Were a nonprofit's medical-supply purchases exempt because it later exported and donated them, and did its donation activity require a seller's permit?

Plain-English summary

Two doctors asked about one branch of a redacted nonprofit. The branch bought medical supplies and equipment for donation to foreign hospitals. It also collected, packed and shipped property donated by United States hospitals and companies.

California had no blanket exemption for retail sales to nonprofit organizations. The opinion distinguished property the nonprofit purchased from property it merely received by donation.

The export exemption required a foreign destination, irrevocable commitment to export at the time of sale, and actual foreign delivery before any use. Qualifying routes could involve retailer facilities, an export-business intermediary, or a purchaser-furnished conveyance meeting the regulation's certainty, title and control conditions.

Counsel expressly assumed that possession of the purchased property passed to the nonprofit before irrevocable export commitment. On that assumption, its purchases were taxable. An intention to donate abroad and actual later foreign transport did not cure the timing problem.

The nonprofit did not need a seller's permit because it donated the purchased and received property and did not sell or lease tangible personal property ordinarily subject to sales tax.

The PDF supplies no purchase, shipment, tax amount, filing, audit or later outcome. The live annotation publishes only the taxable-purchase issue, prints “foreign counties” where the PDF says “foreign countries,” and omits the separate permit answer.

Common questions

Did nonprofit status make the purchases exempt?

No. Counsel said California provided no blanket exemption for tangible-personal-property retail sales to nonprofits; a specific statutory exemption still had to apply.

Why did the export exemption fail?

The answer rested on an express assumption that the nonprofit took possession before the purchased property was irrevocably committed to export. That meant the required commitment did not exist at the time of sale.

Did eventual delivery to a foreign hospital change the result?

No. On the assumed possession sequence, both the nonprofit's export intention and actual later foreign transportation were immaterial to the taxable purchase.

Were goods donated to the nonprofit taxed by this answer?

The letter does not decide tax on the third-party donations. Its taxable-sale analysis concerns medical supplies and equipment the nonprofit purchased; it separately says the organization also received donated goods.

Did the nonprofit need a seller's permit?

No, on the described activity. It donated the property and did not sell or lease tangible personal property ordinarily subject to sales tax.

Was every factual condition documented?

No. The possession sequence was assumed, the request and Regulation 1620 enclosure are absent, and no contracts, invoices, title terms, shipping records, foreign-delivery evidence or later proceeding are supplied.

Citations and references

• Cal. Rev. & Tax. Code § 6051 — taxable retail-sale gross receipts absent exemption
• Cal. Rev. & Tax. Code §§ 6201 and 6401 — use-tax rule and statutory-exemption condition
• Regulation 1620(a)(3)(C) and (C)2 — export requirements and shipment routes
• BTLG Annotation 390.0020 (Aug. 24, 1964) — cited nonprofit rule; underlying record absent
• Regulation 1699 — seller-permit conclusion
• November 22, 1995 request — identified but not reproduced
• Official Annotation 325.1186 — publishes only the purchase/export result

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.1186
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1186.pdf

Original ruling text

325.1186

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 94279-0082)
Telephone: (916) 324-2614
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
────────

January 18, 1996

BURTON W. OLIVER
Executive Director

Mr. H--- H---, M.D.
Ms. H--- B. H---, M.D.
M--- B--- F--XXXX E. -----, California XXXXX
Re:

M--- B--- F---

Dear Mr. and Mrs. H---:
This is in response to your letter dated November 22, 1995, regarding the application of tax to medical supplies and equipment purchased by the M--- B--- F--- (“MBF”). You state that the --- Branch of MBF, a nonprofit organization, purchases medical supplies and equipment which it donates to hospitals in foreign countries. In addition to the items purchased by MBF, it collects, packs, and ships medical supplies and equipment donated to it by hospitals and companies in the United States. DISCUSSION Retail sales of tangible personal property in California are subject to sales tax, measured by the gross receipts, unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) When sales tax does not apply, use tax, measured by the sales price, applies to the use of tangible personal property purchased from a retailer for the storage, use, or other consumption in California, unless the use is exempt from taxation by statute. (Rev. & Tax. Code §§ 6201, 6401.)

Mr. H--- H---, M.D.
Ms. H--- B. H---, M.D.
M--- B--- F---

-2-

January 18, 1996
325.1186

California does not have a statute that provides a blanket exemption for the sale of tangible personal property to a nonprofit organization. (See BTLG Annot. 390.0020 (8/24/64).) This means that a retail sale of tangible personal property to a nonprofit organization is subject to sales or use tax unless the sale or use is specifically exempt by statute. Sales and Use Tax Regulation 1620(a)(3)(C)2 (copy enclosed) provides that sales tax does not apply when tangible personal property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer to the foreign country. To be exempt as an export, the sale must meet the following three requirements: (1) the property must be intended for a destination in a foreign country; (2) the property must be irrevocably committed to the exportation process at the time of sale; and (3) the property must actually be delivered to the foreign country prior to any use of the property. Regulation 1620(a)(3)(C) provides that there has been an irrevocable commitment of the property to the exportation process when the property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer in a continuous route or journey to the foreign country by means of: (1) facilities operated by the retailer; (2) a carrier, forwarding agent, export packer, customs broker or other person engaged in the business of preparing property for export, or arranging for its export; or (3) a ship, airplane, or other conveyance furnished by the purchaser for the purpose of carrying the property in a continuous journey to the foreign country, title to and control of the property passing to the purchaser upon delivery. Regulation 1620(a)(3)(C)2 further provides that delivery by the retailer of property into a ship, airplane, or other conveyance furnished by the purchaser constitutes an irrevocable commitment of the property into the exportation process only in those instances where the means of transportation and character of the property shipped provide certainty that the property is headed for its foreign destination and will not be diverted for domestic use. You state that MBF collects, packs and ships medical supplies and equipment to hospitals in foreign countries. We assume that the possession of the medical supplies and equipment purchased by MBF passes to MBF prior to an irrevocable commitment of the property to the exportation process, as discussed above. Under such circumstances, the sale of the medical supplies and equipment to MBF has not been irrevocably committed to the exportation process at the time of the sale. Therefore, the sale of the medical supplies and equipment to MBF is subject to tax. It is immaterial that the intention of MBF is to ship or deliver the medical supplies and equipment to hospitals in foreign countries or that the medical supplies and equipment are actually transported to the foreign countries. Lastly, you ask whether MBF needs to obtain a seller’s permit. Because MBF donates the medical supplies and equipment it purchases or receives through donations, and does not sell or lease any tangible personal property that is ordinarily subject to sales tax, MBF is not required to obtain a seller’s permit. (See Reg. § 1699.)

Mr. H--- H---, M.D.
Ms. H--- B. H---, M.D.
M--- B--- F---

-3-

325.1186

If you have any further questions, please feel free to write again. Sincerely,

Sophia H. Chung
Staff Counsel

SHC:rz
Enclosure:
cc:

Regulation 1620

--- District Administrator - --

January 18, 1996