How did California tax large styrene letters manufactured and glued onto buildings?

Plain-English summary

The large styrene letters glued onto the building were fixtures under Regulation 1521. Signs appeared in the regulation's fixture appendix, and the letters remained identifiable accessories even though careful removal was possible.

Because the requester furnished and installed fixtures, sales tax applied to the fixture sale and tax reimbursement could be collected when the customer contract allowed it. The taxable measure was not automatically the entire furnish-and-install charge.

For completed purchased signs, the opinion used the installer's cost. For signs manufactured by the installer, Regulation 1521 first looked to comparable ready-for-installation sales, then price lists or bid sheets, and otherwise an aggregate cost formula covering materials, direct labor, attributable factory costs, excise tax, manufacturing overhead, and reasonable manufacturing profit. Jobsite fabrication before attachment also entered the fixture price. Inputs manufactured into the signs could be bought for resale using a Regulation 1668 resale certificate.

Common questions

Did removability prevent fixture treatment?

No. The described glued letters were still fixtures.

Was the entire installed-sign contract taxable?

No. The opinion applied the fixture cost-price rules.

Could the sign maker buy inputs for resale?

Yes, for property manufactured into the signs.

Could it collect tax reimbursement from customers?

Yes, if the contracts provided for reimbursement.

Citations and references

• California Revenue and Taxation Code section 6051 — retailer sales-tax liability
• California Civil Code section 1656.1 — contractual tax reimbursement
• California Code of Regulations, title 18, section 1521(a)(5), (b)(2)(A)1., (b)(2)(B)1., (b)(2)(B)2.b., and Appendix B — materials, signs as fixtures, and contractor-manufacturer cost-price rules; a complete copy was identified as enclosed but is not reproduced in the official PDF
• California Code of Regulations, title 18, section 1668 — resale-certificate form; identified as enclosed, but the separate copy is not reproduced in the official PDF
• January 22, 2990 request letter, received February 8, 1990, and its photograph — installed styrene-letter facts supplied; the source-printed request date is preserved, and the separate materials are not reproduced in the official PDF

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/190-0925.pdf

Original ruling text

190.0925

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-5550

March 8, 1990

Mr. D--- R. G--G--- S--XX E. --- -----, CA XXXXX
Re:

S- -- XX-XXXXXX

Dear Mr. G---:
This is in response to your letter dated January 22, 2990, which we received February 8, 1990. You make large styrene (foam) letters which are glued onto buildings. You have included a picture showing these letters attached to a building. They appear to be about one to three feet in height. You state that the letters can be removed if done carefully. You ask whether sales tax applies to your charges. A retailer owes sales tax on the retailer’s retail sales of tangible personal property. (Rev. & Tax. Code § 6051.) The retailer may collect reimbursement from the purchaser for the retailer’s sales tax liability if pursuant to contract. (Civ. Code § 1656.1.) A construction contractor is a consumer of materials which the contractor furnishes and installs in the performance of a construction contract. (Reg. 1521(b)(2)(A)1.) This means that sales or use tax applies with respect to the sale of materials to or the use of the materials by the contractor and sales tax does not apply to the contractor’s charge to the customer. A construction contractor is a retailer of fixtures furnished and installed in the performance of a construction contract, and sales tax applies to the contractor’s sale of the fixtures. (Reg. 1521(b)(2)(B)1.) “Fixtures” include items which are accessory to a building or other structures and which do not lose their identity as accessories when installed. (Reg. 1521(a)(5).) The signs which you describe and which are shown in the photograph you have furnished us appear to be fixtures within this definition. Further, Appendix B to Regulation 1521, which lists items typically regarded as fixtures, includes signs. We conclude that the signs you furnish and install are fixtures.

Mr. D--- R. G---

-2-

March 8, 1990
190.0925

Since you are furnishing and installing fixtures, sales tax applies to your charges for those signs, and you may collect sales tax reimbursement from your customers if your contracts so provide. If you purchased the signs in a completed condition, the measure of your sales tax would be your cost. However, I assume that you manufacture the fixture. Under such circumstances, your “cost price” of the fixture, which is the amount which is subject to sales tax, is determined as follows: “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. “If similar fixtures are not sold to other contractors ready for installation, then the cost price shall be deemed to be the amount stated in the price lists, bid sheets or other records of the contractor. “If the sale price cannot be established in the above manner and the fixture is manufactured by the contractor, the cost price shall be deemed to be the aggregate of the following:
[1]
Cost of materials, including such items as freight-in and
import duties,
[2]

Direct labor, including fringe benefits and payroll taxes,

[3]

Specific factory costs attributable to the fixture,

[4]

Any manufacturer’s excise tax,

[5]
Prorata share of all overhead attributable to the
manufacture of the fixture, and
[6]
Reasonable profit from the manufacturing operations
which, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the preceding factors. “Jobsite fabrication labor and its prorated share of manufacturing overhead must be included in the sale price of the fixture. Jobsite fabrication labor includes assembly labor performed prior to attachment of a component or a fixture to a structure or other real property.” (Reg. 1521(b)(2)(B)2.b.) I note that your cost price, calculated in the manner described above, is the amount subject to tax, and not your entire charge for furnishing and installing the signs. Further, I note that you may purchase for resale the property which you manufacture into your signs. This means that you do not have to pay sales tax (reimbursement) to your supplier when you purchase that property. In

Mr. D--- R. G---

-3-

March 8, 1990
190.0925

order to buy that property without paying tax, you may issue your supplier a resale certificate in the form set forth in Regulation 1668, a copy of which is enclosed. Also enclosed for your information is a copy of Regulation 1521. If you need assistance regarding what type of property you may purchase for resale or assistance in calculating the amount of your charges which are subject to sales tax, please contact our Merced District Office. If you have other questions, feel free to write us again. Sincerely,

David H. Levine
Tax Counsel

DHL:wak
1987C
Enclosures