Was steel piling exempt as an interstate sale when the buyer borrowed piling for an Arizona job and had the vendor replace it by delivery in California?

Plain-English summary

A steel vendor sold 280 tons of piling for an Arizona project. It delivered 194 tons to Arizona, but a rolling backlog delayed the remaining 86 tons. The buyer obtained those 86 tons from a California firm and directed the vendor to replace them by delivering an equal quantity to that firm in Compton, California.

California concluded that the replacement portion was taxable. Although the vendor received payment from its buyer, it physically delivered the 86 replacement tons in California. That delivery prevented the transaction from qualifying as an exempt interstate sale.

The Board said the same result followed even if the buyer's transfer to the California firm were characterized as a resale. Under section 6007 as described in the letter, the vendor's California delivery caused its sale to be deemed retail. The Board saw no basis for exemption unless the California recipient acquired the replacement material solely for resale. Tax paid on the piling that had originally been loaned did not exempt the separate replacement sale.

Common questions

Did the Arizona destination of the construction project exempt all 280 tons?

No. The letter separated the 86 replacement tons because the vendor delivered them to a recipient in California.

Did calling the first transfer a loan and the later delivery a replacement avoid tax?

No. The Board focused on the vendor's California delivery of the replacement property.

What if the buyer was reselling the replacement material to the California firm?

The letter still treated the vendor's sale as retail under section 6007 because delivery occurred in California, unless the California firm acquired the material solely for resale.

Did tax paid on the originally loaned piling exempt the replacement?

No. The Board said that supplied no legal basis to exempt the vendor's separate replacement sale.

Citations and references

• California Sales and Use Tax Law § 6007, as described in the 1956 letter

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/495-0640.pdf

Original ruling text

495.0640

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 24, 1956

X----------------------

Dear Mr. X-----------------:
This is in reply to your letter of January 27 in which you request information concerning your liability for State sales tax upon a sale of 280 tons of steel piling to X----------------, Inc. You state that you made delivery of 194 tons of this material to the projects in Arizona, but that the balance of 86 tons could not be delivered immediately due to a backlog in mill rolling schedules. Because your customer needed the material immediately, it “borrowed” the 86 tons from X--------------------. Your customer requested you to make your final delivery of the 86 tons to X--------------- at Compton, California. As we understand it, X----------------- retained this material in replacement of that which it had “loaned” to X-----------------, Inc. It appears, therefore, that while you received payment for the 86 tons from X--------------------, you delivered it to X--------------- at a point in this State. Thus, your sale of this material is not exempt from sales tax as an interstate sale. Even if it might be said that your sale to X--------------------, was a sale for resale to X------------------ you made delivery in this State to X---------------- and thus you are required by specific provisions of Section 6007 of the Sales and Use Tax Law to pay the sales tax on the retail selling price, as under that section your sale is deemed a retail sale. Therefore, unless X----------------- acquired this material solely for the purpose of resale, there appears to be no legal basis to excuse you from payment of the applicable sales tax. The fact that X--------------- may have paid tax upon its acquisition of that piling which it delivered to X------------------ provides no legal basis for the exemption from tax of your sale of the material which replaced that delivered to X------------------. We note your statement that our Los Angeles office is of the opinion that the material is not taxable. Unless there are facts not yet called to our attention, we are unable, for the reasons heretofore stated, to advise that the tax does not apply.

Very truly yours,

E. H. Stetson
Tax Counsel
EHS:ds
cc:

Los Angeles – Administrator

Please note that this taxpayer states that your office expressed the opinion that the tax would not apply to the steel piling in question. If you have any information differing from ours which might permit a different conclusion, please let us know.