Could a contractor buy materials and fixtures ex-tax for homes sold to an Indian housing authority on a reservation?

Plain-English summary

The contractor could act as the retailer of the materials used to build 30 homes for an Indian housing authority. Its contract explicitly transferred title to materials after delivery, proper jobsite storage, and partial payment but before installation, and separately stated a $584,971 materials price apart from installation.

Those terms satisfied the cited construction-contractor rule. After obtaining a California seller's permit, the contractor could issue resale certificates to suppliers and buy the materials ex-tax. The opinion said the contractor's later sale of those materials to the housing authority on the reservation was exempt.

Fixtures followed a similar result: the contractor was their retailer, could buy them for resale, and could make the described exempt sale to the housing authority. Subcontractors could use the same approach only if their contracts conformed to the same title-passage and pricing language.

Common questions

What made the contractor a retailer of materials?

The contract transferred title before installation and separately stated the materials sale price, exclusive of installation.

Could the contractor buy materials ex-tax?

Yes, after obtaining a California seller's permit and issuing proper resale certificates.

Were fixtures also covered?

Yes. The opinion treated the contractor as the retailer of fixtures and described their reservation sale as exempt too.

Did the same answer automatically apply to subcontractors?

No. Their contracts had to conform to the same title-transfer and separate-pricing terms.

Citations and references

• California Revenue and Taxation Code section 6066 — seller's permit application requirement cited in the opinion
• California Revenue and Taxation Code section 6352 — reservation-sale exemption cited in the opinion
• California Code of Regulations, title 18, section 1521(b)(2)(A)2 — when a construction contractor is treated as the retailer of materials
• California Code of Regulations, title 18, section 1521(b)(2)(B) — contractor treatment of fixtures
• California Code of Regulations, title 18, sections 1616 and 1668 — reservation transactions and resale certificates cited; copies were enclosed with Regulation 1521
• Construction contract Cal 97-7/9 — formal project reference and title-passage and separately stated pricing terms reviewed

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/190-0442.pdf

Original ruling text

190.0442
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

CONWAY H. COLLIS
First District, Los Angeles

1020 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 1799, SACRAMENTO, CALIFORNIA 95808)
(916) 445-8485

ERNEST J. DRONENBURG, JR
Second District, San Diego
WILLIAM M. BENNETT
Third District, Kentfield

RICHARD NEVINS
Fourth District, Pasadena

January 16, 1986

KENNETH CORY
Controller, Sacramento

DOUGLAS D. BELL
Executive Secretary

Mr. S--- J--P--- & J--- C--Construction, Inc.
XXXX --- Hwy.
---, Oregon XXXXX
Dear Mr. J---:
This is in response to your letter of January 6, 1986. We understand that P--- & J--Construction Inc. (P&J) an Oregon based contractor, has entered into a contract (Cal 97-7/9) with the R--- V--- I--- H--- A--- (RVIHA) to construct 30 homes and related improvements to realty on the C--- in northern California. Below are questions from your letter followed by our responses to those questions. Question No. 1 “What steps should be taken by P&J in order to obtain a Resale Number for this Project? Response As will be discussed below, we are of the view that P&J is the seller and retailer of “materials” to be furnished and installed in performing Cal 97-7/9. Under California law, sellers are required to apply for sellers permits (Rev. & Tax. Code §6066). We assume the sellers permit number is what you refer to as a “Resale Number”. We suggest that you contact the
[BOE] Branch Office in order to apply for the permit. Once a sellers permit is obtained, P&J may then issue resale certificates to its suppliers of materials in accordance with our Regulation 1668, copy enclosed. Question No. 2 “Once a Resale Number is obtained, is the Contract worded in such a manner that the fixtures and materials are not subject to the State Sales Tax?”

Mr. S--- J---

-2-

January 16, 1986
190.0442

Response
Regulation 1521(b)(2)(A)2 provides in pertinent part:
“When Contractor is Seller. A construction contractor may contract to sell materials and also to install the materials sold. If the contract explicitly provides for the transfer of title to the materials prior to the time the materials are installed, and separately states the sale price of the materials, exclusive of the charge for installation, the contractor will be deemed to be the retailer of the materials.” Our view of the contract indicates the following title passage provision: “Title to all materials to be used in this project which are delivered to and properly stored on the job site and the subject of a partial payment shall transfer to owner prior to the time the materials are installed by the Contractor or any subcontractor”. Additionally, the contract provides: “The
[RV]IHA shall pay the Contractor for performance of the contract, subject to additions or deductions as provided in the Contract the sum of One million seven hundred ninety-eight thousand and no/100 Dollars ($1,798,000.00). The total sales price of all materials used in this project is Five hundred eighty-four thousand nine hundred seventy-one Dollars ($584,971.00), exclusive of the charge for installation”. The above cited passage clause plus the language separately stating the sales price of the materials is sufficient to qualify P&J as the seller and retailer of materials to RVIHA pursuant to Regulation 1521. Since sales to RVIHA on the reservation are exempt from tax, sales tax otherwise normally due does not apply (See Rev. & Tax. Code §6352; Reg. 1616, copy enclosed). We note, with respect to “fixtures” that P&J is the seller and retailer of such “fixtures” to RVIHA (see Reg. 1521(b)(2)(B), copy enclosed). As in the case of the “materials” discussed above, P&J’s purchases of fixtures may be purchased ex-tax by issuing resale certificates to suppliers; and, sales of the “fixtures” by P&J to RVIHA are, similarly, exempt. Question No. 3 “What steps do subcontractors to P&J and other suppliers and lower tier subcontractors need to take in order to obtain a Resale Number for this project?” Response All contractors and subcontractors who will be furnishing and installing improvements to realty for RVIHA and who have entered into contracts containing the title passage clause and pricing language discussed above may apply for sellers permits in the same manner as P&J.

Mr. S--- J---

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January 16, 1986
190.0442

Question No. 4
“Once a Resale Number is obtained by a subcontractor/Supplier, is the proposed Subcontract structured in such a manner that the State Sales Tax is not applicable?” Response In our conversation of January 15, 1986, you indicated the subcontract language pertaining to the title passage clause as well as language pertaining to pricing would be conformed to the language utilized in Cal 97-7/9 discussed above. Assuming such conformity is achieved, our conclusion is as indicated with respect to Cal 97-7/9. Sincerely,

E. Leslie Sorensen, Jr.
Tax Counsel
ELS:rar
Enclosures