Could machinery bought outside California be used here before shipment to an out-of-state facility without creating use tax?

Plain-English summary

The letter addressed machinery moving between a parent corporation and an affiliated company. If the parent bought machinery for resale and sold it to the affiliate in California, that transaction was a taxable retail sale.

If the affiliate instead bought machinery outside California, it could test the machine here for defects before shipping it out of state without creating the use described as taxable in the letter. Any California production use, however, was taxable.

The official annotation summary also discusses employee training and burn-in, but those facts and conclusions do not appear in the linked supporting letter. This page therefore does not attribute them to the source document.

Common questions

What California activity did the letter allow before shipment?

Testing the machine for defects.

Could the machine produce goods during its California stay?

No without tax. The source expressly treated production use as taxable California use.

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/570-0410.pdf

Original ruling text

570.0410

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

August 23, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. M--- M--I--- C--XXXX --- ----- ---, CA XXXXX-XXXX
Dear Mr. M---:
Re:

SY -- XX-XXXXXX

As Senior Tax Auditor William E. Hageman, Jr. noted in his March 18, 1993 letter to you, he sent a copy of the letter to the Board's legal staff for comments. We agree with the conclusions Mr. Hageman reached in his letter with the following notes. If I--- C---, the parent corporation, purchases the machinery for resale, the sale by I--- C-- to I--- I--- in this state is a retail sale subject to sales tax. If I--- I--- purchases the machine outside California, it must not make any use of the machine in this state other than testing for defects before shipping the machine to [out of state]. Any use of the machine for production purposes is a taxable use of the machine in this state. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Staff Counsel
RLD:plh