How were installed water softeners, warranty replacements, and lump-sum cost treated?

Plain-English summary

Water softeners were fixtures. A contractor furnishing and installing them was the fixture retailer, and installation charges were excluded from the taxable selling price.

For a lump-sum contract performed by a contractor that did not manufacture the softener, the fixture's retail selling price was its cost price. A September 19, 1991 correction states that this cost price under Regulation 1521(b)(2)(B)2.9 includes additional fabrication performed before installation.

Replacement parts or replacement softeners furnished under the one-year guarantee caused no further tax under the 1953 letter because they fulfilled the original taxable sale's warranty obligation.

The November 1953 letter also contained an outdated statement about considering and collecting tax reimbursement in a lump-sum price. A July 9, 1997 correction says that is no longer the law and that the tax falls on the retailer-contractor without a requirement to collect reimbursement from the customer.

Common questions

Were water softeners fixtures?

Yes.

Was installation labor included?

No.

What was the nonmanufacturer's lump-sum measure?

Cost price, including pre-installation fabrication under the 1991 correction.

Did warranty replacements trigger another tax?

Not under the guarantee treatment stated in the 1953 letter.

Did the contractor have to collect reimbursement from the customer?

No, according to the incorporated 1997 correction.

Citations and references

• California Code of Regulations, title 18, section 1521(b)(2)(B)2.9 — corrected cost-price rule identified in the official source
• Former California Sales and Use Tax Ruling 11, “Construction Contractors Generally” — historical water-softener fixture, lump-sum contractor, cost, and installation treatment applied
• Former California Sales and Use Tax Ruling 67, “Replacement Parts” — one-year guarantee replacements treated as fulfillment of the original sale
• October 1 accounting-firm letter — asked two questions about a client's lump-sum water-softener installations and one-year guarantee; year and separate request not supplied in the official PDF
• October 5 water-softener-company letter — asked about sales tax on sale and installation; year and separate request not supplied in the official PDF
• Enclosed copy of former Sales and Use Tax Ruling 11, “Construction Contractors Generally” — identified as an enclosure to the November letter; 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/190-2380.pdf

Original ruling text

190.2380

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 20, 1953

E--- and E--Certified Public Accountants
Suite XXX, --- --- Building
--- --- X, California
Attention:

Mr. A--- M. H---

Gentlemen:
Answering the two questions asked in your letter of October 1, it is our opinion that: 1. Your client is installing fixtures; i.e., water softeners, under a lump-sum contract. Accordingly, he is a retailer and the retail price subject to tax is the cost of the fixtures and supplies furnished under the contract. (Reference, Sales and Use Tax Ruling 11, Contractors.) 2. Your client is also the retailer of the materials or replacement water softeners furnished in the fulfillment of the one-year guarantee included in the lump-sum contract price. As the sale of tangible personal property by a retailer includes the furnishing, pursuant to the guaranty provisions of the contract of sale, of replacement parts or materials, no further tax need be paid with respect to parts and materials thus furnished as replacements pursuant to the guaranty. (Reference, Sales and Use Tax Ruling 67, Replacement Parts.) Very truly yours,

E. H. Stetson
Tax Counsel

EHS:ph
cc:

--- --- – Tax Administrator

190.2380

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 13, 1953

C--- S--- W--- S--of California
XXXX --- Boulevard
--- --- X, California
Attention:

Mr. B--- W. G---

Your letter of October 5
Account No. -- - XXXXX

Gentlemen:
You inquire concerning the application of sales tax to your sale and installation of water softeners. We enclose Sales and Use Tax Ruling 11, Construction Contractors Generally. A water softener is a “fixture” under that ruling. A person who contracts to furnish and install a water softener is therefore a construction contractor for the purposes of the sales tax. Under Ruling 11 a contractor is a retailer of fixtures and the tax applies to the price charged for the fixture but not to the amount charged for its installation. In the case of a lump-sum contract for both fixture and installation, it would be difficult to determine how much of the price to allocate to fixture and how much to installation. Accordingly, the Board has established the rule that in the case of a construction contractor who is not the manufacturer of the fixture, the retail selling price of the fixture will be regarded as the contractor’s cost.* In general, where a substantial portion of a lump-sum price is nontaxable, it is not necessary that the retailer separately state to the customer the amount of sales tax reimbursement which he is charging as long as the retailer takes into consideration the sales tax in setting his price and does not advertise or hold out to his customers that he is absorbing the tax. ** Very truly yours,

Bill Holden
Junior Counsel
BH:ja
cc:
--- --- - Auditing

This is cost price. (Reg. 1521(b)(2)(B)2.9. which would include any additional fabrication performed by the contractor on the fixture prior to installation. DHL 9/19/91.
*This is no longer the law. The tax is on the retailer/contractor and he or she is not required to collect reimbursement from the customer. DHL. 7/9/97.