YAMAHA CORPORATION OF AMERICA v. STATE BOARD OF EQUALIZATION

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Court of Appeal, Second District, Division 3, California.

YAMAHA CORPORATION OF AMERICA, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant.

No. B095911.

Decided: February 21, 1997

Daniel E. Lungren, Attorney General, C.H. Rehm, Jr., Supervising Deputy Attorney General and Philip C. Griffin, Deputy Attorney General, for Defendant and Appellant. Bewley, Lassleben & Miller, Jeffrey S. Baird, Joseph A. Vinatieri and Kevin P. Duthoy, Whittier, for Plaintiff and Respondent.

The State Board of Equalization (“The Board”) appeals from a judgment in favor of Yamaha Corporation of America (“Yamaha”) for a refund of use tax and interest thereon.   The trial court concluded that certain gifts of stock-in-trade and promotional literature which Yamaha made to out-of-state donees fell within the exclusion from California's use tax that is provided by Revenue & Taxation Code section 6009.1 for “the keeping, retaining or exercising [of] any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state․” 1

We do not believe that the trial court correctly interpreted section 6009.1.   We therefore reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The Board challenges the trial court's conclusion that Yamaha did not owe sales or use tax on three separate categories of property which it gave away as promotional gifts to out-of-state donees.   The first was stock-in-trade which Yamaha purchased out-of-state and gave away out-of-state.   The second was non-inventory promotional literature which Yamaha purchased out-of-state and gave away out-of-state.   The third was additional non-inventory promotional literature, which Yamaha purchased in California under resale certificates and gave away out-of-state.

The facts are uncontroverted.   Yamaha is in the business of selling musical instruments that are manufactured by its parent company, Yamaha of Japan.   It purchased the instruments that are at issue in this case outside of California without paying tax, placed the instruments into its resale inventory, and later removed them from inventory for the purpose of making promotional gifts to musicians, musical equipment retailers, media and others.   In addition, Yamaha purchased certain non-inventory promotional literature without paying tax;  some of this literature was purchased out of state, and some was purchased in California under resale certificates.

Yamaha gave away some of the musical instruments and promotional literature to donees in California, paid California use tax upon doing so, and concedes such tax was owed.   However, respecting other instruments and literature, which Yamaha gave to donees outside California, Yamaha did not report or pay any tax, claiming that the property given to out-of-state donees was not subject to California sales and use taxes under Revenue & Taxation Code section 6009.1, which excludes from the definition of “storage” and “use,” and thus from the requirement of paying a use tax (§§ 6201), “the keeping, retaining or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state․”

The Board interpreted section 6009.1 differently from Yamaha, and, after a sales and use tax audit for the period 1984 through 1989, the Board determined that use tax was owing based on the out-of-state gifts.   Yamaha paid approximately $ 700,000 in use tax on the contested transactions and thereafter filed a claim for a refund, which was denied by the Board.   Thus, on April 21, 1993, Yamaha filed the instant action, in which it alleged that the Board's taxation of the interstate gifts violated section 6009.1 and California's statutes governing administrative regulations and rulemaking (Gov.Code, § 11340 et seq.), as well as the Commerce Clause (Article I, section 8) and the Due Process Clause (Amend.XIV) of the United States Constitution.

The trial court concluded that the gifts at issue were excluded from use tax under section 6009.1 and entered judgment for Yamaha in the amount of $471,868.33, including the refund and pre-judgment interest thereon.   This timely appeal followed.

CONTENTIONS

The Board contends that:  (1) Yamaha owed tax respecting the property purchased in California under resale certificates;  (2) by delivering property in California to common carriers for transportation to out-of-state donees, Yamaha made a gift, and hence a taxable use, of the property in California;  (3) Section 6009.1 does not exclude the gifts at issue in this case from use tax;  (4) the Board's construction of section 6009.1 does not violate the Commerce Clause.

