Who owed tax on parts used to rewrap and reinstall existing cabinets under lump-sum contracts?

Plain-English summary

Rewrapping existing cabinets was a construction contract improving realty. The process removed doors, drawers, and hardware, covered them with veneer, and reinstalled them with new molding and hardware; subcontractors handled staining, finishing, and any new counters.

Because prefabricated cabinets were fixtures, a lump-sum contractor repairing or reconditioning them in place—or removing them under a contract requiring reattachment—was the consumer of the parts used. Tax applied when the contractor bought those parts.

If the contractor bought parts ex-tax for resale, it had to self-report use tax based on cost. The contractor should not bill the customer sales-tax reimbursement. Subcontractors likewise consumed the materials and parts they furnished.

Common questions

Was cabinet rewrapping treated as a retail sale of parts?

No. It was fixture reconditioning under a construction contract.

Who consumed the veneer, molding, hardware, and other parts?

The contractor furnishing and installing them.

What if the contractor bought the parts ex-tax?

It had to self-report use tax measured by its cost.

Could the contractor add sales-tax reimbursement to the customer bill?

No, under the described lump-sum arrangement.

How were subcontractor materials treated?

Each subcontractor was the consumer of the materials and parts it used.

Citations and references

• California Code of Regulations, title 18, section 1521(c)(2), Appendix B, and (c)(5) — prefabricated-cabinet fixture classification and contractor consumption when repairing or reconditioning fixtures applied; a complete copy was identified as enclosed but is not reproduced in the official PDF
• March 5, 1983 request letter — lump-sum cabinet-rewrapping process and subcontracted work described; 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/190-1298.pdf

Original ruling text

190.1298

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 26, 1983

Mr. P--- M S--XXX --- Avenue
--- ---, CA XXXXX
Dear Mr. S---:
This is in reply to your letter of March 5, 1983. You asked how the Sales and Use Tax Law applies to lump sum contracts entered into between you and your customers for the reconditioning of cabinets installed on realty. The reconditioning process, which you described as “rewrapping” consists of removing the old cabinet doors, drawers, and hardware, covering them with veneer and installing them to the cabinets with now moldings and hardware. The cabinets are stained and finished by a subcontractor and, if new counters are needed, another subcontractor is utilized to furnish and install these items. As you are aware, your contracts to “rewrap” the cabinets constitute contracts for the improvement of realty. Such contracts are “construction contracts” and tax applies as indicated in Regulation 1521 (copy enclosed). Prefabricated cabinets, such as those you recondition for your customers, are classified as “fixtures” [Reg. 1521(c)(2); App.B]. A contractor who enters into lump sum construction contracts to repair or recondition fixtures in place or fixtures which he removes but is required by the contracts to reaffix to realty is the consumer of the parts he uses in performing such contracts [see Reg. 1521(c)(5)]. It follows, tax applies when the contractor buys the parts, i.e., the contractor’s vendor pays sales tax at the time the parts are sold to the contractor. If for some reason the contractor purchased the parts ex-tax for resale, he should self-report use tax based on his cost of such items.

Mr. P--- M S---

-2-

April 26, 1983
190.1298

Here, you are the consumer of all parts which you furnish and install in reconditioning the cabinets and your subcontractors are the consumers of the materials and parts which they utilize, it follows, you should not bill your customers for tax reimbursement. Very truly yours,

Les Sorensen
Tax Counsel
LS:rar
Enclosure