TITLE: California FTB Ruling: Out-of-State Hub Warehouses and Sales Factor Apportionment
California’s Franchise Tax Board (FTB) has clarified how certain sales through out-of-state hub warehouses are assigned for California income and franchise tax apportionment. For international businesses using US distributors, the ruling highlights why your contracts, invoices, and warehouse operations need to tell the same story.
What California’s new ruling says
In Chief Counsel Ruling 2026-01, dated October 22, 2026, the FTB considered a taxpayer that sold products to independent distributors through hub warehouses outside California. At or before the goods arrived, title, possession, risk of loss, custody, and control transferred to the distributors.
The distributors then unloaded and sorted the goods, stored them, combined products onto pallets, packaged and labeled shipments, repackaged damaged items, and arranged onward shipping. The seller was not involved in this later handling and did not know where the distributors would send the products after resale.
The FTB concluded that, for taxable years beginning on or after January 1, 2024, the sales described in the ruling were assigned outside California, even if the distributors later shipped goods to California retailers or other distributors.
The reasoning: the sales terminated when the distributors took possession at the out-of-state hubs. The handling there was “much more substantive than mere temporary storage.” Later transportation arranged by the distributors did not change where the seller’s sales were assigned.
You can read the FTB’s Chief Counsel Ruling 2026-01 and its Legal Ruling 95-3, which the FTB discussed in its analysis.
Why the distinction between transit and warehousing matters
California Revenue and Taxation Code section 25135 generally assigns sales of tangible personal property to California when the goods are delivered or shipped to a purchaser in California. The details of where the sale ends can matter when goods move through a distribution network before reaching their ultimate destination.
The FTB compared this ruling with two earlier authorities:
- In McDonnell Douglas Corp. v. Franchise Tax Board (1994), the court considered a destination-based approach to sourcing.
- In Appeal of Mazda Motors of America (94-SBE-009), shipment terminated in California after substantive warehouse activities occurred there.
The new ruling is a mirror image of the Mazda Motors situation. There, substantive activities in California supported California sourcing. Here, comparable activities at an out-of-state hub supported sourcing outside California.
The FTB also drew on Situation 3 in Legal Ruling 95-3. In that example, a purchaser took possession in one state and later transported the goods to another. The later movement did not change the original sales-factor assignment.
This is not a blanket rule for every warehouse or fulfillment arrangement. The result depends on the facts, including when the purchaser takes title and control, what happens at the hub, and whether the seller remains involved in later distribution.
What international sellers should check now
If your UK Limited Company, US ecommerce brand, or other international business sells through US distributors, map each step from dispatch to resale. A hub warehouse may be relevant to your California sales factor, but only if your contracts and actual operations support the facts that mattered in the ruling.
Use this checklist:
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Map when title and risk transfer. Review distribution agreements and sale terms to confirm when title, possession, risk of loss, custody, and control pass to the distributor. The ruling’s facts involved transfer at or before arrival at the out-of-state hub.
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Identify the purchaser’s receipt point. Establish where your distributor receives the goods as purchaser. Do not rely on a warehouse address alone; match the contract terms to the actual flow of goods and responsibility.
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Document the work done at the hub. Record whether the distributor unloads, sorts, stores, repalletizes, combines your goods with other manufacturers’ products, packages or labels goods, repacks damaged items, and arranges onward shipments. These substantive activities were important in the FTB’s analysis.
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Separate substantive handling from temporary transit. A brief stop for transportation is not automatically comparable to a hub where goods are stored and prepared for onward distribution. The activities and purpose of the stop matter.
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Check your role after delivery. Establish whether you direct, control, or take part in subsequent warehousing and shipping. The taxpayer in the ruling had no further involvement and did not know the resale destinations.
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Keep transaction-level evidence. Retain distributor invoices, contracts, shipping records, delivery confirmations, and documents showing the sale terms at or before hub arrival. Good records make it easier to support your apportionment treatment.
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Reconcile the sales-factor calculation. Check that your California apportionment work reflects the location of delivery to the purchaser and the applicable rules for your business and filing position. Do not change a return solely because your goods pass through an out-of-state warehouse.
These checks can also help align inventory records, marketplace reports, and financial statements. For businesses that sell through Amazon or other platforms, reliable ecommerce bookkeeping in the UK can help keep transaction data organized alongside cross-border compliance records. You can also review our overview of US tax obligations for ecommerce sellers.
What this ruling does not change
This ruling concerns income and franchise tax sales-factor sourcing under California law. It is not a sales tax ruling.
It does not change sales tax nexus, economic nexus thresholds, or marketplace facilitator rules. Those are separate sales tax questions, and your collection and filing obligations must be assessed independently.
A shipment’s treatment in a California income tax apportionment calculation does not, by itself, determine whether you need to register for, collect, or remit sales tax. Keep those compliance reviews separate to avoid missing obligations.
Treat the ruling as fact-specific
The FTB states that this ruling applies only to the named taxpayer and is based on the facts submitted. It is not a general approval of all third-party warehouse arrangements.
Your result may differ if, for example, title or control transfers later, the warehouse performs only temporary transit storage, you direct onward distribution, or the actual contract and delivery process do not match the ruling’s facts. The ruling also addresses the sales factor for California income and franchise tax purposes, not every tax consequence of a US distribution model.
For a UK business selling into the US, organized records are essential. Whether you need an ecommerce accountant in the UK, Amazon FBA accounting in the UK, or ongoing support with international compliance, keep your distributor agreements, inventory records, and tax reporting connected.
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