DISCUSSION

1. Overview Of The Applicable Statutes

“The California Sales and Use Tax Law (Rev. & Tax.Code, § 6001 et seq.) [Fn. omitted] embodies a comprehensive tax system created to impose an excise tax for the support of state and local government, on the sale, use, storage or consumption of tangible personal property within the state. [Citation.] [Fn. omitted.]   The two taxes, sales and use, are mutually exclusive but complementary, and are designed to exact an equal tax based on a percentage of the purchase price of the property․  “ “[A]  sales tax is a tax on the freedom of purchase ․ [a] use tax is a tax on the enjoyment of that which was purchased.” ”  [Citation.]  [¶] The use tax complements the sales tax by imposing on those subject to it the same tax burden as would otherwise be assessed under the sales tax. [Citation.]   For example, the use tax generally applies where a particular transaction is exempt from sales tax, such as one involving goods purchased in another state and stored or used in California. [Citation.]   Ordinarily, the use tax does not apply where a resale certificate is given for purchased goods.   However, unless a use tax is assessed if the goods are not subsequently resold but disposed of in another manner, the purchaser may well manage to avoid taxation altogether.   Thus, the use tax insures that the basic excise tax will be levied on transactions which might otherwise inequitably escape taxation.”  (Wallace Berrie & Co. v. State Bd. Of Equalization (1985) 40 Cal.3d 60, 66-67, 219 Cal.Rptr. 142, 707 P.2d 204.)

Focusing on the specific statutes and regulations that control our decision in this case, sales tax is due on any retail sale of tangible personal property in California unless the sale is specifically exempt by statute. (§ 6051.)   A retail sale is a sale for any purpose except resale in the regular course of business. (§ 6007.)   All of a retailer's sales are presumed to be taxable retail sales until the contrary is established. (§ 6091.)   The retailer has the burden of proving that a sale is not at retail unless the retailer takes in good faith a timely and valid resale certificate. (§ 6091;  tit.  18 Cal.Code Regs. § 1668.)   A purchaser may validly issue a resale certificate when purchasing property that the purchaser intends to resell, provided that the purchaser will not store or use the property other than for retention, demonstration or display while holding it for resale.  (Tit. 18 Cal.Code, Regs. § 1668.)   A purchaser may not issue a resale certificate when purchasing property which the purchaser knows it will not resell. (§ 6094.5;  tit. 18 Cal.Code Regs. § 1668(g).)   If a purchaser does so, the purchaser is liable for the sales tax that the seller would have owed but for the seller's acceptance of the purchaser's resale certificate and for an additional penalty. (§ 6094.5;  tit. 18 Cal. Code of Regs. § 1668(g).)

Use tax is due if a purchaser purchases property under a proper and valid resale certificate but thereafter stores or uses the property other than for retention, demonstration or display while holding it for resale. (§ 6094, subd. (a);  tit. 18 Cal. Code, Regs., § 1668(a)(2).)   Similarly, if, for any other reason, sales tax was not paid when personal property was purchased, the purchaser is required to pay a use tax on the storage, use or other consumption of the property in California. (§§ 6201;  6202;  6401.)  “Storage” is defined as any keeping or retention of tangible personal property in California for any purpose except sale in the regular course of business or subsequent use solely outside this state. (§ 6008.)  “Use” is the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of the property in the regular course of business. (§ 6009.)  “Use” includes the making of a gift of property to others, and, if that is the use which a purchaser of property intends at the time of the purchase, then sales tax applies to the purchase, just as the tax applies to a sale for any other intended use.  (Tit. 18 Cal.Code Regs. § 1670.)  “Storage” and “use” do not include the keeping, retaining, or exercising any right or power over tangible personal property for the purpose of transporting it outside California for use thereafter solely outside the state. (§ 6009.1.)

The Board publishes a Business Taxes Law Guide, which includes annotations to the statutes and regulations.   These annotations are opinions by the Board's legal staff and are intended to be used for guidance by the Board itself and tax practitioners.   Annotation 280.0040 states the view that advertising and promotional material which is brought into the state from elsewhere is subject to use tax when a gift of the material is made and title passes to the donee in the state.   This annotation further states that the gift is regarded as being a taxable use of the property “when the donor divests itself of control over the property in this state.”   Annotation 280.1140 expresses the view that stock in trade which is purchased for resale is subject to use tax if it is used instead for the purpose of making a gift.   The annotation further states that such a gift is a taxable use, and imposition of the tax does not constitute an unconstitutional burden on interstate commerce, “[a]lthough the donor in this state ships the gift to the donee out of state.”

The issue before us is whether the Board's interpretation of the foregoing statutes and regulations, as reflected in its annotations 280.0040 and 280.1140 and in its determination of tax in this case, is correct.

