Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2011
Sales And Use Tax Law
CHAPTER 3. THE USE TAX
Article 1. Imposition of Tax
6203. Collection by retailer. (a) Except as provided by Sections 6292 and 6293, every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state, not exempted under Chapter 3.5 (commencing with Section 6271) or Chapter 4 (commencing with Section 6351), shall, at the time of making the sales or, if the storage, use, or other consumption of the tangible personal property is not then taxable hereunder, at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser and give to the purchaser a receipt therefor in the manner and form prescribed by the board.
(b) As respects leases constituting sales of tangible personal property, the tax shall be collected from the lessee at the time amounts are paid by the lessee under the lease.
(c) "Retailer engaged in business in this state" as used in this section and Section 6202 means and includes any of the following:
(1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business.
(2) Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property.
(3) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in this state.
(4) (A) Any retailer soliciting orders for tangible personal property by mail if the solicitations are substantial and recurring and if the retailer benefits from any banking, financing, debt collection, telecommunication, or marketing activities occurring in this state or benefits from the location in this state of authorized installation, servicing, or repair facilities.
(B) This paragraph shall become operative upon the enactment of any congressional act that authorizes states to compel the collection of state sales and use taxes by out-of-state retailers.
(5) Notwithstanding Section 7262, a retailer specified in paragraph (4) above, and not specified in paragraph (1), (2), or (3) above, is a "retailer engaged in business in this state" for the purposes of this part and Part 1.5 (commencing with Section 7200) only.
(d) (1) For purposes of this section, "engaged in business in this state" does not include the taking of orders from customers in this state through a computer telecommunications network located in this state which is not directly or indirectly owned by the retailer when the orders result from the electronic display of products on that same network. The exclusion provided by this subdivision shall apply only to a computer telecommunications network that consists substantially of online communications services other than the displaying and taking of orders for products.
(2) This subdivision shall become inoperative upon the operative date of provisions of a congressional act that authorize states to compel the collection of state sales and use taxes by out-of-state retailers.
(e) Except as provided in this subdivision, a retailer is not a "retailer engaged in business in this state" under paragraph (2) of subdivision (c) if that retailer's sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than 15 days, in whole or in part, in this state during any 12-month period and did not derive more than one hundred thousand dollars (100,000) of net income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a "retailer engaged in business in this state," and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities.
(f) Any limitations created by this section upon the definition of "retailer engaged in business in this state" shall only apply for purposes of tax liability under this code. Nothing in this section is intended to affect or limit, in any way, civil liability or jurisdiction under Section 410.10 of the Code of Civil Procedure.
History.—Stats. 1957, p. 2019, in effect September 11, 1957, substituted "engaged in" for "maintaining a place of" in first paragraph and added last paragraph. Stats. 1965, p. 5448, operative August 1, 1965, added in the first paragraph "Except as provided by Section 6292 every" and "Chapters 3.5 or," and added second paragraph and (c). Stats. 1972, Ch. 973, effective August 16, 1972, inserted "and 6293" in the first sentence. Stats. 1984, Ch. 144, effective January 1, 1985, added "(commencing with Section 6271)" after "Chapter 3.5" and "(commencing with Section 6351)" after "Chapter 4" in first paragraph, deleted "of this part" before "shall" in first paragraph. Stats. 1987, Ch. 1145, effective January 1, 1988, added paragraphs (d), (e), (f), (g), (h), (i). Stats. 1988, Ch. 60, in effect March 30, 1988, added paragraph (j). Stats. 1992, Ch. 902, in effect September 25, 1992, operative January 1, 1993, substituted "salesperson" for "salesman" after "agent", added "independent contractor," after "canvasser," and added "installing, assembling" after "delivering," in subdivision (b). Stats. 1994, Ch. 851, in effect September 27, 1994, but operative January 1, 1995, added subdivision (k). Stats. 1995, Ch. 555, in effect January 1, 1996, substituted "and Section 6202" for "and the preceding" after "in this" in the third paragraph; substituted "that" for "which" after "advertising" in subdivision (e); added paragraph designation "(1)" before "Any retailer" and added paragraph (2) in subdivision (f); deleted former subdivision (g) which provided, "Any retailer owned or controlled by the same interests which own or control any retailer engaged in business in the same or similar line of business in this state"; relettered former subdivisions (h), (i), (j), and (k) as (g), (h), (i), and (j), respectively; added "or" after "(g)," and deleted ", or (i)" in subdivision (i); deleted "either (i)" after "date of", substituted "a congressional act" for "S. 1825 of the 103rd Congress of the United States" after "provisions of", and deleted "or (ii) substantially similar provisions of another Congressional act" after " retailers" in subparagraph (A) of paragraph (1) of subdivision (j). Stats. 