How were undercoating charges treated for new cars sold by dealers versus used cars already owned by customers?

Plain-English summary

A new-car dealer undersealed automobiles before delivering them to purchasers. Tax counsel included the entire labor-and-material charge in the taxable new-car price, rather than allowing a deduction for undercoating.

The memorandum said the dealer could deduct the cost of tax-paid material purchased and resold in the new-car transaction under the practice then described.

When a service provider undercoated a used car already belonging to the customer, the provider was treated as consumer of the materials, and tax applied to the provider's material cost rather than as a retail sale of the whole service charge.

Citations and references

• The official memorandum cites no statute, regulation, case, or prior ruling by number.
• Inquiry from Board official T. A. Valentine concerning tax on a new-car dealer's undersealing charge — date, form, contents beyond the response's recap, and copy not provided in the official PDF
• Unidentified dealer's pre-delivery new-car undersealing and tax-paid materials, and unidentified providers' work on customer-owned used cars — dealer and customer transactions, sales contracts, invoices, labor and material costs, tax-paid purchase records, ownership and delivery records, and tax records not reproduced in the official PDF
• Official Annotation 295.0740's pre-sale automobile undercoating, separately stated charge, taxable new-car gross receipts, and used-car undercoater's consumer status with May 15, 1950 date — annotation omits the internal inquiry and requester, tax-paid-purchases-resold deduction described in the source, missing transactions and records, absence of numbered authority, reliance status, and later outcome and supplies no additional transaction record

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/295-0740.pdf

Original ruling text

STATE BOARD OF EQUALIZATION
OFFICE CORRESPONDENCE

295.0740
Place:
Date:

To:

Mr. T. A. Valentine

From:

R. G. Hamlin

Re:

Undersealing Automobiles

Sacramento
May 15, 1950

You have inquired with respect to the application of the tax to a new car dealer’s charge for undersealing new automobiles before delivery to the purchaser. You are advised that it is our opinion that the sales tax applies to the total charge made for new automobiles without any deduction on account of the cost of labor and material in “undercoating” the automobile. The dealer, however, would be entitled to take a deduction for tax-paid purchases resold in the amount of the cost price of material purchased tax-paid and applied to the charge. If the work is done on used cars belonging to the customer, we believe that the tax would properly apply upon the cost price of the materials used, the persons performing the work being regarded as the consumers.

RGH:HB