Were off-the-shelf telephone channel-bank units installed for the U.S. government exempt from California sales tax?

Plain-English summary

The contractor could buy the D-4 channel-bank units as an exempt purchase for resale. The units were freestanding multiplexers providing ports to standardized, off-the-shelf, general-purpose telephone switching equipment used in ordinary office buildings.

The later sale to the U.S. government was also exempt. The legal staff classified the units as machinery and equipment rather than construction materials or fixtures, and the stated facts required title to pass to the federal government before the contractor used them.

Common questions

Was the contractor's purchase taxable?

No. It was a purchase for resale under the stated facts.

Was the federal sale taxable?

No, because the units were machinery and equipment sold to the U.S. government before contractor use.

Did title timing matter?

Yes. The opinion relied on title passing before any use by the contractor.

Citations and references

• California Revenue and Taxation Code section 6007 — purchase-for-resale treatment
• California Revenue and Taxation Code section 6381 — U.S. government sale exemption
• California Code of Regulations, title 18, section 1521(a)(6), (b)(1)(B), and (c)(7) — machinery-and-equipment classification cited by the opinion
• Requester's fax communication to the Board's Executive Director — proposed federal contract, channel-bank units, and title passage described; not reproduced in the official PDF
• Board tax-tip pamphlet for construction contractors — Regulation 1521 and other business information identified as enclosed; 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/190-1050.pdf

Original ruling text

190.1050

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-8485

December 18, 1989

Mr. D--- J---, President
C--- C--- Systems, Inc.
XXXX --- --- Court
---, FL XXXXX

Dear Mr. J---:
This is in reply to your FAX communication to the Board’s Executive Director, Ms. Cindy Rambo. C--- C--- Systems, Inc. (CCSI) intends to bid on a U. S. Government contract for the furnishing and installation of “D-4 channel bank units.” You have described the units as free standing multiplexers which provide porting to modular/standardized off-shelf general purpose switching equipment sold for use in general purpose office buildings. Title to the units will pass to the U. S. Government prior to any use of them by CCSI. Under the foregoing circumstances, you wondered whether we would classify these units as machinery and equipment for sales and use tax purposes such that the sale to CCSI would be an exempt sale for resale and CCSI’s subsequent retail sale would also be exempt as a sale to the U. S. Government. Your FAX communication indicates your general familiarity with the applicable law so we will only refer summarily to the applicable principles in stating our conclusions. We agree that the sale of the units to CCSI is an exempt sale for resale (Rev. & Tax. Code § 6007). The subsequent retail sale is, in our opinion, a sale of off-shelf general purpose switching equipment sold for use in general purpose office buildings and, accordingly, is classifiable as machinery and equipment the sale of which, prior to any use by CCSI, is an exempt sale to the U. S. Government (See Rev. & Tax. Code § 6381; Reg. 1521(a)(6), (b)(1)(B), and (c)(7)).

Mr. D--- J---

-2-

December 18, 1989
190.1050

Enclosed for your ready reference is a copy of our tax tip pamphlet for construction contractors which, in addition to Regulation 1521, contains other information you may find helpful in your business. Sincerely,

E. L. Sorensen, Jr.
Senior Tax Counsel

ELS:jb
Enclosure
cc:

Ms. Cindy Rambo