Were lumber sales taxable when a separate California corporation issued resale certificates but supplier invoices named the related Mexican consignee?

Plain-English summary

An Oregon lumber seller's supervisor believed two shipments discussed in a November 18 Board letter were taxable because the Mexican entity lacked a California seller's permit.

An August letter had called a permitted California corporation the Mexican entity's San Diego “branch.” Counsel instead said it was a separate corporation with a permit in its own name. It had issued the seller a resale certificate stating that purchased lumber would be resold; the attachment is absent.

Good-faith acceptance of that certificate made the seller's sale nontaxable. Counsel said the California corporation would “Presumably” resell the lumber to the Mexican entity, which would make wooden frames in Mexico.

The presented documents were inconsistent, but appeared to make the California corporation purchaser and the Mexican entity ultimate consignee. The no-tax opinion was conditional on timely certificates covering all lumber shipped to that consignee.

If the California corporation was a separate business entity, its possession before export could not be deemed Mexican-entity possession under Regulation 1620. That point prevented possession attribution; it did not independently prove every export condition.

For future certificate-backed purchases, the seller was told to name the California corporation as invoice purchaser rather than the Mexican entity.

No complete certificate, invoice, resale, Mexico shipment, tax amount, audit or later proceeding is supplied. The live annotation preserves the broad separate-entity conclusion but omits the correspondence, conditionality and inconsistent documents.

Common questions

Why did the Mexican entity's missing California permit not control?

The certificate came from a separately incorporated California purchaser with its own permit, not from the Mexican ultimate consignee.

What made the seller's lumber sale nontaxable?

Conditional good-faith acceptance of timely resale certificates from the California corporation for all covered lumber.

Was the downstream resale proved?

No. Counsel said only “Presumably” the California company would resell to the Mexican entity for wooden-frame production.

Did California possession count as Mexican purchaser possession?

Not if the California corporation was treated as a separate business entity. Regulation 1620 did not attribute its pre-export possession to the Mexican entity.

How should future invoices be prepared?

They should designate the certificate-issuing California corporation as purchaser, not the Mexican consignee.

Citations and references

• California Sales and Use Tax Regulation 1620 — separate-entity possession point
• Unnumbered resale-certificate rule — timely good-faith acceptance condition
• Three 1992 correspondence layers and attached certificate — identified but not reproduced
• Official Annotation 325.1393 — publishes the apparent related-entity resale result

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1393
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1393.pdf

Original ruling text

325.1393

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6496

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

February 10, 1993

GRAY DAVIS
Controller, Sacramento
────────
BURTON W. OLIVER
Executive Director

Ms. J--- K--Administrative Supervisor
Auditing Department
N--- P--- L--- Company
P. O. Box XXXX
---, Oregon XXXXX
Re:

Taxability of Sales to E--- D--- T--Account No. SS -- XX-XXXXXX

Dear Ms. K---:
This office has received your letter dated November 25, 1992 in which you state that E--D--- T--- does not have a California seller's permit and your belief that, under all the circumstances presented, the two shipments discussed in the Board's November 18, 1992 letter are taxable. In your letter of August 18, 1992, you stated that E--- D--- T--- has "a branch office in San Diego under the name of S--- F--- who does have a California seller's permit -- resale
#SR FH 25-826132." Since S--- F--- is a separate corporation, a California seller's permit was issued in its corporate name. Attached to your August 18, 1992 letter was a copy of a resale certificate issued by S--- F--- to N--- P--- L--- certifying that the lumber purchased will be resold. The good faith acceptance of this certificate by N--- P--- L--- makes the sale of the lumber nontaxable. Presumably, the lumber will be resold by S--- F--- to E--- D--- T--- who will use the lumber to make wooden frames in Mexico. Although there is some inconsistency in the documents presented with your letters, it appears that S--- F--- was the purchaser of the lumber and the ultimate consignee of the shipments was E--- D--- T---. If S--- F--- has given N--- P--- L--- timely resale certificates for all the lumber purchased and shipped to E--- D--- T---, it is our opinion that the sale of the lumber by N--- P--- L--- is not taxable.

Ms. J--- K---

-2-

February 10, 1993
325.1393

Also, if S--- F--- is considered a separate business entity, the possession of the lumber by S--- F--- prior to its exportation cannot be deemed to be a "possession" by E--- D--- T--- within the meaning of Regulation 1620. In the future, it is recommended that if S--- F--- tenders resale certificates for purchases from N--- P--- L---, all invoices prepared by N--- P--- L--- should designate S--- F--- as the purchaser, not E--- D--- T---. Very truly yours,

Thomas J. Cooke
Tax Counsel
TJC:wk