2. Principles Governing Review

 The interpretation of statutes and regulations is a question of law.   Accordingly, the Board's interpretation of the sales and use tax statutes and regulations is subject to independent judicial review.   (Wallace Berrie & Co. v. State Bd. Of Equalization, supra, 40 Cal.3d at p. 65, 219 Cal.Rptr. 142, 707 P.2d 204;  Culligan Water Conditioning v. State Bd. Of Equalization (1976) 17 Cal.3d 86, 92-93, 130 Cal.Rptr. 321, 550 P.2d 593;  KFC Western, Inc. v. Meghrig (1994) 23 Cal.App.4th 1167, 1176, 28 Cal.Rptr.2d 676.)   Nevertheless, a longstanding and consistent administrative construction of a statute by an administrative agency charged with its enforcement and interpretation is entitled to great weight unless it is either “arbitrary, capricious or without rational basis” (American Hospital Supply Corp. v. State Bd. Of Equalization (1985) 169 Cal.App.3d 1088, 1092, 215 Cal.Rptr. 744;  see Rizzo v. Board of Trustees (1994) 27 Cal.App.4th 853, 861, 32 Cal.Rptr.2d 892), or is “clearly erroneous or unauthorized.”  (Rivera v. City of Fresno (1971) 6 Cal.3d 132, 140, 98 Cal.Rptr. 281, 490 P.2d 793.)   Opinions of the administrative agency's counsel construing the statute are likewise entitled to consideration.  (Rizzo v. Board of Trustees, supra, 27 Cal.App.4th at p. 862, 32 Cal.Rptr.2d 892;  DeYoung v. City of San Diego (1983) 147 Cal.App.3d 11, 18, 194 Cal.Rptr. 722.)   Especially where there has been acquiescence by persons having an interest in the matter, courts will generally not depart from such an interpretation unless it is unreasonable or clearly erroneous.  (Rizzo v. Board of Trustees, supra, 27 Cal.App.4th at p. 861, 32 Cal.Rptr.2d 892;  DeYoung v. City of San Diego, supra, 147 Cal.App.3d at p. 18, 194 Cal.Rptr. 722.)

Giving the appropriate weight to the Board's interpretation of the statutes, we must decide if (1) Yamaha owed use tax on the musical instruments and promotional literature which it purchased out of state and gave to out-of-state donees;  and (2) Yamaha owed sales or use tax on the non-inventory promotional literature which it purchased under resale certificates.2

3. Yamaha Owes Use Tax On Property Which It Delivered To A Common Carrier In California For Delivery To Out-Of-State Donees

a. The Board's Construction Of Section 6009.1 Is Not Arbitrary, Capricious Or Lacking In A Rational Basis.

 With respect to the musical instruments and promotional literature that were purchased outside of California and later used to make out-of-state gifts, we must address a narrow question:  When merchandise is delivered to a common carrier in California for delivery to a donee in another state, does the gift take place in California when the merchandise is delivered to the common carrier, or does it take place in the other state?   In the former case the gift will be subject to California use tax (§§ 6201, 6202;  tit. 18 Cal.Code Regs. § 1670(a).);   in the latter, it will not. (§ 6009.1.)

The Board's view that the gift takes place in California is not arbitrary or capricious.   The view is not one which the Board adopted ad hoc as a litigating position in this case only, but is one which Yamaha concedes the Board has maintained consistently for at least twenty years.   Indeed, it appears to have been in existence for a good deal longer, inasmuch as annotation 280.0040, concerning in-state and out-of-state gifts of promotional materials, was adopted in 1963, and annotation 280.1140, which concerns in-state and out-of-state gifts of stock-in-trade, was adopted in 1967.   Under this circumstance, the Board's position is entitled to deference.  (American Hospital Supply Corp. v. State Bd. Of Equalization, supra, 169 Cal.App.3d at p. 1093, 215 Cal.Rptr. 744.)

