Did an ICC license determine whether a California carrier handling interstate oil equipment for federal offshore use was a forwarding agent?

Plain-English summary

A California PUC-licensed common carrier asked about oil-drilling pipe and equipment already shipped in interstate commerce to it for federal-offshore use. It would maintain control, prepare further shipment and transport the property to a California port for offshore-supply-vessel loading and final delivery to federal waters.

Many potential customers were out-of-state oil companies that insisted an ICC carrier or freight-forwarder license was needed to preserve interstate movement and avoid sales tax.

Counsel concluded no ICC or other license was required for sales-and-use-tax forwarding-agent status. Section 6396 and Regulation 1620 instead examined regular compensated carrier activity or regular shipment preparation/arrangement.

Purchaser designation alone did not create carrier or forwarding status. Ordinarily, purchaser receipt of California title or possession through a designated agent was taxable despite immediate intended and actual outside shipment.

A qualifying § 6396 carrier or forwarder was not treated as that purchaser agent. On the stated route and no other California use, the received interstate property was exempt from sales and use tax; intermediary delivery did not destroy interstate status, “if it had such status.”

No actual customer, contract, shipment, federal-water delivery, tax amount or later proceeding is supplied. The live annotation publishes only the no-license/activity rule.

Common questions

Did the company's California PUC license decide the issue?

No. Counsel said neither carrier nor forwarding-agent definitions referred to licensing at all.

What activity made a forwarding agent?

Regular engagement in preparing property for shipment or arranging its shipment, not a purchaser label.

Could a purchaser simply designate any recipient?

No. Someone not otherwise in the business did not become a carrier or forwarder merely by being named to receive and reship goods.

What California handling was allowed here?

Maintaining control, preparing further shipment and transporting the goods to a port for offshore-vessel loading, with no other California use.

Did the opinion create interstate status?

No. It said qualifying intermediary receipt did not cause property to lose interstate status “if it had such status”; the conclusion assumed the goods arrived in interstate commerce.

Citations and references

• Cal. Rev. & Tax. Code § 6396 — shipment routes and carrier/forwarder definitions
• Regulation 1620(a)(3)(B)(2) — regular activity, purchaser designation and no license requirement
• May 2, 1984 request and Regulation 1620 enclosure — identified but not reproduced
• Official Annotation 325.1531 — publishes only the no-license/activity rule

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1531
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1531.pdf

Original ruling text

325.1531

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-3237

July 10, 1984

R---r L. H--Assistant Secretary/Treasurer
O--- C--- & S--- C---, Inc.
P.O. Box XXXX
---, CA XXXXX
Re:

O--- C--- & S--- C---, Inc. – SR -- XX-XXXXXX
Freight forwarders – interstate commerce

Dear Mr. H---:
This is in reply to your May 2, 1984 letter to Mr. Don Hennessy of the Board’s legal staff. You ask for our opinion on the following question: Is tangible personal property (oil drilling pipe and equipment destined for use in Federal offshore waters) exempt from the application of State Sales Tax when it has been shipped in interstate commerce to O--- C--- & S--- C---, Inc., a company licensed by the P.U.C. as a common carrier in the state of California, and O--C--- & S--- C---, Inc. maintains control, prepares the property for further shipment, and transports the property to a California port for loading on offshore oil supply vessels for final transportation to Federal offshore waters? As background to this question, you state: Your answer to the above question is very important to our business because a large number of our potential customers are oil companies located outside the state of California and are telling use that our company must be an “interstate commerce commission licensed carrier or freight forwarder” in order to maintain their equipment in an interstate movement status and thus be exempt from the application of sales tax on tangible personal property destined for use in Federal offshore waters. Our conclusion is that the tangible personal property which O--- C--- receives in interstate commerce is exempt from sales and use tax, when O--- C--- makes no use of the property in California other than to maintain control, prepare the property for further shipment, and transport

O--- C--- & S--- C---, Inc.

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July 10, 1984
325.1531

the property to a California port for loading and final transportation to Federal offshore waters. The basis for this conclusion is as follows. In our opinion, a “forwarding agent” within the meaning of the Sales and Use Tax Law is not required to be licensed by the I.C.C., or for that matter by anyone at all, for sales and use tax purposes. Section 6396 states: There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property which, pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer by means of: (a) facilities operated by the retailer, or (b) delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point. For purposes of this section, the term “carrier” shall mean a person or firm engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term “forwarding agent” shall mean a person or firm engaged in the business of preparing property for shipment or arranging for its shipment. Interpreting and applying section 6396, the Board has adopted Regulation 1620, Interstate and Foreign Commerce. As related to the issue you raise, Regulation 1620(a)(3)(B)(2) provides in part: As used herein the term “carrier” means a person or firm regularly engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term “forwarding agent” means a person or firm regularly engaged in the business of preparing property for shipment or arranging for its shipment. An individual or firm not otherwise so engaged does not become a “carrier” or “forwarding agent” within the meaning of this regulation simply by being designated by a purchaser to receive and ship goods to a point outside this state. We note that neither the definition of “carrier” nor the definition of “forwarding agent” refers to any licensing requirement. Ordinarily, if a purchaser were to receive title to or possession of tangible personal property within this state by designating an agent to receive the property, the sale would be subject to California sales or use tax, even if the purchaser intended to and did in fact immediately ship the property out of the state. One of the purposes served by section 6396 is to make it clear that a carrier or forwarding agent, as defined in that section, is not such an agent. Therefore, when property is delivered to a carrier or forwarding agent, even if hired by the purchaser, the property so delivered does not thereby lose its status (if it had such status) as property moving in interstate commerce.

O--- C--- & S--- C---, Inc.

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July 10, 1984
325.1531

I enclose a copy of Regulation 1620 for your information. Please feel free to contact me if you have any further questions or comments about this letter. Very truly yours,

John Abbott
Tax Counsel

JA:ss
Enclosures