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 325.1075

(c) Shipments from California to Points Outside State

(4) Delayed Shipment; Use Prior to Shipment; "Bailee Clauses"

325.1075 Use by Customer Before Shipment. An out-of-state customer contracts with Vendor A and Vendor B, who are both located in California, for the manufacturing of components which will be used in the customer's out-of-state plant. Separate purchase orders are placed with each vendor which requires the vendor to ship the property to the customer's plant located outside of California. The customer will furnish the common carrier for each out-of-state shipment.

Vendor A's product must be used with Vendor B's product. Vendor B's product must be integrated and tested with A's product at Vendor B's site. Vendor A, being required to ship the property to the customer outside California is also required to ship the property to Vendor B with final shipment to follow after Vendor B has completed its integration and testing.

Upon completion of Vendor B's work, Vendor A will go to Vendor B's site and arrange for delivery of the property outside California. There will be two separate shipments with separate shipping documents. However, both shipments may go out on the same truck at the same time. The shipping terms are F.O.B.origin with title to pass to the customer upon delivery of the property to the common carrier.

Based on information provided, there is more than visual inspection or testing that will occur at Vendor B's premises of Vendor A's product. If more than testing occurs at Vendor B's premises, the nature of the customer's possession is more than the limited and temporary possession of visual inspection or testing of vendor of Vendor A's product. Rather, the customer would be regarded as taking delivery of Vendor A's product in California and the sales tax exemption for purchases in interstate commerce will not apply. 6/19/95.