Could a foreign buyer's dedicated entity or a vendor qualify as export packer, and did the German Military Representative meet the test?

Plain-English summary

Headquarters Legal Counsel answered Long Beach Auditing after a May Attorney General staff conference, a July audit memorandum and an August call. The issue was German Military Representative status under the export exemption.

A purchaser-created separate legal entity could qualify under section 6387 if actually engaged in export packing for that purchaser and every other requirement was met. It did not have to hold itself out to the public.

A vendor could qualify if it regularly packed and exported its own goods sold to the foreign purchaser and goods that other vendors sold to the same purchaser.

The GMR could be an employee-agent, making its receipt delivery both for and by the German Government, or an independent-contractor agent, making receipt for but not by the government. Employer right of control distinguished them: an independent contractor followed desired results, not controlled means.

A 1970 preliminary hearing had questioned GMR activities without clarifying them. Counsel asked six factual groups: identity/business name/returns/licenses; who consolidated Burbank purchases and hired/paid workers; full- or part-time German work, other clients and experience; salary or commission; who leased the premises; and the written German-government contract.

The picture remained “hazy.” Because delivery to GMR had long been treated as not defeating export, counsel required a sound factual basis before deciding it was not a separate export-packing entity.

No later facts, final GMR classification, transaction, tax amount or outcome are supplied. The live annotation publishes only the general qualification rules and converts the malformed PDF regulation cite to 1620(a)(3)(C)(1)(b).

Common questions

Did a dedicated export packer have to serve the public?

No. A purchaser-created separate entity could pack only for that purchaser if genuinely separate, engaged in export packing and otherwise within section 6387.

Could a vendor itself qualify?

Yes if it regularly packed and exported not only its own sales but goods other vendors sold to the foreign purchaser.

Why did employee versus contractor status matter?

Employee-agent receipt would be delivery by the German Government; independent-contractor receipt could be for, but not by, the government and potentially involve a separate entity.

What was the main classification factor?

The employer's right to control work means, not merely desired results.

Did counsel decide GMR status?

No. The memo requested identity, filing, license, worker, client, compensation, premises and contract facts and preserved existing treatment pending a sound contrary basis.

Citations and references

• Cal. Rev. & Tax. Code § 6387 — separate-entity export-packer route
• Regulation 1620(a)(3)(C)(1)(b) — live annotation cite; PDF omits (C)
• Unnumbered right-of-control worker-classification rule
• May Attorney General conference, July audit memo, August call and 1970 hearing — identified but not reproduced
• Official Annotation 325.1510 — publishes general rules but omits unresolved GMR status

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1510
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1510.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Long Beach – Auditing (AMB)

From:

Headquarters – Legal Counsel (DJH)

Subject:

L--- E--- Division
T---, Inc.

325.1510

Date:

August 24, 1972

S- -- XX XXXXXX

This is in regard to your memorandum of July 6, 1972 and our telephone conversation of August 21, 1972 concerning the status of the German Military Representative (GMR) for purposes of the “export” exemption. As I related to you, our conference of May 15, 1972 with the Attorney General’s staff clarified the following points: 1)

Sales to a foreign purchaser, where delivery is made in California to a separate legal entity set up by the foreign purchaser to act as an export packer, will qualify as exempt within Section 6387, provided the other requirements of that section are satisfied. To be considered an export packer within Section 6387 and Regulation 1620(a)(3)(1)(b), it is not necessary for a firm to hold itself out to the public as an export packer. It is sufficient if the purchaser and the packer are separate legal entities and the packer is engaged in the business of export packing for the purchaser.

2)

A vendor qualifies as an export packer within Section 6387, if the vendor regularly packs and exports, not only goods he has sold to the foreign purchaser, but also goods sold to the foreign purchaser by other vendors.

In order to determine if the GMR is a separate legal entity within (1) above, it is necessary to enquire further than the statement in your July 6, 1972 memorandum that the GMR is an agent of the German Government. The question then becomes is the GMR an employee-agent, in which case his taking of delivery would be both for and by the German Government, or is he an independent contractor-agent, in which case his taking of delivery would be for, but not by, the German Government.

Long Beach – Auditing (AMB)

-2-

August 24, 1972
325.1510

The important factor in distinguishing an employee from an independent contractor is the right of control by the employer. An independent contractor is one who renders service in the course of an independent employment or occupation, following his employer’s desires only as to the results of the work, and not as to the means whereby it is to be accomplished. Although the activities of the GMR were questioned in the L--- S---, Inc. (S- -- XX XXXXXX) preliminary hearing of February 11, 1970, we still have no clear picture of his operation. The following questions are relevant: 1)

Who is the GMR? Name, address, etc.? Is a business name used for the purchasing and exporting operation? In what name are federal and state tax returns filed? Are any business licenses held by the operation; if so, in what name?

2)

Does the GMR do the physical work of consolidation himself or are other persons hired to physically consolidate the purchases received in Burbank? If other persons are hired, who employs and pays them?

3)

Does the GMR devote his full time to purchasing and exporting for the German Government or is this employment part time? Does he purchase and export for anyone else? It may be relevant here whether the GMR is in the U.S. specifically to purchase and export for Germany or is he merely hired to perform these functions? Was he hired because of prior experience in purchasing, consolidating, and exporting?

4)

How is the GMR paid? A flat salary or commission?

5)

Is the real property where consolidation takes place leased by the German Government or by the GMR as an individual?

6)

Does the GMR have a written contract with the German Government describing their legal relationship?

As is apparent from the above, we still have only a hazy picture of the factual and legal entity referred to as the “German Military Representative.” Any and all information you may develop as to the facts of the GMR’s operation will be appreciated. As we have for some time considered delivery to the GMR as not negating the “export” exemption, we would require a sound factual basis to decide he is not a separate legal entity engaged in the business of export packing. Feel free to telephone or write me if further clarification of the above questions is needed, telephone 485-4790.

DJH:dih