Did f.o.b.-Buffalo terms prevent California sales tax when the purchase order was canceled before shipment and the buyer later accepted the machines in California?

Plain-English summary

A California buyer had placed orders for wrapping machines with f.o.b.-Buffalo terms, but it canceled the purchase order covering two machines bound for San Jose. The seller shipped them anyway. After they arrived, the buyer accepted those two machines in satisfaction of other purchase orders and later sent them to Seattle without using them in California.

California concluded that title did not pass when the machines were placed with the carrier in Buffalo because the order authorizing that shipment had already been canceled. Title passed only when the buyer accepted the machines in California. That made the transaction a California retail sale subject to sales tax, and the buyer's later shipment to Seattle did not create an exemption.

The Board distinguished use tax: mere California storage followed by shipment to Seattle for use there did not trigger use tax under the cited portion of then-current Ruling 55. But that did not eliminate the sales tax arising from title passing in California. The letter therefore recommended denial of the seller's $679.80 refund claim, subject to a 30-day opportunity to submit more facts or authorities.

Common questions

Why did the f.o.b.-Buffalo language not control?

The two machines were shipped after the purchase order covering them had been canceled, so the Board found no contract under which title could pass at shipment.

When did title pass?

When the buyer accepted the machines in California in satisfaction of other purchase orders.

Did later shipment to Seattle exempt the original sale?

No. The Board said a purchaser's later disposition of property did not undo a sale already completed in California.

Was California use tax also due?

The letter said no use tax applied because the machines were only stored in California before being shipped to Seattle for use. Sales tax still applied.

Citations and references

• Sales and Use Tax Ruling 55, paragraph A-2-(b) and section D, referenced but not reproduced in the official source

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/495-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0560.pdf

Original ruling text

495.0560

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 30, 1954

A--- M--- & F--- Company
XXXX --- Avenue
--- XX, --- ---

Account:
Now:

XXXXXX
SZ --- XX-XXXXXX

Gentlemen:
This concerns your claim for refund of $679.80 tax on two wrapping machines sold to L--- U--- B---, Inc. California has bot a sales tax and a use tax. The sales tax applies to retail sales of tangible personal property in this State. A sale is defined as a transfer of title and, therefore, if goods are shipped to a California purchaser from an out-of-state destination with title passing at the point of shipment, the sale is not made in California and the sales tax does not apply. As indicated in paragraph A-2-(b) of Ruling 55 (copy enclosed), if the sale is made in California, the fact that the purchaser intends to transport the property outside this State prior to use and does so will not exempt the transaction from the sales tax. The use tax applies to the use in this State of tangible personal property which has been purchased for use in this state. The use tax does not apply to any transaction which is subject to the sales tax and therefore finds its principle application to purchases from out-of-state sources which are beyond the scope of the sales tax. Since the machines in question were only stored in California and were shipped to Seattle by the purchaser for use there, the use tax does not apply by reason of the second paragraph of Section D of Ruling 55. Accordingly, the problem is to determine whether title to the machine shipped from Buffalo to San Jose passed to the purchaser at Buffalo or in San Jose. We have a report from our San Francisco office showing the information contained in L---’s records. On November 17, 1950, L--- issued Purchase Order No. 32929 for one machine to be shipped to San Francisco f.o.b. Buffalo. On June 9, 1951, L--- issued Purchase Order No. 37466 for two machines to be shipped to San Jose f.o.b. Buffalo. In July 1951 L--- issued Purchase Order No. 37677 for one machine to be shipped to Seattle. Subsequently, L--- cancelled Purchase Order No. 37466 for two machines to be shipped to San Jose.

A--- M--- & F--- Company

-2-

April 30, 1954
495.0560

However, in spite of the cancellation, two machines were shipped to San Jose. In addition, one machine was shipped to Seattle. The machine shipped to Seattle was returned to you by L---. L--- accepted the two machines shipped to San Jose in satisfaction of Purchase Orders No. 32929 and 37677. Thereafter, L--- shipped the two machines in San Jose to Seattle without making any use of the machines in California. It is our opinion that title to the two machines shipped to San Jose did not pass to L--- when they were put on board a carrier in Buffalo because the machines were not shipped pursuant to a contract. There had been a purchase order to cover the two machines shipped to San Jose but the purchase order had been cancelled. Thus, title did not pass until L--- agreed to accept the two machines in satisfaction of their Purchase Orders No. 32929 and 37677. At the time this occurred the machines were in California. Since it appears that title to the machines passed after they arrived in California, the sales tax is applicable and the subsequent disposition of the machines by the purchaser does not render the sale exempt. We shall therefore recommend the denial of your claim for refund. We shall defer final action for 30 days to allow you to submit any additional facts or authorities. We enclose an extra copy of this letter for your convenience in corresponding with Langendorf. Yours very truly,

Bill Holden
Assistant Counsel

BH:ja
cc:

New York
San Francisco – Auditing (BHA)