Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Engs Motor Truck Co. v. State Board of Equalization . . . (1987)

Sales Tax Exemption for Interstate Shipments Requires Actual Out-of-State Delivery

Taxpayer, a retail truck dealer, sold 42 trucks for shipment by a carrier to designated Arizona locations where deliveries to the buyers were to have occurred. The bills of lading showed Arizona delivery points, and the buyers each certified on Department of Motor Vehicles forms that delivery to the buyer occurred in Arizona. However, the carrier in fact delivered the trucks to the buyers in California.

The Board assessed sales tax against the taxpayer on the grounds that Revenue and Taxation Code Section 6396 requires actual out-of-state delivery as a condition of the sales tax exemption for interstate shipments. The taxpayer contended that (1) Section 6396 only requires actual delivery to the carrier for out-of-state shipments, and (2) if the sales were not exempt, the buyer's certificates attesting to out-of-state delivery shifted the tax liability to the buyers under Revenue and Taxation Code Section 6241 (purchaser is liable for sales tax if he certifies his use of the property exempts the seller from sales tax, but uses the property for some other purpose).

The court of appeal held in favor of the Board. Section 6396 requires actual out-of-state delivery to the buyer, and the Board's Regulation 1620 correctly interprets Section 6396 to apply sales tax where the buyer takes delivery in the state, regardless of the documentary evidence held by the seller. The tax liability was not shifted to the buyers under Section 6241 because the buyers only certified that they took delivery out of state, not that they used the property for an exempt purpose following delivery. Engs Motor Truck Co. v. State Board of Equalization (1987) 189 Cal.App.3d 1458.