NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County BC361123, Andria K. Richey, Judge. Reversed.
Bewley, Lassleben & Miller, Jeffrey S. Baird and Joseph A. Vinatieri for Plaintiffs and Appellants.
Edmund G. Brown, Jr., Attorney General, W. Dean Freeman, Supervising Deputy Attorney General, and Donald R. Currier, Deputy Attorney General, for Defendant and Respondent.
CROSKEY, Acting P. J.
Modern Mold International, Inc., and Internet Design Technologies appeal a judgment dismissing their complaint after the sustaining of a demurrer without leave to amend. They seek a refund of use taxes paid for merchandise that was assembled by a third party in Mexico, transported by truck by the third party from Mexico to a post office in California, and then deposited in the United States mail. The merchandise consists of personalized pens that were given to potential customers as complimentary gifts. The plaintiffs contend they made a gift of the merchandise upon its shipment from the facility in Mexico and that they made no taxable use of the merchandise in California. They also contend the imposition of the use tax in these circumstances constitutes a discriminatory taxation of imports in violation of the import-export clause of the United States Constitution.
We conclude that the complaint adequately alleges that the plaintiffs made a gift of the merchandise in Mexico by delivering the merchandise through the third party, and that there was no taxable use in California. We therefore reverse the judgment and need not address the constitutional issue.
FACTUAL AND PROCEDURAL BACKGROUND
The facts stated are those alleged in the complaint, which we accept as true in accordance with the standard of review of the sustaining of a demurrer, as stated post.
The plaintiffs manufactured and sold personalized pens and similar merchandise from October 1995 to September 2001. They provided some merchandise to potential customers as free samples to generate future business. The samples were assembled by Pluma Nacional, S.A. De C.V. (Pluma), at its manufacturing plant in Tijuana, Mexico and were personalized there by imprinting the names of the intended recipients. The samples were then inserted in individually addressed packages, which were sorted and bundled by zip code and placed in United States Postal Service (USPS) mail bags. Multiple mail bags were shrink-wrapped to USPS mail palettes.
Pluma delivered the palettes by truck from Tijuana to a USPS post office in San Diego and deposited them there for mailing. The palettes were not disassembled until their arrival at a USPS regional center destination, and the mail bags were not opened until their arrival at a local post office. The samples were then delivered by USPS mail carriers to the intended recipients.
The plaintiffs paid a total of $599,996 in use taxes on the sample merchandise. The State Board of Equalization (Board) denied their claims for refund of the taxes paid.
2. Trial Court Proceedings
The plaintiffs filed a complaint against the Board in October 2006, and filed a second amended complaint in April 2007. They allege that they made no taxable use of the merchandise in California and that the imposition of use tax violated both the United States and California Constitutions. They allege two counts for refund of the amounts paid.
The Board demurred to the complaint, arguing that the delivery of the merchandise to a common carrier in California constituted a gift and a taxable use in California. The Board also argued that upon delivery to the post office in San Diego, the merchandise lost its character as imports and therefore lost any constitutional protection from California taxation. The trial court sustained the demurrer without leave to amend for the reasons stated in the demurrer, and entered a judgment of dismissal.
The plaintiffs contend (1) they intended to completely relinquish their dominion and control of the merchandise upon the packaging and shipping of the merchandise in Tijuana, so the gift was made at that time and place rather than upon deposit in the United States mail in San Diego; and (2) the imposition of use tax on imported goods in these circumstances violates the import-export clause of the United States Constitution.
1. Standard of Review
We independently review the ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) We construe the pleading in a reasonable manner and read the allegations in context. (Ibid.) We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court’s stated reasons. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)
2. The Complaint Adequately Alleges a Gift Made in Mexico and No Taxable Use in California
California imposes a use tax on tangible personal property that is (1) purchased from a retailer, (2) stored, used, or consumed in this state, and (3) for which no California sales tax was paid at the time of purchase. (Rev. & Tax. Code, §§ 6201, 6202, 6401; Searles Valley Minerals Operations, Inc. v. State Bd. of Equalization (2008) 160 Cal.App.4th 514, 520.) The use tax is imposed regardless of the origin of the goods. (§ 6202.) The term “use” is defined to include “the exercise of any right or power over tangible personal property incident to the ownership of that property.” (§ 6009.) The making of a gift of property to others is a taxable “use.” (Yamaha Corp. of America v. State Bd. of Equalization (1999) 73 Cal.App.4th 338, 348-349, 357 (Yamaha); see Cal. Code Regs., tit. 18, § 1670.) The term “use” does not include, however, the exercise of any right or power over property “for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state.” (Id., § 6009.1.)