Nor does the Board's position in this case lack a rational basis.   The Board correctly argues that, in certain contexts and for certain purposes, a gift is deemed to be made when the subject property is delivered to a third party for the benefit of the donee.  (Berl v. Rosenberg (1959) 169 Cal.App.2d 125, 130, 336 P.2d 975 [delivery by deceased to third party for the donee's benefit results in a completed gift];  White v. Bank Of America (1942) 53 Cal.App.2d 831, 833, 128 P.2d 600 [same].)   The Board overstates its case when it seems to argue that Berl v. Rosenberg and White v. Bank of America establish as a generally applicable rule of law that a gift necessarily is complete upon delivery to a third party for the donee's benefit.3  However, these cases and many others to the same effect certainly establish what should be sufficiently established by common sense-that it is not unreasonable to deem a gift to be made upon delivery to a third person, including a common carrier, for subsequent delivery to the donee.   Moreover, a plain and good reason exists for deeming the gifts at issue in this case to have been complete upon delivery to the common carrier in California, for if they were not, Yamaha will escape paying any tax on the subject property-the precise result which the use tax statutes were enacted to prevent.  (Wallace Berrie Co. v. State Bd. Of Equalization, supra, 40 Cal.3d at p. 67, 219 Cal.Rptr. 142, 707 P.2d 204.)

b. The Board's Construction Of Section 6009.1 Is Not Clearly Erroneous Or Unauthorized.

Yamaha contends, however, that the Board's view, that delivery to a common carrier for transfer to an out-of-state donee results in a taxable gift in California, violates section 6009.1, as well as the Interstate Commerce Clause, and is thus “clearly erroneous or unauthorized.”   As we shall explain, we cannot agree.

(1) Section 6009.1

Yamaha first contends the Board's view is erroneous under section 6009.1, because that statute's plain language exempts out-of-state uses of property, including gifts, from California's use tax.   However, this contention begs the question of whether gifts of the kind at issue in this case do, in fact, constitute a “use ․ solely outside the state.”   Nothing in the statutory language provides guidance on this issue.

Neither do the several cases cited by Yamaha support its argument that section 6009.1 prohibits taxation of the specific gifts that are at issue in this case.   Yamaha contends that Atchison, Etc. Railway Co. v. State Bd. Of Equalization (1955) 131 Cal.App.2d 677, 281 P.2d 99, H.J. Heinz Co. v. State Bd. Of Equalization (1962) 209 Cal.App.2d 1, 25 Cal.Rptr. 685, and Parfums-Corday v. State Bd. Of Equalization (1986) 187 Cal.App.3d 630, 232 Cal.Rptr. 56 support its position.   In each of those cases, the taxpayer claimed that its use of certain property was excluded from tax under section 6009.1 because such use was made solely outside of the state.   In Atchison, Etc. Railway, supra, 131 Cal.App.2d 677, 281 P.2d 99, the taxpayer claimed that certain repair parts for its automatic train control equipment, which it installed on its locomotives in California, were nevertheless excluded from tax under section 6009.1 because the equipment only operated when the trains were on a specially equipped stretch of track in Iowa and Illinois.   The Court of Appeal rejected this argument and concluded the equipment was “used” in California for its intended purpose, namely, to repair the taxpayer's locomotives.  (Id. at p. 680, 281 P.2d 99.)   In H.J. Heinz, supra, 209 Cal.App.2d 1, 25 Cal.Rptr. 685, the taxpayer made a similar claim-that section 6009.1 excluded from California use tax certain cans and cardboard cases in which the taxpayer temporarily stored its tomato products before shipping the products to the east coast for further processing.   The court concluded the containers were used for their intended purpose in California.   (Id. at pp. 5-6, 25 Cal.Rptr. 685.)   Finally, in Parfums-Corday, supra, 187 Cal.App.3d 630, 232 Cal.Rptr. 56, the taxpayer contended that section 6009.1 excluded from tax certain display cases which the taxpayer shipped without consideration to out-of-state vendees of its merchandise, because the cases were to be used by the vendees outside the state.   The Court of Appeal disagreed and concluded the display cases were used in California, because they were assembled here and prepacked with merchandise before shipment.  (Id at p. 637-638, 232 Cal.Rptr. 56.)

 Yamaha contends the decision in each of the foregoing cases was based upon the fact that the taxpayer made a “functional use” of the property within California by, in effect, installing the subject railroad equipment on a locomotive (Atchison, Etc. Railway Co. v. State Bd. Of Equalization, supra, 131 Cal.App.2d at p. 680, 281 P.2d 99), filling the subject containers with tomatoes (H.J. Heinz Co. v. State Bd. Of Equalization, supra, 209 Cal.App.2d at pp. 5-6, 25 Cal.Rptr. 685), or assembling the subject display cases and packing them with cosmetics (Parfums-Corday v. State Bd. Of Equalization, 187 Cal.App.3d at pp. 637-638, 232 Cal.Rptr. 56).   Yamaha contends that it made no “functional use” of the musical instruments and promotional literature that it sent out of state as gifts, because it simply sent the property to the out-of-state donees in its original packaging and made no physical change of any kind in it.   There is no merit in this argument.   Yamaha concedes that a gift is a “use.”   A gift is thus subject to use tax if the gift is made in California, whether or not a “functional use” of any other kind is made of the property.   Thus, if the gifts at issue in this case can properly be considered to have been made in California, they were taxable.

