Could an invoice statement prove that title passed before a retailer transported the goods?

Plain-English summary

California issued audit guidance after cases involving special printing aids and transportation by retailers' facilities where title timing controlled tax treatment.

When a sales invoice stated that title passed before transportation, auditors were directed to accept that statement as evidence confirming an explicit oral agreement made before the sale. Separately billed special printing aids were presumed sold before use. For aids not separately billed, an invoice statement that title passed at the printer's place of business indicated an explicit title agreement.

The rule did not make invoice wording conclusive regardless of reality. When title timing was disputed, the intent and actual practice of the parties remained relevant.

Common questions

Was a separate pre-sale written contract always required?

No. An invoice statement could confirm an explicit prior oral agreement.

Did the policy apply only to repeat customers?

The 1987 memorandum reports repeat dealings as the petitioners' argument, then gives the general invoice guidance. The 1996 review agreed with the invoice conclusion without separately deciding a repeat-customer requirement.

What else could auditors examine?

The parties' intent and course of practice.

Citations and references

• Cal. Com. Code § 2401 — default title passage upon completed delivery unless the parties explicitly agree otherwise
• Cal. Code Regs., tit. 18, reg. 1541(e) — special printing aids
• Cal. Code Regs., tit. 18, reg. 1628(b)(2) — retailer-facility transportation charges

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/557-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/557-0449.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
557.0449

To:

District Principal Auditors

From:

Glenn A. Bystrom
Principal Tax Auditor

Subject:

Regulations 1541 and 1628 – Passage of Title

Date:

August 13, 1987

Recently the Board heard several cases involving special printing aids and delivery charges where the time of passage of title was an important factor in determining what portion of the charges were subject to the tax. The regulations require that there be an explicit agreement between the parties that title passes to the purchaser prior to use of the special printing aids by the printer and prior to transportation of the property by facilities of the retailer. In the audits before the Board, there were no contracts or purchase orders available which explicitly passed title prior to use or transportation. The audit staff determined in the audtis involving printers that sales to the printers of special printing aids were not exempt as sales for resale. In the audits involving transportation, it was determined that title passed when the property was delivered. Section 2401 of the Commercial Code provides that title passes upon completion of the physical delivery of the goods unless the parties explicitly have agreed that title passes at some other time. The petitioners argued that because of their repeated dealings with certain customers, title clauses were not expressed in writing until the sales invoice was prepared. The Board ruled that all transactions be allowed as exempt for those sales made to customers where a title statement appeared on the invoice. Following are guidelines which are to be followed by the audit staff in future audits which involve these issues. In general, we should accept statements on the invoice as evidence of a confirmation that an explicit oral agreement was entered into prior to the sale. When there is a question as to time of title passage, we will look to the intent and the practice of the parties involved. Regulation 1541 – The application of tax to the sales and use of special printing aids remains as outlined in Regulation 1541, paragraph (e). If special printing aids are separately stated on the sales invoice, it will be presumed they are sold prior to use. If a taxpayer does not separately bill the special printing aids to the customer but has printed on sales invoices a statement to the effect that title to the special printing aids passes at the taxpayer’s place of business, we will accept this

District Principal Auditors

-2-

August 13, 1987
557.0449

as being within the meaning of Section 2401 of the Commercial Code and as an indication that there is an explicit agreement passing title at some time other than physical delivery. The tax status of the printed matter will not affect the tax status of the special printing aids; e.g., if the printed matter is shipped out of state, the sale of the special printing aids involved are taxable as a sale for use in California. If tax is not charged on the printed matter and the special printing aids are not separately stated, the sales price of the special printing aids will be determined as a percentage of the total sale. Whenever a specific resale certificate for printing aids is accepted in good faith by the printed, auditors should continue to prepare a form BT-1164 to be placed in the purchaser’s file for use in future audits of the purchaser. Regulation 1628 – When there is a question as to when title passes involving transportation charges, again the intent and the practice of the parties involved will govern. To clarify Regulation 1628, paragraph (b)(2), if the taxpayer has a statement on the sales invoices that title to the goods passes prior to transportation, we will consider this to be proof that there was an explicit agreement under Section 2401 of the Commercial Code that title did pass prior to shipment. If you have any questions, please contact me.

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Mr. R. Nunes
Mr. G. Jugum
Mr. P.K. Taylor
Headquarters Audit Supervisors

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
557.0449

To:

Mr. Glenn Bystrom

From:

Gary Jugum

Subject:

Non-Attorney Opinions

Date:

July 10, 1996

I have reviewed your memorandum of August 13, 1987 to District Principal Auditors. We are in agreement with his conclusion, as follows:

Passage of Title – Facilities of Retailer. If a taxpayer has a statement on the sales invoices that title to the goods passes prior to transportation, the Board will consider this to be proof that there was an explicit oral agreement entered into prior to the sale. 8/13/87

Gary Jugum
By MB