Were charges for a factory-trained technician to set up sold equipment and supervise initial operation exempt installation labor?

Plain-English summary

An unidentified equipment seller's absent December 1, 1965 letter asked for a ruling on charges for a factory-trained serviceman to set up equipment the seller sold and supervise its initial operation. Tax Counsel E. H. Stetson treated the charge as exempt installation if setup included no fabrication or processing. He described assembly or manufacturing of something later installed at the customer's premises as taxable work performed before the equipment was complete and ready for installation.

Section 6012 was quoted for the retailer's total sale price, including services that were part of the sale but excluding labor or services used to install or apply sold property. The response also cited and enclosed Sales and Use Tax Ruling 15 for customer-furnished equipment, but the enclosure is absent from the PDF.

In 1985, Current Legal Digest No. 454 clarified that some readers had wrongly treated on-site assembly as exempt. It added “assembling” to the annotation: setup was exempt only when it involved no fabricating, assembling, or processing. The PDF supplies no request, contracts, work records, Ruling 15 enclosure, transaction, audit, appeal, or later-outcome record.

Source-history note

The PDF contains both the December 7, 1965 opinion and the May 15, 1985 clarification. This page follows the later clarification because it expressly corrected the annotation's interpretation.

Citations and references

• California Revenue and Taxation Code section 6012 — quoted in part for total sale price without deduction for materials, labor or service cost, interest, losses, or other expense, including services that are part of the sale, but excluding labor or services used to install or apply sold property; complete text, subdivisions, version, and later history not supplied
• California Sales and Use Tax Ruling 15 — described as applying the installation-versus-fabrication rule to customer-furnished equipment; copy identified as enclosed but not reproduced in the official PDF, and complete text, version, authority, and later history not supplied
• December 1, 1965 unidentified seller letter requesting a ruling on charges for a factory-trained serviceman to set up sold equipment and supervise initial operation — request, sales and service contracts, equipment specifications, work orders, invoices, technician records, and customer records not reproduced in the official PDF
• December 7, 1965 Tax Counsel E. H. Stetson response treating setup and initial-operation supervision as exempt installation if no fabrication or processing occurred, while treating assembly or manufacturing before readiness for installation as taxable — no requester reply, transaction, return, audit, assessment, refund claim, appeal, or later outcome supplied
• May 15, 1985 Board Current Legal Digest No. 454, “Gross Receipts—Service Charges Generally,” stating that some had misread Annotation 295.1700 as exempting on-site assembly and adding “assembling” to clarify that assembly is fabrication or processing — misread materials, implementation instructions beyond the quoted revision, affected transactions, and later history not supplied
• Official Annotation 295.1700's factory-trained serviceman, setup, initial-operation supervision, installation, fabrication, assembly, processing, December 7, 1965, and May 15, 1985 rules — annotation omits the December 1 request, retailer-versus-customer-furnished distinction, section 6012 quotation, absent Ruling 15 enclosure, digest number and misreading provenance, 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/295-1700.pdf

Original ruling text

295.1700

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 7, 1965

Gentlemen:
This is in reply to your letter of December 1 requesting a ruling on a situation which you describe. The charge for your customer for service of a factory trained serviceman to set up the equipment sold by you and to supervise its initial operation is not taxable, assuming that there is no fabricating or processing included in the “setting up” of the equipment. Such a taxable fabricating or processing would occur if included in the setting up of the equipment were any assembly or manufacturing of that which is later actually installed upon the customer’s premises. Installation charges are specifically exempted from the tax, but the tax is specifically applied to any charge which represents a part of the manufacturing, fabricating, or processing of the item before it is complete and ready for installation. See in this connection sales and use tax Ruling 15, copy enclosed, which applies in the case of customer-furnished equipment. In the case of equipment furnished by the retailer, his taxable gross receipts include, under Section 6012 of the Sales and Use Tax Law, “the total amount of the sale price”, without any deduction on account of “The cost of the materials used, labor or service cost, interest paid, losses, or any other expense”, and include, “Any services that are a part of the sale”, but exclude “The price received for labor or services used in installing or applying the property sold”. Very truly yours,

E. H. Stetson
Tax Counsel

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295.1700

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)

May 15, 1985

CURRENT LEGAL DIGEST NO. 454

GROSS RECEIPTS
(g)

Service Charges Generally

Annotation 295.1700 – “Setting Up” Equipment
This annotation has been misread by some as making charges for assembly labor at the customer’s site nontaxable. The backup opinion letter makes clear that assembly labor is a type of fabricating or processing. Therefore, “assembling” will be added to the annotation so that it reads as follows: “Service charges for a factory trained serviceman to set up equipment sold by the taxpayer and to supervise its initial operation are exempt installation charges, providing no fabricating, assembling, or processing occurs in the ‘setting up’.” 12/7/65; 5/15/85