Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Sales and Use Tax Annotations


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S

495.0000 SALE

Annotation 495.0894

(e) RETAIL SALE OR SALE FOR RESALE—DELIVERY BY OWNER, FORMER OWNER, FACTOR OR AGENT

495.0894 Interstate Delivery—Drop Shipments. The following four scenarios cover the application of tax before and after the 1/1/93 amendment to section 6007.

(1) An out-of-state retailer not engaged in business in California takes an order from a California consumer. It orders the property from an out-of-state manufacturer which is engaged in business in California. The manufacturer ships the property directly to the consumer in California from its out-of-state location.

Prior to 1/1/93, the sale from the out-of-state manufacturer is not a sale in California and, thus, section 6007 does not apply. The manufacturer's sale is a sale for resale. On and after 1/1/93, the second paragraph redefines a sale which would otherwise be regarded as a sale for resale to be a retail sale when a person drop ships property to a California consumer pursuant to a retail sale made by a retailer not engaged in business in California. In this first scenario, effective 1/1/93, the out-of-state manufacturer will be regarded as the retailer and will be required to collect the use tax from the purchaser and pay it to this state. The measure of tax will be the retail price which is the marked up price paid by the California consumer.

(2) Same as scenario #1 except that the retailer orders the property from a California sales office of manufacturer who also has manufacturing and warehouse facilities in California. However, in this instance, the manufacturer ships the property by common carrier from one of its out-of-state warehouses directly to the consumer in California.

The tax consequences are the same as discussed in scenario #1 above. Prior to 1/1/93, although the consumer would owe use tax, the California seller, the manufacturer, would not be responsible for collecting the tax since the sale occurs outside California.

(3) Same as scenario #1 except that the retailer orders the property from a California wholesaler, who in turn places an order with an out-of-state manufacturer not engaged in business in California. The manufacturer ships the property directly to the consumer in California by common carrier, F.O.B. shipping point.

Prior to 1/1/93, none of the parties have responsibility to report tax other than the consumer. However, on and after 1/1/93, the California wholesaler will be defined as the retailer under section 6007 and will be responsible for collecting use tax measured by the marked up price paid by the California consumer.

(4) Same as scenario #3 except that the manufacturer is engaged in business in California.

The answers remain the same as in scenario #3.

With regard to resale certificates, a California seller who drop ships to a California consumer pursuant to a retail sale by another could not avoid the application of the second paragraph of section 6007 by accepting a resale certificate that omitted a California seller's permit number. Such a certificate indicates that the out-of-state retailer is not engaged in business in California. The acceptance of such a certificate would not relieve the California seller of liability for sales tax under the second paragraph of section 6007.

The corollary to the rule mentioned above is that a person who drop ships property to a California consumer and who accepts in good faith a valid and timely resale certificate that includes the purchaser's valid California seller's permit number is not liable for sales or use tax on the sale. This is consistent with relevant statutes and the regulation. (Sections 6091, 6241, and Regulation 1668.) 11/12/92. (Am. M99–1).