Were separately invoiced lumber sorting and delivery charges taxable after goods reached a compound near a construction site?

Plain-English summary

An unidentified taxpayer petitioned for redetermination of sales tax on separately invoiced sorting and delivery after lumber reached a compound near a construction site. Associate Tax Counsel John H. Knowles recommended deleting certain delivery charges from the audit and redetermining tax after that adjustment.

Tax counsel concluded that sorting was taxable for two reasons: it was a service forming part of the sale, and it was processing of customer-furnished property for consideration under the cited definition of sale.

Delivery received different treatment. The recommendation directed auditors to remove delivery charges from contracts other than two redacted contracts unless they had specific evidence that title did not pass until the goods reached the jobsite. Counsel relied on the contracts' and compound's dual nature according to the taxpayer's oral understanding.

The source also rejected reliance on an earlier contrary legal-staff opinion as a legal basis to excuse tax, citing Market Street Railway. It offered an oral Board hearing on request after the auditor supplied reaudit schedules and asked for an answer about a hearing within 30 days after receipt. The PDF supplies none of those records or the final outcome.

Citations and references

• California Revenue and Taxation Code section 6012(a) and former section 6012(g) — quoted in part or cited for services that are part of a sale, retailer delivery charges, and title passing before transportation; complete text, subdivisions, audit period, and later history not supplied
• California Revenue and Taxation Code section 6006 — quoted in part for processing customer-furnished tangible personal property for consideration within the definition of sale; complete text and later history not supplied
• Market Street Railway Co. v. State Board of Equalization, 137 Cal. App. 2d 87 — cited for the statement that estoppel does not apply in sales-tax matters; opinion, pinpoint, court, year, procedural history, and later treatment not reproduced in the official PDF
• Unidentified taxpayer's petition for redetermination and audit involving separately invoiced sorting and delivery charges after lumber reached a compound near a construction site — petition, audit, contracts, invoices, compound records, auditor evidence, oral-understanding record, schedules, amounts, and tax periods not reproduced in the official PDF
• Earlier contrary opinion by an unidentified legal-staff member on which the taxpayer relied — opinion, author, date, facts, authorities, distribution, and later history not reproduced in the official PDF
• October 10, 1966 Associate Tax Counsel John H. Knowles letter recommending deletion of certain delivery charges, taxation of sorting, and redetermination after adjustment, while offering an oral Board hearing after reaudit schedules — no auditor schedules, taxpayer response, hearing request, reaudit, redetermination, Board decision, appeal, or later outcome supplied
• Official Annotation 295.1671's sorting, services-in-connection-with-sale, processing, sections 6012 and 6006, and October 10, 1966 rules — annotation omits the petition and audit provenance, delivery adjustment, title and contract distinctions, oral-understanding basis, earlier staff advice, estoppel issue and case, hearing offer, missing records, later outcome, and reliance status and supplies no additional proceeding 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/295-1671.pdf

Original ruling text

295.1671

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 10, 1966

This is to inform you of our conclusions with respect to the above named taxpayer’s petition for redetermination of sales tax. It is our recommendation that certain delivery charges be deleted from the audit, and with this adjustment the tax be redetermined. At issue in this case are the taxpayer’s separately invoiced charges for sorting and delivering lumber after it arrives at a compound near the construction site. It is our conclusion that the sorting constitutes site. It is our conclusion that sorting constitutes a service in connection with a sale under § 6012 of the California Sales and Use Tax Law, which provides: “The total amount of the sale or lease or rental price includes all of the following: “(a) any services that are a part of the sale.” It also comes within the definition of sale provided by §6006, which provides: “ ‘Sale’ means and includes:

“The… processing… of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the … processing…” Delivery charges by a retailer’s facilities are includible in the measure of tax under § 6012 (g), unless title passes to the purchaser prior to the transportation. We are asking the auditors to delete delivery charges in contracts, other than contracts with --and ---, unless they have specific evidence that title did not pass until the goods arrived at the jobsite. This is because we believe you have established the dual nature of the contracts and the compound according to the taxpayer’s oral understanding. We recognize the taxpayer relied upon an earlier and contrary opinion by a member of our legal staff. However, this does not from a legal basis for excusing the tax. California courts have held that the doctrine of estoppel does not apply to sales tax matters (Market Street Railway Co. v. State Board of Equalization, 137. Cal App. 2d 87).

You are entitled to an oral hearing before the board. If you disagree with our conclusions and desire such a hearing, we will schedule it upon request. The auditor will provide you with schedules of the reaudit adjustments. We would appreciate it if you would advise us concerning the board hearings within 30 days of receiving these schedules.

Very truly yours,

John H. Knowles
Associate Tax Counsel

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