The case of Stockton Kenworth, Inc. v. State Board Of Equalization (1984) 157 Cal.App.3d 334, 203 Cal.Rptr. 698 does not support Yamaha's claim that its gifts to out-of-state donees were not completed within California.   In Stockton Kenworth, the Court of Appeal agreed with the taxpayer's claim that section 6009.1 excluded from use tax the taxpayer's transportation of several trucks out of state, where the taxpayer leased the trucks to an out-of-state lessee.   The court found invalid a regulation which required the trucks to be towed out of state, rather than being driven on their own power, in order for section 6009.1 to apply;  the court found this to be an unreasonable interpretation of the statute.  (Id. at pp. 338-339, 203 Cal.Rptr. 698.)   Yamaha contends our decision should follow that of the court in Stockton Kenworth, because in both cases, the transaction sought to be taxed consisted solely of transporting property out of the state for use in another state.   We do not agree.   While the Stockton Kenworth might have found the regulation at issue in that case unreasonable, that is not the same as finding it “clearly erroneous or unauthorized” under the statute.   In any event, we do not find the administrative interpretation that is at issue in this case to be unreasonable.

(2) The Commerce Clause

Yamaha next contends that the Board's construction of the applicable statutes is “erroneous and unauthorized” under the Commerce Clause of the United States Constitution.   This contention fails under well-established tests for the validity of state taxation of transactions in interstate commerce.

 Under the “dormant” Commerce Clause, it is impermissible for states to impose taxes which burden or discriminate against interstate commerce, even if Congress has not affirmatively acted to protect interstate commerce. (Oklahoma Tax Commission v. Jefferson Lines, Inc. (1995) 514 U.S. 175, ---- - ----, 115 S.Ct. 1331, 1336-37, 131 L.Ed.2d 261, 268;  Barclays Bank v. Franchise Tax Bd. (1994) 512 U.S. 298, ----, 114 S.Ct. 2268, 2275-76, 129 L.Ed.2d 244, 257.)   States are not prohibited from taxing interstate commerce, but each state is limited to taxing only its fair share of an interstate transaction.   In Complete Auto Transit, Inc. v. Brady (1977) 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (“Complete Auto” ) the United States Supreme Court announced a four-prong test for the validity of a state tax levied on property in interstate commerce.   Under this test, a state tax does not violate the dormant commerce clause if the tax (1) is applied to activity with a substantial nexus with the taxing state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to services provided by the state.  (Complete Auto, supra, 430 U.S. at pp. 287-289, 97 S.Ct. at pp. 1083-1084;  see also Oklahoma Tax Commission v. Jefferson Lines, Inc., supra, 514 U.S. at pp. ---- - ----, 115 S.Ct. at pp. 1337-1338, 131 L.Ed.2d at pp. 270-271.)

 Yamaha does not contend the tax at issue here applies to activities without a substantial nexus with the state, facially discriminates against interstate commerce or is not fairly related to services provided by the state.   Rather, Yamaha contends that taxation of gifts to out-of-state donees would violate the “fair apportionment” prong of the Complete Auto test, because such taxation by California would create a risk of multiple taxation.   No such impermissible risk is created.

