Did an industrial laundry owe use tax on out-of-state towels it retained and supplied to customers?

Plain-English summary

An industrial laundry provided shop towels to customers, kept ownership of the towels, and earned its income from cleaning them. It bought additional towels from an out-of-state dealer for use in California.

The letter treated the laundry as the consumer of the towels under historical Sales Tax Ruling 1. Because it bought tangible personal property from a retailer for its own California use, use tax applied to the out-of-state purchase.

The result depended on the stated structure: the laundry retained title and used the towels in operating its towel-supply and cleaning business.

Source and live-annotation limits

The letter does not reproduce the December 9, 1953 request, identify the representative, laundry, customers, or out-of-state dealer, or supply towels, contracts, invoices, purchase and delivery dates, title records, cleaning charges, possession terms, tax payment, returns, audit, assessment, or later outcome. Former Ruling 1 was described as enclosed but is absent, and the letter cites no numbered statute or regulation for its general use-tax rule.

The live annotation preserves only that an industrial laundry's out-of-state towel purchases were subject to use tax when it retained title for its California towel-supply business. It omits the representative and client posture, December 9 request, cleaning-income fact, retailer and California-use reasoning, Ruling 1, missing records and enclosure, copied auditing office, and later-outcome gap.

What this means for you

Industrial laundries, towel-service businesses, and tax professionals

Document title, customer possession and return obligations, the business's source of income, each out-of-state purchase and California use, supplier tax treatment, and returns. A different transfer-of-title or rental structure was not decided here.

Common questions

Did the customers' possession make them the towel purchasers?

No on the stated facts. The laundry retained ownership and was treated as the consumer.

Did buying from outside California avoid tax?

No. The letter applied use tax to the California use of towels purchased from the out-of-state dealer.

Citations and references

• Former California Sales Tax Ruling 1 — cited for industrial-laundry consumer treatment; copy described as enclosed but not reproduced
• December 9, 1953 request, client records, out-of-state purchase, and towel-use records — described or referenced but not included

Verbatim support

From the official February 5, 1954 letter:

As indicated in Ruling 1 (copy enclosed), your client is the consumer of towels.

Since your client is using the towels and they were purchased from a dealer, the use tax applies.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/360-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/360-0140.pdf

Original ruling text

360.0140

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 5, 1954

Your letter of December 9, 1953

One of your clients is an industrial laundry which provides shop towels to customers and whose income is derived from the cleaning of the towels. The laundry retains ownership of the towels. It has now purchased towels from an out-of-state dealer and you inquire if the purchase is subject to the use tax. As indicated in Ruling 1 (copy enclosed), your client is the consumer of towels. The use tax applies to the use in this State of tangible personal property which has been purchased from a retailer for use in this State. Since your client is using the towels and they were purchased from a dealer, the use tax applies.

Yours very truly,

Bill Holden
Assistant Counsel

BH: ja
cc: Glendale - Auditing