Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2021
Sales And Use Tax Law
CHAPTER 4. EXEMPTIONS
Article 1. General Exemptions
6352. Constitutional exemptions. There are exempted from the taxes imposed by this part the gross receipts from the sale of and the storage, use, or other consumption in this State of tangible personal property the gross receipts from the sale of which, or the storage, use, or other consumption of which, this State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this State.
Gross receipts from sales to federal land bank not taxable.—Gross receipts from sales made by a retailer of tangible personal property to the Federal Land Bank, the Federal Intermediate Credit Bank, the Bank of Cooperatives, and the Production Credit Corporation are not subject to sales tax, as the sales are to instrumentalities of the federal government. M. G. West Co. v. Johnson (1937) 20 Cal.App.2d 95. But see Western Lithograph Co. v. State Board of Equalization (1938) 11 Cal.2d 156, 777.
Gross receipts from sales by national park concessionaire subject to tax.—A private corporation operating in Yosemite National Park as a lessee and consessionaire of the United States Government is required to pay sales tax with respect to its retail sales made within the park. Yosemite Park & Curry Co. v. Johnson (1938) 10 Cal.2d 770.
Gross receipts from sales to banks subject to tax.—Retailers are required to pay sales tax upon their receipts from retail sales of tangible personal property to national banks, even though it be assumed that such banks are instrumentalities of the United States Government, and notwithstanding the provisions of Section 16 of Article XIII of the State Constitution, limiting and prescribing the extent to which and the methods by which banks may be taxed. Western Lithograph Co. v. State Board of Equalization (1938) 11 Cal.2d 156, 777.
Sales of fuel oil to interstate railroad.—Sales to railroad companies of fuel oil delivered to the railroad companies in California and transported outside of California by the purchasers for use outside of California are intrastate transactions the receipts from which are subject to sales tax. Standard Oil Co. v. Johnson (1942) 56 Cal.App.2d 411. For previous opinion to the contrary, see Standard Oil Co. v. Johnson (1939) 33 Cal.App.2d 430. The sales tax is not applicable to receipts from sales of fuel oil to a railroad company pursuant to a contract requiring delivery of the oil at points outside this state, the oil being delivered to the railroad in this state and shipped to the out-of-state points f.o.b. destination under standard bills of lading specifying such out-of-state destination with the buyer named as consignee and with freight charges prepaid by the seller. Standard Oil Co. v. Johnson (1944) 24 Cal.2d 40.
Property purchased for use in interstate commerce.—The application of the use tax to the storage or installation of equipment purchased for use in carrying on an interstate commerce business does not violate the commerce clause of the Federal Constitution. Southern Pacific Co. vs. Gallagher (1939) 306 U.S. 167; Pacific Telephone & Telegraph Co. v. Gallagher (1939) 306 U.S. 182.
The imposition of the California use tax upon switch engines purchased outside of the state and brought into the state for ultimate use in interstate commerce does not violate the commerce clause of the Federal Constitution. Atchison, Topeka and Santa Fe Railway Co. v. State Board of Equalization (1956) 139 Cal.App.2d 411.
Property taxed in the state of the first substantial use will not constitute multiple taxation by reason of previous formal use in two states, neither of which imposed such a tax. Western Pacific RR Co. v. State Board of Equalization (1963) 213 Cal.App.2d 20.
Use of property shipped in interstate commerce.—The imposition of the use tax on materials shipped to California by an Illinois corporation engaged in the manufacture of tanks, the materials being shipped and stored here preparatory to their use in the assembly of such tanks in California, does not constitute an unconstitutional burden on interstate commerce nor a regulation thereof. Chicago Bridge and Iron Co. v. Johnson (1941) 19 Cal.2d 162.
Educational institutions.—Educational institutions of collegiate grade, not conducted for profit, which purchase and use property exclusively for purposes of education, are not exempted by this section or Section 1a of Article XIII of the California Constitution, from payment of the use tax. California Institute of Technology v. Johnson (1942) 55 Cal.App.2d 856.
Sales for export.—The sales tax does not apply to a sale of oil to a foreign purchaser for shipment abroad, delivered to a vessel furnished by the purchaser and actually carried to a foreign destination, title and control of the oil passing to the foreign purchaser upon delivery, and no portion of the oil being used or consumed in the United States. Richfield Oil Corp. v. State Board of Equalization (1946) 329 U.S. 69.
The sale of an ocean-going vessel of American registry docked in a California port to an alien purchaser, including the change of registry and flag, for use in foreign commerce is exempt from sales tax by virtue of the import-export clause of the Federal Constitution. Matson Navigation Co. v. State Board of Equalization (1955) 136 Cal.App.2d 577; Alaska Packers Ass'n v. State of California (1955) 136 Cal.App.2d 586; Pope and Talbot, Inc. v. State Board of Equalization (1960) 181 Cal.App.2d 721.
Political subdivisions.—A levy by the state of a sales tax or use tax upon one of its political subdivisions is not invalid as a levy on public money. People v. Imperial County (1946) 76 Cal.App.2d 572.
Sales tax on interstate shipment.—The commerce clause of the Federal Constitution does not prohibit the imposition of a sales tax on a sale by a California retailer to a California consumer where the merchandise is ordered by the retailer from an out-of-state supplier and the supplier ships from a point outside California directly to the consumer in California, title passing at the destination point. Meyer v. State Board of Equalization (1954) 42 Cal.2d 376.