 A state tax is considered properly apportioned under the Complete Auto test if each state taxes only its fair share of an interstate transaction.  (Oklahoma Tax Commission v. Jefferson Lines, Inc., supra, 514 U.S. at pp. ---- - ----, 115 S.Ct. at pp. 1337-1338, 131 L.Ed.2d at p. 271;  Goldberg v. Sweet (1989) 488 U.S. 252, 260-261, 109 S.Ct. 582, 588-589, 102 L.Ed.2d 607.)   Claims of malapportionment are assessed by asking whether a challenged tax is “internally consistent” and, if so, whether it is also “externally consistent.”  (Oklahoma Tax Commission v. Jefferson Lines, Inc., supra, 514 U.S. at p. ----, 115 S.Ct. at p. 1338, 131 L.Ed.2d at p. 271;  Goldberg v. Sweet, supra, 488 U.S. at p. 261, 109 S.Ct. at pp. 588-589.)   A tax is “internally consistent” when imposition of an identical tax by every other state would add no burden to interstate commerce that intrastate commerce would not also bear.  (Oklahoma Tax Commission v. Jefferson Lines, Inc., supra, 514 U.S. at pp. ---- - ----, 115 S.Ct. at pp. 1337-1339, 131 L.Ed.2d at pp. 271-272;  Goldberg v. Sweet, supra, 488 U.S. at p. 261, 109 S.Ct. at pp. 588-589;  General Motors Corp. v. City of Los Angeles (1995) 35 Cal.App.4th 1736, 1750, 42 Cal.Rptr.2d 430.)  “External consistency” does not look to the abstract and purely logical consequences of an imagined cloning of the challenged tax.   Rather, it looks to those “less tidy” issues which concern the actual economic justification for the state's claim upon the value taxed and the actual or likely risk that the challenged tax will result in multiple taxation.  (Oklahoma Tax Commission v. Jefferson Lines, supra, 115 S.Ct. at pp. ---- - ----, 115 S.Ct. at pp. 1338-1339, 131 L.Ed.2d at p. 272.)   This sub-part of the apportionment test inquires whether a challenged tax reaches beyond that portion of value that is fairly attributable to economic activity within the taxing state.  (Ibid.;  Goldberg v. Sweet, supra, 488 U.S. 252 at p. 262, 109 S.Ct. 582 at p. 589.)   If it does, the apportionment prong of the Complete Auto test is violated.   If one state's act of overreaching combines with the possibility that another state will claim its fair share of the value taxed, then that portion of value by which the first state exceeded its fair share is taxed a second time by a state properly claiming it.   Such double taxation constitutes an impermissible burden upon, and discrimination against, interstate commerce.  (Goldberg v. Sweet, supra, 488 U.S. at pp. 262-263, 109 S.Ct. at pp. 589-590;  Evco v. Jones (1972) 409 U.S. 91, 93-94, 93 S.Ct. 349, 350-351, 34 L.Ed.2d 325.)

Yamaha contends that, if California use tax is imposed upon its gifts, a risk of impermissible double taxation will result.   The risk arises, Yamaha argues, because at least three states-Illinois, New York and Washington-impose use tax on the receipt of gifts within the state.   Thus, Yamaha argues, if a California taxpayer purchases property ex-tax, stores the property in California, then makes a gift of the property to a donee in Illinois, New York or Washington and sends the gift by a common carrier, an impermissible risk will be created that the taxpayer will be taxed twice on the merchandise's value.   The Board disagrees and contends that (1) the Multistate Tax Compact (§ 38001 et seq.), under which the member states reciprocally grant credit against their own sales and use taxes for taxes paid on the same merchandise in another member state, protects against the risk of double taxation (see § 38006, Article V),4 and (2) California's separate and unilateral statutory credit against tax paid in another state provides additional protection against a double tax.  (See § 6406.) 5

