Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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557.0000 TRANSPORTATION CHARGES—Regulation 1628

Annotation 557.0130

557.0130 Drop Shipments. An out-of-state retailer engaged in business in this state receives an order from a purchaser who is not located in California and is not a retailer engaged in business in this state. The purchaser indicates that the merchandise is being purchased for resale to a consumer. The retailer is not told of and does not learn the name or address of the consumer. The purchaser hires a common carrier to pick up the products on a "will call" basis from the retailer's out-of-state location and deliver it to the consumer. Title to the merchandise passes to the purchaser at the retailer's out-of-state location.

This transaction is a drop shipment. Revenue and Taxation Code section 6007 imposes sales tax or use tax liability on the drop shipper when the delivery of the merchandise is to a consumer in California. A drop shipment generally involves three persons and two sales. The three persons are the true retailer, the drop shipper, and the consumer. The two selling events are 1) the true retailer's contract to sell property to the consumer and 2) the true retailer's contract with the drop shipper to purchase the property and to have the drop shipper deliver the property pursuant to the true retailer's instructions.

When the drop shipper is engaged in business in this state and the true retailer is not, the drop shipper's delivery of property to a California consumer is a retail sale and subject to either sales tax or use tax. The tax consequence does not change when the merchandise is delivered by the drop shipper to a third party common carrier at an out-of-state location for redelivery to the California consumer.

The drop shipper here made a retail sale when it delivered tangible personal property to its loading dock pursuant to instructions of the purchaser. The sale occurred when the drop shipper completed its obligations with respect to the delivery of the tangible personal property. The fact that the drop shipper did not take steps to ascertain whether the consumer is located in California (for purposes of determining the drop shipper's use tax liability) will not relieve it from the requirement to collect use tax. 09/27/00. (2001–3).