California Use Tax Applied to Out-of-State Wholesaler/Drop Shipper

In California, any previous owner of tangible personal property who distributes property sold by an out-of-state retailer to a California customer is deemed a retailer of that property and is responsible for collection of tax on that property. This position was highlighted in a recent court case involving a Wisconsin wholesaler which sold shoes to its out-of-state subsidiaries for resale, but retained possession of the shoes in its warehouse until their ultimate drop shipment to the subsidiaries’ California customers. As a result, the wholesaler of the property delivering the property within the State of California was responsible for the collection of California use tax. The State further ruled that the finding did not place an unconstitutional burden on interstate commerce because California wholesalers who use out-of-state retailers to drop ship their products to California customers have the same collection responsibility. (Mason Shoe Manufacturing Co. v. California State Board of Equalization, California Court of Appeal, No. A104964)

Posted on August 21, 2006