What changed when an HVAC contractor switched from separately billing fixture-repair parts and labor to one flat repair price?

Plain-English summary

An HVAC contractor that separately stated the sale price of fixture-repair parts and repair labor was the retailer of the parts. Sales tax applied to the separately stated parts price, including markup, with the tax-paid purchase handled under the applicable deduction rule.

When the contractor switched to a lump-sum or flat-price contract to repair a heating or air-conditioning fixture in place—or a fixture it had to reaffix—it became the consumer of the repair parts. Tax applied to the sale of the parts to the contractor or its use of them.

No sales or use tax applied to the contractor's lump-sum repair charge. Because the contractor was the consumer, it could not itemize an amount to the customer as sales tax or sales-tax reimbursement.

Common questions

Who was the parts retailer under separate billing?

The repair contractor.

Who consumed the parts under a flat-price fixture repair?

The contractor.

Could the contractor add an itemized sales-tax line to the flat price?

No.

Citations and references

• California Sales and Use Tax Regulation 1521(a)(B)(2), as printed in the source, and Appendix B — construction-contractor status and air-conditioning and heating units as fixtures cited; the subdivision string is retained verbatim from the official PDF
• California Sales and Use Tax Regulation 1521(c)(6) — separately billed fixture-repair parts as sales versus lump-sum fixture repair making the contractor the parts consumer applied
• California Sales and Use Tax Regulation 1701(a) — tax-paid-purchases-resold deduction for separately billed parts resold without other use applied
• October 7, 1994 requester letter — tax-paid parts purchases, separately billed parts with markup, prior reporting, and planned change to flat-price heater and air-conditioner repairs 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/190-1885.pdf

Original ruling text

190.1885

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
Telephone: (916) 324-2655
FAX: (916) 323-3387

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento
────────

November 18, 1994

BURTON W. OLIVER
Executive Director

Ms. K--- H--P--- H--- S---, Inc.
XXX N. --- Blvd., Suite X
---o, CA XXXXX-XXXX
No Permit
Dear Ms. H---:
This is in reply to your letter of October 7, 1994 regarding your inquiry of the consequences of changing your billing practices for repairs from the separate billing of the sale price of parts and labor to a lump sum, or, as you have called it, a "flat price", for repairs to heaters and/or air conditioners. You have stated that, in all instances, your purchases of repair parts are made on a taxpaid basis. Further, you have been reporting as gross sales the full price, including mark-up, separately charged by you to your customers. Because of competitive circumstances, you now wish to change your method of billing to "flat price" and wish to know the proper method for reporting the sale of parts installed by you in repairs. We note that your business includes repair or installation of parts into air-conditioners and heating units which are installed as fixtures into real property. Thus, you qualify as a construction contractor as defined in Sales and Use Tax Regulation (Regulation) 1521(a)(B)(2). We will limit our analysis to the specific area of your concern, that being the taxable treatment of parts installed by you in repairs dependant upon manner of billing. Air conditioning and heating units are fixtures. (Regulation 1521 Appendix B.) Contracts to repair fixtures are contracts for the sale and installation of parts when the sale price of the parts is billed separately from the repair labor in which instance sales tax applies to the sale price of the parts. We assume that you have been reporting sales tax on your separately stated sales price for the parts furnished when performing repairs. It is also assumed that having

Ms. K--- H---

-2-

November 18, 1994
190.1885

reported those sales in that fashion, you took, as a deduction, the purchase price of the parts to you. This in consideration of the fact that you were purchasing those parts on a tax-paid basis and reselling them without making any other use in accordance with Regulation 1701(a). When a contractor enters into a lump-sum (flat price) contract to repair a fixture, either in place or one that he or she is required to reaffix to the realty, that contractor is the consumer of the parts used. (Regulation 1521(c)(6).) As a consumer, the sale of parts to you, or the use of the parts by the contractor is subject to tax. No sales or use tax applies to the contractor's lump sum charges for the repair. Therefore, if you contract for a lump sum (flat price), you do not owe sales tax on your charges and may not collect an amount itemized as "sales tax," "sales tax reimbursement," etc. The sale of the parts to you would be subject to tax. Very truly yours,

Anthony I. Picciano
Staff Counsel
AIP:wk