“Purchase” and “retailer” are defined terms. (Rev. & Tax. Code, §§ 6010, 6015.) The plaintiffs do not argue that the goods were not purchased from a retailer within the meaning of the Sales and Use Tax Law (id., § 6001 et seq.), so we will not address that issue.
All further statutory references are to the Revenue and Taxation Code unless otherwise specified.
“ ‘Use’ includes the exercise of any right or power over tangible personal property incident to the ownership of that property, and also includes the possession of, or the exercise of any right or power over, tangible personal property by a lessee under a lease, except that it does not include the sale of that property in the regular course of business.” (§ 6009.)
“ ‘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.” (Rev. & Tax. Code, § 6009.1.)
Yamaha, supra, 73 Cal.App.4th 338, held that the delivery of tangible personal property that had been purchased outside of California to a common carrier in California for subsequent delivery to an out-of-state donee constituted a taxable gift in California. (Id. at pp. 364-365.) Absent any evidence that the donor intended to retain control over the property after its delivery to a common carrier, we concluded that the donor intended to divest itself of ownership upon delivery to a common carrier and that a gift was made at that time. (Id. at p. 359.)
We stated in Yamaha, supra, 73 Cal.App.4th at page 359: “The mere retention by the donor of some indicia of control over a gift, standing alone and without any evidence concerning the intent behind such retention of control, is a neutral factor which does not assist either the donor or donee on the question of whether there has been a completed gift, and despite such retention of potential control over property, if other essentials of a completed gift exist, the gift is not thereby affected or invalidated. [Citation.] Although California decisions often speak in terms of ‘absolute and unconditional delivery’ and ‘transfer of complete dominion and control,’ thus implying that the retention of any power over property (for example, the power to recall the delivery before it has been received) precludes a completed gift, a review of gift cases shows that these terms are used perhaps too broadly, for as long as the donor’s acts unequivocally show that it intended to divest itself of ownership in the property, the gift will be upheld. [Citation.] Furthermore, where there has been unequivocal proof of a deliberate and well-considered donative intent on the part of the donor, many courts have been inclined to overlook the technical requirements and to hold that even a ‘constructive’ or ‘symbolic’ delivery is sufficient to vest title in the donee, as long as the evidence clearly shows an intention to part presently with some substantial attribute of ownership. [Citation.]”
Yamaha, supra, 73 Cal.App.4th 338, involved a delivery to a common carrier for subsequent delivery to the donee. We were not called upon to decide, and did not decide, whether a delivery to a third party other than a common carrier for subsequent delivery to the donee could constitute a completed gift. We now address that question.
A gift of property requires some form of delivery to the donee to be effective. (Gordon v. Barr (1939) 13 Cal.2d 596, 601-602.) The delivery must be either an actual, physical delivery of the property itself or a constructive or symbolic delivery, such as by providing the means to obtain possession or control of the property (e.g., a key to a safety deposit box) or delivery of an instrument evidencing title to property (e.g., a bank passbook or stock share certificate). (White v. Bank of America (1942) 53 Cal.App.2d 831, 833; Estate of Escolle (1933) 134 Cal.App. 473, 480; see Restatement Third of Property, Wills and Other Donative Transfers, section 6.2, coms. c, g & h, pp. 20, 22-23.) A delivery for these purposes requires some act demonstrating clearly and unequivocally the donor’s deliberate intent to effect a present transfer of ownership to the donee. (Gordon, supra, 13 Cal.2d at pp. 601-602.) Despite language in prior opinions stating that the delivery must be “ ‘absolute and unconditional’ ” and that there must be a “ ‘transfer of complete dominion and control,’ ” the California Supreme Court in Gordon held that a delivery is effective “[a]s long as the donor’s acts unequivocally show that he intended to divest himself of ownership in the property,” despite the donor’s reservation of a life estate or some other interest in the property or a right of revocation. (Ibid.) Whether an effective delivery was made so as to establish a gift depends on the donor’s intent, which ordinarily is a question for the trier of fact. (Osborn v. Osborn (1954) 42 Cal.2d 358, 363; Jaffe v. Carroll (1973) 35 Cal.App.3d 53, 61.)