1997, Ch. 620 (SB 1102), in effect January 1, 1998, deleted former subdivision (e) which provided, "Any retailer who, pursuant to a contract with a broadcaster or publisher located in this state, solicits orders for tangible personal property by means of advertising that is disseminated primarily to consumers located in this state and only secondarily to bordering jurisdictions,"; deleted former subdivision (h) which provided, "Any retailer who, pursuant to a contract with a cable television operator located in this state, solicits orders for tangible personal property by means of advertising which is transmitted or distributed over a cable television system in this state,"; relettered former subdivisions (f), (g) and (i) as (e), (f) and (h), respectively; and substituted "or (f)" for "(f), (g) or (h)" in subdivision (g). Stats. 1997, Ch. 621 (AB 258), in effect October 3, 1997, operative April 1, 1998, added subdivision letter designations (a), (b) and (c) before first, second and third paragraphs, respectively; numbered former subdivisions (a), (b), (c), (d), and the second paragraph of former subdivision (d), and subdivisions (e), (f), and the second paragraph of former subdivision (f), subdivision (g) and (h) as (1), (2), (3), (4), (5), (6), (7), (8), and (9), respectively; added paragraph (5), added subparagraph letter (A) and (B) before the first and second paragraphs of paragraph (6), respectively, substituted "paragraph" for "subdivision" after "(B) This" in subparagraph (B) paragraph (6), added paragraph (8), substituted "paragraph (4), (5), (6), (7), or (8)" for "subdivision (d), (e), or (f)" after "specified in" in paragraph (9), and substituted "paragraph (1), (2), or (3)" for "subdivision (a), (b), or (c)" after "specified in" in paragraph (9) of subdivision (c); and added subdivision (e). Stats. 1998, Ch. 351, in effect January 1, 1999, deleted former paragraph (5) which provided, "Any retailer who, pursuant to a contract with a broadcaster or publisher located in this state, solicits orders for tangible personal property by means of advertising that is disseminated primarily to consumers located in this state and only secondarily to bordering jurisdictions", deleted former paragraph (8) which provided, "Any retailer, who pursuant to a contract with a cable television operator located in this state, solicits orders for tangible personal property by means of advertising that is transmitted or distributed over a cable television system in this state", renumbered former paragraphs (5), (6), (7), (8) and (9) as (5), (6) and (7), and made conforming paragraph numbering changes within paragraph (7) of subdivision (c); deleted "earlier of the following dates: (A) The" after "inoperative upon the" in paragraph (2) and deleted former subparagraph (B) which provided, "The date five years from the effective date of the act adding this subdivision." of paragraph (2) of subdivision (d); and added subdivision (f). Stats. 1999, Ch. 865, (SB 1302), in effect January 1, 2000, deleted former paragraph (4) of subdivision (c) which provided, "Any retailer soliciting orders for tangible personal property by means of a telecommunication or television shopping system (which utilizes toll free numbers) which is intended by the retailer to be broadcast by cable television or other means of broadcasting, to consumers located in this state."; deleted former paragraph (6) of subdivision (c) which provided, "Any retailer having a franchisee or licensee operating under its trade name if the franchisee or licensee is required to collect the tax under this section."; deleted "(5), or (6)" after "paragraph (4)" of former paragraph (7); and renumbered former paragraphs (5) and (7) as (4) and (5) in subdivision (c). Stats. 2000, Ch. 617 (AB 330), in effect September 24, 2000, operative January 1, 2001, substituted "15" for "seven" after "for more than", substituted "one hundred" for "ten" after "derive more than", substituted "one hundred thousand dollars ($100,000) of net" for "ten thousand ($10,000) of gross" after "derive more than" in subdivision (e); and substituted "Any limitations . . . Civil Procedure" for "The Legislature finds and declares that the deletion of language by the act adding this subdivision that was contained in paragraphs (5) and (8) of subdivision (c) is intended to codify the holdings of recent court cases" in subdivision (f).
Constitutionality, construction.—The requirement that retailers collect the tax is valid. A foreign corporation not qualified to do intrastate business in California, but represented in this state by two general agents, each of whom occupies an office leased by the corporation and used exclusively for the furtherance of its business, maintains a place of business in this state and may be required to collect the tax. Felt & Tarrant Manufacturing Co. v. Gallagher (1939) 306 U.S. 62.
