IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION TWO

Filed 11/14/18 City of Brisbane v. Cal. Dept. of Tax & Fee Admin. CA1/2 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION TWO CITY OF BRISBANE, v. Plaintiff and Appellant, CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION, Defendant and Respondent; CITY OF ALHAMBRA, et al., Interveners and Respondents. A151168 (San Francisco County Super. Ct. No. CPF-09-509232) This matter returns to our court after our remand in City of Brisbane v. California State Board of Equalization (Mar. 25, 2015, A137185) [nonpub. opn.] (Brisbane)). In 2009, the City of Brisbane filed a petition for writ of mandate in the superior court alleging that the State Board of Equalization (SBE) should have imposed local sales tax, rather than local use tax, on transactions involving an Internet retailer headquartered in Brisbane. (Brisbane, supra, at p. 1.) The trial court (Hon. A. James Robertson, II) awarded Brisbane partial retroactive relief, and SBE appealed. (Id. at p. 2.) We remanded the matter for the trial court to determine whether title passed in California for any of the transactions at issue in the appeal. (Id. at p. 11.) If title in all the transactions at issue passed outside California, then under our holding in City of South San Francisco v. Board of Equalization (2014) 232 Cal.App.4th 707, 711-712 (South San Francisco), the transactions were properly subject to local use tax, and judgment was to be entered 1

for SBE. (See Brisbane, supra, at pp. 9-10.) On remand, the court (Hon. Cynthia Mingmei Lee) concluded that title passed outside California for all the transactions at issue, and entered judgment for SBE. Because Brisbane fails to show error, we shall affirm. 1 BACKGROUND A. Legal Background We set out the applicable legal principles in our decision in South San Francisco, which addressed two related petitions involving other cities that the trial court heard at the same time as this one (Brisbane, supra, at pp. 1-2). In South San Francisco, we held that SBE had been correctly applying the law in administering sales and use taxes imposed at the state and local level. (232 Cal.App.4th at p. 712.) As we wrote, Under [SBE s] interpretation of the Revenue and Taxation Code, all retail sales of tangible personal property stored, used, or consumed in California are subject, with limited exceptions, to either a state sales or use tax. SBE applies a state sales tax when a California business is involved in the sale and title to the property passes to the customer in California. (See Rev. & Tax. Code, 6006, subd. (a), 6010.5, 6051; Cal. U. Com. Code, 2401, subd. (2).) If these two conditions are not satisfied, the sale is subject to a use tax. (See Rev. & Tax Code, 6201, 6202, 6203, 6401.) [2] (South San Francisco, supra, 232 Cal.App.4th at p. 711.) For over 50 years SBE has interpreted the local sales and use tax law (the Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns Act); 7200 et seq.) as being consistent with section 6001 et seq., part of California s Sales and Use Tax Law (the State Tax Law). Accordingly, it subjects the retail sale of personal property to a 1 The California Department of Tax and Fee Administration, formed in 2017, has substituted in as respondent in place of SBE. (See Gov. Code, 15570, subd. (a), 15570.22, 15570.24, subd. (b).) We follow the parties in referring to respondent as SBE. To avoid confusion, we refer to the proceedings that led to the previous appeal as occurring in the trial court, and to proceedings on remand as occurring in the remand court. 2 All further unspecified code sections refer to the Revenue and Taxation Code. 2

