Were sales to Puerto Rico's Economic Development Administration exempt from California sales tax in 1980?
Apply this to your situation
This page answers the general question as of 1980. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
California considered whether sales to Puerto Rico's Economic Development Administration were exempt under the rule for sales to the United States and its instrumentalities.
The Board said the post-1952 case law on Puerto Rico's status was inconclusive. It nevertheless followed a May 5, 1980 U.S. Department of Justice opinion that commonwealth status had not changed Puerto Rico's fundamental political relationship with the United States and that Puerto Rico remained an unincorporated federal agency or instrumentality.
On that interim basis—and expressly pending clearer legislation or case law—California treated sales to the Economic Development Administration as exempt under Revenue and Taxation Code section 6381.
What this means for you
Vendors to Puerto Rico entities and tax advisers
This is a historically qualified conclusion, not a timeless rule. Verify the exact purchasing entity and current federal and California authority before claiming exemption.
Common questions
Q: Did California find the governing case law settled?
A: No. It called the law inconclusive.
Q: Why did it allow the exemption?
A: It adopted the U.S. Department of Justice's instrumentality position pending further authority.
Q: Which purchaser was at issue?
A: Puerto Rico's Economic Development Administration.
Citations and references
- California Revenue and Taxation Code § 6381
- May 5, 1980 U.S. Department of Justice letter described in the opinion
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 505.0730
- Original supporting opinion: 505.0730 PDF
Original ruling text
505.0730
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
(916) 445-3723
October 7, 1980
Dear Governor:
Commonwealth of Puerto Rico
This is in regard to the question of whether California sales tax applies to sales to the Economic Development Administration (EDA) of Puerto Rico. We regret our delay in responding. The inconclusive case law on this question necessitated extensive research. While the case law on the question of the status of Puerto Rico after 1952 is inconclusive, the United States Department of Justice has now committed itself to the position that the Commonwealth of Puerto Rico is an unincorporated agency or instrumentality of the United States. We have received a letter dated May 5, 1980, from Assistant Attorney General M. Carr Ferguson agreeing with your position that California sales tax does not apply to the sales to the EDA. His opinion is based on the conclusion that Puerto Rico’s fundamental political relationship to the United States was not changed by Puerto Rico’s obtaining commonwealth status. We have decided, pending further legislation or case law clarifying Puerto Rico’s status, to accede to the United States Department of Justice’s opinion that Puerto Rico is still an agency or instrumentality of the United States Government. Therefore, sales to the EDA are within the exemption provided by Section 6381 of the California Revenue and Taxation Code and are not subject to California sales tax. Sincerely,
Gary J. Jugum
Assistant Chief Counsel
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