Whether there was an effective delivery is a question of law if the only evidence of the donor’s intent is a writing, the interpretation of which is a question of law. (Osborn v. Osborn, supra, 42 Cal.2d at p. 364; Windiate v. Moore (1962) 201 Cal.App.2d 509, 512-514.)
The Restatement Third of Property, Wills and Other Donative Transfers, section 6.2, comment k, page 24 states that a delivery to a third party for the benefit of a donee constitutes a completed gift if the delivery is made with the intent to make a present transfer to the donee. This rule is consistent with prior California opinions holding that a gift is completed upon delivery to a third party if the donor intends to part with all dominion and control over the property at that time. (Wilkerson v. Seib (1942) 20 Cal.2d 556, 560; Bury v. Young (1893) 98 Cal. 446, 451-452; Windiate v. Moore, supra, 201 Cal.App.2d at pp. 514-515; Herman v. Mortensen (1945) 72 Cal.App.2d 413, 417; Neely v. Buster (1920) 50 Cal.App. 695, 698.)
The Restatement Second of Property, Donative Transfers, section 31.1, was to the same effect.
Although language in some opinions suggests that the donor must completely relinquish all dominion and control over the property for the delivery to a third party to be effective as a gift (e.g., Wilkerson v. Seib, supra, 20 Cal.2d at p. 560; Moore v. Trott (1909) 156 Cal. 353, 355-356), we conclude that the rule from Gordon v. Barr, supra, 13 Cal.2d at pages 601-602, that the complete relinquishment of all dominion and control is not essential, is equally applicable where delivery is made to a third party for the benefit of the donee as where delivery is made directly to the donee. As we stated in Yamaha, supra, 73 Cal.App.4th at p. 359, “the mere retention by the donor of some indicia of control over a gift, standing alone and without any evidence concerning the intent behind such retention of control, is a neutral factor which does not assist either the donor or donee on the question of whether there has been a completed gift.” (Accord, Jaffe v. Carroll, supra, 35 Cal.App.3d at pp. 60-61.)
A delivery to a third party is effective as a gift if the donor intends to effect a present transfer of ownership to the donee even if the third party ordinarily would be considered an agent of, or otherwise under the dominion and control of, the donor. In those circumstances, the third party is deemed a trustee holding the property for the benefit of the donee, and the trust relationship supersedes any agency relationship. (Wilkerson v. Seib, supra, 20 Cal.2d at p. 560 [delivery of a deed to the executor of the donor’s will]; Bury v. Young, supra, 98 Cal. at pp. 448, 451-452 [delivery of a deed to the donor’s attorney]; Windiate v. Moore, supra, 201 Cal.App.2d at p. 515 [same]; Herman v. Mortensen, supra, 72 Cal.App.2d at p. 421 [same].)
Accordingly, we conclude that the donor need not completely relinquish all dominion and control over the property as long as the donor’s acts in delivering property to a third party unequivocally show that the donor intended to effect a present transfer of ownership to the donee. The complaint alleges that the pens were personalized and packaged for shipping to each of the intended recipients before the merchandise left Pluma’s plant in Mexico. It also alleges that the packages were sorted, bundled, and placed in USPS mail bags, and that the mail bags were shrink-wrapped to USPS mail palettes, all before the merchandise arrived in California. It alleges further that the plaintiffs “intended a complete relinquishment of dominion and control over the same at the time of embarkation from Pluma’s Tijuana plant.” These allegations, which we accept as true for purposes of the demurrer, are sufficient to show that the plaintiffs intended to effect a present transfer of ownership to the intended recipients upon shipment of the merchandise from Pluma’s plant in Mexico.
In light of our conclusion, we need not address the constitutional issue.
The judgment is reversed. The plaintiffs are entitled to recover their costs on appeal.
We Concur: KITCHING, J., ALDRICH, J.