Could a business recover tax paid on a packaging machine it never used and resold after failing to win the contract for which it bought the machine?

Plain-English summary

A business bought a packaging machine intending to use it if it won a particular contract and paid the applicable sales or use tax. When it did not obtain the contract, it sold the machine to a Seattle purchaser without ever using it.

California said the business was entitled to recover the tax paid on its original purchase because it resold the machine before making any use of it. The letter's instruction to the auditing office added that the buyer could obtain the benefit even if it had paid tax reimbursement to its vendor, through the tax-paid-purchase-resold treatment described there.

The later sale was a separate question. It was taxable if the seller delivered the machine to the Seattle buyer or the buyer's representative in California. It was exempt as an interstate sale if the seller shipped the machine to an out-of-state point using its own facilities or a carrier.

Common questions

Why was the original purchase tax refundable?

The machine was resold before the purchaser made any use of it.

Did paying the original tax to the vendor prevent recovery?

No. The internal instruction said the purchaser could still receive the benefit through treatment as a tax-paid purchase resold.

Was the resale to the Seattle buyer automatically exempt?

No. Exemption depended on the seller shipping the machine out of California. Delivery to the buyer or its representative in California made the resale taxable under the letter.

Citations and references

• No numbered statute, regulation, or case citation appears 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/495-0800.pdf

Original ruling text

495.0800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 12, 1954

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Attention:

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Gentlemen:
It appears from your letter of August 5 that you purchased a packaging machine, paying all sales tax or use tax thereon, intending to use the machine in the event you obtained a certain contract. You did not obtain the contract and sold the machine without ever using it to a purchaser in Seattle. Under these facts, you are entitled to a refund of the tax paid with respect to the purchase of the machine, as it was resold by you before you made any use of it. Sales tax, however, applies to your sale of the machine unless you sold it in interstate commerce to the Seattle purchaser. If you delivered it to the purchaser or his representative in this State, the tax applies. On the other hand, if you shipped it to him at a point outside this State by use of your own facilities or the facilities of a carrier, the sale is exempt as a sale in interstate commerce. In order that the amount of the refund may be determined and duly certified to the Board of Control, we will ask our San Francisco office to get in touch with you in order to verify the amount of any refund to which you are entitled. Very truly yours,

E. H. Stetson
Tax Counsel
EHS:tj
cc: San Francisco - Auditing = It appears that a refund is due the company of that amount of tax it paid with respect to the purchase of the machine. Even if tax were paid to the vendor, the refund still could be made to the company which could have taken deduction on its tax return as a taxpaid purchase resold. Please submit your recommendation.