Were above-ground hoses and sprinkler heads part of a material-only orchard irrigation system?

Plain-English summary

The entire orchard sprinkler system was an improvement to realty and consisted of materials. That classification included the above-ground flexible hoses and sprinkler heads as well as the below-ground components.

The result depended on treating the system as one unit whose components remained in the orchard until repair, replacement, or obsolescence. County assessors treated the components as real-property improvements, orchard sales transferred the whole system with the realty, and the hoses had a long useful life.

The installer was the consumer of the materials, so tax was measured by their sales price to the installer. Tax Counsel proposed deleting the audit markup on the above-ground components.

Common questions

Were the flexible hoses and sprinkler heads fixtures?

No. Under the described permanent system, all components were materials.

Could above-ground components still be improvements to realty?

Yes, because they remained part of the integrated orchard system until repair, replacement, or obsolescence.

What was the contractor's tax measure?

The sales price of the materials to the contractor.

What audit adjustment was proposed?

Deletion of the markup on above-ground materials.

Citations and references

• Former California Sales and Use Tax Ruling 11 — definition of materials and contractor-consumer treatment applied to the integrated sprinkler system; an enclosed copy is identified but not reproduced in the official PDF
• Taxpayer's petition for redetermination for October 1, 1964 through September 30, 1967 — considered and discussed; petition not reproduced in the official PDF
• Audit report item A, “Markup on above ground materials established through a material accountability test,” and underlying auditor information — deletion recommended; full report and auditor materials not reproduced in the official PDF
• May 1, 1969 Fresno hearing and testimony — orchard transfers of the entire sprinkler system as an improvement to realty considered; transcript or separate testimony not reproduced in the official PDF
• Approved May 7, 1969 hearing report — two copies identified as attached; not reproduced in the official PDF
• Audit work papers for October 1, 1964 through September 30, 1967 — identified as enclosed; not reproduced in the official PDF
• County assessors' treatment of all sprinkler-system components as improvements to realty — fact considered; no assessor document, county, or date is supplied in the official PDF
• Anticipated Board action and official notice — identified as forthcoming after the recommendation; neither later record is 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/190-2040.pdf

Original ruling text

STATE OF CALIFORNIA

190.2040

STATE BOARD OF EQUALIZATION

May 9, 1969

Mr. W--- C---, President
C--P. O. Box XXX
---, CA XXXXX

SS --- XX XXXXXX

Dear Mr. C---:
It was a pleasure to meet with you and Mr. G--- in Fresno on May 1, 1969, to discuss your petition for redetermination covering the period 10-1-64 to 9-30-67. We have considered your petition in light of the information obtained by our auditors and information obtained at the hearing. We propose to recommend to the board that item A of the audit report “Markup on above ground materials established through a material accountability test” be deleted from the determination. Our conclusion is based on a finding that the sprinkler systems installed by you, and which are the subject of our conference, are improvements to realty in total and constitute materials as defined in ruling 11, copy enclosed for ready reference. Accordingly, you are the consumer of these materials and tax is measured by the sales price to you. This opinion is predicated on the understanding that the entire system is a unit within itself and that no part thereof, including the flexible hoses and sprinkler heads, is removed until it is necessary to remove it for repairs, replacement or obsolescence. In making such a finding, consideration was given to the fact that the county assessors consider all of the components of the systems to be improvements to realty, and according to testimony at the hearing, when orchards are sold, the entire system including sprinkler heads and hoses is sold as an improvement to realty. Consideration was also given to the fact that the hoses have a long life. In view of this recommendation, we assume that you do not desire a board hearing. Accordingly, this matter will be scheduled for board action consistent with the recommendation contained herein. You will receive official notice of action taken by the board in due course.

Mr. W--- C--SR --- XX XXXXXX

-2-

May 9, 1969
190.2040

Very truly yours,

Jack D. Paulson
Tax Counsel

JDP/vs
Enclosure
cc:

G--- & H--Certified Public Accountants
XXX South --- Street
---, CA XXXXX

bc:

Fresno – District Administrator

Attached are two copies of hearing report dated 5/7/69, which has been approved. This hearing was held in Fresno on 5/1/69. Also enclosed are the work papers for the period from 10-1-64 to 9-30-67.