Was a mold sale exempt when the Japanese buyer picked it up at the California plant for export after the seller had made only test samples?

Plain-English summary

S--- P--- M---, Inc. described itself as a custom injection molder and mold maker. Ordinarily it built a mold, ran a small number of samples to check specifications, billed the mold with sales tax, obtained customer approval and payment, then—if separately ordered—used the mold for full production.

C--- C--- Co., Ltd. ordered the mold at issue. In March 1989, the seller built it, shipped samples to Japan and billed the mold with 6% sales and use tax, described as the Orange County rate. It remitted tax in April on its March 1989 return.

After mold adjustments, the seller sent more samples to Japan in July 1989. C--- paid for the mold, including tax, in December. The seller never placed it into full production; instead, C--- picked it up at the California facility in March 1990 and shipped it to Japan.

C--- asserted that a sales-tax refund was due because the mold was never used in United States production. Section 6051 imposed retailer tax on gross receipts from California tangible-property sales, and Regulation 1620(a)(3)(C)1 taxed California purchaser delivery before irrevocable export commitment despite foreign intent or actual later export.

Senior Tax Counsel Ronald L. Dick therefore found the mold sale taxable. Buyer pickup completed a California sale before the purchaser's own Japan shipment.

Producing samples solely to test mold quality was not taxable use under cited BTLG Annotation 210.0560. But absence of full production did not change the pickup result. Counsel said pre-sale full production would have been more harsh: tax on that use plus what the source calls "use tax" on the later retail sale. The letter does not resolve that second tax label.

The source records no refund filing, decision or payment. The live annotation says the mold was never used in California or the country, compressing the PDF's acknowledged sample testing into the narrower functional-use conclusion.

Common questions

Why did the Japan shipment not exempt the mold?

The foreign buyer first took possession at the California facility, before irrevocable commitment to export, and then made the outside shipment itself.

Did making test samples count as taxable mold use?

No. Counsel agreed that producing samples solely to test mold quality was not taxable use.

What tax was billed and reported?

The seller billed 6%, described as the Orange County sales-and-use-tax rate, in March 1989 and says it remitted that tax on its March return in April.

When did the buyer pay and pick up the mold?

It paid in December 1989, including tax, and picked up the mold for Japan shipment in March 1990.

Did avoiding full production support the export exemption?

No. It avoided the separate pre-sale-use issue but did not undo the taxable California delivery.

Was the requested refund granted?

The source says the buyer claimed a refund was due, but it provides no formal claim, decision, amount or later outcome.

Citations and references

• Cal. Rev. & Tax. Code § 6051 — California retailer sales tax
• California Sales and Use Tax Regulation 1620(a)(3)(C)1 — buyer delivery before irrevocable export commitment; enclosure absent
• BTLG Annotation 210.0560 — test-sample mold use; underlying authority absent
• April 18, 1990 seller request — identified but not reproduced
• May 18, 1990 Senior Tax Counsel response — taxable pickup and nontaxable sample testing
• Official Annotation 325.1145 — publishes the pickup result while compressing the sample-use facts

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1145
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1145.pdf

Original ruling text

325.1145

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

May 18, 1990

Ms. S--- A--Office Supervisor
S--- P--- M---, Inc.
XXXX --- -----, CA XXXXX
S- -- XX-XXXXXX
Dear Ms. A---:
This is in reply to your April 18, 1990 letter regarding the application of sales tax to your sale of a mold to C--- C--- Co., Ltd. You provided the following background: “We are a custom injection molder and mold maker. Typically, our customer will first place an order for a mold, which we build in our tooling department. We will then run a small number of samples in our production facility I order to determine that the mold has been built to specifications. The samples we produce are the basis for billing out the mold, along with the appropriate sales tax rate. Our customer will then approve the samples, and pay for the mold, including tax. After this happens, if the customer has ordered production parts, we will place the mold into full production, shipping the parts against a separate purchase order. “In this case, our customer, C---, placed an order for a mold, which we built and then shipped samples (to Japan) in March 1989. As is customary, at that time we billed out the mold, including six percent (6%) sales and use tax (the appropriate rate for Orange County). We then remitted the tax to the State Board of Equalization in April 1989 on our March 1989 Sales and Use Tax Return. After making some adjustments to the mold, in July 1989 we shipped some additional samples (to Japan). Then in December 1989, C--- paid for the mold, including tax. However, at that point, we did not place the mold into full production. Instead, in March 1990 C--- picked up the mold from our facility and shipped it to Japan.”

Ms. Susan Ashabraner

-2-

May 18, 1990
325.1145

C--- has claimed that a refund of sales tax is due, because the mold was never placed in production in the United States. California sales tax is imposed on retailers at the applicable percentage of the gross receipts from the sale of all tangible personal property sold in this state. (Rev. & Tax. Code § 6051.) We are enclosing a copy of Sales and Use Tax Regulation 1620, Interstate and Foreign Commerce, which provides the application of sales tax to sales of property which is purchased for use outside California. Subdivision (a)(3)(C)1 of the regulation provides: “Sales 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.” Since your letter states that C--- picked up the mold from your facility in this state and shipped the mold to Japan, your sale of the property to C--- occurred in this state and is subject to sales tax regardless that C--- later shipped the mold to Japan. We agree that your producing samples to test the quality of the mold is not a taxable use of the mold. (Bus. Taxes Law Guide Annot. 210.0560.) However, your not placing the mold into production in California has no bearing on the application of tax in this case. In fact, if you had placed the mold in production prior to selling it, the tax result would be more harsh. Because you would have made a use of the mold prior to sale, you would owe tax on such use. You would then also owe use tax on your later retail sale of the mold. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr
Enc.