Were separately quoted post-installation testing, adjustment, and operator-training charges part of a contractor's taxable sale of an electrical control panel?

Plain-English summary

Assuming the electrical service control panel was a fixture, the installing construction contractor bought it for resale and made the taxable retail sale to its customer. The fixture measure was the stated panel price or, if unstated, the Regulation 1521 cost price, including additional pre-installation fabrication.

Testing, adjustment, and operator training performed by the panel vendor or another wholly separate company after the contractor installed the panel were not job-site fabrication. Their separately passed-through charges were therefore not part of the contractor's taxable gross receipts from the panel sale.

The conclusion did not protect other pre-installation work. Assembly or another activity amounting to fabrication remained taxable if performed before the panel became an improvement to real property. Merely connecting the panel to electrical power did not necessarily identify that installation point.

Common questions

Were post-installation testing and training included in taxable panel receipts?

No, on the stated facts.

Would pre-installation assembly be taxable?

Yes. The letter treated it as fabrication.

Did merely plugging in the panel determine when installation occurred?

No. The relevant point was attachment that made the panel an improvement to real property.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6012 — retail-sales tax and gross receipts without expense deductions absent a statutory exclusion cited
• California Code of Regulations, title 18, section 1521(a)(2), (b)(2)(A), (b)(2)(B), (a)(5), (b)(2)(B)2, and (b)(2)(B)2.b — contractor, fixture, sale-price, cost-price, and pre-attachment fabrication rules quoted or applied; a complete copy was identified as enclosed but is not reproduced in the official PDF
• California Code of Regulations, title 18, section 1546 and Business Taxes Law Guide Annotations 315.0340 (September 21, 1950) and 435.0520 (March 19, 1952) — post-installation testing/training versus fabrication cited
• May 18, 1995 request letter — panel, shop assembly/testing documentation, proposed separate service quote, post-installation testing and adjustment, training, and "plugged in" interpretation described; not reproduced in the official PDF
• Proposed separate quote from the panel seller or another third party — testing, adjustment, and personnel training arrangement 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/190-1490.pdf

Original ruling text

190.1490

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone No.: (916) 324-2637
Facsimile No.: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

June 26, 1995

BURTON W. OLIVER
Executive Director

Ms. L--- C--C---. -. F--- E---, Inc.
XXX North --- Street
---, California XXXXX

Re: SS --- XX-XXXXXX

Dear Ms. C---:

This is in response to your letter dated May 18, 1995 regarding the application of tax on the sale of an electrical service panel and related charges for personnel training and equipment testing. You state that your company will purchase a large service control panel which includes several float switches, cables, manuals, and documentation that the unit has been assembled and tested in the shop. We understand that this unit will be delivered to a jobsite for installation by your company. You also state that your company will obtain a separate quote from either the seller of the control panel or another third party to test and adjust the control panel as well as provide a training session to jobsite personnel on how to operate the unit. We understand your letter to ask how tax applies on your company's sale of the service control panel as well as the separate testing/training charge which it passes on to its customers.

Ms. L--- C---

-2-

June 26, 1995
190.1490

Discussion
California imposes a sales tax on a retailer's gross receipts from the retail sale of tangible personal property in this state unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) Gross receipts include all amounts received with respect to the sale, with no deduction for the cost of the materials, service, or expenses of the retailer passed on to the purchaser, unless there is a specific statutory exclusion. (Rev. & Tax. Code § 6012.) C---. -. F--- E---, Inc.'s ("CJFE") installation of the electrical service panel at the jobsite makes it a construction contractor within the meaning of subdivision (a)(2) of Regulation 1521, a copy of which is enclosed. A construction contractor is a consumer of materials furnished and installed pursuant to the construction contract, and the sale of those materials to the contractor is the retail transaction subject to sales or use tax. (Reg. 1521(b)(2)(A).) Except when performing a construction contract for the United States Government, a construction contractor is the retailer of fixtures furnished and installed pursuant to the construction contract, meaning that the sale of the fixtures to the construction contractor is a sale for resale. Tax applies to the sale by the construction contractor to its customer. (Reg. 1521(b)(2)(B).) Regulation 1521 defines "materials" and "fixtures" for purposes of this analysis. Fixtures are items which are accessory to a building or other structure and do not lose their identity as accessories when installed. (Reg. 1521(a)(5).) For purposes of this opinion, we assume your categorization of the service control panel as a fixture is correct. (If your categorization and our assumption are incorrect, our opinion would be different.) Thus, as the construction contractor furnishing and installing the service control panel in question, you are regarded as having purchased it for resale from your vendor. This means that the sale of the panel from the vendor to you is not subject to tax. Rather, the sale of the service panel from you to your customer is a retail sale subject to tax as set forth in Regulation 1521(b)(2)(B)2. That is, tax applies on CJFE's stated sales price of the panel to its customer or, if not stated, on the cost price of the panel to CJFE as set forth in subdivision (b)(2)(B)2 of Regulation 1521. This cost price includes the sale price of the panel to CJFE, the charge for any additional fabrication performed by another person, and the cost in accordance with the formula in the regulation for any fabrication CJFE performs prior to installation. The remaining issue is whether the testing of the panel and the training of personnel are regarded as part of the fabrication of the panel. As you know, jobsite fabrication labor and its prorated share of manufacturing overhead must be included in the sale price of a fixture to your customer. (See Reg. 1521(b)(2)(B)2.b.) Jobsite fabrication labor includes assembly labor performed prior to attachment of a component or fixture to a structure or other real property. (Id.) We understand that your vendor or another wholly separate company provides testing, adjustments, and jobsite training on how to operate the panel sometime after your company has installed the panel at the jobsite. If so, we do not regard the testing, adjusting, and training provided by your vendor (or the other separate company) as jobsite fabrication. The charges for that testing and training are therefore not part

Ms. L--- C---

-3-

June 26, 1995
190.1490

of CJFE's taxable gross receipts from the sale of the service panel. (Reg. 1521(b)(2)(B)2.b; see also Reg. 1546, Business Taxes Law Guide Annots. 315.0340 (9/21/50), 435.0520 (3/19/52).) However, where your company's vendor (or another separate company) undertakes activities other than testing, adjusting, and training which amount to fabrication to the service control panel (e.g., assembly), charges for such activities are subject to tax if they are performed any time before the panel becomes an improvement to real property.1/ If you have any further questions, please write again. Sincerely,

Warren L. Astleford
Staff Counsel
WLA:es
---.L01

Enclosure: Reg. 1521
cc:

1/

-- - District Administrator

Your interpretation in your letter that jobsite fabrication means assembly labor performed "until the installed unit is plugged in" is unclear. Your interpretation is correct if the term "plugged in" refers to the attachment of the service panel to real property such that the panel becomes an improvement to that real property. However, your interpretation is incorrect to the extent that "plugged in" refers to the mere connection of the service panel to electrical power, or to the attachment of other tangible personal property to the service panel prior to its becoming installed as an improvement to real property.