Legal Question in Business Law in California

First, I'm unsure about the terminology you use in your question......perhaps you are asking when the evaluation unit ceases to be your company's inventory and becomes, instead, sold merchandise subject to a return privilege. If so, this sounds more like an accounting question than a legal issue, although I suppose it would have aspects of both.

As to the Commercial Code, in California two possibly relevant sections are 2326 and 2327, which deal with sales on approval. You may want to look them up. I did not notice that either of them contains a thirty, ninety or other limit in days as to when an approval sale becomes final and the buyer loses its return privilege. I suspect that this is left by the law to the reasonable discretion of the parties.

So, I'd say ask your accountant. I'd guess that a delivery for evaluation is legally equivalent to a sale on approval and that the time limit for return at which the sale becomes final is subject to the parties' contractual agreement, but the time should be reasonable in terms of the shelf life of the product in question. An ice cream cone would have a shorter time than a bronze statue. Similarly, a piece of technical equipment that is in evolutionary development would need to be recognized as sold more quickly than, say, a portable generator.

I don't think you are asking a legal question. Your question would be governed by a combination of Generally Accepted Accounting Principals, tax accounting for depreciation, and the actual nature of the market for the product in question. The rules are going to be different for, say an automobile, versus a router. The first real question is purely practical - how long can the product reasonably be used for evaluation before a customer would feel cheated if you sold it to them as new. With a car, there are pretty clear industry standards for how much a car can be driven in test drives before it has to be considered a "demo." You would have to determine when that is for your item. Once something is a "demo" you would normally account for it as going from inventory to capital goods. That is usually desirable because you can depreciate capital goods, but not inventory. Even then, though, if you carry used inventory, you may be able to reconvert it to used inventory and sell it. That would be an accounting question.