local sales tax whenever the state sales tax applies and subjects such a sale to a local use tax whenever the state use tax applies. (See Cal. Code Regs., tit. 18, 1803.) Whether SBE administers a local sales or use tax has significant consequences for cities and counties: all local sales tax revenue goes to the city where the sale was consummated while local use tax revenue is allocated to the county and distributed by the county to its cities out of a countywide pool. The city in which the sale was transacted will usually receive less revenue when a local use tax rather than a local sales tax is imposed. (South San Francisco, supra, 232 Cal.App.4th at p. 712, fn. omitted.) For both state and local taxes, SBE determines the place and time of a sale by reference to the State Tax Law and the California Uniform Commercial Code (CUCC). Under the State Tax Law, a [s]ale is [a]ny transfer of title... for a consideration ( 6006, subd. (a)), and the place of the sale is where the property is physically located at the time of sale ( 6010.5). (South San Francisco, supra, 232 Cal.App.4th at p. 727.) But the State Tax Law does not set forth a rule for determining the time of a sale. For that, SBE looks to the CUCC, which provides, Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading [ ] (a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but [ ] (b) If the contract requires delivery at destination, title passes on tender there. (CUCC, 2401, subd. (2), italics added.) The general rule is that a contract containing neither an F.O.B. term [3] nor any other term explicitly allocating loss is a shipment contract. (Wilson v. Brawn of California, Inc. (2005) 132 Cal.App.4th 549, 556, fn. 4 (Wilson).) Thus, when a retail seller delivers goods to a 3 Unless otherwise agreed the term F.O.B. (which means free on board ) at a named place... is a delivery term.... (CUCC, 2319, subd. (1).) 3

common carrier at an out-of-state warehouse for shipment to a customer in California, title will pass to the buyer at the time and place the retailer delivers the goods to the carrier, absent an agreement to the contrary. B. Petition to SBE for Reallocation 2001-2008 In 2001, Brisbane petitioned SBE to reallocate local tax from use tax to sales tax on goods purchased by California customers from the website of an Internet retailer (Retailer) that was headquartered in Brisbane. 4 Retailer s goods were shipped to customers from out-of-state warehouses, and Brisbane claimed that it was entitled to local sales tax as the point-of-sale location. SBE s Allocation Group denied the petition, and in 2002 Brisbane requested SBE management to overrule the denial. Brisbane identified the issue to be decided as whether local sales or use tax applied to the Internet and telephone sales of products shipped to California customers from out of state. In June 2006, SBE s Appeals Division (Division) issued a Decision and Recommendation (D&R) addressing that issue, concluding that use tax had been properly imposed because title passed when the goods were shipped, which occurred outside California, and that even if the sales were F.O.B. destination (and, as a result, title passed inside California when the goods were delivered to the customer), use tax was properly imposed because the Retailer s staff located in Brisbane did not participate in the sales transactions. Accordingly, the Division recommended that Brisbane s petition for reallocation be denied. The D&R noted that sometime after Brisbane filed its petition, Retailer had begun shipping some goods from warehouses located inside California, but stated that only orders fulfilled from out-of-state warehouses were at issue in the petition. 4 We do not have an administrative record from SBE. Apparently, in November 2007 Board staff informed Brisbane s representative that it had inadvertently misplaced or destroyed its case files. For purposes of this matter, the administrative record consists of the documents in the record that were presented to and created by the Board, and transcripts of proceedings before the Board as reflected in the appendix submitted to us in this appeal by appellant Brisbane. 4

Brisbane challenged the D&R, arguing that Brisbane was the place of sale for Retailer s transactions, and that Retailer s sales were conceived and managed in Brisbane, and therefore completed in California. As an aside, Brisbane stated that contrary to the Division s statement in the D&R, sales of goods shipped from California warehouses were at issue in the matter. The Division issued a Supplemental Decision and Recommendation (SD&R) in May 2007 concluding that sales shipped from California warehouses were not included in Brisbane s petition and once again recommending that Brisbane s petition for reallocation be denied. In September 2007, a hearing was held before the members of SBE, who took the matter under submission. Later that day they voted to deny Brisbane s petition. In October 2007, Brisbane filed a request for rehearing, which SBE denied in February 2008. C. Petition for Writ of Mandate and Subsequent Appeal (2009-2015) In 2009, Brisbane filed a petition for writ of mandate in superior court. The trial court heard Brisbane s case at the same time as two other petitions which, like Brisbane s, challenged SBE s interpretation of the law on sales and use taxes. (Brisbane, supra, at pp. 1-2.) The trial court ruled that state and local tax laws were not identical (thus invalidating Cal. Code Regs., tit. 18, 1803), that title was irrelevant to deciding whether to impose local sales or use tax, and concluded that items warehoused outside California and delivered to a California customer under a shipment contract were subject to local sales tax and state use tax if the sale was consummated by a California business. (Id. at p. 2) In the other two petitions, it was undisputed that the sales at issue were negotiated at places of business in California, and all the goods were shipped from out of state directly to consumers in California, and therefore the trial court awarded relief to the petitioners. (South San Francisco, supra, 232 Cal.App.4th at pp. 717-719.) In connection with Brisbane s petition, the trial court found that Retailer s Brisbane employees participated in the negotiation of Retailer s sales and that therefore Retailer s sales were consummated in Brisbane, contrary to SBE s position. Accordingly, the trial 5