Purchaser's liability to retailer.—The primary liability for the tax is upon the purchaser. Consequently, when a retailer pays an amount of tax to the state in satisfaction of the liability imposed on him by this section, the law implies an obligation on the part of the purchaser to reimburse the retailer for the amount so paid. Brandtjen & Kluge v. Fincher (1941) 44 Cal.App.2d Supp. 939.
What constitutes maintaining place of business.—A foreign law book publishing company is maintaining a place of business and making sales in this state and, therefore, required to collect the use tax from its customers, where it maintains large libraries in law offices in the state, in return for the use of which its salesmen are allotted office space, which it advertises as its local addresses, where in response to continuous solicitation of orders there is a regular flow of books into this state, and where its salesmen receive initial installment payments, exercise a limited discretion in respect of collections on delinquent accounts, and frequently consummate sales to customers to whom unordered books are sent. West Publishing Co. v. Superior Court, San Francisco (1942) 20 Cal.2d 720.
Requiring the law book publishing company described in the preceding paragraph to collect the use tax with respect to mail order sales to customers in this state as well as with respect to sales resulting from solicitation by its employees here does not violate either the Commerce Clause or the Fourteenth Amendment of the Federal Constitution. People v. West Publishing Co. (1950) 35 Cal.2d 80.
Insurance company not exempted.—An insurance company is not relieved from the responsibility of collecting a use tax by the constitutional provision exempting it from state sales taxes, when it sells automobiles belonging to it to private individuals, since the use tax is paid by the ultimate purchaser, not the insurance company. Beneficial Standard Life Ins. Co. v. State Board of Equalization (1962) 199 Cal.App.2d 18.
Liability of retailer.—National bank which retailed checks to depositors and failed to collect the use tax due must pay the same from its own funds. Bank of America v. State Board of Equalization (1962) 209 Cal.App.2d 780.
Sale outside state and leased back instate.—Where a California retailer sold two oil tankers with title and possession passing out of state and where the vessels were immediately leased back to the retailer and were used in California in intrastate commerce, the court held that the retailer was liable for the collection of the use tax. Union Oil Co. v. State Board of Equalization (1963) 60 Cal.2d 441, appeal dismissed, 377 U.S. 404.
Out-of-state border stores do not have to collect use tax on over-the-counter credit sales.—A retailer otherwise engaged in business in California does not have to collect California use tax on over-the-counter credit sales at the retailer's stores in Klamath Falls, Oregon, and Reno, Nevada, to customers with charge accounts bearing a California address. Montgomery Ward & Co. v. State Board of Equalization (1969) 272 Cal.App.2d 728, cert. denied (1970) 396 U.S. 1040.
Seller's in-state offices not related to mail order sales.—An out-of-state seller must collect use tax on its mail order sales, even though the seller's in-state offices only solicited advertising which was unrelated to the mail order sales. The seller's offices gained advantages of municipal services, and satisfied commerce clause and due process requirement of some definite link, or minimum connection, between the state and the retailer. National Geographic Society v. California Board of Equalization (1977) 430 U.S. 551.
Tax Injunction Act No Bar to Federal Jurisdiction.—A direct mail advertising and trade association brought an action, based on the Commerce Clause and the Due Process Clause of the U.S. Constitution, challenging the requirement that interstate mail order retailers collect use tax from their California customers. The court held that the Tax Injunction Act did not apply to bar federal jurisdiction over the matter. It rejected the Board's argument that the association members had a plain, speedy, and efficient remedy under state law since they could pay the contested taxes and file for a refund. Direct Marketing Association, Inc. v. Bennett (9th Cir., 1990) 916 F.2d 1451.
Retailer's use of teachers to solicit orders from students.—The taxpayer's use of teachers and school librarians to solicit sales from students constituted sufficient nexus to require the taxpayer to collect use taxes imposed on the students' purchases. Once the teachers and librarians undertook to solicit orders, they were acting under the taxpayer's authority as its agents and taxpayer owed tax measured by the selling price to the students. Scholastic Book Clubs, Inc. v. State Board of Equalization (1989) 207 Cal.App.3d 734.
Related corporation's liability for use tax collection.—A corporation who had no physical presence in California was not required to collect use tax under former subdivision (g) based on the physical presence of a related corporation in California. Current, Inc. v. State Board of Equalization (1994) 24 Cal.App.4th 382.
Online retailer had sufficient presence in state through representative accepting purchaser's returns.—An out-of-state retailer must collect use tax arising from its sales, where its in-state representative accepts returns from the retailer's purchasers. The in-state representative was authorized to take the returns, and the taking of returns is part of the selling process. Borders Online, LLC v. State Board of Equalization (2005) 129 Cal.App.4th 1179."