How did California tax lawn materials, shrubs, and plants furnished by a landscape contractor?

Plain-English summary

Installing a lawn improved realty, so the landscape contractor was the consumer of lawn materials such as seed. Tax applied to the sale of those materials to the contractor.

Shrubs and plants were treated like fixtures. The contractor acted as their retailer, and tax applied to their selling price. Under a lump-sum contract, the source treated that selling price as cost price; under a time-and-material contract, a specifically stated charge for shrubs and plants became the tax measure.

The 1985 letter corrected the older rule for contractor-grown or contractor-produced fixtures. Cost price was the contractor's price for similar fixtures, in similar quantities, ready for installation and sold to other contractors—not the price other suppliers would charge the contractor.

If the contractor bought plants or shrubs tax-paid from a nursery and made no intervening use beyond retention, demonstration, or display while holding them for resale, the opinions allowed a tax-paid-purchases-resold deduction. The 1953 opinion also advised the landscape contractor to obtain a seller's permit.

Common questions

Was lawn seed a fixture?

No. The opinions treated it as material consumed in improving realty.

How were shrubs and plants classified?

As items similar to fixtures, sold by the landscape contractor.

What was the tax base under a time-and-material contract?

The specific charge for the shrubs and plants.

How were contractor-produced fixtures measured after the correction?

By the contractor's price for comparable ready-to-install fixtures sold to other contractors.

Could tax-paid nursery purchases receive a resale deduction?

Yes, if the contractor made no disqualifying use before resale.

Citations and references

• California Code of Regulations, title 18, section 1521(b)(2)(B)2(b) — 1985 contractor-manufacturer cost-price rule quoted in the source
• Former Sales and Use Tax Ruling 11 — historical construction-contractor, materials, and fixture treatment cited in the 1953 and 1966 opinions
• Former Sales and Use Tax Ruling 71 — historical tax-paid-purchases-resold rule cited in both opinions

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/190-0480.pdf

Original ruling text

190.0480

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 25, 1953

Mr. J--- S--P. O. Box XXXX
---, California

Dear Mr. S---:
You have orally requested our advice as to whether your activity as a landscape gardener would constitute sales under the California Sales and Use Tax Law. It is our understanding that you enter into lump-sum contracts for landscaping, and in connection with those contracts furnish plants, trees, etc. It is our opinion that a landscaping contractor who contracts to install a lawn is improving realty and in such cases would be governed by the provisions of Sales and Use Tax Ruling 11, copy enclosed. As therein indicated in the section “Materials Used by Contractors”, the contractors are the consumers of the materials used by them in fulfilling construction contracts and the tax applies to the sale of such materials to the contractors. Lawn seed used by you in installing a lawn would fall within this classification. However, with respect to shrubs and plants used in connection with your landscaping contracts, it is our opinion that these are similar to “fixtures” as defined by Ruling 11. Therefore, you would be considered as a retailer of shrubs and plants furnished in connection with such services and tax applies to your selling price thereof. In the case of lump-sum contracts, the selling price of shrubs and plants is regarded as the cost price. If the shrubs and plants furnished in fulfilling lump-sum contracts had been grown or produced by you, the retail selling price thereof is regarded as the prevailing price at which similar shrubs and plants in similar quantities would be sold to you by other suppliers. [Now see Reg. 1521]. If you purchase such plants and shrubs from nurseries and pay sales tax on these purchases, then if you make no use of them (other than retention, demonstration, or display while holding them for resale in the ordinary course of your business) you will be entitled to the deduction for “tax-paid purchases resold” under Ruling 71, copy enclosed.

Mr. J--- S---

-2-

March 25, 1953
190.0480

It is our opinion that you should apply for and receive a seller’s permit. Application may be made through our office at 7 Natividad Street, Salinas, California. Very truly yours,

E. H. Stetson
Tax Counsel

JHM:ja

cc:

San Jose - Compliance

190.0480

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 18, 1966

C--- --XXX --- Building
--- and --- Streets
---, CA XXXXX
Attention:

Mr. E--- J. M--Executive Secretary

Gentlemen:
This is in reply to your letter of April 12, 1966, regarding the application of sales and use taxes to the operations of landscape contractors. It is our opinion that a landscaping contractor who contracts to install a lawn is improving realty and in such cases would be governed by the provisions of sales and use tax ruling 11, copy enclosed. As therein indicated in the section “Materials Used by Contractors,” the contractors are the consumers of the materials used by them in fulfilling construction contracts and the tax applies to the sale of such materials to the contractors. Lawn seed used in installing a lawn would fall within this classification. With respect to shrubs and plants used in connection with landscaping contracts, it is our opinion that these are similar to “fixtures,” as defined by ruling 11. Therefore, a landscape contractor would be considered as a retailer of shrubs and plants furnished in connection with such services and tax applies to the selling price thereof. In the case of lump-sum contracts, the selling price of the shrubs and plants is regarded as the cost price. If the shrubs and plants furnished in fulfilling a lump-sum contract had been grown or produced by the landscape contractor, the retail selling price thereof is regarded as the prevailing price at which similar shrubs and plants in similar quantities would be sold to other suppliers. A time and material contractor would be subject to the same tax consequences, excepting only that in the case of shrubs and plants for which he made a specific charge the measure of the tax would be that specific charge.

C--- A---

-2-

April 18, 1966
190.0480

If a landscape contractor purchases such plants and shrubs from nurseries and pays sales tax on those purchases, then if he makes no use of them (other than retention, demonstration, or display while holding them for resale in the ordinary course of his business), he would be entitled to the deduction for “tax-paid purchases resold,” under ruling 71, copy enclosed. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:fb
Enclosures
cc:

--- – District Administrator

190.0480

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

January 14, 1985

Mr. R--- M--G--Box ---- --- CA XXXXX
Dear Mr. M---:
We are enclosing copies of the backup letters to the annotated materials you requested. Our review of such backup letters to the annotations reveals that the March 25, 1953 opinion (annotated at 190.0480) has now been outdated as to the last sentence in paragraph three on page 1. Such sentence presently reads: “If the shrubs and plants furnished in fulfilling a lump sum contracts (sic) had been grown or produced by you, the retail selling price thereof is regarded as the prevailing price at which similar shrubs and plants in similar quantities would be sold to you by other suppliers.” This 1953 statement has Regulation 1521(b)(2)(B)2(b) that:

been

outdated

by

the

present

statement

in

“If the contractor is the manufacturer of the fixture, the cost price is deemed to be the price at which similar fixtures in similar quantities ready for installation are sold by him to other contractors.” To paraphrase this change, the letter says that the retail selling price of similar shrubs and plants in similar quantities would be the price charged to the contractor by other suppliers while the regulation now states the current rule that the retail selling price of similar shrubs and plants in similar quantities is the price charged by the contractor to other contractors. Very truly yours,

Donald J. Hennessy
Tax Counsel