Was permanently anchored playground equipment treated as construction materials or fixtures under lump-sum building and repair contracts?

Plain-English summary

The described playground work was real-property construction, but its tax treatment depended on whether the installed property was material or a fixture. The opinion conditionally treated large, massive playground structures built at the site and permanently anchored by concrete posts as materials. On that assumption, the contractor consumed the materials under Regulation 1521.

Prefabricated playground equipment commonly sold ready for installation required a different analysis. The opinion borrowed the cabinet rule: the equipment was a fixture if at least 90% of the total direct fabrication-and-installation labor and material cost was incurred before affixation; otherwise it was material.

Because the requester did not identify the client or provide representative agreements, the Board said it could not give a definitive opinion and the letter did not qualify for statutory relief based on incorrect written advice.

Common questions

Were the described playground contracts construction contracts?

Yes.

Were all playground structures automatically materials?

No. The site-built structures appeared to be materials, while prefabricated equipment required the 90% test.

Could the unidentified contractor rely on section 6596?

No.

Citations and references

• California Code of Regulations, title 18, section 1521(b)(2) — contractor treatment for materials and fixtures discussed
• California Code of Regulations, title 18, section 1521(c)(2) — 90% direct-cost test applied to prefabricated playground equipment
• California Revenue and Taxation Code section 6596 — reliance relief denied on the incomplete, unidentified request

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/190-0595.pdf

Original ruling text

190.0595

STATE OF CALIFORNI

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

October 16, 1992

GRAY DAVIS
Controller, Sacramento
────────
BURTON W. OLIVER
Executive Director

Mr. D--- B--Certified Public Accountant
P. O. Box XXXX
--- ---, CA XXXXX
Dear Mr. B---:
This is in response to your letter dated September 18, 1992 in which you state: "FACTS "My client builds and repairs playgrounds for children. All contracts for both building new playgrounds and repairing old playgrounds are on a lump sum contract basis. He does not use a time and material approach to his billing. "The playgrounds are secured to the land via concrete post foundations. These playgrounds are not portable. They become permanently attached to the realty. The concrete foundation enables decking and wood posts to support the slides, playhouses, and castle structures which are built on the playground. The client buys and installs all materials used on the job. "Regulation 1521 states construction contractors are consumers of materials which they furnish and install in the performance of construction contracts dealing with real property. "QUESTION "Does the construction and repair work of playgrounds described above constitute real property construction, allowing such lump sum contracts to come under the guidance of Reg. 1521 and thereby direct the contractor to be the consumer of materials which he furnishes and installs in the performance of construction contracts?"

Mr. D--- B---

-2-

October 16, 1992
190.0595

The transactions you describe are construction contracts. Regulation 1521 governs such contracts, but how a construction contract is taxed depends upon whether the contract is for furnishing and installing materials, fixtures, or machinery and equipment. It is our position that playground equipment which becomes a permanent improvement to parks and recreation areas is materials. With respect to prefabricated playground equipment commonly sold ready for installation, we apply the rules applicable to prefabricated cabinets under Regulation 1521(c)(2). These rules provide that a cabinet will be considered a fixture if 90 percent of the total direct cost of labor and material in fabricating and installing the cabinet is incurred prior to affixation to the realty. Otherwise, the cabinets are treated as materials. Application of tax to fixtures is set forth in Regulation 1521(b)(2)(B). We are not certain, but it appears from your description that the playgrounds your client installs are materials since the playgrounds are apparently large, massive structures permanently attached to the land rather than prefabricated playground equipment commonly sold ready for installation. If this assumption is correct, your client's transaction are construction contracts to furnish and install materials, and application of tax is governed by Regulation 1521(b)(2)(A). If this assumption is incorrect, the cabinet rule applies and if, under that rule, the playground equipment is a fixture, application of tax is governed by Regulation 1521(b)(2)(B). Revenue and Taxation Code section 6596 provides the only basis for relief from tax if a taxpayer relies on incorrect written advice from the board. The primary conditions to qualify are that the request for opinion must be in writing and must disclose all relevant facts, including the identity of the taxpayer. Since you have not identified your client, this opinion does not come within the provisions of section 6596 but rather is simply general advice regarding a set of hypothetical facts. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel
EA:cl