Was a separately billed overtime amount taxable when a buyer's delayed delivery required a materials seller to keep employees after hours?

Plain-English summary

A buyer could not accept construction materials at the originally scheduled time and requested later delivery. To comply, the seller kept plant employees after normal hours and separately billed the buyer for their overtime.

Tax counsel concluded that tax applied to the material price plus the overtime amount. The charge reimbursed labor or service cost and paid for a service forming part of the sale, so stating it separately did not remove it from gross receipts.

Citations and references

• California Revenue and Taxation Code section 6012 (as cited)
• Sept. 21, 1966 attorney letter asking about a stated scenario involving delayed construction-material delivery and separately billed employee overtime — substantive scenario quoted; complete letter and supporting records not reproduced in the official PDF
• Purchaser equipment breakdown or other inability to accept delivery, later-delivery request, plant employees kept after hours, overtime payment, purchaser agreement, and separate billing — stated scenario; order, delivery schedule, request, agreement, invoice, time records, payroll, payment, and material records not reproduced in the official PDF
• Official Annotation 295.0580's construction-material seller, purchaser-requested later delivery, employee overtime, original material price, separately billed overtime, total taxable measure, and Sept. 22, 1966 date — annotation omits the Sept. 21 request, example purchaser-equipment breakdown, plant and agreement details, section 6012 quotation, missing records, and later outcome and supplies no additional sale or billing record
• Possible delayed delivery, overtime work or payment, purchaser reimbursement, return filing, audit, assessment, refund claim, appeal, or other later 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/295-0580.pdf

Original ruling text

STATE OF CALIFORNIA

295.0580

STATE BOARD OF EQUALIZATION

September 22, 1966

Mr. F--- S. W--Attorney at Law
M---, H---, S---,
A--- & W--XXX --- -----, CA XXXXX
S- -- XX XXXXXX
A. T--- & S--Dear Mr. W---g:
In your letter of September 21, 1966, you request our advice as to whether in the following situation the sales tax applies only to the amount billed as the sales price of the materials or to the total amount of the sales price of the materials and the separately billed amount for the overtime payment to the T--- employees: “Due to the inability of a purchaser of T--- to use rock, sand, gravel, concrete, mixed concrete or asphalt or other materials at the original time of delivery as, for example, due to a breakdown of the purchaser’s equipment, the purchaser requests a later delivery time. To comply with the purchaser’s request, T--- is required to keep employees at its plant after the usual working hours and to make overtime payments to the employees. By agreement with the purchaser the amount of the overtime payment is billed to the purchaser, the amount being shown separately from the sales price of the materials sold to the purchaser.” The tax applies to the total amount of the sales price of the materials and the separately billed amount for the overtime payments. We believe that this conclusion is compelled by § 6012 of the Sales and Use Tax Law, defining “gross receipts” by which the tax is measured as: “…the total amount of the sale or lease or rental price…without any deduction on account of….” “The cost of the materials used, labor or service cost, interest paid, losses, or any other expense.” (Underscoring added.)

Mr. F--- S. W---

-2-

September 22, 1966
295.0580

And providing that the total amount of the sale or lease or rental price includes “any services that are a part of the sale.” Very truly yours,

E. H. Stetson
Tax Counsel

EHS:fb
cc:

--- District Administrator