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socrateaser
socrateaser, Attorney
Category: Business Law
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Experience:  Retired
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Does the sales tax rate jurisdiction change depending when a

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Does the sales tax rate jurisdiction change depending when a busines:
(A) shipped product using a third party (UPS, FedEx, etc),
(B) Delivered product using its own employees and truck,
(C) Freight on hoard (FOB) (freight changes hands at beginning of location before it is shipped).
Which sales tax rate would be used in the above circumstances (beginning location or destination)?

(A) No sales tax

(B) Destination state's sales tax

(C) California sales tax

See Title 18 Cal. Code Regs. Section 1620.

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Customer: replied 1 year ago.
The company is located in Southern California. The majority or our shipping destinations are in different cities in Southern California.

The issue is whether or not the sales contract requires that delivery occur within the territorial boundaries of California. If yes, then California state sales tax applies. If delivery occurs outside of the state and is shipped by common carrier, then there is no California sales tax. See Quill Corp. v. North Dakota, 504 U.S. 298, 311 (1992) ("a vendor whose only contacts with the taxing State are by mail or common carrier lacks the 'substantial nexus' required by the Commerce Clause.")

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Customer: replied 1 year ago.
Does this summarize sales tax rate jurisdiction change depending when a business:
(A) shipped product using a third party (UPS, FedEx, etc) to a different city within the same state.
No sales tax charged on the shipping, however we still need to assign a sales tax rate for the taxable products:
Destination location's sales tax(B) Delivered product using its own employees and truck = Destination location's sales tax(C) Freight on hoard (FOB) (freight changes hands at beginning of location before it is shipped) = origination location (employer location)

(A) Correct.

(B) Correct.

(C) Maybe. The term, "FOB", means: "The seller's delivery is complete (and the risk of loss passes to the buyer) when the goods pass into the transporter's possession." Black's Law Dictionary (10th Ed. 2014). Generally, this means that delivery has taken place at the seller's location, making the buyer subject to the seller's state sales tax. However, a contractual provision that requires the buyer to pay for delivery, but the sale doesn't take place until delivery by common carrier occurs in the buyer's state jurisdiction, would require the destination state's sales tax.

Consequently, "FOB", independent of the sales contract, is not determinative of sales tax liability.

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