court awarded relief to Brisbane. (Brisbane, supra, at p. 2.) SBE appealed the trial court s judgment as to all three petitioners. In South San Francisco, we reversed the trial court. We agreed with SBE that the state and local tax laws are identical, and that sales tax is properly imposed only when a California business participates in the transaction and title to the goods passes in California. (South San Francisco, supra, 232 Cal.App.4th at p. 712.) That resolved the matter with respect to the two petitions at issue in that case because there was no dispute that title in all the relevant transactions passed outside California. (Brisbane, supra, at p. 2.) With respect to Brisbane, however, there was a factual dispute that did not exist in South San Francisco, because in Brisbane the parties did not agree that title passed outside California. SBE asserted that title passed out of state in all the transactions, but Brisbane maintained that title passed within California for some of the transactions, because some of Retailer s inventory shipped from California warehouses, and because some transactions were subject to F.O.B. destination agreements that specified title transferred when the goods were delivered. (Id. at pp. 2, 7.) Noting that the trial court made it clear that it based its ruling on stipulated facts and that the trial court never considered whether title passed in California because it had ruled that title was irrelevant to local sales and use tax law (Brisbane, supra, at p. 8), we reversed the trial court judgment for the same reasons that we reversed in South San Francisco and remanded for the superior court to determin[e] whether title transferred in California for any of the sales at issue and to enter a new judgment consistent with the Brisbane opinion and our holding in South San Francisco, supra, 232 Cal.App.4th 707. (Brisbane, supra, at pp. 2, 11.) We specifically directed the remand court to make the requisite factual findings and determine whether the record before it included sales from California warehouses and whether the evidence establishes that any of the transactions were F.O.B. destination contracts. (Id. at pp. 9-10.) If the court answered both questions no, then title passed outside California for all the sales. In that case, the transactions were properly subject to local use tax, not local sales tax, and the trial court was to enter judgment for the Board. (Id. at pp. 9-10.) We recognized that if the remand 6

court found that title transferred in California for any of the transactions at issue, we would have to consider whether Retailer s Brisbane employees participated in the sales. 5 D. Proceedings on Remand 2015-2017 Judge Lee held a bench trial based on a joint appendix and extensive oral argument of counsel. The parties stipulated that the joint appendix included documents relevant to the consideration of the issues on remand, and each party also submitted requests for judicial notice, some of which were granted. 6 At trial, Brisbane argued that sales fulfilled from the California warehouses were part of the case that Brisbane presented to the trial court in its petition for writ of mandate. Brisbane also argued that the Retailer s sales were sales on approval and therefore destination contracts, which meant that title passed only after the goods were delivered to and accepted by California purchasers. 7 SBE argued that sales of goods shipped from California warehouses were not considered in the SBE s decision and were therefore not at issue in the trial court. SBE also argued Brisbane had forfeited its argument that the transactions were sales on approval, and that in any event Brisbane 5 Among the issues SBE appealed in Brisbane was the trial court finding that Retailer s Brisbane employees participated in the transactions. (Brisbane, supra, at pp. 2-3, 5.) We did not reach the issue of Retailer s participation in Brisbane, the remand court did not address it, and we do not reach the issue here, because we affirm the remand court s ruling that title passed outside California. (See id. at pp. 2-3, 9. 11.) 6 The rulings on those requests per se are not at issue here. To the extent Brisbane would argue that the remand court erred in denying some of its requests for judicial notice, the issue is not squarely raised as such in Brisbane s opening brief, and Brisbane has forfeited the argument by its repeated claims that there was no dispute as to the contents of the record before the remand court. In section B of our Discussion, below, we address Brisbane s argument that the remand court erred in its scope of review by disregarding certain trial court records. 7 A sale on approval is a bailment that gives the purchaser the right to use and the option to purchase after a reasonable period of time. (Wilson, supra, 132 Cal.App.4th at p. 558.) A sale on approval is a type of destination agreement, because in a sale on approval, unless otherwise agreed, title does not pass to the buyer until the buyer has accepted the goods. (Id. at p. 557, citing CUCC, 2327, subd. (1)(a).) 7

