Does furnishing model mobile homes create taxable use when the dealer also holds the displayed furniture for sale?

Plain-English summary

A mobile-home dealer placed furniture inside model mobile homes and also offered that furniture for sale in its regular business. Industry statements and a prior district hearing supported the position that dealers historically treated such furniture as resale inventory.

The legal memorandum recommended granting the dealer's petition. It concluded that the furniture was held for sale and used exclusively for demonstration and display. Although it enhanced and demonstrated the mobile home's interior, it was simultaneously displaying the same furniture to prospective furniture buyers.

The memorandum reasoned that a use excluded under section 6244 does not become taxable merely because it also enhances another item being sold. It contrasted this situation with furniture used to demonstrate real property or property withdrawn from inventory and depreciated as a capital asset.

What this means for you

Mobile-home dealers

Keep evidence that the furnishings themselves are genuinely offered for sale in the regular course of business, not merely consumed as model décor.

Furniture retailers and model operators

One display can promote two products at once. Here, enhancing the mobile home did not defeat the nontaxable display of the furniture itself.

Accountants and tax professionals

Inventory and depreciation treatment matters. The memorandum distinguished furniture still held for sale from property withdrawn and treated as a capital asset.

Common questions

Q: Did placing the furniture in a model home count as taxable use?
A: No. The Board's proposed action found it was held for sale and used exclusively for demonstration and display.

Q: Why did enhancing the mobile home not change the result?
A: The furniture was also being displayed for its own sale; serving both purposes did not remove the section 6244 exclusion.

Q: Did the memorandum cover furniture used to sell real property?
A: No. It expressly distinguished use to demonstrate real property for sale.

Q: What action was recommended?
A: Grant the dealer's redetermination petition.

Citations and references

• California Revenue and Taxation Code § 6244
• February 5, 1981 Board hearing in Sacramento and petition for redetermination — separate petition and hearing record not reproduced in the official PDF
• Post-hearing mobile-home dealer statements and 1975 district Principal Auditor hearing copy — described as copies in the file but not reproduced in the official PDF
• W. E. Burkett's March 11, 1981 memorandum — included with the March 20 recommendation
• Copies to J. D. Dotson, Don Brady, and Oakland Auditing — copy recipients listed; no separate transmittal records supplied in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 210.0152
• Original supporting opinion: 210.0152 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Petition Unit (HKL)

From:

Legal (RHO)

Subject:

M--- H--- E--- Incorporated
SR --- XX-XXXXXX

210.0152

Date:

March 20, 1981

This matter was heard and taken under consideration by the Board in Sacramento on 2/5/81. Following the hearing the petitioner submitted statements from various mobil home dealers that furniture used in model mobile homes has not historically been taxed. (Copies in file.) Further, the staff received a copy of a 1975 hearing conducted by the --- --- district Principal Auditor on the same issue wherein it was concluded that furniture used in model mobile homes was held for resale and was not taxable. (Copy in file.) Finally, we received the attached memo from Mr. Burkett expressing his opinion that the petition should be granted. For the reasons stated therein, we recommend that the petition be granted. If this recommendation is accepted by the Board, the following statement is suggested: Statement of Board Action The Board determined that the furniture used in model mobile homes was held for sale in the regular course of business and was used exclusively for demonstration and display purposes. The Board ordered that the petition be granted.

RHO:jw
Cc:

Mr. J. D. Dotson
Mr. Don Brady
Oakland - Auditing

Petition Unit (HKL)

State of California

-2-

March 20, 1981
210.0152
Board of Equalization

Memorandum

To:

Mr. R. H. Oschner

From:

W. E. Burkett

Subject:

M--- H--- E--- Incorporated
SR --- XX-XXXXXX

Date:

March 11, 1981

It is my conclusion that we should grant this petition. This is not a situation where the property is only incidentally sold after use. While the furniture is utilized to enhance and thus demonstrate the interior of the mobilehome, it is at the same time held for sale in the regular course of business. The use tax should not apply where the claimed taxable use of the property is in connection with the actual demonstration or display of the same property for sale in the regular course of business. A use excluded under 6244 should not be subject to the tax because it also serves to demonstrate or enhance another item held for sale. There are many items of property displayed for sale that serve to enhance or demonstrate the capabilities or desired features of another property while it is displayed for sale. A lamp displayed on a fine grain wood table is a classic example. An automotive tire displayed on an auto tire rim is another. I would distinguish this type of use from a use to demonstrate real property for sael or where the property has been withdrawn from inventory and depreciated as a capitol asset.

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