Laws, Regulations and Annotations


Business Taxes Law Guide—Revision 2024

Sales and Use Tax Annotations

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325.0000 Interstate and Foreign Commerce—Regulation 1620

Annotation 325.0696

(c) Shipments from California to Points Outside State

(2) Delivery to Purchaser in State

325.0696 Delivery of Fuel into Pipeline. An oil company made a sale of diesel fuel to a customer at its refinery for delivery into a pipeline. The terms of the sale were FOB at the pipeline receiving meter, with title and risk of loss passing to the purchaser at the meter, and volumes based on meter readings.

Because the oil company delivers the product into the pipeline, the meter ticket will show the oil company as the shipper. The term "shipper" means the supplier of the product, who may or may not be the owner of the product moving in the pipeline. The pipeline receiving ticket does not show the ultimate destination but does show to whom the batch belongs. The customer, purchaser, became the owner of the product when title passed at the pipeline receiving meter. Consequently, the customer (purchaser) was the actual shipper and the movement of the product in the pipeline was subject to its control. Accordingly, when a tender is made into a pipeline, one or more destinations are nominated. However, it is possible for the shipper (purchaser) to direct all or part of the volumes without the knowledge of the supplier (oil company).

Under this scenario, the sale is not exempt as a sale in interstate commerce. The contract between the oil company and the customer does not require that the fuel be shipped out of state. The contract merely provides for delivery of the fuel to a carrier or directly to the purchaser in this state. This does not satisfy the requirements of the exemption that property be required by contract to be shipped out of state. Therefore, the oil company's sale to the customer is subject to tax.

The transaction could be structured to satisfy the requirements of the exemption. First, the contract would have to require that the fuel be delivered to a carrier for shipment out of state. Second, the fuel must actually be shipped out of state. The oil company must retain documents to establish that fuel was delivered to the carrier and actually shipped out of state. 10/14/87.