had not shown that the transactions were sales on approval, so the sales were presumptively shipment contracts. The remand court issued a 13-page statement of decision agreeing with SBE and answering both of the Court of Appeal s questions on remand no. Judgment was entered for SBE, and Brisbane timely appealed. 8 DISCUSSION A. Standard of Review The parties dispute the appropriate standard of review on this appeal. Brisbane argues that our review should be de novo because there is no dispute as to the contents of the trial court record, and the only issues to be resolved are legal conclusions that follow from undisputed facts. SBE argues that we should review the administrative record to determine whether substantial evidence supports the remand court s findings. In Brisbane, we directed the remand court to determine whether title transferred in California for any of the sales at issue. (Brisbane, supra, at p. 11.) We concluded that in doing so, the remand court should make factual findings on two issues: whether the record properly before the trial court included sales shipped from California warehouses and whether the evidence established that Retailer s sales contracts were destination agreements. (Brisbane, supra, at pp. 9-10.) The first issue requires the finding of facts as to the contents of the record in the trial court, but ultimately requires the remand court to make a legal determination as to whether sales shipped from California warehouses were properly before the trial court. (Brisbane, supra, at p. 9.) In the absence of any dispute as to the contents of the documents filed in the trial court, it is a question of law whether sales shipped from 8 More than 80 cities and counties intervened in the original trial court proceeding on the side of SBE and appealed the original trial court judgment. (Brisbane, supra, at p. 6.) At trial on remand, Interveners deferred to the arguments of counsel for the Board, and on appeal, they join with SBE in arguing that the trial court judgment should be affirmed. 8

within California were within the scope of the trial court proceedings, and therefore we review the remand court s determination de novo. The second issue, however, is one of fact, as stated in Brisbane. (Brisbane, supra, p. 8.) Therefore, we apply the substantial evidence standard in reviewing the remand court s findings as to whether Retailer s sales were destination contracts. Where findings of fact are challenged on a civil appeal, we are bound by the elementary, but often overlooked principle of law that... the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support the findings below. (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660, quoting Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.) A fundamental corollary to the substantial evidence rule is the conflicting inference rule by which the appellate court must indulge all reasonable inferences that may be deduced from the facts in support of the party who prevailed in the proceedings below. (Eisenberg et al., Cal. Practice Guide: Civil Appeals & Writs (The Rutter Group 2017) 8:60, p. 8-29.) Thus, [e]ven if the facts were admitted or uncontradicted, the appellate court will not substitute its deductions for the reasonable inferences actually or presumptively drawn by the trial court. (Ibid.) We apply the substantial evidence standard to the record as a whole. 9 B. First Issue on Remand: Shipments from California Warehouses As we stated in Brisbane, it is clear that in making its decision to deny Brisbane s petition, SBE did not consider shipments from California warehouses. (Brisbane, supra, at p. 7.) Indeed, Brisbane conceded that SBE s decision did not address sales shipped from California warehouses. It is also clear that documents filed in the trial court referred 9 The record before us consists of the Reporter s Transcript of the January 2016 trial before Judge Lee and an Appellant s Appendix. As authorized by California Rules of Court, rule 8.124(b)(2) the Joint Appendix and portions of the Reporter s transcript from the prior appeal are incorporated by reference. Brisbane seeks to incorporate by reference, or alternatively asks us to take judicial notice of, briefs filed by Brisbane and SBE in the prior appeal. We take judicial notice of the briefs, though they appear to be irrelevant, as they are not cited by the parties in the briefs submitted in this appeal. 9

