How much of a $29 delivered-and-installed air-filter charge was taxable when delivery alone cost $19?

Plain-English summary

For a one-year air-filter supply contract, the full $19 drop-off charge was taxable as the retail selling price of the delivered filter. When the business charged $29 to deliver and install the same filter, $19 remained taxable and the $10 difference was excluded only because the opinion assumed that amount was solely for installation labor.

The letter also treated promotional items given free to customers who signed pest-control contracts as the business's own taxable purchases. California sales tax applied when the business bought the items in-state; use tax applied if it bought them from an out-of-state retailer for distribution in California.

This April 5, 2006 letter expressly superseded and replaced erroneous advice sent on May 31, 1995. It said the business might qualify for statutory reliance relief for the period in which it reasonably followed that earlier advice.

Citations and references

• California Revenue and Taxation Code section 6012(c) (as cited)
• California Revenue and Taxation Code section 6596 (as cited)
• California Sales and Use Tax Annotation 280.0820 (as cited)
• Tax preparer's May 8, 1995 request and Board's May 31, 1995 response — questions, prospective facts, replacement, and possible reliance relief supplied; request, response, attachments, reliance records, returns, and tax computations not reproduced in the official PDF
• One-year air-filter supply contracts, approximately $3 filter cost, $19 delivered price, $29 delivered-and-installed price, and promotional items for pest-control customers — terms supplied; executed contracts, purchase records, invoices, delivery and installation records, promotional-item records, and customer transactions not reproduced in the official PDF
• Official Annotation 295.0027's one-year filter contracts, $19 taxable delivered price, and assumed $10 nontaxable installation component, dated July 14, 1995 — annotation omits the promotional-item issue, 2006 replacement, and possible reliance relief; the source does not explain why its date differs from the linked April 5, 2006 opinion and the opinion's May 1995 correspondence dates
• Possible later contracts, purchases, deliveries, installations, promotional distributions, reasonable-reliance determination, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — 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/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0027.pdf

Original ruling text

295.0027

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 445-6496
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

April 5, 2006

KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. K--- M. K--Licensed Tax Preparer
I--- A--- S--P.O. Box XXX
--- ---, California XXXXX
Re:

P--- Corporation

Dear Ms. K---:
On May 31, 1995, this office responded to your letter dated May 8, 1995, in which you requested a written legal opinion as to the taxability of certain transactions which P--- Corporation would soon offer to the public. We have concluded that the advice contained in our letter was erroneous. This letter will supersedes and replace our previous letter to you on this subject. If P--has relied on the legal advice contained in our May 31, 1995 letter, it may avail itself of the relief afforded by Revenue and Taxation Code Section 6596, from May 31, 1995 to the date of this letter, if P--- reasonably relied on the advice in the previous letter in failing to report and pay the correct amount of tax due. In your letter, you stated that P--- Corporation will soon be adding a business of furnishing, delivering, and sometimes installing air intake filters for heating and air conditioning systems. P--will purchase the air filters for approximately $3.00. The customer will be signing a one-year contract providing for the furnishing and delivery, or for the furnishing, delivery, and installation of filters in that one-year period. You ask:

1. Installation service for $29.00 - P---'s service technician will bring and
   install the air filter for the customer. Who pays the sales tax, P--- at the time of product purchase or the customer?
2. Drop-off Service for $19.00 - P---'s service technician will bring the air
   filters to the customer's door, but will not install them. Who pays the sales tax, P--- at the time of product purchase or the customer? If the customer pays the sales tax, how much of the $19.00 is taxable?

Ms. K--- M. K---

-2-

April 5, 2006
295.0027

A one-year contract to provide and install filters will generally be a supply contract. P---'s contract for the delivery of filters for the $19.00 charge is for the retail sale of tangible personal property, and the full $19.00 amount billed to the customer for the delivery of each filter will be subject to tax. P---'s contract for the delivery and installation of the filters is identical to the contract for delivery except for the installation and price. Revenue and Taxation Code Section 6012(c) provides: "Gross receipts" do not include any of the following:
....
(c) The price received for labor or services used in installing or applying the property sold. We assume the difference between the $29.00 including installation and the $19.00 charged without installation is solely "for labor or services used in installing or applying the property sold." In that case, the $10,00 "installation charge" is not included in P---'s taxable gross receipts. However, $19.00 of P---'s $29.00 charge to the customer is taxable as gross receipts from the sale of the filter which P--- installs. 3.

Promotional Item given to customer in conjunction with signing a one-year contract for pest control services. Who pays the sales tax, P--- at the time of product purchase or the customer?

Sales of promotional and goodwill gifts to retailers who distribute the material free to their customers for buying certain of their products are taxable retail sales. (Sales and Use Tax Annotation 280.0820 (9/27/65).) Sales tax applies to the retail sale to P--- of these items in this state. If P--- purchases the items from a retailer outside this state for such distribution in this state, P--- is required to pay use tax on the purchase. If you need any additional information, please contact this office. Very truly yours,

Thomas J. Cooke
Staff Counsel
TJC/cmm
cc:

--- District Administrator - KH