When did a prefabricated walk-in refrigeration room become a fixture?

Plain-English summary

A prefabricated walk-in room did not become a fixture merely because its panels were assembled at the jobsite. If one contractor assembled a freestanding room and another later connected it to the coolant system, the room remained tangible personal property in the assembler's hands. The prime contractor furnishing and installing the refrigerated room was the fixture retailer and generally could buy the assembled room for resale.

If the same person assembled the room and connected it to the coolant system, that person furnished a fixture and the fixture measure under Regulation 1521 applied.

The memorandum separately treated complete self-contained units delivered from the plant as tangible personal property. For rooms built panel by panel on sills attached to concrete, the sills, panels, roof, doors, and connecting piping were materials, while the compressor and evaporator units were fixtures.

Common questions

Did onsite panel assembly itself create a fixture?

No. The memorandum used connection to the coolant system as the point at which this type of room became a fixture.

Could the prime refrigeration contractor buy the assembled room for resale?

Generally yes when that contractor would furnish and install the completed fixture, subject to the different federal-contract rule described in the memorandum.

What if one contractor both assembled and connected the room?

That contractor furnished a fixture, and Regulation 1521's fixture measure governed.

Citations and references

• California Code of Regulations, title 18, section 1521(b)(2)(C), (b)(1)(A), (b)(2)(B), and (b)(6)(A), as amended effective April 1, 1976 — rules applied to completed units, fixtures, federal contracts, and resale purchases; the source also prints the malformed subdivision "1521(b)(2)(2)"
• Annotation 190.1980, "Movable and Demountable Walls" — panel-consumption authority cited; Annotation 190.2335's copy notes that it was later replaced by Annotation 190.1785
• April 22, 1977 Inglewood Auditing memorandum — walk-in-cooler audit and installations described; not reproduced in the official PDF
• March 30, 1976 Hartigan letter to R--- M---, Inc. — prior guidance concerning similar rooms with a divergent conclusion; not reproduced in the official PDF
• May 21, 1973 Paulson memorandum to Van Nuys — prior guidance concerning S--- Co., Inc. installations and three classifications; identified as enclosed but not reproduced in the official PDF
• Internal distribution note — directed correction of inconsistent refrigeration-contractor treatment and advice to A--- and S---
• Annotation 190.2335 — separately published copy of the same August 4, 1977 memorandum

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/190-1097.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Inglewood – Auditing (JKI)

From:

Tax Counsel (JHM) - Headquarters

Subject:

C. W. R--- and
M--- Co., Inc.

190.1097
August 4, 1977

SR -- XX XXXXXX

In your memorandum of April 22, 1977, you state that you are currently auditing above taxpayer, which manufactures walk-in coolers (also called cooler boxes, freezers, or refrigeration “room”). Much of taxpayer’s work is as a subcontractor for the prime refrigeration contractor. I gather that taxpayer prefabricated panels and doors, which are assembled at the job location into the “rooms” or coolers. The panels lock together and the cooler can easily be assembled or disassembled at the jobsite. Presumably, the prime refrigeration contractor, or another of his subcontractors, installs the refrigeration system after taxpayer completes his work. You refer to Mr. Hartigan’s letter of March 30, 1976, to R--- M---, Inc. (Acct. SS -- XX XXXXXX) and state that taxpayer’s “rooms” are similar to those described in that letter. For you information I enclose a photocopy of Mr. Paulson’s memorandum of May 21, 1973, to Van Nuys about similar installations by S--- Co., Inc. (Acct. SS -XX XXXXX). You can readily see that the conclusions reached by Mr. Paulson and by Mr. Hartigan are somewhat divergent. I understand that other refrigeration contractors wish to be treated the same as S---. I think it imperative that contractors doing the same work be accorded the same tax treatment. For the sake of clarity I think it would be worthwhile to follow in this discussion Paulson’s three classifications: 1) These are freestanding, prefabricated, self-contained units manufactured at the manufacturer’s plant and transported as complete units to the jobsite. These are tangible personal property (or machinery and equipment, if you prefer) and tax applies to the gross receipts from this sale at retail. If these are furnished as a part of a

Inglewood – Auditing (JKI)
(SR -- XX XXXXXX)

-2-

August 4, 1977
190.1097

construction contract the measure of tax is determined under the criteria set forth in Regulation 1521(b)(2)(C). Sales of these units to the United States are exempt from tax. The person selling these units may take a resale certificate for them from the prime contractor. 2) These are prefabricated units which do not lose their identity when installed, but which are affixed to the structure in such a manner that they become fixtures. The units, when finally installed, are fixtures under Regulation 1521 but are treated as fixtures only in the hands of the person who affixes them to the realty. In other words these rooms must be connected to the coolant system before they are fixtures. If all the taxpayer does is take prefabricated panels to the jobsite and there assemble them into a freestanding room, the assembled room is tangible personal property in his hands and when sold by him although it is a component of a fixture when affixed to the realty by someone else. The prime contractor who is required to furnish and install the assembled refrigerated room is the retailer of the fixture. He may purchase the room from the taxpayer under a resale certificate, Regulation 1521 (b)(2)(2) and Regulation 1521(b)(6)(A). However, where the prime contract is which the United States the sale of the assemble room to the prime contractor is a retail sale and tax applies as set forth in Regulation 1521 (b)(1)(A). If the same person assembles the panels into the freestanding room and

• also affixes it to
  the coolant system, the room is a fixture and the measure of tax is governed by Regulation 1521(b)(2)(B) (Regulation 1521(b)(1)(A) for United States contractors.) 3) There are, as Paulson states, a combination of materials and fixtures. In our example sills are affixed to the concreter floor by nails or bolts. The panels are affixes to the sills panel by panel until the room is assembled. The sills, wall panels, roof panels, and doors are materials. Consistent with Annotation 190.1980, “Movable and Demountable Walls,” the person furnishing and installing the panels is the consumer of the panels, or if he manufactures them, the consumer of the materials from which he manufactures them. The refrigeration units, which include the compressor and evaporator, are fixtures. Piping installed to connect the compressor with the room is materials. The conclusions expressed above differ from those expressed by Hartigan and Paulson, but I think they are dictated by Regulation 1521 as amended effective April 1, 1976. If you have any further questions, please let me know.

JHM/at
Enclosure

Inglewood – Auditing (JKI)
(SR -- XX XXXXXX)

cc:

-3-

August 4, 1977
190.1097

Ms. Margaret H. Howard
Mr. Donald F. Brady – There appears to have been some inconsistancy in our application of tax to refrigeration contractors of the type described in this memo. I think it would be well to see that this is corrected. Also, I think we should advise A--- and S--- of the position taken in this memo. cc:

Mr. Philip R. Dougherty