Did an out-of-state manufacturing partnership need a California permit when a California-registered corporate partner handled sales?

Plain-English summary

Subsidiaries of two Delaware parent corporations formed a partnership that manufactured ceiling grid in Pennsylvania and Maryland. The partners supplied administrative functions, including purchasing, computer services and accounts payable. One corporate partner was registered for California sales and use tax.

The February 10 request called that corporation the partnership's “selling agent.” It issued invoices and collected all sales proceeds, including California sales, then remitted proceeds less sales tax to the partnership. But Staff Counsel Sukhwinder K. Dhanda said the submitted facts did not conclusively establish whether the corporation acted for the partnership or sold on its own behalf. The source supplies no partnership, agency, purchase, title, invoice, customer or risk-of-loss records that decide the relationship.

If the corporation acted as selling agent for California sales, section 6203 made the partnership a retailer engaged in business in California; the partnership had to register and collect and remit tax. If the partnership instead sold to the corporation and the corporation independently resold on its own behalf, the partnership's sales were for resale. The corporation then owed sales tax on its California retail gross receipts. Counsel conditioned the no-registration branch on the partnership having no other California physical presence.

For purchases, either partner issued purchase orders and processed payment for partnership purchases, including some made in California. The partnership reimbursed each at cost, including sales or use tax paid. For partnership property used at out-of-state facilities, counsel said contract-required shipment out of California without California possession was exempt under Regulation 1620(a)(3). If the partnership took possession in California, the vendor's sale was subject to sales tax, and Civil Code section 1656.1 allowed reimbursement if the sales contract provided for it. If the corporate partner bought for its own account and resold, its purchase was for resale and tax on the later sale depended on that sale's facts.

Because agency, title, shipment and possession facts were unresolved, counsel gave no unconditional registration or purchase-tax answer. The opinion supplies no later registration, transaction, return, tax payment, audit or agency determination.

Source posture

The live 410.0195 annotation says the corporate partner “is” the partnership's selling agent before giving the independent-resale alternative. The supporting opinion instead says it could not conclusively determine whether the corporation was agent or principal. The live annotation also says the partnership is not located in California, while the opinion's no-registration branch expressly depends on no other California physical presence. It omits the parent/subsidiary structure, Pennsylvania and Maryland facilities, administrative services, invoice and proceeds flow, at-cost reimbursements, California purchases, shipment and possession rules, sections 6051, 6066, 6201, 6203 and 6401, Regulation 1620(a)(3), Civil Code section 1656.1, missing records and absent outcome.

The official three-page PDF has a clean native text layer and one small page-1 image, so no OCR was required. Both fresh direct PDF downloads and both live-annotation downloads were byte-identical, and the duplicate default PDF text extractions matched. The original-text section remains byte-identical to its committed version and matches the fresh official extraction after removing only the extractor's terminal newline and form feed.

What this means for you

Partnerships, corporate agents, resellers, and tax professionals

Document whose behalf the seller acts on, who takes title, who invoices and collects, and whether the intermediary bears independent resale risk. For purchases, preserve the buyer identity, contract, shipment terms, point of possession, reimbursement and later disposition. Do not treat the 1994 conditional branches as current nexus advice.

Common questions

Q: When did the partnership need to register?

A: Under the opinion, when the California corporation acted on the partnership's behalf for California sales. The submitted facts did not conclusively establish that relationship.

Q: What if the corporation bought for its own resale?

A: The partnership's sale to the corporation was for resale, and the corporation was responsible for sales tax on its later California retail gross receipts. The no-registration conclusion also assumed no other partnership physical presence in California.

Q: When were California purchases for out-of-state use exempt?

A: Under the 1994 opinion, when the contract required shipment out of California and the partnership did not take possession in California.

Q: Could the partners simply pay tax on partnership purchases through their own returns?

A: The opinion did not approve that proposal categorically. It analyzed who bought the property, whether the purchase was for resale, where possession occurred, and the later transaction.

Q: Did the source show what the parties ultimately did?

A: No. It provides no later registration, agreement, shipment, possession, return, payment, audit or outcome.

Citations and references

• California Revenue and Taxation Code §§ 6051, 6066, 6201, 6203, and 6401
• California Sales and Use Tax Regulation 1620(a)(3)
• California Civil Code § 1656.1
• February 10, 1994 facsimile; partnership and agency agreements; purchase orders; invoices; title, shipment and possession evidence; customer sales; resale support; registrations; returns; payments; reimbursements; and later outcome — described or implicated but not included

Verbatim support

From the official Staff Counsel opinion:

From the facts provided in your letter, we are unable to conclusively determine whether A--- is acting as WAVE's agent when making the sales in California or whether it is making those sales on its own behalf.

