How did the 90% direct-cost test classify cabinets when Formica tops were installed before or after affixation?

Plain-English summary

When the contractor installed the Formica top after affixing the rest of its cabinet, only 88.2% of total direct cost was incurred before affixation. The cabinet was therefore materials, not a prefabricated fixture.

When that contractor instead hired another party to furnish and install the top after affixation, its own cabinet costs produced a 91.7% pre-affixation ratio. The cabinet unit was a prefabricated fixture, while the top installer consumed materials installed on realty.

The same split applied when separate subcontractors furnished the cabinet unit and the later top: the cabinet subcontractor's 91.7% ratio made its unit a fixture, and the top subcontractor consumed the Formica material.

Common questions

What threshold made a cabinet prefabricated?

At least 90% of direct fabrication-and-installation labor and material cost incurred before affixation.

Whose costs mattered?

The costs of the contractor or subcontractor furnishing and installing the particular cabinet unit.

How was a top installed after cabinet affixation treated?

As material consumed by its installer in these examples.

Citations and references

• Former California Sales and Use Tax Regulation 1521(c)(2) — 90-percent pre-affixation direct-cost test illustrated in three examples
• Proposed cabinet-contract operations memorandum — reflected earlier staff discussions and supplied the examples; identified as intended to become obsolete after annotation publication, but not reproduced in the official PDF
• Planned CLD annotation circulation and publication — identified as the reason the separate operations memorandum might not issue

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/190-1305.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Donald F. Brady

From:

T. P. Putnam

Subject:

Cabinet Contracts

190.1305

Date:

September 28, 1978

I note that the proposed operations memo on the above subject concludes with the statement that it will become obsolete when the information is incorporated into an annotation. I will make an annotation (CLD) based on this memo to you. Since the CLD will be circulated to the districts next week and will be published in due course, you may consider it unnecessary to issue the operations memo. In accordance with our earlier discussions and based on the language in the proposed operations memo, which reflects those discussions, the following examples will illustrate various lump-sum contractual situations with respect to cabinets and the application of sales tax in accord with Regulation 1521(c)(2). I.

Contractor “A” contracts with a property owner to furnish and install a cabinet with a formica-topped work area. Contractor “A” builds the cabinet so that it is a unit, except that the formica top is not attached before affixation of the cabinet to the realty by Contractor “A”. The formica top is installed after the rest of the cabinet has been affixed to realty. The direct costs of “A” on this job are:

Material

Fabrication
Labor

Installation
Labor

Total

Cabinet

$500

$600

$100

$1,200

Top

200

50

80

330

Total $700

$650

$180

$1,530

Calculation:

700 + 650 = 88.2%
1,530

Mr. Donald F. Brady
Cabinet Contracts

-2-

September 28, 1978
190.1305

Since less than 90% of the direct cost of labor and material in fabricating and installing the cabinet is incurred prior to affixation to the realty, Contractor “A” is the consumer of materials on this job. No prefabricated cabinet is involved. II.

Contractor “A” contracts with a property owner to furnish and install a cabinet with a formica-topped work area. Contractor “A” builds the cabinet so that it is a unit, except that the formica top is not attached before affixation of the cabinet to realty by “A”. He contracts with subcontractor “B” to furnish and install the formica top on the already affixed remainder of the cabinet. He bills “A” $360 for the furnish and install job. In this situation, contactor “A’s” direct costs (the subcontractor’s billing for the top excluded) are :

Material

Fabrication
Labor

Cabinet

$500

$600

Calculation:

500 + 600 = 91.7%
1,200

Installation
Labor

Total

$100

$1,200

“A” is the retailer of a prefabricated fixture. “B” is the consumer of materials, since he installed the formica top on real property. III.

Contractor “A” contracts with a property owner to furnish and install a cabinet with a formica-topped work area. Contractor “A” enters into a contract with “B” whereby “B” will furnish and install the cabinet unit except for the formica top. Contractor “A” enters into a contract with “C” whereby “C” will furnish the formica top and install it on the cabinet after “B” has affixed the rest of the cabinet to realty. The direct costs of “A” on this job are not of any significance in this situation. The direct costs of “B” are:

Material

Fabrication
Labor

“B”

$500

Calculation:

500 + 600 = 91.7%
1,200

$600

Installation
Labor

Total

$100

$1,200

Mr. Donald F. Brady
Cabinet Contracts

-3-

September 28, 1978
190.1305

In this case, “B” has furnished and installed a prefabricated fixture, since, at least 90% of his direct cost of labor and material in fabricating and installing the cabinet is incurred prior to affixation to realty. In this case, “C” is the consumer of materials since he installed the formica top on real property.

TPP:po

190.1305.doc