Was a California sale exempt when the buyer's own contract-carrier division accepted the property and hauled it to Florida?

Plain-English summary

The California sale was taxable even though the buyer's contract-carrier division immediately hauled the property to Florida for use by another division. Delivery to that division was actual delivery to the buyer in California.

Section 6396 allowed the purchaser to select a carrier for required out-of-state shipment, but the carrier had to be separate and distinct from the purchaser. The rule did not let the buyer accept California delivery through its own division and then convert the sale into an exempt interstate shipment.

The letter also rejected the section 6385 theory because, under the law then applied, that provision covered qualifying sales to common carriers rather than the contract carrier described.

Common questions

Did the buyer's Interstate Commerce Commission permit change the result?

No. Contract-carrier authority did not make the buyer's own division a separate delivery carrier for section 6396.

What fact made the sale taxable?

The purchaser accepted delivery in California through its own division.

Would hiring a separate carrier be different?

Potentially. The letter described section 6396 as allowing purchaser-arranged shipment through a separate carrier without allowing actual California delivery to the purchaser.

Citations and references

• California Revenue and Taxation Code section 6396 — out-of-state shipment exemption analyzed
• California Code of Regulations, title 18, section 1620(a)(3) — California delivery rule applied
• California Revenue and Taxation Code section 6385 and Regulation 1621 — historical common-carrier exemption rejected for the contract carrier
• Pope v. State Board of Equalization, 202 Cal.App.3d 73 (1988) — separate-carrier and purchaser-delivery interpretation quoted

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/500-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/500-0060.pdf

Original ruling text

500.0060

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-6450
May 4, 1990

Dear
The California State Board of Equalization's Out-of-State District Office has asked that the legal staff provide an opinion as to the application of sales tax to retail sales of tangible personal property in California to Corporation. We understand that _ Transportation, a division of _Corporation, would accept delivery of the property in California and would transport the property to Florida for
_ Corporation's use in that state. We also understand that _ Corporation holds Interstate Commerce Commission Permit Number _ which provides _ Corporation with authority to engage in transportation as a contract carrier by motor vehicle. A January 31, 1990 letter to _ Corporation from this Board’s Out-of-State District Office implied that such sales to _ Corporation under the facts you described would be exempt from sales tax under Revenue and Taxation Code section 6396, which provides: “There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property which, pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer by means of: (a) facilities operated by the retailer, or (b) delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point. “For purposes of this section, the term 'carrier' shall mean a person or firm engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term 'forwarding agent' shall mean a person or firm engaged in the business of preparing property for shipment or arranging for its shipment.” We disagree that the sales to _ Corporation are nontaxable. California sales tax is imposed upon retailers for the privilege of making retail sales of tangible personal property in California. We believe that sales by California retailers to a contract carrier are subject to sales tax notwithstanding that the carrier would transport the property out of state for use at an out-of-state location. Sales and Use Tax Regulation 1620 provides the Board’s interpretation of when sales

500.0060

applies to the sale of property to be taken out of state. The relevant part of subdivision (a)(3)(A) of the regulation provides: “Except as otherwise provided in (B) below, sales tax applies when the property is delivered to the purchaser or the purchaser's representative in this state, whether or not the disclosed or undisclosed intention of the purchaser is to transport the property to a point outside this state, and whether or not the property is actually so transported….” Subdivision (a)(3)(B) generally provides for the section 6396 exemption. The regulation reflects an interpretation of section 6396 by the Board that, while the section allows a seller and purchaser to avoid sales tax by contracting for the out-of-state shipment of property, and while the shipment may be by a carrier hired by the purchaser, it does not allow the exemption when property is delivered to the purchaser in this state. (Pope v. State Board of Equalization, 202 Cal. App. 3d 73.) As the court stated in the Pope case, “The regulation thus interprets Section 6396 as creating only a limited agency allowing the purchaser to arrange out-of-state shipments by carriers or agents of his choice but not allowing actual delivery of the property to him in California.” (Id. at p. 80.) We believe that the carrier must be an entity separate and distinct from the purchaser itself. We therefore believe that section 6396 does not provide a basis for an exemption from sales tax when the retailer sells tangible personal property at retail in California to a contract carrier which accepts delivery of the property in this state and transports the property to a point outside California. The letter issued by the Out-of-State District Office also indicated that Sa1es and Use Tax Regulation 1621, Sales to Common Carriers, may be applicable to these facts. Again, we disagree. Regulation 1621 interprets Revenue and Taxation Code section 6385 and pertains solely to certain sales of tangible personal property to "common carriers” rather than to contract carriers such as
__ Corporation.
We hope this answers your questions; however, if you need further information, feel free to write directly to this office.

Very truly yours,
Ronald L. Dick
Tax Counsel
Enc. – Regs. 1620 and 1621
cc: Out-of State District Administrator