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Lyon Metal Products, Inc. v. State Board of Equalization … (1997)

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Drop Shipment Rules of Revenue and Taxation Code Section 6007 Upheld

Plaintiff supplied property from its California location to out-of-state retailers. The out-of-state retailers, who were not engaged in business in California, instructed plaintiff to deliver the property directly to the out-of-state retailers' customers in California (that is, to "drop ship" the property). The Board regarded the transactions as coming within the second paragraph of Revenue and Taxation Code section 6007 and therefore assessed sales tax against plaintiff as the retailer of the property.

The Court of Appeal held that the drop shipment rule of section 6007 is an alternative definition of "retail sale," and that under section 6091 a seller must overcome the presumption that its sale is at retail, including a "retail sale" as defined by the drop shipment rule. The court also held that the drop shipment rule is valid and constitutional. Lyon Metal Products, Inc. v. State Board of Equalization (1997) 58 Cal.App.4th 906, cert. den. (1998) 524 U.S. 916; 141 L.Ed.2d 158.