Was paint used to recondition returnable oil and grease drums exempt as a replacement label?

Plain-English summary

California assumed the taxpayer itself reconditioned and painted returnable oil and grease drums.

The paint used to recondition the drums was a taxable retail purchase because the taxpayer consumed it in the reconditioning work. It was not treated as a label replaced each time a container was refilled.

Counsel distinguished new decals and paint used for stenciling. Those markings could qualify as labels replaced at each filling under the historical rule.

Common questions

Was all paint applied to a drum treated the same?

No. General reconditioning paint was taxable, while stencil paint used as a replacement label could qualify differently.

Citations and references

• Sales and Use Tax Ruling 49, paragraph B under Labels — historical replacement-label rule discussed
• Requester's September 24 letter — paint and drum-reconditioning question described; year and separate letter not supplied 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/195-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/195-1980.pdf

Original ruling text

STATE OF CALIFORNIA

195.1980

STATE BOARD OF EQUALIZATION
November 8, 1951
REDACTED TEXT
Attention:

REDACTED TEXT

Gentlemen:
This is in answer to your letter of September 24 regarding the application of the sales tax with respect to paint used by you to paint returnable oil and grease drums. We are not entirely clear from your letter as to whether you do the reconditioning and painting or whether it is done by someone else. We shall assume, however, that the work is done by you and that your question therefore involves the taxability of the sale to you of the paint used in this connection. It is our opinion that the tax applies with respect to the sale of the paint to you. We believe such sale is a retail sale since you use the paint in reconditioning the drums. We do not believe that the paint should be regarded as a label affixed to a container each time it is refilled, within the meaning of Sales and Use Tax Ruling 49, Paragraph B, under the heading "Labels". We agree with you, however, that new decals and paint used for stencilling apparently may be properly regarded as labels replaced each time the drums are filled. Very truly yours, E. H. Stetson Tax Counsel EHS: ja