When was an in-place water-meter sale treated as taxable personal property rather than a nontaxable real-property transfer?

Plain-English summary

Tax counsel reconciled two earlier letters that appeared to classify in-place water meters differently. The key distinction was the seller's relationship to the land and the parties' removal rights.

Water meters sold in place were generally treated as real property. The exception applied when the seller was a lessee with the right to remove the meters and sold them to a buyer other than the real-property owner who also had a removal right. In that setting, the transfer constructively severed the meters and treated them as tangible personal property.

Common questions

Were water meters always taxable because they could be removed?

No. The general rule in the memorandum treated their in-place sale as real property.

What facts created the personal-property exception?

The seller had to be a lessee with a removal right, and the non-landowner buyer also had to have the right to remove the meters.

Why did an earlier city letter reach the real-property result?

Tax counsel inferred that the lessee-and-removal-right facts were not present there.

Citations and references

• No statute, regulation, or case was cited in the supporting memorandum.

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/150-0700.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Francisco – Auditing (LC:REP)

From:

Tax Counsel (EHS) – Headquarters

Subject:

P--- G--- and E--- C--XXX ---Street

150.0700

January 27, 1965

XX-XXXXXX

In your memo of December 17, 1964 you refer to a letter dated August 1, 1958, addressed to the City of V---, in which we stated that of various items listed, which included water meters, all were real property except tools and shop equipment. Evidently this letter was in confirmation of a conference, at which time the list was submitted to us. The letter of September 26, 1956, to the L--- A--- D--- of W--- and P--- which you state appears inconsistent (this is the item appearing on page 3563), reads in part as follows: “In the past we have ruled that the sale of water meters in place as a part of the sale of a private water system is a sale of tangible personal property when the meters are on land not owned by the seller. Our ruling is based upon the fact that the seller has a right to remove the meters and the sale constitutes a constructive severance of the meters from the realty.” Thus, the distinction, apparently, is that under the facts on which our letter of September 26 was based, the sale of the meters was by a lessee who had the right to remove them. This, apparently, was not the case in the facts involved in our letter to the City of V---. Unless the meters are sold by a lessee having the right to remove them, to a purchaser other than the owner of the real property who also has the right to remove them, we think the sale should be regarded as a sale of real property. EHS:fb