Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Montgomery Ward & Co. v. State Board of Equalization . . . (1969)

Border Stores Not Required to Collect Tax from California Customer where Sale and Delivery Take Place Outside California

Plaintiff was an Illinois corporation with a nationwide retail sales business. It maintained a regional administrative office in Oakland, California, for a region which encompassed its stores in Reno, Nevada and Klamath Falls, Oregon.

The Board required plaintiff to collect use tax with respect to over-the-counter credit sales made to California residents at its stores in Nevada and Oregon where delivery was made to the California customers at the Nevada and Oregon locations. Plaintiff had not collected use tax with respect to such sales even though its credit files indicated that the customers had California addresses.

The court of appeal held that since there was no relationship between the retailer's general activities in California and the generation of sales by its border stores, and since the border stores received no opportunities, protection, or benefits from California that were sufficient to allow California to burden sales to its residents completed outside its jurisdiction, the due process clause of the fourteenth amendment of the U.S. Constitution precluded California from requiring that plaintiff collect the use tax on over-the-counter cash or credit sales made at its Nevada and Oregon stores.

The court also concluded that the purchaser and the retailer could properly object to the imposition of the use tax with respect to sales in Nevada as violating the commerce clause of the U.S. Constitution because there was no credit given against use tax liability for sales tax paid in Nevada. The court concluded purchasers and retailers in Oregon, however, could not properly make the same objection to imposition of the use tax because there was no risk of multiple taxation—Oregon had no sales tax.

The use tax collection duty was held to violate the commerce clause with respect to sales in Oregon and Nevada because California contributed nothing to the sales at issue but the home residence of the purchasers. This contribution was not sufficient to support the burden of use tax collection.

The court further held that the imposition of the use tax collection duty on out-of-state stores of multi-state retailers, but not on out-of-state stores of local merchants, was inherently discriminatory and denied plaintiff equal protection and uniform operation of the law as provided in the United States and California constitutions. Montgomery Ward & Co. v. State Board of Equalization (1969) 272 Cal.4th 728, cert den., 396 U.S. 1040.