Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
305.0012 F.O.B. Shipment by Mail or Common Carrier to Indian Reservations. An off-reservation retailer contracts with an Indian purchaser for the purchase of tangible personal property. In the contract of sale (or equivalent document) the retailer and the Indian purchaser agree that title is to pass to the purchaser on the reservation and the goods are shipped to the reservation via mail or common carrier. Neither the contract of sale nor the shipping documents contains a "F. O. B. the reservation" clause nor an equivalent clause expressly stating that delivery is to be on the reservation. Has the retailer fulfilled Regulation 1616(d)(4)(A)'s requirements that title and possession of the property transfer to the Indian purchaser on the reservation?
Unless the contract of sale expressly states that delivery is to be on the reservation, i.e., F.O.B. the reservation, the retailer completes his or her performance and title passes to the purchaser upon delivery of the property to the shipper for the shipper's delivery to the purchaser. (Regulation 1628(b)(3)(D) and Uniform Commercial Code section 2401.) Since title transfers to the purchaser at the time the property is passed to the shipper for the shipper's delivery to the purchaser, the sale occurs off the reservation. Therefore, agreement by the parties that title is to pass on the reservation is insufficient for the sale to occur on the reservation when the goods are shipped by mail or common carrier unless the agreement also expressly states that delivery is to be on the reservation.
Regulation 1616(d)(4)(A) requires that both title and possession of the goods actually pass to the Indian purchaser on the reservation. When the retailer delivers the property to the reservation by other than his or her own facilities, four conditions must be met in order for the transaction to qualify as a sale on the reservation. First, the contract of sale (or equivalent document) must include a statement expressly requiring delivery on the reservation. Second, title cannot be passed prior to the time the merchandise is delivered to the Indian purchaser on the reservation. Third, the goods must in fact be delivered to the Indian purchaser on the reservation. Fourth, the transportation documents, such as any bill of lading, must state that delivery is at destination, e.g., F.O.B. the reservation. In other words, the "F.O.B. the reservation" clause (or an equivalent clause expressly stating that delivery is to be on the reservation) must be included in the bill of sale (or other equivalent document) in order to pass title and possession on the reservation and the clause must also be included in the transportation documents in order to show that transfer of title and possession in fact occurred on the reservation. This requirement (concerning the bill of lading) is in addition to any agreement in the contract of sale. Since the contract of sale and the transportation documents in the above example did not contain a "F.O.B. the reservation" clause or its equivalent, the retailer has not fulfilled the requirements of Regulation 1616. Tax applies to the sale of the property because title in fact transferred to the purchaser when the property was delivered to the shipper for transportation to the reservation. 12/17/03; 4/28/05. (2006–1).