How did California classify and tax different kinds of walk-in coolers?

Plain-English summary

California divided walk-in coolers into three configurations.

A complete, freestanding, self-contained cooler made at the plant and delivered as a completed unit was tangible personal property. Retail tax applied to gross receipts, subject to the construction-contract measure in Regulation 1521 when furnished under such a contract. The memorandum also described federal-sale and resale-certificate consequences.

A room assembled from prefabricated panels at the jobsite remained tangible personal property in the assembler's hands until someone connected it to the coolant system. The prime contractor furnishing and installing the completed refrigerated room was the retailer of the fixture and generally could buy the assembled room for resale. If the same person assembled the room and connected it to the coolant system, that person furnished a fixture.

For a built-in room assembled panel by panel on sills attached to the concrete floor, the sills, wall and roof panels, door, and connecting piping were materials. The compressor and evaporator refrigeration units were fixtures.

Common questions

Were all walk-in coolers fixtures?

No. Complete freestanding units and rooms assembled but not yet connected to refrigeration were tangible personal property at that stage.

When did an assembled room become a fixture?

When it was connected to the coolant system.

How were built-in cooler components classified?

Panels, sills, doors, and connecting piping were materials; compressor and evaporator units were fixtures.

Did federal contracts follow the ordinary resale treatment?

No. The memorandum identified different retail-sale rules for contracts with the United States.

Citations and references

• California Sales and Use Tax Regulation 1521(b)(2)(C), (b)(2)(B), (b)(6)(A), and (b)(1)(A), as amended effective April 1, 1976 — construction-contract measure, fixture, resale-certificate, and United States contractor rules applied
• Business Taxes Law Guide Annotation 190.1980, “Moveable and Demountable Walls,” deleted in CLD 1032 and replaced by Annotation 190.1785 because of Regulation 1521 changes — panel-consumer analogy cited and official replacement note preserved
• April 22, 1977 Inglewood Auditing memorandum — concerned the current walk-in-cooler audit and the taxpayer's subcontract work; facts summarized and answered, but the memorandum is not reproduced in the official PDF
• March 30, 1976 Mr. Hartigan letter to R--- M---, Inc. — concerned similar refrigeration rooms and is described as reaching a divergent conclusion; letter not reproduced in the official PDF
• May 21, 1973 Mr. Paulson memorandum to Van Nuys — concerned similar S--- Co., Inc. installations and supplied the three classifications adopted as the discussion structure; photocopy identified as enclosed but not reproduced in the official PDF
• Unidentified other refrigeration contractors' requests for treatment consistent with S--- and proposed advice to two redacted parties — consistency concern and future notice identified; requests and resulting notices not reproduced in the official PDF
• Annotation 190.1097 — separately published copy of the same August 4, 1977 walk-in-refrigeration memorandum

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/190-2335.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Inglewood – Auditing (JKI)

From:

Tax Counsel (JHM) - Headquarters

Subject:

C--- R--- and
M--- Co., Inc.

190.2335

Date:

August 4, 1977

SR -- XX XXXXXX

In your memorandum of April 22, 1977, you state that you are currently auditing above taxpayer, which manufactures walk-in coolers (also called cooler boxes, freezers, or refrigeration “rooms”). Much of taxpayer’s work is as a subcontractor for the prime refrigeration contractor. I gather that taxpayer manufactures prefabricated panels and doors which are assembled at the job location into the “rooms” or coolers. The panels lock together and the cooler can easily be assembled or disassembled at the jobsite. Presumably, the prime refrigeration contractor, or another of his subcontractors, installs the refrigeration system after taxpayer completes his work. You refer to Mr. Hartigan’s letter of March 30, 1976, to R--- M---, Inc. (Acct. SS -- XX XXXXXX) and state that taxpayer’s “rooms” are similar to those described in that letter. For your information I enclose a photocopy of Mr. Paulson’s memorandum of May 21, 1973, to Van Nuys about similar installations by S--- Co., Inc. (Acct. SS -- XX XXXXXX). You can readily see that the conclusions reached by Mr. Paulson and by Mr. Hartigan are somewhat divergent. I understand that other refrigeration contractors wish to be treated the same as S---. I think it imperative that contractors doing the same work be accorded the same tax treatment. For the sake of clarity I think it would be worthwhile to follow in this discussion Paulson’s three classifications: 1) These are freestanding, prefabricated, self-contained units manufactured at the manufacturer’s plant and transported as complete units to the jobsite. These are tangible personal property (or machinery and equipment, if you prefer) and tax applies to the gross receipts from this sale at retail. If these are furnished as a part of a construction contract the measure of tax is determined under the criteria set forth in Regulation 1521(b)(2)(C). Sales of these units to the United States are exempt from tax. The person selling those units may take a resale certificate for them from the prime contractor.

Inglewood – Auditing (JKI)
(SR -- XX XXXXXX)

-2-

August 4, 1977
190.2335

2)
These are prefabricated units which do not lose their identity when installed, but which are affixed to the structure in such a manner that they become fixtures. The units, when finally installed, are fixtures under Regulation 1521 but are treated as fixtures only in the hands of the person who affixes them to the realty. In other words these rooms must be connected to the coolant system before they are fixtures. If all the taxpayer does is take prefabricated panels to the jobsite and there assemble them into a freestanding room, the assembled room is tangible personal property in his hands and when sold by him although it is a component of a fixture when affixed to the realty by someone else. The prime contractor who is required to furnish and install the assembled refrigerated room is the retailer of the fixture. He may purchase the room from taxpayer under a resale certificate, Regulation 1521(b)(2)(B) and Regulation 1521(b)(6)(A). However, where the prime contract is with the United States the sale of the assembled room to the prime contractor is a retail sale and tax applies as set forth in Regulation 1521(b)(1)(A). If the same person assembles the panels into the freestanding room and also affixes it to the coolant system, the room is a fixture and the measure of tax is governed by Regulation 1521(b)(2)(B) (Regulation 1521(b)(1)(A) for United States contractors.) 3) There are, as Paulson states, a combination of materials and fixtures. In our example sills are affixed to the concrete floor by nails or bolts. The panels are affixed to the sills panel by panel until the room is assembled. The sills, wall panels, roof panels, and door are materials. Consistent with Annotation 190.1980*, “Moveable and Demountable Walls,” the person furnishing and installing the panels is the consumer of the panels, or if he manufactures them, the consumer of the materials from which he manufactures them. The refrigeration units, which include the compressor and evaporator, are fixtures. Piping installed to connect the compressor with the room is materials. The conclusions expressed above differ from those expressed by Hartigan and Paulson, but I think they are dictated by Regulation 1521 as amended effective April 1, 1976. If you have any further questions, please let me know.

JHM/at
Enclosure
cc:

*Annot. 190.1980 was deleted in CLD 1032 and
replaced by Annot. 190.1785, due to changes in
Regulation 1521.

Ms. Margaret H. Howard
Mr. Donald F. Brady – There appears to have been some inconsistency in our application of tax to refrigeration contractors of the type described in this memo. I think it would be well to see that this is corrected. Also, I think we should advise --- and S--- of the position take in this memo. Mr. Philip R. Dougherty