Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
325.0000 INTERSTATE AND FOREIGN COMMERCE—Regulation 1620
(c) SHIPMENTS FROM CALIFORNIA TO POINTS OUTSIDE STATE
325.1270 Foreign Trade Zones.
What Are Foreign Trade Zones?
Foreign Trade Zones are areas in ports of entry wherein goods in foreign commerce are stored within boundaries of the United States or its territories without payment of custom duties, until and unless any of such goods pass from that zone into customs territory of the United States. The purpose of authorizing the creation of foreign trade zones was to encourage and facilitate foreign commerce.
In general, merchandise may be brought into a foreign trade zone without being subject to the customs laws of the United States. Merchandise may generally be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated in a foreign trade zone, or be manufactured in a foreign trade zone, without being subject to U.S. customs laws, and it may then be exported or destroyed without being subject to U.S. customs laws. This exemption does not apply to machinery and equipment that is imported for use (for manufacturing or the like) within a foreign trade zone.
When foreign merchandise moves from a foreign trade zone into customs territory of the United States it is subject to the laws and regulations of the United States affecting imported merchandise.
Where Are the Foreign Trade Zones in California?
There are, to date, four foreign trade zones in California. One in San Francisco, one in San Jose, one in Long Beach, and one in Oakland. At the present time, there are applications pending with the U.S. Government to approve two additional zones in California.
Each zone is divided into "subzones." Effective March 25, 1987, the Long Beach foreign trade zone was expanded to include an area of the city of Santa Ana as a subzone.
How Does Tax Apply in Foreign Trade Zones?
19 USCA 81o(e) reads as follows:
Tangible personal property imported from outside the United States and held in a zone for the purpose of storage, sale, exhibition, repackaging, assembly, distribution, sorting, grading, cleaning, mixing, display, manufacturing, or processing, and tangible personal property produced in the United States and held in a zone for exportation, either in its original form or as altered by any of the above processes, shall be exempt from State and local ad valorem taxation (emphasis added).
Since the business taxes that the State Board of Equalization administers are not ad valorem taxes, but rather taxes on sales price or volume, depending on the specific business tax, the Board administered business taxes apply in foreign trade zones to the same extent that they apply elsewhere in California.
The application of the sales and use tax to transactions involving foreign trade zones have been broken down into the following questions and answers:
Does tax apply to sales of tangible personal property made from inside of a foreign trade zone?
a. and delivered to a purchaser in California?
b. and delivered to a purchaser outside California?
a. A sale made from a retailer inside a foreign trade zone to a purchaser in California would be subject to tax in the same manner as other sales of tangible personal property delivered to California purchasers.
b. A sale made from inside the foreign trade zone and shipped to a point outside California by means of facilities hired by the retailer or by delivery by the retailer to a carrier, customs broker, or forwarding agent would not be subject to tax. Such a sale would be treated like any other sale in interstate or foreign commerce.
Does sales tax apply to sales of tangible personal property by a California retailer delivered into a foreign trade zone in California?
Sales tax would apply to sales of tangible personal property delivered into a foreign trade zone located in California, unless otherwise exempt.
Does use tax apply to tangible personal property:
a. delivered from outside United States to a foreign trade zone in California or
b. to tangible personal property delivered from another state into a foreign trade zone in California and used inside the foreign trade zone?
There is no provision under the California Sales and Use Tax Law which would exempt the use of tangible personal property inside a foreign trade zone from the imposition of use tax. We are aware of no authority under federal law which would prohibit the imposition of the California Use Tax in such an instance. We are, therefore, of the opinion that tax would apply to the use of tangible personal property within a foreign trade zone.
However, it should be noted that, of course, under Revenue and Taxation Code section 6009.1, use tax would not apply to tangible personal property which is brought into the foreign trade zone for the purpose of being processed, fabricated or manufactured into, attached to or incorporated into other tangible personal property to be transported outside the State and thereafter used solely outside the State. 10/1/82