We find the Board's argument to be the more reasonable one.   While section 6406 would appear to grant a credit only for taxes paid respecting particular property “prior to” making a taxable use of the property in California, the Multistate Compact does not include this limitation.   The availability of such a credit against state sales and use taxes for taxes paid in another state has been held to avoid the risk of multiple taxation, and thus to satisfy Complete Auto' s fair apportionment test.  (Goldberg v. Sweet, supra, 488 U.S. at pp. 263-264, 109 S.Ct. at pp. 589-591;  D.H. Holmes Co., Ltd. v. McNamara (1988) 486 U.S. 24, 31, 108 S.Ct. 1619, 1623-1624, 100 L.Ed.2d 21.)   In D.H. Holmes Co., Ltd. v. McNamara, supra, the Supreme Court upheld a provision of Louisiana's use tax, which taxed catalogues that were produced outside of the state and mailed to customers in the state at the direction of an in-state retailer.  (Id. at pp. 26, 34, 108 S.Ct. at pp. 1620-1621, 1625.)   The court found that the Louisiana taxing scheme met the fair apportionment test, because it provided a credit against its use tax for taxes paid in other States.  (Id. at p. 31, 108 S.Ct. at pp. 1623-1624.)   The tax credit provided in the Multistate Compact is identical in substance to the Louisiana tax credit approved in D.H. Holmes.   Moreover, of the three states which Yamaha identifies as taxing the receipt of gifts within those states, one, Washington, has enacted the Multistate Compact (Wash.Rev.Code, § 82.56.010), and the other two, Illinois and New York, provide credits against their sales and use taxes for sales or use tax paid in another state, although they are not members of the Multistate Compact.  (Ill.Rev.Stat. ch. 35, § 105/3-55;  NY Tax Law, § 1118, subd. (7)(a).)   Yamaha has not shown that the mutual credits provided by California and its sister states for sales and use taxes paid in another state will not adequately protect against any substantial threat of multiple taxation that is created by differences in the manner in which different states tax gifts.   Nor has Yamaha shown that Nevada, which Yamaha asserts has no tax credit provisions, has a use tax under which gifts received within Nevada would be taxed in such a way as to threaten double taxation of gifts from California donors.   Yamaha has thus shown only a speculative possibility of multiple taxation.   Such a limited possibility does not invalidate an otherwise valid statutory scheme.  (Goldberg v. Sweet, supra, 488 U.S. at pp. 263-264, 109 S.Ct. at pp. 589-591.) 6

We are therefore satisfied that an impermissible risk of multiple taxation does not and will not result from the Board's interpretation of California's use tax statutes, under which a gift of personal property is deemed to be made in California, and consequently California use tax is deemed to be due, if the subject property is (1) purchased without payment of sales tax, and then (2) delivered to a common carrier for transportation to a donee either inside or outside of California.   Because Yamaha made gifts in this way of property on which it had not previously paid sales tax, it does not contravene the dormant Commerce Clause to subject the gifts to California's use tax.

In sum, taxation of the gifts is not in itself unreasonable, and such taxation contravenes no statute or rule of law.   Nor is the tax unjust.   Tax was properly imposed upon the gifts, and no refund is due.

4. Yamaha Owes Sales Tax On Promotional Literature Purchased Under Resale Certificates

 With respect to the promotional literature which Yamaha purchased under resale certificates, Yamaha plainly owed the tax claimed by the Board.   Yamaha stipulated to the following facts concerning the promotional literature:  “From time to time, [Yamaha] purchased merchandise ex-tax for the purpose of giving the merchandise away as promotional gifts.”  (Italics added.)   Some of this merchandise “was purchased in California by giving the seller a resale certificate.”   Yamaha's purchase of merchandise under resale certificates with the intent of giving the merchandise away was improper.   Sales tax is owing on any sale of merchandise that is not purchased for resale. (§§ 6007, 6051;  tit.  18 Cal.Code Regs. §§ 1668, 1670, subd. (a).)  Since Yamaha purchased promotional literature in California with no intent of reselling it, the sale was taxable, and it was immaterial that Yamaha later gave some of the literature away out-of-state rather than in California. (§ 6094.5;  tit.  18 Cal.Code Regs., § 1668(g).)

DISPOSITION

The judgment is reversed.   Costs on appeal are awarded to the Board.

FOOTNOTES

1.   Unless otherwise indicated, further statutory references are to the Revenue & Taxation Code.Section 6009.1 provides in full that:  “ ‘Storage’ and ‘use’ do not include the keeping, retaining or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state, or for the purpose of being processed, fabricated, or manufactured into, attached to or incorporated into, other tangible personal property to be transported outside the state and thereafter used solely outside the state.”   As we shall discuss, the “storage” and “use” of personal property are subject to use tax. (§ 6201.)

