Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Transactions and Use Tax Annotations

800.0000 APPLICATION OF TRANSACTIONS (SALES) TAX AND USE TAX—Regulation 1823

Annotation 800.0090

800.0090 Storage of Property. A not-for-profit hospital operates a large warehouse facility in which it maintains a stock on hand of general supplies that are used at its hospitals and administrative buildings. The warehouse is located in District A where the combined state, local, and district tax rate is 7.75%. The hospital and administrative buildings are located in District B where the combined state, local, and district tax rate is 8.25%.

The taxpayer's purchasing department, located in District A, places orders with various vendors. The orders are shipped to the warehouse in District A where they are received, counted, verified, and stocked. Ownership to the property vests with the taxpayer at its warehouse in District A. The taxpayer receives requests from internal departments and delivers the property in its own trucks to the hospital or administrative buildings in District B. The warehouse in District A and the internal departments in District B are not separate "persons" within the meaning of section 6005.

In this case, the transaction between the taxpayer and its vendors is completed when the goods are delivered to the warehouse with the state and Bradley-Burns sales and use tax consequences being set at that time. However, District taxes are another matter. The resolution of this issue turns on whether district transaction (sales) or district use tax applies to the transaction.

Section 6009.1 applies where the property has no functional purpose other than as a mere object in transit. The temporary storage of property under such condition is not a taxable use of the property. The same rule is incorporated into the District Tax Law. Thus, where an out-of-district (but in-state) retailer ships the property to the purchaser's warehouse in District A, where it is stored temporarily, and later transferred to District B and put to functional use, the transactions are subject to district use tax only in District B. The taxpayer must self-report the 1% District B tax for the quarter in which the property is delivered to District B, but is entitled to a credit for the ½% District A tax if it had paid such tax to the retailer.

However, if the property is delivered to the taxpayer from the retailer's place of business in District A, section 6009.1 does not apply since the applicable district tax would be a sales tax. As a result, District A's transactions tax applies to the sale. The retailer owes tax at the total rate in effect in District A and may collect tax reimbursement from the taxpayer at that rate. Again, the taxpayer must self-report the 1% District B tax for the quarter in which the property is delivered to District B, but is entitled to a credit for the ½% District A tax reimbursement it had paid to the retailer. If District A's rate were higher than B's, the taxpayer would not be entitled to a refund but also would not owe additional tax to District B. (Regulation 1823(b)(2)(B).) 10/11/95.