How did California classify standing-timber agreements requiring or merely permitting buyer severance, and what later rule does the source add?

Plain-English summary

The 1953 letter described a historical distinction for standing timber. If a purchaser was required to sever timber at a stated unit price, the agreement was treated as a personal-property sale. If the purchaser merely had an option to cut and no severance obligation, the agreement was treated as a nontaxable sale of an interest in realty.

The supporting PDF itself adds a later bracketed correction: Regulation 1596(b) now makes the timber taxable whether the seller or purchaser performs the severance. The correction therefore displaces the letter's buyer-versus-seller distinction for the published annotation.

The original letter also said that, assuming the contract was a personal-property sale, the timber appeared exempt as a sale for resale because the purchaser planned to sell it to a lumber mill. It recommended obtaining the prescribed resale certificate. The author would not give a definite ruling without examining the contract.

Common questions

Is the 1953 optional-severance distinction presented as current law?

No. The incorporated note says Regulation 1596(b) now taxes the timber whether buyer or seller severs it.

Did the original letter decide the actual contract?

No. It lacked the contract and gave only conditional classifications.

Could a taxable timber transfer still be exempt as a resale?

The letter said yes on the assumed facts and advised the seller to obtain a resale certificate.

Citations and references

• California Sales and Use Tax Regulation 1596(b) (later incorporated note)
• California Sales and Use Tax Ruling 68 (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/150-0580.pdf

Original ruling text

150.0580

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 31, 1953

Your letters of November 6,
December 16 and December 28
Account No. -- -- XX XXXXXX

Attention:

--- --- --Treasurer

Gentlemen:
You inquire concerning the application of sales tax to the sale of standing timber to an individual who proposes to cut the timber and sell it to a lumber mill. The California sales tax applies to retail sales of tangible personal property. A contract in which the purchaser is to sever something from land at a given price per unit is regarded as a sale of personal property if the purchaser is required to make the severance. [Now see Reg. 1596(b); taxable whether severed by seller or purchaser. DJH]. If, however, the purchaser is merely granted an option to sever and is not required to sever, the agreement is one for the sale of an interest in realty and is not subject to the sales tax. This is so even though the contract calls for payment at a given price per unit. Without examining the contract we are unable to give you a definite ruling. Assuming that your contract is one for the sale of personal property, the sale would undoubtedly be exempt as a sale for resale in the regular course of business. So that your records may be complete you should obtain from the purchaser a resale certificate in the form prescribed in Rulin 68, (copy enclosed). Very truly yours,

Bill Holden
Junior Counsel
BH:ja
bc:

Los Angeles -Auditing