Were display standards taxable when fully paid after manufacture, held for future withdrawals and later shipped outside California under customer orders?

Plain-English summary

A--- Manufacturing Company, through personnel manager D. P. P---, wrote on December 19, 1952 about 20,000 End Display Standards sold to B--- Construction Company. The purchase order said the standards were to be "manufactured in advance, and held for future withdrawals."

The standards were fully paid for at manufacturing completion, including an amount described as sales tax. Later shipping orders caused an unstated number to be shipped to outside-state points. The source gives no destination, quantity breakdown or shipping record.

Junior Counsel Bill Holden concluded that sales tax did not apply to goods eventually shipped outside California. The original sales contract included the manufacturer's obligation to ship the standards, so its duties were not complete until it made shipment. Manufacture, holding and full payment did not by themselves complete that obligation.

Holden separately explained the historical tax and refund posture. Sales tax was technically imposed on the retailer, while the purchaser's amount labeled "sales tax" merely reimbursed one of the retailer's business expenses. He therefore said only the retailer, as taxpayer, could claim an overpayment refund.

The Board asked a redacted office to contact the manufacturer and determine the exact overpayment. An internal note enclosed a photostatic taxpayer letter and unidentified enclosure for auditing, stated that a recent audit allowed no credit for the item, and requested a report and recommendation.

The source does not show what amount the office found, whether the retailer filed a refund claim, whether audit credit was granted or how the matter ended. The live annotation publishes the storage-and-shipment exemption but omits the refund and unresolved audit posture.

Common questions

Did full payment complete the taxable sale?

Not for the goods later shipped outside California under this contract. Counsel said the seller's original shipping obligation remained incomplete until shipment.

Were all 20,000 standards exempt?

The letter exempts sales where goods were eventually shipped outside the state. It does not state how many of the 20,000 went outside California or the treatment of each remaining unit.

Why did the purchase-order wording matter?

It expressly called for advance manufacture and holding for future withdrawals, supporting counsel's view that later shipment remained part of the original contract.

Who could seek the historical overpayment refund?

Counsel said only the retailer, because it was the taxpayer; the purchaser's separately paid amount was reimbursement of the retailer's expense.

Did the Board determine the refund amount?

Not in this source. It asked an office to ascertain the exact overpayment, but no calculation, claim, credit or final action is published.

What happened in the recent audit?

The internal note says no credit was given for this item and asks for a report and recommendation. No audit period, workpapers, report or later outcome appears.

Citations and references

• December 19, 1952 manufacturer request — identified but not reproduced
• Purchase order for 20,000 End Display Standards — one clause quoted; complete order absent
• Later shipping orders — identified without quantities, destinations or records
• Unidentified historical retailer-liability and refund rules — stated without legal citation
• Photostatic taxpayer letter/enclosure and recent audit — noted but absent and unresolved
• May 28, 1953 Junior Counsel response — exemption conclusion and overpayment inquiry
• Official Annotation 325.1040 — publishes only the contract-and-shipment result

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1040
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1040.pdf

Original ruling text

325.1040

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

May 28, 1953
A--- Manufacturing Company
--- and --- Streets
--- (---), California
Your letter of December 19,
1952
Attention:

Mr. D. P. P--Personnel Manager

Gentlemen:
You inquire concerning the application of sales tax to your sales of 20,000 End Display Standards to the B--- Construction Company. The purchase order stated, “Subject standards to be manufactured in advance, and held for future withdrawals”. Upon completion of the manufacture the standards were paid for in full, including the amount for sales tax. Upon subsequently receiving shipping orders, you find that you have shipped a number of the standards to out-of-state points. It is our opinion that the sales in question are not subject to the tax where the goods are eventually shipped to a point outside California. This opinion is based on the fact that your obligation to ship the standards was part of your original contract of sale and that your obligations under that contract were therefore not completed until you made the shipment. Technically, the sales tax is imposed on the retailer, and the amount a purchaser pays for “sales tax” is only to reimburse the retailer for one of his expenses of doing business. Accordingly, only the retailer is the taxpayer and in case of an overpayment of tax only the retailer may claim a refund. We are asking our --- office to contact you to ascertain the exact amount of the overpayment. Very truly yours,

Bill Holden
Junior Counsel

BH:ja
cc:
--- – Auditing
Enclosed is a photostatic copy of a letter and enclosure from the taxpayer. We understand that no credit was given for this item at the recent audit. Your report and recommendation are requested.