How was a landscape contractor's tax base determined for shrubs and plants it grew for installation?

Plain-English summary

The 1966 opinion treated shrubs and plants installed under landscaping contracts like fixtures. A landscape contractor was their retailer, with tax measured by the selling price; under a lump-sum contract, that selling price was treated as cost price.

The 1985 letter corrected how cost price was measured when the contractor grew or produced the fixtures. The controlling comparison was not what other suppliers would charge the contractor. Under the quoted regulation, cost price was the contractor's own price for similar fixtures, in similar quantities, ready for installation and sold to other contractors.

For shrubs and plants bought tax-paid from nurseries, the 1966 opinion also allowed a tax-paid-purchases-resold deduction if the contractor made no intervening use beyond retention, demonstration, or display while holding them for resale.

Common questions

How did the source classify installed shrubs and plants?

As items similar to fixtures, with the landscape contractor acting as their retailer.

What comparison applied to contractor-grown fixtures?

The contractor's price for similar ready-to-install fixtures sold in similar quantities to other contractors.

Why is the 1985 letter important?

It expressly replaced the older comparison to supplier prices with the quoted Regulation 1521 rule.

Could tax-paid nursery purchases qualify for a resale deduction?

Yes, if the contractor made no disqualifying use before resale.

Citations and references

• California Code of Regulations, title 18, section 1521(b)(2)(B)2(b) — quoted contractor-manufacturer cost-price rule
• Former Sales and Use Tax Ruling 11 — historical construction-contractor and fixture treatment cited in the 1966 opinion; enclosed copy not reproduced in the official PDF
• Former Sales and Use Tax Ruling 71 — historical tax-paid-purchases-resold rule cited in the 1966 opinion; enclosed copy not reproduced in the official PDF
• Requester's April 12, 1966 letter regarding landscape contractors — answered; request letter not reproduced in the official PDF
• March 25, 1953 opinion annotated at Annotation 190.0480 — one outdated sentence quoted by the January 14, 1985 letter; full opinion not reproduced in the official PDF
• Backup letters requested before the January 14, 1985 response — copies described as enclosed; the official PDF reproduces an April 18, 1966 letter but not the complete requested set

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/190-2560.pdf

Original ruling text

190.2560

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 18, 1966

C--- --XXX --- Building
--- and --- Streets
---, CA XXXXX
Attention:

Mr. E--- J. M--Executive Secretary

Gentlemen:
This is in reply to your letter of April 12, 1966, regarding the application of sales and use taxes to the operations of landscape contractors. It is our opinion that a landscaping contractor who contracts to install a lawn is improving realty and in such cases would be governed by the provisions of sales and use tax ruling 11, copy enclosed. As therein indicated in the section “Materials Used by Contractors,” the contractors are the consumers of the materials used by them in fulfilling construction contracts and the tax applies to the sale of such materials to the contractors. Lawn seed used in installing a lawn would fall within this classification. With respect to shrubs and plants used in connection with landscaping contracts, it is our opinion that these are similar to “fixtures,” as defined by ruling 11. Therefore, a landscape contractor would be considered as a retailer of shrubs and plants furnished in connection with such services and tax applies to the selling price thereof. In the case of lump-sum contracts, the selling price of the shrubs and plants is regarded as the cost price. If the shrubs and plants furnished in fulfilling a lump-sum contract had been grown or produced by the landscape contractor, the retail selling price thereof is regarded as the prevailing price at which similar shrubs and plants in similar quantities would be sold to other suppliers. A time and material contractor would be subject to the same tax consequences, excepting only that in the case of shrubs and plants for which he made a specific charge the measure of the tax would be that specific charge.

C--- A---

-2-

April 18, 1966
190.2560

If a landscape contractor purchases such plants and shrubs from nurseries and pays sales tax on those purchases, then if he makes no use of them (other than retention, demonstration, or display while holding them for resale in the ordinary course of his business), he would be entitled to the deduction for “tax-paid purchases resold,” under ruling 71, copy enclosed. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:fb
Enclosures
cc:

--- – District Administrator

190.2560

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

January 14, 1985

Mr. R--- M--G--Box ---- --- CA XXXXX
Dear Mr. M---:
We are enclosing copies of the backup letters to the annotated materials you requested. Our review of such backup letters to the annotations reveals that the March 25, 1953 opinion (annotated at 190.0480) has now been outdated as to the last sentence in paragraph three on page 1. Such sentence presently reads: “If the shrubs and plants furnished in fulfilling a lump sum contracts (sic) had been grown or produced by you, the retail selling price thereof is regarded as the prevailing price at which similar shrubs and plants in similar quantities would be sold to you by other suppliers.” This 1953 statement has Regulation 1521(b)(2)(B)2(b) that:

been

outdated

by

the

present

statement

in

“If the contractor is the manufacturer of the fixture, the cost price is deemed to be the price at which similar fixtures in similar quantities ready for installation are sold by him to other contractors.” To paraphrase this change, the letter says that the retail selling price of similar shrubs and plants in similar quantities would be the price charged to the contractor by other suppliers while the regulation now states the current rule that the retail selling price of similar shrubs and plants in similar quantities is the price charged by the contractor to other contractors. Very truly yours,

Donald J. Hennessy
Tax Counsel