Did sales tax or use tax apply to an out-of-state contractor's installed satellite-station fixtures?

Plain-English summary

Contracts to furnish and install satellite earth stations permanently improving realty were construction contracts. The out-of-state contractor had representatives in California supervising and installing the facilities during construction, but it did not have a place of business here.

On those facts, the memorandum concluded that sales tax did not apply to the installed fixtures. Use tax applied instead, even if title to the fixtures passed in California.

Common questions

Were the satellite-station agreements construction contracts?

Yes. The facilities permanently improved realty under the cited contractor rule.

Did California personnel create a California place of business?

Not under the facts reviewed. The contractor's representatives supervised and installed the facilities only during construction.

Did California title passage make the transactions subject to sales tax?

No. The memorandum still applied use tax rather than sales tax.

Citations and references

• California Code of Regulations, title 18, section 1521 — construction contracts
• California Code of Regulations, title 18, section 1620(a)(2)(A) and (B) — sales-tax and use-tax distinction cited in the memorandum
• Norton Co. v. Department of Revenue of the State of Illinois, 340 U.S. 534, 95 L.Ed. 517 — authority cited by the memorandum
• December 26, 1984 Out-of-State Auditing memorandum requesting review — answered; memorandum not reproduced in the official PDF
• New York office report, its attached exhibits, and the taxpayer's California satellite-earth-station contracts — reviewed for contract classification; report, exhibits, and contracts 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/190-2510.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum

To:

Out-of-State - Auditing

From:

HQ – Legal (ELS)

Subject:

S--- T--- S--- Inc.;

190.2510

February 26, 1985

No Permit

This is in response to your memorandum of December 26, 1984 requesting that we review the report of the New York office which concluded that construction contracts exist between the taxpayer and its California customers. We have reviewed the New York office’s report and the exhibits attached thereto and agree that the contracts to furnish and install satellite earth stations are contracts for the permanent improvement of realty and, accordingly, are construction contracts pursuant to Regulation 1521. We note that, although the taxpayer has representatives in California supervising as well as installing the facilities during the construction period, it does not have a place of business here. It follows, even though title to fixtures may pass in California, the transactions are not subject to sales tax but, rather, are subject to use tax (see Reg. 1620(a)(2)(A) and (B); Norton Co. v. Department of Revenue of the State of Illinois, 340 U.S. 534, 95 L.Ed. 517).

ELS:rar