Could a carpet installer accept a bank's resale certificate when installed wall-to-wall carpeting was leased to a building user?

Plain-English summary

A seller had previously asked whether it could treat wall-to-wall carpeting sold and installed for a bank's leasing arrangement as property sold for resale. The 1976 letter said changes in the law required a different answer from the Board's 1965 response.

Under Regulation 1521, a contract to sell and install wall-to-wall carpeting was a construction contract, the carpeting was “materials,” and the installer was the consumer for sales-and-use-tax purposes. The installer therefore could not accept a resale certificate from the bank.

Calling the carpet tangible personal property in the lease did not change the result. Neither an agreement that it would remain personal property nor a landlord's waiver preserving a removal right made the bank's lease a resale of the installed carpeting.

The live annotation page begins with a broader sentence about banks purchasing leased personal property for resale, but its attached official note expressly distinguishes fixtures from materials and confirms that banks may not issue resale certificates for wall-to-wall carpeting.

Common questions

Did a contractual removal right preserve resale treatment?

No. The letter said the installer remained the consumer even if the lessor could remove the carpet when the lease ended.

Did this letter follow the Board's 1965 answer?

No. It expressly said legal changes required a different result.

Citations and references

• California Sales and Use Tax Regulation 1521 (construction contractors and materials, as cited)
• California Revenue and Taxation Code section 6016.3 (fixtures versus materials, described in the live annotation's official note)
• July 30, 1965 Board response (prior answer reconsidered; not reproduced)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page and clarifying note: https://cdtfa.ca.gov/lawguides/vol2/suta/135-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/135-0221.pdf

Original ruling text

135.0221

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 322-6083

January 23, 1976

Mr. M--- -. H--A--- and N--- C--XXX --- -----, CA XXXXX

S- --H XX XXXXXX

Dear Mr. H---:
Many years ago we responded to an inquiry of yours concerning the application of tax to sales of wall-to-wall carpeting by you to the [B] for lease by the bank. Our reply was dated July 30, 1965. We have recently re-examined this question and have concluded that changes in the law since our response to you have resulted in a change in the application of tax to this type of transaction. Contracts for the sale and installation of wall-to-wall carpeting are regarded as construction contracts under our Regulation 1521 “Construction Contractors” and the carpeting is regarded as “materials.” The contractor installing the carpeting is the consumer of the carpeting for sales and use tax purposes. The contractor may not accept a resale certificate from his customer for the carpeting. The customer is not regarded as reselling the carpeting in leasing it to a third party utilizing the premises in which the carpeting is installed even though the parties agree between themselves that the carpeting shall remain tangible personal property and even though the “lessor” secures a landlord’s waiver from the owner of the premises in which the carpeting is installed to insure the “lessor’s” right to remove the carpet upon termination of the “lease.” If you have any questions, please contact this office. We have enclosed a copy of our Regulation 1521 for your reference. Very truly yours,

H. L. Cohen
Tax Counsel
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