Was pipe welding taxable fabrication when a different party performed final installation?

Plain-English summary

Welding customer-furnished pipe was fabrication and a sale under section 6006(b) when a separate subcontractor only performed the welding. The welding was complete before the pipe reached its final resting place, so the welder was a retailer even though the work occurred close in time and location to installation.

The result changed when the same contractor or its employees both welded and laid the pipe. Performing the final act of installation made that contractor the consumer of any material it furnished, and it was not treated as fabricating the customer's material for tax purposes.

The letter classified the pipe as material, not a fixture. It noted that the special rule would differ for a fixture.

Common questions

Was a welding-only subcontractor's charge taxable?

Yes.

Why did proximity to installation not matter?

The welding was a completed fabrication step before the pipe was laid in its final resting place.

What if one contractor both welded and laid the pipe?

That contractor performed final installation, so its charges were not treated as taxable fabrication of customer-furnished materials.

Was the pipe a fixture?

No. The letter classified it as material.

Citations and references

• California Revenue and Taxation Code section 6006(b) — customer-furnished-property fabrication rule applied in the letter
• Former California Sales and Use Tax Ruling 11 — construction contractor, materials, fixtures, and final-act-of-installation framework applied
• Overly Hayward case, as named in the source — door-frame subcontractor and cement manufacturer used as separate-retailer comparisons; no formal case name, date, citation, or decision text supplied in the official PDF
• June 28, 1968 taxpayer letter — asked whether Conclusion 2 of Example 3 would change under a single weld-and-lay contract using a subcontractor or the contractor's employees; request answered but not reproduced in the official PDF
• June 18, 1968 Agency letter, including Example 3 and Conclusion 2 — prior advice reconsidered and explained; 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/190-2478.pdf

Original ruling text

190.2478

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 18, 1968

U--- O--- C--- of California
P. O. Box XXXX
--- ---, CA XXXXX

Attention:

Mr. W--- M. P--Attorney

SZ -- XX XXXXXX

Gentlemen:
In your letter of June 28, 1968, you ask whether Conclusion 2 of Example 3 of our letter of June 18, 1968, would be changed if U--- entered into a single contract to have the pipe welded and laid and a subcontractor or employees of the contractor did the welding. For the following reasons, it is our opinion that if a subcontractor did only the welding, his charges would be taxable; but if employees of the contractor did both the welding and the laying, none of the contractor’s charges would be taxable. As we previously indicated to you, it is our view that the welding constitutes a fabrication of the pipe and a “sale” under section 6006(b). This fabrication is completed before the pipe is laid in its final resting place, i.e., before the pipe is installed. Although this particular welding process is close in point of time and location to the laying process, it is not essentially different from welding the pipe into an entire length well before it is laid and far from the final resting place. If the welding is done by a person or entity other than the person or entity that lays the pipe, the welder is a retailer just as the subcontractor who sold the door frames in the Overly Hayward case was a retailer. A person is a construction contractor under ruling 11 only if he performs the final act of installation. The welder comes close to participating in the final installation, but it should be noted that the cement manufacturer in Hayward was considered a retailer even though by pouring the cement into the forms he too came very close to participating in the final installation.

U--- O--- C--- of California
SZ -- XX XXXXXX

-2-

July 18, 1968
190.2478

The result will be different if the same person or his employees do both the welding and the installation. A contractor who performs the final act of installation of customer furnished materials is considered to be the consumer of any material that he himself furnishes and is not considered to be fabricating the customer furnished materials within the meaning of section 6006(b) unless the item is a fixture. The pipe in question, in our opinion, constitutes “materials” under ruling 11 and not a fixture. We hope that this letter adequately explains our views. Very truly yours,

T. P. Putnam
Tax Counsel

TPP:kc
cc:
Mr. W. T. D--Mr. B. D. D--Mr. H. A. D--Mr. F. T. L--Los Angeles District – District Administrator Hollywood – Subdistrict Administrator