Which shipping-document title clause passed title before delivery by both a third-party carrier and the seller's own truck?

Plain-English summary

A seller of copiers, plotters, and supplies wanted title to pass at its warehouse before transportation. Customers could pick up, request a third-party carrier, or use the seller's own delivery vehicles for a nominal separately stated charge.

California approved “Title: passes prior to shipment” and “Title: to buyer prior to shipment” for all of those methods. It preferred the second phrase because it identified the buyer explicitly.

“Title: passes FOB warehouse” and “Title: to buyer FOB warehouse” were sufficient when a third-party carrier delivered, but not when the seller used its own vehicles.

Common questions

Which clause did the opinion prefer?

“Title: to buyer prior to shipment.”

Was “Title: passes prior to shipment” also sufficient?

Yes.

Why were the f.o.b.-warehouse clauses inadequate?

They did not establish pre-shipment title when the seller delivered in its own vehicles.

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/557-0603.pdf

Original ruling text

557.0603

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

450 N STREET - SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE: (916) 445-3723
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
_______

May 15, 1997

JOHN CHIANG
Acting Member
Fourth District, Los Angeles
_______

Mr. J--- M. C--Vice President Finance
C--- R--XX --- Avenue
---, CA XXXXX

E. L. SORENSEN, JR.
Executive Director

Dear Mr. C---:
This is in response to your letter of May 2, 1997.
You have requested our opinion in regard to a “title clause” you intend to print on shipping documents to buyers of your equipment and supply items. We understand that C--- R- sells small copiers, plotters and consumables to end users, mainly within a 30 mile radius of your warehouse. It is your intention, and the intention of your buyers, that title is to pass at the warehouse, i.e. prior to shipment. The customer has a choice for transportation from your warehouse to their location. They can ask you to ship by a third party carrier, pick up themselves, or have you deliver a product in your own delivery vehicles. If you deliver, a nominal charge is added to your invoice. Transportation is to occur after the sale of the property is made to the purchaser and is separately stated on the delivery invoice. You want to state correctly the title clause on the deliver invoice, so that the transportation charges are not subject to tax. You have asked us if any or all of the following four clauses would be acceptable to the Board as a “title clause” for purposes of excluding your transportation charge from sales tax:

1. “Title: passes FOB warehouse”
2. “Title: passes prior to shipment”
3. “Title: to buyer FOB warehouse”
4. “Title: to buyer prior to shipment”

Mr. J--- M. C---

-2-

May 15, 1997
557.0603

Clause 2 and Clause 4 will accomplish your purpose. Your problem occurs when you deliver by your own trucks. Only Clause 2 and Clause 4 establish that in that circumstance title of the property passes to the buyer prior to shipment. The FOB clauses are sufficient to pass title when delivery is by a third party carrier, but they are not sufficient when delivery is by your own delivery vehicles. In order to accurately reflect the agreement between you and your buyers that title is to pass to the buyer prior to shipment in all cases, you should use Clause 2 or Clause 4. Clause 4 is preferable, because it is more explicit, but Clause 2 is sufficient. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel

GJJ:sr
bc:

Mr. David H. Levine
Mr. Ronald L. Dick
Ms. Candice McCanne