to sales of goods shipped from California warehouses. (Brisbane, supra, at p. 8.) But because we had no indication that the trial court made any determination whether the California warehouse sales were properly before it, we left it to the remand court to determine whether Brisbane s request for reallocation of the tax assessed on those sales was properly before the trial court. (See id. at p. 9.) The remand court reviewed the record and concluded that sales shipped from California warehouses are not at issue in this matter because SBE did not consider them in its decision to deny Brisbane s petition. Our review of the record supports the same conclusion. Brisbane s original 2001 petition to SBE sought reallocation of local taxes on goods shipped from out-of-state warehouses. This is undisputed. In its June 2006 D&R, the Appeals Division recommended that the petition for reallocation be denied. In its challenge to the D&R, Brisbane disputed the Division s statement in the D&R that sales of goods shipped from California warehouses were not at issue. The Division s subsequent SD&R again recommended that Brisbane s petition be denied. The SD&R also considered whether sales shipped from California warehouses were included in the petition. The SD&R stated that in February 2006, the Division learned that Retailer had begun shipping some of its sales from California warehouses in 2003, 10 and that in the Division s view those transactions were not covered by Brisbane s petition. Nevertheless, the SD&R analyzed the tax status of the sales shipped from California warehouses in response to a request from an SBE member that the Division analyze the issue so that the matter can be considered by the Board during the upcoming hearing on this appeal. The Division concluded that sales of goods shipped from the California warehouses were subject to state and local sales tax because title passed in California and because [p]ersonnel acting on the retailer s behalf stored the goods at those locations, removed the goods from that storage, prepared the goods for shipment to the purchasers, and delivered the goods to the common carrier for shipment to the 10 SBE staff learned of this development in a letter from Retailer s tax department responding to an SBE staff member s request for information about Retailer s operations. 10

purchasers. The Division also concluded that personnel at the Brisbane location did not participate in the sales delivered from the California warehouses and that therefore the local sales tax revenues from those sales were allocable to the jurisdiction where the warehouse was located, not to Brisbane. But Retailer had characterized the sales shipped from California warehouses as subject to use tax, rather than sales tax. The Division stated that the Department will reallocate incorrectly distributed local tax based on the date of knowledge of its own inquiry, suggesting that no action by Board members on the issue of sales shipped from California warehouses was required. Yet the Division concluded that because the Division addressed those sales in the SD&R, the Board may consider the issue of tax on sales shipped from California warehouses if it chose to do so. At the September 2007 hearing before SBE members, an SBE staff member introduced Brisbane s petition as dealing with goods delivered from out of state. He explained that after the petition was filed, Retailer began using in-state warehouses, and that in the view of the Division that issue was not part of the petition, and the Board was not required to address it. Two representatives of Brisbane addressed the Board and focused on Brisbane s involvement in Retailer s sales and the argument that sales are subject to destination contracts. None of them argued that the Board members were required to consider sales shipped from California warehouses. Later that day, the Board members were presented with a motion to adopt the staff recommendation to deny the petition and the motion carried without objection. The SBE s September 2007 Notice of Decision (Notice) indicates that the decision addressed only taxes on sales of goods shipped from out-of-state warehouses. The Notice states, The Board concluded that the disputed tax was local use tax, and not local sales tax, since neither condition required for the application of sales tax was satisfied: title to the subject property passed to the purchasers outside California at the shipping point, despite any period after receipt during which the purchasers could have returned the property to the retailer; and for those purposes, the retailer s headquarters location in California did not participate in each particular sale. (Italics added.) 11

