Lyon Metal Products, Inc. v. St. Bd. of Equalization

Appellant State Board of Equalization (Board) contends the trial court erred when it held California’s state sales tax was invalid to the extent it applied to drop shipments of goods from California wholesalers directly to retail customers inside California. We agree with the Board. Contrary to the trial court’s conclusion, the drop shipments in issue here are explicitly made subject to the state retail sales tax by the provisions of the second paragraph of Revenue and Taxation Code section 6007. Further, again contrary to the trial court’s conclusion, section 6007 is not unconstitutional as a burden on interstate commerce in these circumstances. We, therefore, reverse and remand with instructions to enter judgment in favor of the Board.

I. Facts and Procedural History

Lyon Metal Products, Inc. (Lyon) brought this action contending that the drop shipment rule codified in the second paragraph of section 6007 is invalid on both statutory and constitutional grounds.

It is clear as a factual matter that the transactions in issue here would be subject to the state retail sales tax under the drop shipment rule, if that rule is valid. In each transaction, Lyon shipped goods…