2.   Yamaha contends the Board's annotations should not be reviewed under the “arbitrary, capricious or without rational basis” standard, because they are merely legal opinions of the Board's staff, promulgated without compliance with the Administrative Procedure Act (“APA”;  Gov.Code, § 11340 et seq.).   Yamaha cites Culligan Water Conditioning v. State Board of Equalization, supra, 17 Cal.3d at p. 92, 130 Cal.Rptr. 321, 550 P.2d 593, and Armistead v. State Personnel Board (1978) 22 Cal.3d 198, 204-205, 149 Cal.Rptr. 1, 583 P.2d 744, for this proposition.   However, neither of these cases supports Yamaha's argument.An argument identical to that part of Yamaha's argument which is based upon Culligan, supra was made and rejected in American Hospital Supply Corp. v. State Bd. of Equalization, supra, 169 Cal.App.3d 1088, 215 Cal.Rptr. 744.  (Id. at pp. 1091-1093, 215 Cal.Rptr. 744.)   In contrast to the Board's mere “litigating position” in Culligan, which the Culligan court held to be not entitled to deference (see 17 Cal.3d at p. 93, 130 Cal.Rptr. 321, 550 P.2d 593), the Board annotation at issue in American Hospital Supply was found to be a general rule antedating the current litigation, and was consequently held to be entitled to deferential review.  (American Hospital Supply, supra, 169 Cal.App.3d at p. 1093, 215 Cal.Rptr. 744.)   We agree with the reasoning and conclusion of the American Hospital Supply court on this point.Yamaha's citation to Armistead, supra, is inapposite.   In Armistead, the Supreme Court held that a Personnel Board rule which was promulgated without compliance with the APA was not entitled to deference;  indeed, the rule was invalid.  (Id. at pp. 203-205, 149 Cal.Rptr. 1, 583 P.2d 744.)   However, Armistead does not govern our review of the Board's annotations, for the latter are “legal rulings of counsel issued by the ․ State Board of Equalization,” and thus are not “regulations” to which the requirements of the APA apply.  (Gov.Code, § 11342, subd. (g);  American Hospital Supply, supra, 169 Cal.App.3d at pp. 1091, 1093, 215 Cal.Rptr. 744 [Board's “long-standing tax counsel ruling,” embodied in a Business Taxes Law Guide annotation was reviewed under “arbitrary, capricious or without rational basis” standard].)

3.   Standard Oil Co. of California v. Johnson (1944) 24 Cal.2d 40, 147 P.2d 577, cited by Yamaha is inapposite.   That case merely holds that, when a contract of sale so provides, a sale is complete only upon actual delivery to the transferee by a common carrier.  (Id. at pp. 45-46, 147 P.2d 577.)   This principle says nothing about when a gift must be deemed complete where, as Yamaha admits was the case with the gifts at issue here, no provision as to that question is made in a contract of sale or otherwise.

4.   Section 38006, Article V, provides in pertinent part that “Each purchaser liable for a use tax on tangible personal property shall be entitled to full credit for the combined amount or amounts of legally imposed sales or use taxes paid by him with respect to the same property to another State and any subdivision thereof․”

5.   Section 6406 provides in pertinent part that:  “A credit shall be allowed against ․ the taxes imposed on any person ․ by reason of the storage, use or other consumption of personal property in this state to the extent that the person has paid a retail sales or use tax, or reimbursement therefor, imposed with respect to that property by any other state, political subdivision thereof, or the District of Columbia prior to the storage, use, or other consumption of that property in this state․”

6.   Yamaha cites the recent case of General Motors Corp. v. City of Los Angeles, supra, 35 Cal.App.4th 1736, 42 Cal.Rptr.2d 430, for the proposition that the mere theoretical likelihood of multiple taxation will render invalid under the Commerce Clause any statute which creates such a likelihood.  (See General Motors Corp., supra, 35 Cal.App.4th at pp. 1749-1752, 42 Cal.Rptr.2d 430.)   However, Yamaha ignores the fact that the court in General Motors Corp. found that the tax which was challenged in that case failed Complete Auto 's “internal consistency” test.   Under that test, a court assumes that every taxing jurisdiction imposes an identical tax, and must invalidate a tax which theoretically would result in multiple taxation under that assumption.   Obviously, if every state taxed gifts, as California does, as the gifts leave the state and not upon entry, no threat of double taxation would result.   Where, as here, it is claimed that a tax fails the “external consistency” test, in that multiple taxation is threatened as a result of differences between the taxing schemes in different jurisdictions, an actual or likely risk of multiple taxation must be shown to invalidate the challenged tax.  (Oklahoma Tax Commission v. Jefferson Lines, supra, 514 U.S. at pp. ---- - ----, 115 S.Ct. at pp. 1338-1339, 131 L.Ed.2d at p. 272;  Goldberg v. Sweet, supra, supra, 488 U.S. at pp. 263-264, 109 S.Ct. at pp. 589-591.)

CROSKEY, Associate Justice.

KLEIN, P.J., and KITCHING, J., concur.

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