Were monoglycerides bought for use in a manufactured food product taxable merely because they improved the product's texture?

Plain-English summary

The described monoglycerides were sold for resale as an ingredient or component of manufactured food. Their sales were not subject to sales tax under the circumstances presented.

Tax counsel did not decide that monoglycerides were themselves exempt food. Instead, the memorandum applied the component-part test: the monoglycerides served their useful texture-improving purpose after they had been placed into the dough or mix that became the finished product.

The published PDF refers to a report attached to the Los Angeles office's August 18 memorandum, but that report is not included. The conclusion should therefore be kept to the facts the available opinion actually describes.

Common questions

Was the exemption based on monoglycerides being food by themselves?

No. Tax counsel questioned that classification and relied on the resale treatment instead.

Why did improving texture not make the buyer the consumer?

The memorandum said the monoglycerides served that purpose after becoming part of the dough or mix that ultimately became the manufactured product.

What contrasting example did tax counsel give?

It described iron rods used first to create an electric spark that removed a carbon block, after which the iron melted into the product. That was an example of use before incorporation.

Citations and references

• California sales tax resale ingredient-or-component-part test — applied without a statute, regulation, ruling, or case citation
• August 18, 1955 Los Angeles Tax Administration memorandum concluding that the described monoglyceride sales were not taxable — referenced; not reproduced in the official PDF
• Report attached to the August 18 memorandum describing the monoglycerides and their use — date, author, title, and report text not supplied in the official PDF
• Discussion with several Attorney General's Office representatives concerning the ingredient-or-component-part test — date, participants' identities, and record not supplied in the official PDF
• Monoglycerides, purchaser's manufactured food, texture improvement, dough or mix, and end product — facts described; product formula, ingredient specifications, labels, samples, purchase records, invoices, production records, tests, and finished-product records not reproduced in the official PDF
• Iron rods and bars used to make an electric spark, remove a furnace carbon block, and then melt into a manufactured product — comparison example stated without an identified case, opinion, transaction, or supporting record
• Possible later product sale, audit, assessment, refund claim, appeal, or other agency action — no follow-up or final outcome 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/245-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/245-0740.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Los Angeles – Tax Admin.

From:

Hdqrs – Sales Tax Counsel (EHS)

Subject:

Use of Monoglycerides

245.0740
Date:

August 31, 1955

We concur in your conclusion set out in your memo of August 18 that the sale of monoglycerides under the circumstances outlined in the report attached to your memo is not subject to the sales tax. We would be inclined to question whether the monoglycerides themselves qualify as exempt food products for human consumption, but it does seem clear from the facts presented that they are properly regarded as sold for the purpose of resale, notwithstanding the fact that they improve the texture of the purchaser’s products. In a discussion with several representatives of the Attorney General’s office as to the application of the ingredient or component part test generally the following conclusion was reached: The proper test is whether before becoming a component part of the end product the item in question serves some purpose. On the other hand, if the property in question becomes an ingredient or component part of the manufactured item before it serves any useful purpose, then the mere fact that it may serve its purpose prior to the sale of the end product, does not prevent its sale from being a sale for resale. The use of the monoglycerides in question appears to be after it becomes a component part of the manufactured product or at least after it has been placed in the dough or mix which ultimately becomes the end product. An example of use before becoming a component part is the use made of iron rods and bars to produce an electric spark necessary to remove a carbon block in a furnace, after which the iron melts and becomes a component part of the manufactured product.

EHS:ph