If A--- is acting as WAVE's agent, then WAVE is a retailer engaged in business in this state and is required to register with the Board.

If A--- is not acting as WAVE's agent and WAVE has no other physical presence in this state, then WAVE is not required to register here.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0195
• Original supporting opinion: 410.0195 PDF

Original ruling text

410.0195
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 322-2976

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

March 31, 1994

GRAY DAVIS
Controller, Sacramento
────────

Mr. L. J--- U---, III
Tax Department
A--- W--- I---, Inc.
XXX W. --- Street
P. O. Box XXXX
---, PA XXXXX

BURTON W. OLIVER
Executive Director

Re: SZ --- XX-XXXXXX
Dear Mr. U---:
This is in response to your facsimile transmission of February 10, 1994 in which you request our opinion as to the sales and use tax registration requirements for WAVE. A--Ventures, a subsidiary of A--- W--- I---, Inc. (A---), and W--- Ventures, a subsidiary of W--- S--l Co. (W---), have created a partnership known as WAVE. Both parent corporations are Delaware corporations. A--- is registered in California for sales and use tax purposes. WAVE manufactures ceiling grid in Pennsylvania and Maryland. Most administrative functions for WAVE, such as purchasing, computer services and accounts payable, are provided by either A--- or W---. You also state that A--- is acting as "selling agent" for WAVE. A--issues invoices for the collection and remittance of all sales proceeds, including sales in California. A--- then remits the sales proceeds, less the sales tax, to WAVE. A--- or W--- also issue the purchase orders and process payments of purchases made for WAVE, including some purchases made in California. Both parent corporations are reimbursed by WAVE at cost for purchases, including sales or use tax paid. WAVE would like to forego any sales and use tax registration in California and have A--be responsible for the collection and remittance of all sales tax. As for purchases made in California, A--- and W--- would like to pay sales tax directly to the vendor or accrue and remit use tax on their regular returns.

Mr. L. J--- U---, III

-2-

March 31, 1994
410.0195

Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property in California. When sales tax does not apply use tax is imposed on the storage, use or other consumption of tangible personal property purchased from a retailer for use in California, measured by the purchase price of the property. (Rev. & Tax. Code §§ 6201, 6401.) Under Revenue and Taxation Code section 6066, every person desiring to engage in or conduct business as a seller within this state shall file with the Board an application for a permit for each place of business. Revenue and Taxation Code section 6203 states that every retailer engaged in business in California and making sales of tangible personal property for storage, use or other consumption of the state shall collect the tax from the purchaser. A "retailer engaged in business" in this state includes the following: "(a) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business. "(b) Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property." (Emphasis added.) You state that A--- is WAVE's selling agent for the sales made in California. If A--- is acting on behalf of WAVE when making the sales in California, then WAVE is a retailer engaged in business in this state. WAVE would be required to register with the Board and would be responsible for the collection and remittance of the tax on its sales in California. However, if WAVE is selling the tangible personal property to A--- and A--- is in turn reselling the property on its own behalf, then A--- would not be WAVE's agent. Since all of the sales to A--- would be for resale, these sales would not be subject to California sales tax. Rather, A---'s subsequent retail sales in California would be subject to sales tax and as the retailer, A--would be responsible for paying that California sales tax. For purchases made in California for use by WAVE at its out of state facilities, the application of tax depends on the circumstances of the sale. If the property is shipped out of California pursuant to the contract of sale and the purchaser does not take possession in California, then the sale is exempt. (Reg. 1620 (a)(3).) If the property is sold to WAVE and WAVE takes possession in California, the sale is subject to California sales tax. The sales tax is

Mr. L. J--- U---, III

-3-

March 31, 1994
410.0195

imposed on the retailer but the retailer may collect reimbursement for its tax liability from WAVE if their contract of sale so provides. (Civ. Code § 1656.1.) If the property is sold to A--for its own account and A--- then resells the property, the sale to A--- is not taxable (as a sale for resale). The application of tax to A---'s subsequent resale will depend on the circumstances of that sale. From the facts provided in your letter, we are unable to conclusively determine whether A--- is acting as WAVE's agent when making the sales in California or whether it is making those sales on its own behalf. If A--- is acting as WAVE's agent, then WAVE is a retailer engaged in business in this state and is required to register with the Board. If A--- is not acting as WAVE's agent and WAVE has no other physical presence in this state, then WAVE is not required to register here. If you have any further questions, please do not hesitate to write again. Sincerely,

Sukhwinder K. Dhanda
Staff Counsel
SKD:plh

cc: Van Nuys District Administrator - AC