Could an Oregon distributor buy a truck part tax-free in California and attach it while delivering the truck to a Mexico City customer?

Plain-English summary

California considered an assumed transaction in which an Oregon distributor sold a truck in its regular business to a Mexico City customer, remained responsible for delivery, retained risk of loss, and kept title until the customer received the truck. During delivery, the distributor bought an additional part in California and attached it to the truck.

On those facts, the distributor could buy the part without tax for resale. The part became a component of tangible personal property that the distributor still owned and was selling in its regular business, so the supplier's sale of the part was not a taxable retail sale under the then-current ruling cited by the letter.

The distributor was to give the California supplier a resale certificate. Because it was not engaged in business and had no place of business in California, it could make an appropriate notation instead of providing a seller's permit number under the cited procedure.

The answer was conditional. If title had already vested in the Mexico City buyer before delivery, or if other facts differed, the letter warned that California use tax on the truck or retail sales tax on the added part might result.

Common questions

Why did the part qualify for resale treatment?

It became a component of the truck while the distributor still owned the truck and held it for sale in the regular course of business.

What documentation did the distributor need?

A resale certificate. The letter allowed an out-of-state notation in place of a California seller's permit number because the distributor had no California business location.

Would the same result apply if the customer already owned the truck?

Not necessarily. The source warned that earlier title passage could make the part a taxable retail sale and could raise California use-tax issues.

Citations and references

• Sales and Use Tax Ruling 14, second paragraph, referenced but not reproduced in the official source
• Sales and Use Tax Ruling 68, 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/495-0940.pdf

Original ruling text

495.0940

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
October 5, 1953

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Attention:

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Gentlemen:
We are not certain as to the exact nature of your inquiry. However, we have assumed that the following is a statement of facts about which you are concerned. An Oregon distributor contracts to sell a truck in the regular course of his business to a person in Mexico City. The distributor is required to deliver the truck to the vendee and title to the truck will not pass to the vendee until the latter receives it, risk of loss being on the distributor during shipment. While the truck is being delivered, an additional part is purchased for it in this State and attached to the truck. Assuming the above facts, the Oregon distributor may purchase the additional part ex tax for resale since the part is merely becoming a component part of tangible personal property to be sold by the purchaser in the regular course of his business. Therefore, the sale of the addition is not a taxable retail sale. See the second paragraph of Sales and Use Tax Ruling 14 (copy enclosed). Accordingly, the Oregon distributor should furnish the supplier of the addition with a resale certificate in accordance with Ruling 68 (copy enclosed). As the Oregon distributor is not engaged in business in this State and does not maintain a place of business in this State, he may make an appropriate notation to that effect in lieu of a seller's permit number in accordance with the third paragraph of that ruling. You realize that, if title to the truck was vested in the buyer prior to delivery to Mexico City, or, if the facts are otherwise different than we have assumed, there is a distinct possibility that other tax consequences are involved relating to possible use tax liability on the use of the truck in this State and relating to the possibility that the sale of the addition is a taxable retail sale. Accordingly, if you have any further questions, we would appreciate it if you would outline the transaction in detail.

Yours very truly,

W. W. Mangels
Assistant Counsel
WWM:ja
cc:

Unit #7