Did California use tax apply when a maintenance provider retained refurbished parts here before its technician installed them at an out-of-state customer site?

Plain-English summary

A redacted company entered optional maintenance contracts with buyers of its silicon-wafer inspection equipment. Oakland's supervising auditor had already treated it as consumer of parts furnished under those contracts, but the October 6 memorandum and contract terms are absent.

When repair was needed, a customer sent its part to the company, which forwarded it to an independent Utah repairer. The refurbished part came back to the company. It was then either shipped to an out-of-state customer or carried there by a company technician; in every stated case, the company's technician installed it at the outside site.

The company's use of the repair part was installation on customer equipment. Section 6009.1 excluded California retention when it served only later outside transport for the company's own outside installation.

Counsel then posed a different scenario: if the company did not install and instead sent the part by common carrier from California for customer installation, title would pass here. The company would complete its contract obligation and consume the part in California, creating use tax. The memo analogized this to sending ex-tax property as a gift outside California but cited no gift authority.

The live annotation adds facts not stated in the PDF: that the Utah repairer sold parts as part of repairs and that customer installation occurred in some cases. It also calls the agreement an optional warranty. The supporting memo calls it an optional maintenance contract and presents customer installation only as “if” the company did not install.

Common questions

Who was the consumer of the parts?

The company, according to a conclusion already recognized in the absent auditor memorandum. The supporting contract and consumer analysis are not reproduced.

Did California receipt from the Utah repairer trigger tax?

Not when retention here served only shipment or carriage outside for the company's own installation there.

Did it matter whether a technician carried or the company shipped the part?

Not for the stated favorable facts. In both routes, the company's technician installed at the outside customer site.

Why did customer installation change the result?

Counsel said California common-carrier shipment passed title to the customer and completed the company's use in performing its obligation here.

Did the PDF show actual customer-installed cases?

No. The PDF introduces that result counterfactually. The live annotation later says it happened “in some cases,” without supplying records.

Did the Utah repairer sell replacement parts?

The live annotation says the repairer sold parts as part of repairs. The PDF says only that it repaired/refurbished the customer part and provided repair parts; no sale or invoice is shown.

Was a tax amount or audit result supplied?

No. The memo provides guidance but no workpaper, adjustment, assessment, payment, petition or later outcome.

Citations and references

• California Revenue and Taxation Code section 6009.1 — retention for the company's solely outside use
• October 6, 1993 auditor memorandum — consumer conclusion and facts not reproduced
• Independent Utah repair and two technician-installation routes — described without records
• Customer-installation scenario — counterfactual title passage and California consumption
• Out-of-state ex-tax gift analogy — mentioned without authority
• Official Annotation 325.1766 — adds parts-sale, recurring-customer-installation and warranty wording

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1766
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1766.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

325.1766

Memorandum

To:

Mr. L. F. Ferreira
Supervising Auditor - Oakland (CH)

From:

Sukhwinder K. Dhanda, Staff Counsel
Legal Division - MIC:82

Subject:

T--- -W--- INC.
SR --- XX-XXXXXX

Date:

December 6, 1993

This is in response to your memorandum of October 6, 1993. Under the facts provided, T--- - W--- enters into optional maintenance contracts with its purchasers of the silicon wafer inspection equipment. When a part requires repairs, the purchaser sends the part to T--- - W--which in turn sends the part to an independent Utah repairer. The refurbished part is then sent back to T--- - W---. In some cases, the part is sent out-of-state to the customer and installed by a T--- - W--- technician. In other cases the part is taken to the out-of-state site by a T--- - W--technician. In any case, T--- - W--- installs the part on the purchaser's equipment at the out-ofstate site. As already recognized in your memorandum, T--- - W--- is the consumer of the repair parts it provides to its purchasers of the inspection equipment pursuant to the optional maintenance contracts. If any tax is owing, it would be a use tax on T--- - W---'s use of the parts in California. Revenue and Taxation Code section 6009.1 states that "use" does not include "the keeping, retaining, or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state." The "use" that T--- - W--- makes of the repair parts provided by the Utah repairer is the installation of the parts onto the purchaser's equipment. Under Section 6009.1, T--- - W--- 's retention of the parts in California for the purpose of subsequently shipping the part outside California for T--- - W---'s own use outside California is not a California "use" subject to tax.

Mr. L. F. Ferreira

-2-

December 6, 1993
325.1766

However, if T--- - W--- did not itself install the parts but instead sent the property by common carrier from California to the customer for the customer to install, then title to the part would have passed to the customer in California. In such a case, T--- - W--- would have consumed it in California and would be required to pay use tax. This is analogous to the rules applicable when a person ships extax property as a gift to a recipient outside California.

SKD:plh

cc:

Oakland District Administrator - CH