Could a certificate titled 'State Resale Certificate' make dental x-ray film nontaxable when it certified only export and the buyer took California delivery?

Plain-English summary

I--- K--- of G--- P--- S---, Inc. wrote on January 3, 1995 about dental x-ray film it sold to W--- H--- S---, Inc. (WHS). WHS issued a document titled "State Resale Certificate" saying it bought the film to export it from the United States. The seller asked whether it could accept that certificate "in lieu of a resale no."

Sections 6051 and 6007 made California retail sales taxable absent exemption and defined retail sale by contrast with ordinary-course resale. Section 6091 presumed retailer sales taxable without timely, good-faith acceptance of a valid resale certificate.

Regulation 1668 allowed a purchaser certificate only when property was bought for ordinary-course resale as tangible personal property. Subdivision (b)(1)(D) required the certificate to say that. WHS certified export—not resale—so its document was not a resale certificate despite its title.

Counsel understood that WHS would take delivery in California, export the film and then use it outside the United States. That made the seller's transaction a retail sale unless an export exemption applied.

Regulation 1620(a)(3)(C) taxed California delivery before irrevocable export commitment regardless of buyer intent or actual later foreign transport. Exemption required a foreign destination, irrevocable commitment at sale, actual foreign delivery before use and a final certain export journey. Moving property to a California warehouse or collection point did not begin export.

Because the seller would deliver the film to WHS in California, the certificate's promised export did not establish exemption. Even if the facts otherwise qualified, the buyer's certificate would not relieve the seller: Regulation 1620(a)(3)(D) required the seller to obtain and retain evidence of actual qualifying export. The stated enclosure is absent.

Supervising Staff Counsel David H. Levine concluded that the seller was making taxable California retail sales. The source supplies no certificate copy, film transaction, export evidence, price, tax amount or later proceeding. The live annotation publishes the result but omits the detailed certificate and proof rules.

Common questions

Why was the “State Resale Certificate” invalid?

It certified only that WHS intended to export the film, not that WHS bought it for resale in the ordinary course of business.

Did WHS's intent to export make the sale exempt?

No. Regulation 1620 made intent and later foreign movement immaterial after California delivery before irrevocable export commitment.

What had to happen for a qualifying export?

The property needed a foreign destination, irrevocable export commitment at sale, actual foreign delivery before use and entry into the final certain journey abroad.

Could the seller rely on an export certificate alone?

No. Counsel said even a factually qualifying sale required the retailer to obtain and retain documentation proving actual export in the required manner.

Would movement to a California warehouse begin export?

No. The quoted regulation said an in-state warehouse or collection point did not begin export even if foreign transport was intended and later occurred.

Does the source show WHS's eventual destination or use?

No. It states the understood California-delivery/export/outside-use sequence but supplies no destination, carrier record, export document or use record.

Citations and references

• Cal. Rev. & Tax. Code § 6051 — California retailer sales-tax rule
• Cal. Rev. & Tax. Code § 6007 — retail sale defined against ordinary-course resale
• Cal. Rev. & Tax. Code § 6091 — taxable presumption absent timely good-faith valid certificate acceptance
• California Sales and Use Tax Regulation 1668(b)(1)(D) — resale certification requirement
• California Sales and Use Tax Regulation 1620(a)(3)(C) — export commitment and continuous-journey rule
• California Sales and Use Tax Regulation 1620(a)(3)(D) — retained export documentation; stated enclosure absent
• January 3, 1995 seller request and WHS certificate — identified but not reproduced
• Official Annotation 325.1095 — publishes the invalid-certificate and California-delivery result

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.1095
• Original supporting opinion: 325.1095 PDF

Original ruling text

325.1095

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
Telephone: (916) 445-5550
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL

Controller, Sacramento

February 27, 1995

────────
BURTON W. OLIVER

Executive Director

Mr. I--- K--G--- P--- S---, Inc.
XXXXX West --- Blvd., Suite XXX
--- ---, CA XXXXX
Re:

G--- P--- S---, Inc.
SR -- XX-XXXXXX

Dear Mr. K---:
This is in response to your letter dated January 3, 1995 regarding your acceptance of a certificate entitled "State Resale Certificate from W--- H--- S---, Inc." You sell dental x-ray film to W--- H--- S---, Inc. [WHS]. In the certificate issued by WHS, it certifies that it is purchasing the film in order to export it from the United States. You ask whether you may accept the certificate "in lieu of a resale no." A retailer owes sales tax on its retail sales of tangible personal property in California unless the sale is specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code
§ 6007.) All sales made by a retailer are presumed to be taxable retail sales unless the retailer accepts in good faith a timely and valid resale certificate. (Rev. & Tax. Code § 6091.) A purchaser may issue a resale certificate only if the purchaser is purchasing the property for resale in the ordinary course of business in the form of tangible personal property. (Reg. 1668.) Although the certificate in question is entitled "State Resale Certificate," it is not, in fact, a resale certificate. One of the requirements of a valid resale certificate is that the purchaser certifies therein that it is purchasing the property for resale. (Reg. 1668(b)(1)(D).) WHS does not certify that it is purchasing the property for resale, but instead certifies that it will export the property. It therefore appears WHS will take delivery in this state of property purchased from you, export the property, and then use it outside the United States.

Mr. I--- K---

-2-

February 27, 1995
325.1095

Since WHS is purchasing the property for use, your sale is at retail. Since you are making a retail sale in California, sales tax applies to that sale unless there is some basis for exemption. Accordingly, the primary question is whether the facts certified by WHS form the basis for an exemption from tax. The exemption that may be relevant is for sales for export, as explained in subdivision (a)(3)(C) of Regulation 1620: "1. When Sales Tax applies. [S]ales tax applies when the property is delivered in this state to the purchaser or the purchaser's representative prior to an irrevocable commitment of the property into the process of exportation. It is immaterial that the disclosed or undisclosed intention of the purchaser is to ship or deliver the property to a foreign country or that the property is actually transported to a foreign country. ".... "2. When Sales Tax Does Not Apply. Sales tax does not apply when the property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer to a foreign country. To be exempt as an export the property must be intended for a destination in a foreign country, it must be irrevocably committed to the exportation process at the time of sale, and must actually be delivered to the foreign country prior to any use of the property . Movement of the property into the process of exportation does not begin until the property has been shipped, or entered with a common carrier for transportation to another country, or has been started upon a continuous route or journey which constitutes the final and certain movement of the property to its foreign destination. ".... "Export has not begun where property is transported from a point within this state to a warehouse or other collecting point in this state even though it is intended that the property then be transported, and in fact is transported, to another country...." (Emphasis added.) The wording of the certificate does suggest that WHS intends to export the purchased property. However, the facts certified in the certificate do not support a finding that the sale is an exempt sale for export since you will be delivering the property to WHS in California. Also, please note that, even if the facts were such that your sale qualified as an exempt sale for export, a certificate issued by your purchaser would not relieve you of liability for tax. Rather, you would be required to obtain, and retain, documentation that establishes that the property was actually exported in a manner qualifying the sale for exemption from sales tax. (See subdivision (a)(3)(D) of Regulation 1620, a copy of which is enclosed.)

Mr. I--- K---

-3-

February 27, 1995
325.1095

In summary, based on the information in your letter, we conclude that you are making taxable sales of tangible personal property in California, since the sales are at retail and do not qualify for exemption. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Supervising Staff Counsel
DHL:cl
Enclosure
cc:

--- --- District Administrator