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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
S
495.0000 Sale
Annotation 495.0893
(e) Retail Sale or Sale for Resale—Delivery by Owner, Former Owner, Factor or Agent
495.0893 Interstate Delivery—Drop Shipment. Out-of-state retailer "A," who is engaged in business in California, sold merchandise to "B," who is located out of state and is not engaged in business in California. "B" resold that merchandise to "C" who in turn resold that merchandise to a California consumer. The merchandise was shipped by "A" from an out-of-state location directly to the consumer in California.
Under section 6007, a retail sale also includes certain drop shipments. The merchandise in question was shipped from an out-of-state location directly to the consumer in California. Title passes from the vendor and, thus, the sale occurs no later than the time at which the vendor completes its performance with respect to physical delivery of the property. This generally occurs upon the seller's delivery of the property to a common carrier for shipment to the customer. Accordingly, in drop shipment sales taking place outside California, as in this case, the use tax rather than the sales tax applies. Although the purchaser is liable for the use tax, a retailer engaged in business in this State is required to collect the use tax from its purchaser and to pay the tax to this State. The actual sale of the merchandise to the California consumer was by "C." If "C" is a retailer in business in this State, the second paragraph of section 6007 does not apply and "A" would not have any tax liability resulting from this transaction. Instead, retailer "C" would be required to collect the use tax with respect to the drop shipment of the merchandise for use in this State by the consumer. The measure of tax is the retail sales price charged to the California end-user. Since "C" did not provide "A" with a resale certificate which includes a California seller's permit number, in order for "A" to avoid being deemed the retailer with respect to the sale at issue under the second paragraph of section 6007, "A" has the burden of proving that "C" is in fact a retailer engaged in business in California. 1/17/97.