Was a vendor's separate charge for factory testing steel tubing before shipment included in the use-tax sales price?

Plain-English summary

A redacted California purchaser's absent January 16, 1950 letter asked about State use tax on the amount its California vendor charged to cover testing of purchased tubing by another redacted company at an Ohio plant before shipment.

Section 6011 defined the use-tax sales price without deduction for materials, labor, service costs, or other expenses and included services forming part of the sale. Tax counsel treated factory testing before shipment as such a service, so the testing charge entered the tubing's taxable sales price.

The live annotation describes manufacturer testing of steel tubing, while the supporting letter separately describes the California vendor and the redacted company that tested the tubing at its Ohio plant. The PDF supplies no contract, specifications, testing protocol or result, invoices, charge amount, shipment record, audit, appeal, or later outcome.

Citations and references

• California Revenue and Taxation Code section 6011 — quoted in part as defining use-tax sales price as the total amount for which tangible personal property is sold without deduction for property cost, materials, labor or service cost, or other expense and specifically including services that are part of the sale; complete text, subdivisions, version, and later history not supplied
• January 16, 1950 redacted purchaser letter asking about State use tax on its California vendor's charge covering tubing testing by another redacted company at its Ohio plant before shipment — request, purchase contract and order, tubing specifications, testing requirement and protocol, test report or certification, vendor and tester invoices, charge amount, shipment records, and tax records not reproduced in the official PDF
• January 23, 1950 Associate Tax Counsel R. G. Hamlin response concluding that factory testing before shipment was a service forming part of the tubing sale and its charge entered taxable sales price — no purchaser or vendor reply, transaction disposition, return, audit, assessment, refund claim, appeal, or later outcome supplied; copy sent to Burnett Sheehan
• Official Annotation 295.1800's steel-tubing, manufacturer-testing, separate-charge, part-of-sale service, taxable-gross-receipts, and January 23, 1950 rules — annotation omits the January 16 request, use-tax and sales-price framing, California vendor and separate Ohio testing-party roles, section 6011 quotation, absent transaction records, copied person, 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/295-1800.pdf

Original ruling text

295.1800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 23, 1950

T--- W--- A--- O--- Company
XX --- --- Street
--- --- XX, California
Attention:

Mr. F--- R. B---

Account - - XXXX

Gentlemen:
This is in answer to your letter of January 16 with respect to the application of the State use tax to the amount charged by your vendor, The Y--- S--- P--- Company of California, to cover the cost of testing tubing which you purchased from it by the Y--- S--- and T--- Company at its plant in
---, Ohio, prior to its shipment to you.
The measure of the use tax is the sales price for which the tangible personal property is sold. Section 6011 of the Sales and Use Tax Law defines “sales price,” in part, to mean the total amount for which tangilbe personal property so sold without deduction for the cost of the property sold, the cost of materials used, labor or service cost, or any other expenses, and specifically includes “any services that are a part of the sale.” It is our opinion that the testing of the tubing at the factory prior to its shipment to you is a service which is a part of the sale of the tubing. Accordingly, we regard the charge for such testing service as a part of the sales price for which the property is sold and subject to the use tax. Very truly yours,

R. G. Hamlin
Associate Tax Counsel

RGH:HB
cc:

Burnett Sheehan