Were contractor-made cabinets sold as fixtures or realty, and how were non-built-in appliances taxed in a lump-sum home contract?

Plain-English summary

A general contractor prefabricated nearly complete cabinets in its own shop before attaching them in new homes. The memorandum treated those cabinets as fixtures under historical Ruling 11, but their sales-tax treatment depended on whose land was being improved.

If a customer acquired the lot from someone else and hired the contractor to build the home, the contractor retailed the cabinets as tangible personal property. If the contractor completed a house on its own lot before contracting to sell the house and lot, the cabinets passed as realty and Ruling 11 did not apply.

When a contractor owning the lot agreed both to sell it and construct the building, the answer depended on whether legal or equitable title passed to the customer before construction.

The contractor also retailed non-built-in refrigerators, stoves, washers, dryers, and similar appliances included in a lump-sum home sale. Taxable gross receipts were their fair retail price, including a reasonable markup, determined through a reasonable method such as the amount discounted if appliances were omitted.

Common questions

Were shop-prefabricated cabinets always taxable fixtures?

No. They passed as realty when installed in a completed home on the contractor's own lot before the sales contract.

What if the contractor sold the lot and agreed to build afterward?

The memorandum said the timing of legal or equitable title passage controlled.

How were non-built-in appliances valued in a lump-sum contract?

At fair retail value, including a reasonable markup, using a reasonable allocation method.

Citations and references

• California Sales and Use Tax Ruling 11 (historical, as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/150-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/150-0080.pdf

Original ruling text

STATE BOARD OF EQUALIZATION
OFFICE CORRESPONDENCE

150.0080
Sacramento
July 15, 1957

To:

Fresno - Administrator

From:

Headquarters – Sales Tax Counsel

Re:

Application of Ruling 11

We are sorry your memorandum of June 28, 1956 was “buried”. This was the memorandum about the application of sales tax where a general construction contractor builds homes and prefabricates the cabinets for the nome in his own cabinet shop. These cabinets are in their entirety, or nearly so, fabricated before being affixed to the realty. As we understand the facts, the particular cabinets involved are “fixtures” as defined in Ruling 11. Therefore, where a particular customer acquires a lot from one person and then contracts with a third person construction contractor whereby the latter will build a house, including prefabricated cabinets, the construction contractor is retailing tangible personal property insofar as the cabinets are concerned. Ruling 11, however, only applies to a construction contractor who is constructing a building on land owned by another person. Therefore, if a contractor builds and completes a house on a lot owned by him prior to the time he contracts to sell the house and lot, the cabinets would be sold as realty and Ruling 11 would not apply. More difficult is the situation where a contractor owning a lot agrees to sell the lot and to construct a building thereon. Whether the sale of the cabinets would be as sale for realty or personalty would seemingly depend upon whether title to the lot – legal or equitable – passed to the customer prior to construction of the building. You next inquired whether a construction contractor is regarded as making a sale of tangible personal property where, as part of an agreement of sale of a house, the house is furnished by the contractor with refrigerators, stoves, washers, dryer, etc., which are not built-in. In our opinion, where the construction is a lump-sum contract, the contractor is a retailer of these items and the taxable gross receipts would be the fair retail sale price which would include a reasonable mark-up on cost.

Fresno - Administrator
Re: Application of Ruling 11

-2-

July 15, 1957
150.0080

It may be possible for you to determine from the contractors how much would be discounted from the lump-sum price if the applicances were not included, but in any event it would be necessary to determine the fair retail sale price by some reasonable method.

W. W. Mangels

WWM:rc