Did printer delivery to a mailing agency exempt advertising materials when the buyer decided later which copies the agency would mail out of state?

Plain-English summary

A corporation bought printed advertising materials under contracts that usually let the printer hold them until the taxpayer ordered delivery to a mailing agency where destination instructions had been given. Purchase orders usually identified quantities to ship outside California.

A mailing agency engaged in arranging mailings and holding itself out publicly in that business could qualify as a Ruling 55 forwarding agent.

Status alone did not create exemption. The seller's contract had to require outside-state shipment. If the buyer told the printer only to deliver to the agency and later independently instructed the agency to send some portion outside, the seller was not party to an outside-shipment contract and had completed its obligation too early.

The exemption could apply if the buyer directed seller delivery to the agency of property already marked with an outside destination. It also could apply if the seller, after agency delivery, gave outside-delivery instructions under the original contract or a supplement.

On this request, quantities were determined before materials left the vendor, functioning as a contract/purchase-order supplement. Counsel assumed the vendor would hold at audit a purchase order or supplement showing destinations for claimed exempt goods.

Actual mailing outside California also was required. That condition is followed by an inline “See Erga v. SBE” and “DHL 6/15/92” note, but no reporter, explanation or amendment record is supplied.

No complete purchase, instruction sequence, mailing, audit, tax result or later outcome is supplied. The live annotation preserves the contract/supplement distinction but omits the actual-shipment and audit-record conditions.

Common questions

Was any mailing agency automatically a forwarding agent?

No. The letter described one engaged in arranging mailings and holding itself out publicly in that business.

Why did later buyer-only instructions fail?

The seller was not party to a contract requiring outside shipment and completed its obligation on undirected agency delivery.

Could instructions follow agency delivery?

Yes if the seller gave them under an original purchase order contemplating later directions or a valid supplement, rather than the buyer acting only with the agency.

Could the seller give destination instructions after agency delivery?

Yes, if those instructions followed the original sale contract or a supplement. In the taxpayer's described arrangement, outside-shipment quantities were determined before materials left the vendor, and counsel assumed a retained order or supplement showing destinations.

Did paperwork alone complete exemption?

No. The mailing agency also had to actually send the property outside California.

What does the 1992 Erga note establish?

Only that someone initialed DHL 6/15/92 and referenced Erga beside the actual-shipment condition. The source supplies no citation or substantive explanation.

Citations and references

• California Sales and Use Tax Ruling 55(a)(1)(C) — seller-contract shipment requirement
• Erga v. SBE — uncited inline DHL 6/15/92 note
• October 1 and July 7 letters with masked years — identified but not reproduced
• Purchase order/supplement and audit copy — described but not reproduced
• Official Annotation 325.1560 — publishes contract timing but omits actual shipment and records

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1560
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1560.pdf

Original ruling text

325.1560

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 30, 1964

Mr. I. E. L--Excise Tax Supervisor
R--- O--- Corporation
--- South --- Street
--- ---, CA XXXXX

XX-XXXXXX

Dear Mr. L---:
Bill Denny has requested me to reply to your letter of October 1, 19XX, concerning the purchase of advertising materials delivered to a mailing agency for shipment to points outside this state. We do not question that a mailing agency engaged in the business of arranging for mailing of goods and holding itself out to the public as engaged in such a business qualifies for a “forwarding agent”, as that term is used in Ruling 55. It is still necessary, however, for the sale to be exempt as a sale in interstate commerce, that the seller be required by the contract of sale to ship the property to a point outside the state. One means of fulfilling this requirement is delivery by the retailer to a forwarding agent for shipment outside this state. If the purchaser instructs the printer to deliver the material to the mailing agency and this is done, and the purchaser subsequently instructs the mailing agency to ship some portion of the property to a point outside this state, we do not believe that the seller has met the requirements of Ruling 55(a)(1)(C). The seller is not a party to any contract calling for shipment of the material to a point outside the state. Such shipment is not, therefore, pursuant to the contract of sale. This appears to have been the basis for our July 7, 19XX letter to you which is, apparently, the letter mentioned in the first paragraph of your letter of October 1. If on the other hand, the seller is directed by the purchaser to deliver to a mailing agency certain property which is marked with an out-of-state destination, or if after delivery of the property to the mailing agency the seller instructs the agency to deliver property to a point outside the state in accordance with the original contract of sale or any supplement thereto, the seller would make the delivery to the mailing agency for out-of-state shipment in accordance with the terms of the sales agreement and the sale would be exempt. Provided the property is actually sent out of state by the mailing agency. (See Erga v. SBE). DHL 6/15/92.

Mr. I. E. L---

-2-

October 30, 1964
325.1560

Your letter states that your contracts for printing of advertising material usually provide that the printer will hold the material until ordered by the taxpayer to deliver to the mailing agency, where instructions have been given as to the points to which such material is to be mailed. You also state that your purchase order usually indicates that certain quantities of the printed material will be shipped to pint outside the State of California. In view of the statement in the third paragraph on page 2 of your letter that some of the items ordered will be delivered by the vendor to a forwarding agent for shipment to a point outside California, it appears that the requirements of the ruling have been complied with. This is so because, as you state, a quantity (to be shipped outside the state) will be determined before the material leaves the hands of the vendor, and the determination at that time would be in the nature of a supplement to the contract of sale or purchase order. This, of course, assumes that the vendor would have in his possession at the time of audit a copy of such purchase order of supplement showing the out-of-state destination of the goods on account of which exemption would be claimed by the vendor. Sincerely,

E. H. Stetson
Tax Counsel
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