Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 175.0125

175.0125 Local Participation in Sale or Delivery of Goods. Company A issued purchase orders for equipment to Company C, an out-of-state company that maintained a sales office in California. All shipments were CIF Company A's plant site, (CIF is defined in Uniform Commercial Code section 2320 to mean "cost of the goods and the insurance and freight"). Shipments originated from Company D, a foreign manufacturer who is related to Company C. The prices on the purchase orders were specified to include customs duty, handling, insurance, ocean freight, and installation or erection where applicable. The invoices were issued by Company D and specified that the equipment remained the property of Company D until full payment was received. Typically, payment was thirty percent down, sixty percent upon arrival of the equipment in California, and the remainder upon the completion of the installation, erection, or start-up. The invoices also specified that the sixty percent payment was to be made directly to Company C. Installation and start-up services were to be performed by Company C and were to be billed separately, in addition to the purchase price of the equipment.

In order for sales tax to apply, the sale must take place in California and there must be participation by a local office or agent of the seller. (Norton Company v. Department of Revenue of Illinois, 340 U.S. 534). In this case, the title clauses in the documents of sale clearly established that the sales occurred in this state. The facts also indicate that Companies C and D acted together; however, whether they acted as a joint venture or whether Company C was acting as an agent for Company D, is not material. The type of "participation" looked for is local participation in the sale or delivery of the goods. In this case, there was no participation either in the sale or delivery of the property by the local agent of Company C. Their participation in the transaction occurred solely in the post-sale negotiations which is insufficient to sustain the imposition of the sales tax. Therefore, the use tax applies and Company A is liable for the tax. 8/11/92.