Which parts of a pneumatic conveying system were materials and which were fixtures?

Plain-English summary

Most of the pneumatic transit-tube system was classified as material. The contractor consumed those system elements, so the applicable tax was measured by the contractor's cost.

The letter treated certain powered equipment and the ducting used directly with it as fixtures. The published annotation identifies motors and fans; the complete letter itself contains the terminology conflict disclosed above.

A subcontractor furnishing and installing fixtures made the taxable retail sale to the prime contractor. Merely attaching the fixtures to realty before a later transfer did not create another taxable sale of those fixtures as personal property.

Common questions

Was the whole pneumatic system a fixture?

No. The letter said the bulk of it was material.

What equipment was treated differently?

Powered equipment and directly associated ducting were treated as fixtures, subject to the source's inconsistent labels.

Could the sheet-metal subcontractor tax its entire contract price?

No. The letter said doing so overpaid tax under the historical rule.

Citations and references

• Former California Sales and Use Tax Ruling 11, including the section titled “Fixtures Furnished and Installed by Contractors” — historical materials, fixtures, installing-contractor, subcontractor, and lump-sum tax-measure rules applied
• September 23, 1952 taxpayer letter — concerned the pneumatic conveying system and sheet-metal subcontractor; the request is answered but not reproduced in the official PDF
• Enclosed copy of former Sales and Use Tax Ruling 11 — identified as an enclosure; 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/190-2060.pdf

Original ruling text

190.2060

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 19, 1953

R--- C---, Inc.
XXXX --- Boulevard
--- --- X, California

Attention:

Your letter of September 23, 1952
Account No. -- XXXXX

Mr. C. J. C---

Gentlemen:
The application of sales tax to construction contractors generally is stated in Sales and Use Tax Ruling 11 (copy enclosed). As indicated, contractors and subcontractors are regarded as performing the service of improving real property and while performing such services are consuming “materials”. Contractors are, however, regarded as selling “fixtures” at retail and sales tax therefore applies to the retail selling price of such fixtures. The Sales and Use Tax Law provides that the price received for installing or applying property sold is not subject to sales tax. Since in the usual lump-sum construction contract it is impossible to determine the price the contractor is charging for the sale of “fixtures” and the price he is charging for installation and other services, this Board has in Ruling 11 established the rule that in lump-sum construction contracts the “fixtures” will be regarded as being sold at cost. (See that section of Ruling 11 headed “Fixtures Furnished and Installed by Contractors.”) Ruling 11 applies only to contractors and subcontractors actually doing the construction work. In the case of “fixtures” it is the installing contractor or subcontractor who is regarded as making the taxable retail sale of the fixtures. Once the fixtures have been attached to the realty, any “sale” of the fixtures would be regarded as a sale of real property and therefore not subject to the sales tax. Any work done for you by a subcontractor which involves the furnishing and installation of fixtures by the subcontractor results in a taxable retail sale of the fixtures to you. Such sale is subject to sales tax, the measure of the tax to be determined by Ruling 11 and in the usual case being only a portion of the total price. Since your subcontractor who installs sheet metal ducting is charging you sales tax on his entire price, it is obvious that he is overpaying sales tax. Since he is the manufacturer of the ducting

R--- C---, Inc.

-2-

February 19, 1953
190.2060

and on the assumpting that the ducting is a “fixture”, the correct measure of tax is as stated in the last sentence of that section of Ruling 11 headed “Fixtures Furnished and Installed by Contractor”. It is our opinion that the bulk of a pneumatic transit tube system falls within the classification “materials” rather than “fixtures”. Accordingly, the sale to you of the elements of the system is subject to either the sales tax or the use tax, the measure of the tax being your cost price. Items such as meters and fans and ducting used directly with the meters and fans are regarded as “fixtures”. But as to such “fixtures” which you install, the measure of the tax will probably be your cost price. We suggest that you telephone our Los Angeles office, Madison 6-6381, and make an appointment with Mr. Philip E. Rose who will be able to help you to arrive at a proper adjustment of your problem. We are sorry that we temporarily mislaid your letter. Yours very truly,

W. W. Mangels
Assistant Counsel

BM:ja
cc:

Los Angeles – Review (PER)

Note last paragraph wherein we refer the addressee to you. Addressee installs pneumatic conveying systems, mostly “materials”, some items such as motors and blowers are “fixtures”. Possibly the sheet metal subcontractor is retailing “fixtures” to addressee since said ducting apparently is closely adjacent to the fan and blower.