Were a foreign airline's California purchases exempt when delivered to forwarder premises shared with its Otay Mesa office for Mexico shipment?

Plain-English summary

A foreign airline's purchasing coordinator asked about California purchases for Mexico export. Its Otay Mesa office was “exclusively set up” to receive internal incoming and outgoing freight.

The goods would be received at its freight forwarder's premises on the airline's behalf. The airline would file Mexican import paperwork, while the forwarder filed the shipper's export declaration and coordinated actual shipment. The live annotation adds that the airline and forwarder occupied the same premises; the PDF does not expressly say that.

Counsel assumed the incoming freight represented retail purchases from California retailers. Those sales were taxable absent exemption, and the purchase contract could authorize sales-tax reimbursement.

The purchases qualified only on three assumptions: supplier shipment through a carrier, forwarder, export packer, customs broker or similar export business; no airline possession before supplier delivery to that intermediary; and direct supplier shipment abroad before use.

The internal-freight statement suggested the airline itself might accept delivery before the export process. If so, Regulation 1620(a)(3)(C)1 made purchases taxable even without California use.

If only the freight forwarder received the property and delivered it to a port outside the continental United States before airline possession, the sales qualified.

The source does not determine which receipt sequence actually occurred and supplies no completed shipment, tax amount or later proceeding. The live annotation publishes only the favorable conditional route.

Common questions

Did delivery at a freight forwarder's address automatically qualify?

No. The decisive question was whether the forwarder actually received and controlled the goods or the airline took possession at the shared/adjacent operation.

What paperwork did each party plan to handle?

The airline would file Mexico's import paperwork; the forwarder would file the shipper's export declaration and coordinate actual shipping.

What three assumptions supported exemption?

Qualifying supplier-to-export-intermediary shipment, no prior airline possession, and direct foreign shipment before any use.

Did absence of California use save early airline receipt?

No. Counsel said purchaser delivery before irrevocable export commitment was taxable even if the airline made no California use.

Did the opinion establish actual exemption?

No. It gave alternatives because the request's receiving description left possession unresolved; no transaction documents or final tax result are supplied.

Citations and references

• Cal. Rev. & Tax. Code §§ 6051 and 6007; Civil Code § 1656.1 — retail tax and reimbursement
• Cal. Rev. & Tax. Code §§ 6352 and 6387; Regulation 1620(a)(3)(C)1 and (C)2 — export and possession rules
• May 10 request and Regulation 1620 enclosure — identified but not reproduced
• Official Annotation 325.1486 — supplies co-location and the favorable conditional route

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.1486
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1486.pdf

Original ruling text

325.1486

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) 327-2291
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

July 3, 1995

────────
BURTON W. OLIVER
Executive Director

Mr. D--- C--Purchasing Coordinator
A--- A--A--- D--- M---, S.A. De C.V.
XXXX Avenida --- ---, Suite XXX
--- ---, CA XXXXX
Re: Exports
Dear Mr. C---:
Your letter dated May 10, 1995, to Mr. Travis Fullwood, Professional Advisor to Board Member Ernest J. Dronenburg, Jr., was sent to the Board of Equalization's Legal Staff for response. You ask how sales tax applies to purchases made in California for export to Mexico. You describe your operations at A---'s Otay Mesa Office located in California as follows: "We are exclusively set up to receive both our internal incoming and outgoing freight. The freight will be received at our Freight Forwarders premises on behalf of A---. We in turn will file Mexican paperwork to import it into Mexico, have the Freight Forwarder file the Shippers Export Declaration and coordinate the actual shipping of said freight." Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempted 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.) Retailers may collect sales tax reimbursement from the purchaser if the contract of sale provides for the reimbursement. (Civ. Code § 1656.1.) In responding to your inquiry it will be assumed that the incoming freight which is received at your freight forwarder's premises represents purchases made from California

Mr. D--- C---

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July 3, 1995
325.1486

retailers. This being the case, your purchases are retail sales subject to tax unless the sale is subject to an exemption. Sales and Use Tax Regulation 1620(a)(3)(C)2 (copy enclosed) provides that 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 the foreign country. The provisions in this regulation are based in part upon Revenue and Taxation Code section 6352 which exempts transactions that the U.S. Constitution prohibits the states from taxing and in part upon Revenue and Taxation Code section 6387 which reads: "Delivery to export packers. There are exempted from the computation of the amount of the sales tax the gross receipts from sales of tangible personal property purchased for use solely outside this State and delivered to a forwarding agent, export packer, or other person engaged in the business of preparing goods for export or arranging for their exportation, and actually delivered to a port outside the continental limits of the United States prior to making any use thereof." To be exempt under Regulation 1620(a)(3)(C)2 (the export exemption), a 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. Assuming (1) that the supplier ships the property by 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, (2) that possession of the property does not pass to the foreign purchaser prior to the time the property is delivered by the supplier to the carrier, forwarding agent etc., and (3) that the property is shipped directly to the foreign country by the supplier prior to any use of the property, the sale is exempt as an export. I am concerned, however, with your statement that A---, at its Otay Mesa office, is "exclusively set up to receive both our internal and outgoing freight." This statement raises implications that A---, itself, might be accepting delivery of the goods prior to their entrance into the exportation process. If this is the case, then the sales tax would apply to the purchases made by A--- in California even if A--- makes no use of the goods in this state. This is explained in Regulation 1620(a)(3)(C)1 which provides that:

Mr. D--- C---

-3-

July 3, 1995
325.1486

"[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." If the property is delivered to A---'s freight forwarder, who then delivers these goods to a port outside the continental limits of the United States without A---'s taking possession of such property prior to the delivery outside the United States, then sales to A--- will qualify for the export exemption. If you have any further question, please feel free to write directly to this office. Sincerely,

Patricia Hart Jorgensen
Senior Staff Counsel
PHJ:cl
Enclosure
cc:

Mr. Travis Fullwood
San Diego District Administrator