Did section 6009.1 exclude both free display racks and manufacturing-form materials later shipped out of California?

Plain-English summary

The memorandum found a taxable California use when a plywood manufacturer gave free display racks to out-of-state customers. The company bought the racks outside California, brought them here, and delivered them to a common carrier in California for shipment to the customers.

Because the company relinquished control to the carrier here, the memorandum treated the gift as made in California. Section 6009.1 therefore did not exclude the racks from use tax.

The second taxpayer received a different result. It bought steel and small parts under resale certificates, manufactured pipe-casting forms in California, and shipped every form to out-of-state divisions for sole use outside California. The memorandum concluded that no tax was due under section 6009.1 on those purchases.

Common questions

Did the racks avoid tax merely because their recipients were outside California?

No. The memorandum treated carrier delivery and the resulting gift as occurring in California.

Did manufacturing the forms in California defeat section 6009.1?

No, on the stated facts. The materials were bought under resale certificates and the completed forms were shipped out and used solely outside California.

Citations and references

• Cal. Rev. & Tax. Code § 6009.1 — exclusion applied differently to the rack gifts and manufacturing-form materials

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/570-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/570-0110.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
570.0110
To:

San Bernardino – Aud. (RLL)

From:

Hdqrs. – Tax Counsel (GLR)

Date:

E--- P--- Co.

SR -- XX XXXXXX

H--- C---

SR -- XX XXXXXX

January 28, 1974

This is in reply to your memo of December 38, 1973 in which you request our opinion with regard to the following situations concerning the above taxpayers: E--- P--- Co. manufactures and sells plywood. They also furnish wooden display racks to their wholesale customers without charge. The display racks are the subject of your question. These racks are purchases ex-tax from a firm in ---, Tennessee. They are shipped to California for distribution to E---’ customers. The display racks are then shipped to E---’ customers, who buy the plywood, without charge. We understand that E---’ customers are not required to purchase a certain amount of plywood before they will receive the racks. The shipments are made from California by common carrier. You ask whether the shipment of the display racks to out-of-state customers qualify for exemption from the use tax under Section 6009.1. As we discussed over the phone on January 21, it appears that the taxpayer by making delivery of the racks to the carrier in California relinquishes its control over the property here and thereby makes the gift in California. Accordingly, it is our opinion that the taxpayer has made a taxable use of the products in California. Your second question concerns H--- C---. H--- purchases plate steel, under resale certificates, from California vendors. This steel is used to manufacture forms for dry cast pipe at its local California plant. The forms are all shipped to out-of-state divisions for use out of state. No dry casting is done in California.

San Bernardino – Aud. (RLL)
SR -- XX XXXXXX
SR -- XX XXXXXX

-2-

January 28, 1974
570.0110

No inventory of steel is maintained and purchases are made as steel is needed. The purchase invoices are issued for the specific job number and when the invoice is received it is referenced to the job for which it was purchased. Each purchase is then recorded on a job card by invoice number and amount. Nuts, bolts, and miscellaneous small parts are purchased and charged to a common inventory account from which withdrawals are made as needed. Withdrawals for use in the manufacture of dry cast forms are charged to the specific jobs by use of withdrawal slips or requisitions. Your question is whether this property is exempt under Section 6009.1. It is our opinion that because of the wording of Section 6009.1 and because the items were purchased under a resale certificate and then later shipped to a point outside the state and used thereafter solely outside the state no tax is due. The only alternative we have is to tell the taxpayer to stop issuing such resale certificates and if he does not inform him that he can be subject to a misdemeanor charge and also the possibility of having his seller’s permit revoked.

GLR:lb
cc:

570.0110.doc

Mr. T. P. Putnam
Mr. J. Kenneth McManigal