Did sending installation drawings to a customer's California office create use tax before the drawings went to the out-of-state installation site?

Plain-English summary

A Pennsylvania manufacturer shipped instruments to a customer's Utah location but sent the installation instructions and dimension drawings to the customer's California office. The customer planned to forward those materials to Utah for installation.

California said mere retention in the state followed by shipment for sole out-of-state use did not create use tax. But if the customer used the drawings here—for example, to instruct engineers or workers before installation—use tax applied.

The letter could not decide the result without knowing the actual California activity. It also left a possible sales-tax issue unresolved because it lacked full transaction details.

Common questions

Was physical presence in the California office enough by itself?

No. Mere retention before out-of-state shipment was distinguished from functional use.

What California activity would trigger tax?

Using the drawings or instructions to train or instruct engineers or workers.

Citations and references

• Cal. Rev. & Tax. Code §§ 6201 and 6202 — use-tax imposition cited by the source
• Cal. Rev. & Tax. Code § 6009 — definition of use cited by the source
• Cal. Rev. & Tax. Code § 6009.1 — sole out-of-state-use exclusion applied by the source
• Sales and Use Tax Ruling 55 — possible sales-tax issue identified but not resolved

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/570-1260.pdf

Original ruling text

570.1260

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 4, 1953

A--- M--- C---, Incorporated
P--- M--- W--XXX --- ----- --- X, California

Your letters of November 19
and February 18
SZ -- XX XXXXXX

Gentlemen:
We regret that your letter of November 19 was not answered earlier, but it was inadvertently misplace. You ask whether the California use tax should be charged on certain items. You state that you shipped instruments from your factory in [city], Pennsylvania, to your customer’s location in
[city], Utah. However, the installation instructions and dimension drawings for these instruments were sent to the customer’s [California] office. This material will subsequently be sent by your customers to their [Utah] location for use in the installation of equipment. You state that since these drawings and instructions will be used outside California, you do not believe the use tax should be charged when billing for them. For your information we enclose a pamphlet copy of the California Sales and Use Tax Law and direct your attention to Sections 6201 and 6202 which impose a use tax upon the storage, use, or other consumption in this State of tangible personal property purchased from a retailer for storage, use or other consumption in this State. Section 6009 defines use as including the exercise of any right or power over tangible personal property incident to the ownership of that property. Section 6009.1 provides that storage and use do not include the keeping, retaining, or exercising of any right or power over tangible personal property shipped or brought into this State for the purpose of subsequently transporting it outside this State for use thereafter solely outside this State. Therefore, it would seem that whether these drawings are or are not subject to use tax will depend upon the use to which your customers put them in the State of California.

A--- M--- C---, Incorporated

-2-

March 4, 1953
570.1260

If they are merely retained in this State and then sent outside the State for use in installing the equipment, the use tax would not apply. However, if these drawings or instructions are put to any use in this State such as use in instructing engineers or workmen in connection with the installation of the property prior to its installation, then use tax would apply. From your letter we cannot inform you definitely whether or not the use tax applies, but you or your customer should be in a position to determine that matter from the use, if any, to which the drawings and instructions were put in this state. The above discussion has been limited to the application of the use tax to the transaction. Since we do not have the full details of the transaction, we cannot determine whether or not there is a sales tax problem involved. Therefore, we enclose a copy of our Ruling 55 and direct your attention to Section A 2 (b) of that ruling, which may or may not be applicable. If you have any further questions, please feel free to call upon us. Very truly yours,

E. H. Stetson
Tax Counsel

JHM:tj

cc:

--- --- – Auditing