In October 2007, Brisbane filed a request for rehearing with SBE. The request was not based on SBE s failure to address sales shipped from California warehouses, though Brisbane stated in its request that SBE s September 2007 denial of its petition did not address the in-state shipments issue. Brisbane s request for rehearing was denied in February 2008. All of this constitutes evidence that SBE s decision on Brisbane s petition did not address the sales shipped from California warehouses. From this, we conclude that those sales were not at issue in Brisbane s petition for writ of mandate, which was a challenge to SBE s decision. Brisbane advances three arguments that sales from Retailer s California warehouses are properly at issue in this case. Brisbane s first argument is that the parties addressed the sales from California warehouses in the trial court proceedings before Judge Robertson. Brisbane claims that because the parties pleadings and briefs in the trial court and the trial court s statement of decision made mention of Retailer s use of California warehouses, and because Government Code section 68151, subdivision (a)(1) states that court records include all papers and documents filed with the court, there can be no question that those sales were part of the trial court record. Brisbane further claims that the remand court erred in failing to consider those documents. Brisbane s argument appears to rest on a misreading of our statement in Brisbane that the court on remand should determine whether the record before it included sales from California warehouses. (Brisbane, supra, at pp. 9-10.) Brisbane ignores the context of our statement. The superior court s task on remand was to determine whether title transferred in California for any of the sales at issue in the appeal. (Id. at p. 11.) As we noted, that task required the remand court to decide the issue whether evidence of the California sales was or was not properly before the trial court in Brisbane s petition for writ of mandate, an issue that the parties did not resolve in the previous appeal. (Id. at p. 9.) Because Brisbane sought a writ of mandate challenging an SBE decision that indisputably did not consider sales from California warehouses (id. at p. 7), the evidence properly before the trial court was limited to the administrative 12

record. (Bunnett v. Regents of University of California (1995) 35 Cal.App.4th 843, 853.) The remand court recognized this. It did not disregard any documents: to the contrary, it explained that argument of counsel is not evidence, and that the remand court s role was to make decisions based upon evidence in the record, and not to make assumptions about what the trial court judge was thinking. It is of no matter that the parties referred to the California sales in their arguments before the trial court or that the trial court mentioned them in its final statement of decision, because arguments and statements of decision are not evidence. Brisbane s second argument is that the sales from California warehouses were before the SBE, and therefore part of the administrative record, because SBE was informed in 2006 that Retailer had been fulfilling some sales from California warehouses; those sales were mentioned in the body of a summary prepared by the Appeals Division in advance of the Board hearing, as well as in the SD&R; and an attorney representing SBE staff mentioned those sales in the hearing. There is no doubt that information about sales shipped from California warehouses is included in documents that are part of the administrative record and that the issue was mentioned by SBE staff at the hearing. But staff mentioned the issue in the context of whether the Board needed to take any action on it, and in fact no action was taken, as Brisbane acknowledged in its petition to SBE for rehearing. Brisbane s petition for rehearing did not appeal SBE s declining to reach the issue of the California warehouses. Brisbane cites no authority to suggest that mentions of an issue in the administrative record make that issue subject to review in a petition for writ of mandate when the issue was not addressed by the administrative body. 11 11 In its opening brief, Brisbane claims that when SBE members acted on Brisbane s petition, they decided to adopt the staff recommendation, of which the SD&R was one. Not quite. The SD&R, like the D&R, recommended that Brisbane s petition be denied. An SBE member moved the staff recommendation to deny the petition, and that motion was adopted without objection. The SD&R also recommended that SBE members order a reallocation of tax distributed through the countywide pools as sales tax to the jurisdictions of the respective warehouses back through the local taxes reported for the second quarter 2005, as a way of addressing Retailer s mistaken characterization of sales from the California warehouses, but the record does not show 13

Brisbane s third argument is that SBE was required by its own procedures and practices to rule on the sales from California warehouses, claiming that those sales were incorporated into Brisbane s petition under the SBE s forner regulation 1807 (former Regulation 1807), concerning the date of knowledge. 12 (Cal. Code Regs., tit. 18, former 1807.) The date of knowledge is the date on which SBE receives the inquiry of suspected improper distribution of local tax, so long as that inquiry contains the information required by subdivision (a)(2) of former Regulation 1807. (Id., subd. (a)(3).) 13 SBE argues that the date of knowledge concept does not allow for the expansion of the scope of an inquiry; the concept simply establishes the earliest point at which reallocation may be made: under section 7209, redistribution shall not be made that SBE members took any action on that recommendation. And recall that the SD&R also stated that the Department will reallocate incorrectly distributed local tax, suggesting that there was no need for SBE members to act on that part of the recommendation. 12 There is no indication that this argument was ever raised before in the SBE proceedings or in the trial court. Brisbane first raised the issue in its reply brief in the remand court. 13 Former Regulation 1807 provided in relevant part: (a)(2) [A] claim or inquiry... for investigation of suspected improper distribution of local tax... must include at a minimum all of the following for each business location being questioned: [ ] (A) Taxpayer name.... [ ] (B) Taxpayer s permit number.... [ ] (C) Complete business address of the taxpayer. [ ] (D) Complete description of taxpayer s business activity or activities. [ ] (E) Specific reasons and evidence why the taxpayer s allocation is questioned.... In cases that involve shipments from an out-of-state location and claims that the tax is sales tax and not use tax, evidence must be submitted that there was participation by an in-state office of the out-of-state retailer and that title to the goods passed in this state. [ ]... [ ] (3) Date of Knowledge. Date of knowledge shall be the date the inquiry of suspected improper distribution of local tax that contains the facts required by subdivision (a)(2) of this regulation is received by the Board, unless an earlier such date is operationally documented by the Board.... [ ] (b) Inquiries. [ ] (1) Submitting Inquiries. Every inquiry of local tax allocation must be submitted in writing and shall include the information set forth in subdivision (a)(2) of this regulation. [ ]... [ ] (d) Time Limitations. [ ]... [ ] (3)... [A]ny date of knowledge established by the original inquiry will remain open even if additional supporting information is provided prior to closure. 14

