the recent sales tax audit a question arose concerning the application of sales tax to a sale of molds to E---, Inc. E--- issued its purchase order to you on August 9, 1951, for a number of molds to be used in the production of parts for its new “thin” model pen. It was expressly understood that E--- was to acquire title to the molds upon the completion of their manufacture but you were to retain possession of the molds for use in producing the parts for the pen. The molds were completed and invoiced to E--- in December of 1951 and January and February of 1952. Apparently the contract for the production of the parts was cancelled and no parts were ever produced. On February 13, 1953, E--- invoked its ownership rights pursuant to the contract for the production of the molds and you shipped the molds by highway carrier to E--- in Chicago. As you know, under the provisions of Section A-1-(c) of Ruling 55, certain sales by California retailers to out-of-state consumers are constitutionally exempt from the sales tax. That ruling reads “Sales tax does not apply to sales of property which is shipped to a point outside this State, pursuant to the contract of sale, by delivery by the retailer to such point by means of delivery by the retailer to a carrier for shipment to a consignee at such point.” One of the requirements for the exemption is that the out-of-state shipment be pursuant to the contract of sale. The original purchase order stated that the goods were to be shipped to E--- in Chicago f.o.b. Pasadena but it is our opinion that this is not controlling. The agreement of the parties was that the molds were to remain in your possession for use in California and were only to be shipped to Chicago when and if ordered by E---. Accordingly, we believe that there is no basis for holding that the sale in question was constitutionally exempt from the California sales tax. Very truly yours,

Bill Holden
Junior Counsel
BH:ja
cc:
E---, Inc.
Pasadena - Auditing