Was making precast reinforced-concrete pilings for another contractor a taxable retail sale?

Plain-English summary

Making precast reinforced-concrete pilings was a taxable retail sale when the fabricator performed no pile driving or installation. The fabricator created tangible personal property that its customer later consumed in improving real property.

Section 6006(b) treated the producing, fabrication, or processing of property for a consumer as a sale even when the consumer directly or indirectly furnished some of the materials.

The fabricator's economic disadvantage compared with an integrated contractor that could perform its own fabrication did not create an exemption. Tax Counsel said changing that result would require legislation.

Common questions

Was the piling fabricator a construction contractor?

No. It did not install the pilings or improve realty.

Did customer-furnished materials prevent a sale?

No. Section 6006(b) expressly covered the fabrication.

Who consumed the pilings?

The contractor that drove and installed them in the real-property project.

Citations and references

• California Revenue and Taxation Code section 6006(b) — customer-furnished-property fabrication rule quoted and applied in the letter
• Former Board Ruling 11 — construction-contractor definition used to distinguish the noninstalling fabricator

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/190-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/190-0220.pdf

Original ruling text

190.0220

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 21, 1955

J--- P--- – M--- Corporation
XXXX --- ----- X, California
Attention:

Mr. G. I. L--Controller

SC-C-XXXXXX

Gentlemen:
We have received a report from our --- District Office relative to the transaction discussed in your letter of January 17. It appears that the transaction in question consists of the placing of reinforcing steel and pouring of cement to form precast steel concrete pilings to be emplaced by B--- C. G---, Inc. We are informed that you had no responsibility for, and performed none of, the pile driving or any of the installation of any of the material. As we understand it, you did not improve real property but merely fabricated tangible personal property with which your customer, B--- C. G---, Inc., subsequently improved real property. In order to be a consumer under the provisions of Ruling 11 a person must be either a contractor or a subcontractor performing a “construction contract”. A construction contract is defined as a contract for erecting, remodeling, or repairing a building or other structures on land. From your letter and the report of our District Office you did not improve real property but merely fabricated personal property which your customer used in improving real property. There was, therefore, a sale of tangible personal property from you to your customer and this was a retail sale because your customer used it to improve real property and hence was the consumer. The transaction was note the less a sale by you, even though G--- furnished some of the materials, because under the express provisions of Section 6006(b) of the Sales and Use Tax Law the producing, fabrication, or processing of tangible personal property furnished directly or indirectly by the consumer is a sale.

J--- P--- – M--- Corporation
SC-C-XXXXXX

-2-

February 21, 1955
190.0220

Apparently you object to what we believe is clearly the law on the subject upon the basis that a contractor with facilities to fabricate materials to be used by him enjoys a tax advantage over a contractor without such facilities who must, therefore, either buy the fabricated article or have someone else fabricate it for him. This is a question of economics and runs throughout the entire administration of the Sales Tax Law. It frequently happens that through integration of business a lesser tax liability results than where there is a succession or transfers between separate entities. Any change in the law to prevent such a result would, of course, require legislation. We point out, however, that the law has been consistently applied in the manner set forth herein with respect to sales to construction contractors by material men and fabricators, whether the property involved be structural steel fabricated by other than the contractor, lumber, and other building materials of any sort. We note that you have sent a copy of your letter to the office of the Attorney General and we are likewise sending to that office a copy of this letter. In the event you are desirous of discussing these problems with the undersigned, I shall be glad to meet with you in this office at your convenience if you will give me a few days advance notice. Very truly yours,

E. H. Stetson
Tax Counsel

EHS/:ph
Enclosures
cc:

--- – Auditing (JFH)
Honorable James E. Sabine
Assistant Attorney General