as to the amounts originally distributed earlier than two quarterly periods prior to the quarterly period in which the board obtains knowledge of the improper distribution. SBE has the better argument. There is no dispute that the date of knowledge for this matter is December 24, 2001, three days after Brisbane submitted its inquiry. At the time of Brisbane s inquiry, Retailer s activity at issue was shipping goods from out-of-state warehouses to California customers. SBE regards the reallocation period as extending from two quarters before the date of knowledge, through the end of the quarter when the Board holds its hearing on the petition if a retailer is engaged in the same activities that are covered by the petition. Thus, in ruling on Brisbane s petition, the SBE would consider the possibility of reallocating taxes from sales shipped from out of state warehouses, the subject of Brisbane s original inquiry, starting in 2001 and extending through the quarter when the hearing was held, in 2007. Nothing in the regulation suggests that a petitioner can use the date of knowledge to expand the scope of an existing petition to include new activities (here, shipping goods from in-state warehouses) in which a retailer engages after the petition was filed. C. Second Issue on Remand: Destination Contracts The second issue on remand was the determination whether any of Retailer s transactions were destination contracts. (Brisbane, supra, at p. 10.) As we stated in Brisbane: The general rule is that a contract containing neither an F.O.B. term nor any other term explicitly allocating loss is a shipment contract. (Wilson[, supra,] 132 Cal.App.4th [at p.] 556, fn. 4.) Brisbane acknowledges that none of the contracts included F.O.B. terms, or an1y other reference to when title passes. Brisbane maintains that they were destination contracts based on statements on [Retailer s] website informing customers that they could return items for any reason; Brisbane maintains these statements establish that the customer was not liable for the product while it was in transit. Brisbane also refers to statements by [Retailer s] tax manager... that he believed the retailer was not entitled to the sale price until after delivery. Whether the contracts, declarations by the tax manager, or statements on [Retailer s] website explicitly set 15

forth terms to establish destination agreements is an issue of fact. (See CUCC, 2401, subd. (2).) (Brisbane, supra, at p. 9.) On remand, Brisbane pivoted on this issue, contending that Retailer s sales were actually sales on approval and as such were destination contracts. SBE contended that Brisbane had forfeited this argument by failing to raise it in the previous appeal, but that in any event Brisbane failed to show that the contracts were destination contracts. The remand court agreed with SBE. We need not decide whether Brisbane forfeited its argument, because reviewing the issue on the merits we conclude that substantial evidence supports the remand court s finding that Retailer s sales were not sales on approval. The law presumes that sales contracts are shipment contracts. (Wilson, supra, 132 Cal.App.4th at p. 556.) Brisbane conceded that Retailer s contracts do not contain F.O.B. terms, or other terms regarding the passage of title. (Brisbane, supra, p. 9.) The absence of such terms suggests that Retailer s contracts are shipment contracts, not destination contracts. (Ibid.) Brisbane does not argue that the contracts specify that sales are on approval, or subject to a trial period, and Brisbane concedes that Retailer billed customers credit cards at shipment, rather than on delivery or after an approval period. (See id. at p. 559 [payment at time of shipment is evidence that a sale is not on approval, absent provision or objective fact demonstrating an intent that [the goods] to not belong to the buyer until the buyer approves them].) All of this is substantial evidence that Retailer s sales are not sales on approval or any other type of destination contract. Brisbane does not contest this evidence; instead, it argues that other evidence shows that the sales are on approval. Brisbane compares excerpts from the Returns Information printed on one of Retailer s shipping documents and the Returns Policy on Retailer s website, to portions of a suggested form contract in Deering s annotated CUCC, entitled Provision in Sales Agreement Sales on Approval After Trial Period. Brisbane argues that Retailer s terms conform[ ] closely and fully with Deering s suggested form and that Retailer s terms are therefore for sale on approval. The problem with this argument, as the remand court observed, is that nothing in the record indicates 16