Where an Ohio manufacturer, maintaining permanent office, shop and service facilities in California, sold vaults and equipment to banks in California, title passing after delivery to buyer in California, the sales occurred in California and were not immune from taxation under the commerce clause. Diebold, Inc. v. State Board of Equalization (1959) 168 Cal.App.2d 628.
Property installed in this state.—If automatic control equipment is stored in this state and installed in a locomotive in this state prior to being used in interstate commerce, the subsequent use of the equipment as a permanent part of the locomotive operating solely in interstate commerce, both within and outside this state, and actual functional use of the equipment solely outside this state affords no basis for exemption from use tax on constitutional grounds. Atchison, Topeka and Santa Fe Railway Co. v. State Board of Equalization (1955) 131 Cal.App.2d 677.
Out-of-state use.—The imposition of sales or use tax upon tangible personal property purchased for use outside of the state does not violate the commerce clause of the United States Constitution, where the property is purchased, stored, and fabricated in California. Levine v. State Board of Equalization (1956) 142 Cal.App.2d 760.
Aircraft.—Aircraft purchased by an airline from the Federal Government both in this state and outside this state and brought to the airline's home base in this state without carrying a payload and retained at the home base for an indefinite period of time prior to being placed in service in interstate commerce are subject to use tax. Flying Tiger Line Inc. v. State Board of Equalization (1958) 157 Cal.App.2d 85.
Imports.—The import-export clause of the Federal Constitution does not prohibit application of use tax to the use in this state of a yacht purchased abroad, after its original import packaging is removed and it is put to the use for which it was imported. Sugarman v. State Board of Equalization (1958) 51 Cal.2d 361.
Exports.—Where goods are sold to a purchaser for export to and use in a foreign country and pursuant to the contract the retailer delivers the goods by truck to an export packer hired, directed and paid by the purchaser and after packing the export packer delivers the goods by truck to a pier from which they are loaded on a ship and transported to the foreign country and used there by the purchaser, the export process begins when the goods leave the retailer's warehouse and the import-export clause of the Federal Constitution therefore prohibits the application of sales tax to the sale. Gough Industries, Inc. v. State Board of Equalization (1959) 51 Cal.2d 746, cert. den. (1959) 359 U.S. 1011.
Foreign purchaser.—A sale of repair parts in connection with a contract to overhaul an airplane for a foreign airline is subject to sales tax where the airplane is redelivered to the owner in this state and the owner's crew flies the airplane from this state. Flying Tiger Line, Inc. v. State Board of Equalization (1958) 157 Cal.App.2d 85.
Insurance companies not exempted.—An insurance company is not relieved from its duty to collect or pay a use tax by virtue of § 6352, when it sells automobiles belonging to it to private individuals, since the use tax is imposed on the ultimate purchaser, not the insurance company. Beneficial Standard Life Ins. Co. v. State Board of Equalization (1962) 199 Cal.App.2d 18.
Sale outside state and leased back instate.—Where a California retailer sold two oil tankers with title and possession passing out of state and the vessels were immediately leased back to the retailer and were used in California in intrastate commerce, the imposition of use tax was not an undue burden on interstate commerce nor a violation of due process under the United States Constitution. Union Oil Co. v. State Board of Equalization (1963) 60 Cal.2d 441, appeal dismissed (1964) 377 U.S. 404.
Sales of bunker fuel to steamship lines.—Bunker fuel oil sold for consumption by vessels of foreign and domestic registry on voyages to foreign or domestic ports does not constitute an export or an interstate sale, and the application of sales tax is not prohibited by the export-import clause or the commerce clause of the United States Constitution. Shell Oil Co. v. State Board of Equalization (1966) 64 Cal.2d 713, appeal dismissed (1967) 386 U.S. 211.
Sales to national banks properly taxed.—The imposition of sales tax on sales to national banks was permitted by Congress when California did not impose another tax on a built-up rate in lieu of the sales tax. United States v. State Board of Equalization (1980) 639 F.2d 458.
Sales Tax Unconstitutional When Imposed on Nonprofit Religious Activities.—As a tax on privilege, sales tax could not constitutionally be imposed on nonprofit religious organization's sales of religious materials. However, use tax and collection of use tax may be imposed on the organization for those sales. Institute in Basic Youth Conflicts, Inc. v. State Board of Equalization (1985) 166 Cal.App.3d 1093.
Liquidation sales by trustees in bankruptcy.—A nondiscriminatory tax on a bankruptcy liquidation sale is not barred by the now discredited intergovernmental tax immunity doctrine, and there is no longer any constitutional impediment to imposition of a sales tax or a use tax on a bankruptcy liquidation sale. The sales and use tax does not discriminate against a bankruptcy trustee or those that they deal with, and the bankruptcy trustee is not so closely connected to the federal government that the two cannot be viewed as separate entities. California State Board of Equalization v. Sierra Summit, Inc. (1989) 490 U.S. 844.
Religious books, tapes and records.—Application of sales and use tax to the sales of religious books, tapes and records did not violate the Free Exercise Clause or Establishment Clause of the First Amendment. Jimmy Swaggart Ministries v. Board of Equalization of California (1990) 493 U.S. 378; 107 L.Ed.2d 796.
Sales for export.—A sale of aircraft parts to a Mexican airline to serve its planes is not subject to tax where the parts are shipped by a common carrier to a location on the U.S. Mexican border where an independent freight forwarder, with the assistance of the airline's employees, processed the property through U.S. and Mexican Customs and the parts were moved on a continuous and unbroken journey to the foreign destination other than for unavoidable delays that were incidental to their journey. McDonnel Douglas Corporation v. State Board of Equalization (1992) 10 Cal.App.4th 1413.