Was a concrete-pipe supplier a construction consumer when it controlled trenching and installation?
Apply this to your situation
This page answers the general question as of 1954. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A concrete irrigation-pipe supplier was a construction contractor when it performed, subcontracted, or supervised the complete work of digging trenches, laying pipe, and backfilling.
Subcontracting trench excavation did not change the result because the supplier remained responsible to the farmer. Even when the buyer elected to dig and backfill, the supplier required the work to follow its instructions and specifications.
The supplier consumed the concrete pipe and all other tangible personal property furnished for the job. Contract form—lump sum, unit price, or time and materials—did not matter. Because it manufactured the concrete pipe, tax was measured by the cost of raw materials purchased for that manufacture.
Common questions
Did subcontracting trench work prevent contractor status?
No.
What if the buyer dug and backfilled?
The supplier still controlled the work through required instructions and specifications.
Did contract pricing format matter?
No.
What was the tax measure for manufactured pipe?
The supplier's cost of raw materials.
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/190-1080.pdf
Original ruling text
190.1080
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
November 17, 1954
--- --- ----- --- ----- --- --Attention:
Your letter of October 14
Account No. -- -- -- ------
Manager
Gentlemen:
What we meant by our letter of October 13 was not to determine whether a concrete irrigation pipeline is an improvement to a farm. There is no question about this. We were interested in determining whether you or someone else was the person making the improvement. From your letter we now understand that you generally contract to make a complete installation, that is, to dig the trench, provide pipe, lay pipe in trench, and backfill. The fact that you subcontract the trench digging is not material because you are responsible to the farmer for such work as part of the entire job. You state that occasionally the buyer will elect to dig his own trenches and backfill the trenches but in these cases you require him to do it pursuant to your instructions and specifications. We are of the opinion that where you perform, subcontract, or supervise the digging of trenches, laying of pipe, and backfilling, you are performing a contract to improve real property. Accordingly, you are the consumer of the pipe and all other tangible personal property furnished in connection with the contract. It is immaterial whether the contract is for a lump sum, on a unit price basis, or on a time-and material basis. The measure of tax is the cost of the raw materials which you purchase for use in manufacturing the concrete pipe. Very truly yours,
Bill Holden
Assistant Counsel
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