that Retailer shipped goods to buyers for trial periods, and there is no language in Retailer s policies demonstrating an intent that [the goods] do not belong to the buyer until the buyer approves them. (Wilson, supra, 132 Cal.App.4th at p. 559.) More generally, Brisbane cites no authority to suggest that a return policy that allows purchasers to return goods for a refund within 90 days under certain conditions, constitutes the provision of goods to buyers for a trial period. Further, nothing in Retailer s terms corresponds to an important provision of the suggested Deering s form, that goods be returned in the same condition as received, ordinary wear and tear excepted. Retailer requires that many categories of goods be returned unworn, with tickets attached, unopened, or unused, which explicitly excludes the possibility of a trial period, not to mention ordinary wear and tear. Brisbane also urges us to look at the intent of the parties to determine the time and place that title transfers. Brisbane points to statements by Retailer in 2006 and 2007 that it shipped goods with F.O.B destination terms as evidence of Retailer s intent that its sales are destination contracts. In February 2006, Retailer responded to SBE s question whether Retailer s goods were shipped with F.O.B. shipping point or F.O.B. destination terms, and whether that was indicated anywhere on the contract, invoice or shipping statement. Retailer s response, provided by its legal department, does not say anything about intent. Instead, Retailer claims that goods are shipped with F.O.B. destination terms, and points to its return policy. In July 2007, Retailer s tax manager sent Brisbane s representative an expanded answer to the question, which adds nothing: The goods are shipped with FOB Destination terms. While this term is not specifically used on the website, the Return Policy on the website indicates that any customer can return an item for any reason; therefore, the customer is not liable for the product while it is in transit. Thus our delivery obligation under these offers is not satisfied until actual delivery to the customer occurs. This same language appears in a September 2007 letter 17

from the tax manager to Brisbane s representative. 14 And Brisbane points to another part of the tax manager s September 2007 letter as further evidence that Retailer s sales are subject to destination contracts: GAAP rules state that companies only can recognize revenue once the company has relieved its obligation to a customer. In our case, this would be once [Retailer] successfully delivers product to a customer. Our systems have no way to track actual customer receipt. In lieu, [Retailer] recognizes revenue once we receive a ship confirmation.... Then, at the end of each quarter, we post a journal entry to reduce sales for shipments in transit to customers. Even if the letters were some evidence of Retailer s intent, the trial court could properly conclude that letters written years after the dispute arose are not substantial evidence of the Retailer s intent at the time of the transactions. Furthermore, nothing in the letters suggests that Retailer intended the sales to be on approval. And Brisbane points to nothing in the record to show the buyers intent: Brisbane does not cite a single part of the record to support its claim that the evidence showed that, as a matter of wellknown custom and usage, the buyer also intended the sale to be one on approval. In sum, we conclude that substantial evidence supports the trial court s finding, none of the agreements at issue in this case were sales on approval. DISPOSITION The judgment is affirmed. SBE and Intervenors shall recover their costs on appeal. 14 This letter is dated September 11, 2007, the day of the hearing before the Board. Brisbane s representative presented it to the Board at the hearing and asked it to be appended to the record. 18

Miller, J. We concur: Kline, P.J. Richman, J. A151168, City of Brisbane v. California Dept. of Tax and Fee Administration 19