Could a leather tanner buy Neutrigan for resale as a component of finished leather?

Plain-English summary

California treated the sale of Neutrigan to a leather tanner as a taxable retail sale. Chemical analysis showed that less than 20 percent could form chrome complexes or otherwise become part of the finished leather, so the product was purchased for manufacturing use rather than resale in tangible form.

The letter compared that small and uncertain incorporation to a court decision treating chemicals used in commercial-alcohol production as taxable manufacturing inputs.

Common questions

How much Neutrigan could become part of the leather?

Less than 20 percent, according to the chemical analysis described.

Did that support resale treatment?

No.

Who owed sales tax on the transaction?

The vendor had to include its receipts from the sale in its sales-tax measure.

Citations and references

• California Revenue and Taxation Code section 6007 — retail-sale definition quoted
• Former California Sales and Use Tax Ruling 14, Property Used in Manufacturing — historical rule cited; copy enclosed but not reproduced in the official PDF
• American Distilling Company v. State Board of Equalization, 55 Cal.App.2d 799 — small and uncertain chemical incorporation analogy cited
• Redacted chemical-supplier representative's request that the Board inform the leather tanner about Neutrigan's tax treatment — request referenced without form, date, text, or separate record in the official PDF
• Unidentified chemical analysis concluding that less than twenty percent of Neutrigan could form chrome complexes or otherwise enter finished leather — conclusion supplied; analyst, date, method, sample, formula, calculations, report, and uncertainty not reproduced in the official PDF
• Neutrigan formulation, tanning use, incorporation, purchases, vendor receipts, and finished-leather evidence — selected use and incorporation conclusion supplied; complete formulation, process records, purchase orders, invoices, accounting, tests, and finished-product records not reproduced in the official PDF
• Official Annotation 260.0040's manufacturing-aid and no-substantial-incorporation summary — current annotation supplies no additional chemical analysis, product, process, transaction, or implementation record
• Possible later sale, formulation or process change, 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/260-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/260-0040.pdf

Original ruling text

260.0040

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 18, 1955

M--- & R--XXXX --- Street
--- ---, California
Attention:

Mr. L--- M---

Gentlemen:
M. L. M--- of A--- C---, XX --- Street, --- ---, has requested us to inform you as to the application of the California retail sales tax with respect to sales to you of a product known as Neutrigan, used in the tanning of leather. Chemical analysis of this product shows that less than twenty per cent could form chrome complexes or in any other way become a part of the finished leather. Accordingly, the sale of Neutrigan to you is a retail sale under the Sales and Use Tax Law, Section 6007 of which defines a retail sale as “a sale for any purpose other than resale in the regular course of business in the form of tangible personal property”. It appears that Neutrigan is purchased for a purpose other than resale and the receipts from its sale to you are, accordingly, required to be included in the measure of the sales tax liability of your vendor. We are enclosing a copy of Sales and Use Tax Ruling 14, Property Used in Manufacturing, and also call your attention to the decision of the California District Court of Appeal in American Distilling Company v. State Board of Equalization, 55 Cal. App. 2d 799. In this decision the Court held that sales of chemicals for use in the making of commercial alcohol are retail sales where only a small and uncertain proportion of the chemicals remain in the alcohol. Very truly yours,

E. H. Stetson
Tax Counsel
EHS:ph
cc:

--- --- – Tax Administrator

cc:

Mr. M. L. M---