When could a reservation construction contractor buy materials for resale rather than as a taxable consumer?

Plain-English summary

The Franchise Tax Board referred a redacted supplier owner's January 4, 1989 letter. It enclosed tribal and contractor correspondence, including a December 28 federally-recognized-and-exempt-status assertion and a December 6 description of a tribal construction-contractor tax ordinance. The owner asked whether the tribe legitimately claimed sales tax on all project materials and what procedures or forms applied. California declined to decide the tribal ordinance's validity and addressed only state sales and use tax.

Construction contractors normally consumed materials they furnished and installed. A supplier's sale to that contractor was taxable even when the project was on a reservation because the supplier sold to the contractor, not the tribe.

A contractor could instead be a retailer under Regulation 1521 only when the contract explicitly transferred title to materials before installation and separately stated the material sales price apart from installation.

That retailer-contractor needed a seller's permit and could give the supplier a timely good-faith resale certificate under Regulation 1668. The contractor's later material sale to the tribe then required separate analysis under its contract and reservation rules.

Regulation 1616 also distinguished materials from fixtures: sales of materials to a non-Indian contractor-consumer remained taxable despite reservation delivery and attachment, while fixtures furnished and installed by such a contractor were excluded under the quoted rule. The three regulations were identified as enclosures but are absent. No contract, certificate, audit result, tribal response, or later outcome is supplied.

What this means for you

Tribes, contractors, and material suppliers

The project's reservation location did not by itself exempt a supplier's sale to a contractor-consumer.

Accountants and tax professionals

Review the contract, pre-installation title clause, separate material price, permit, certificate timing and good faith, actual installation, and purchaser identity.

Common questions

Q: Were materials sold to a contractor-consumer taxable?

A: Yes.

Q: What made a contractor a retailer of materials?

A: Pre-installation title transfer and separately stated material pricing.

Q: Did California decide the tribal tax's validity?

A: No.

Citations and references

• California Sales and Use Tax Regulation 1616(d), (d)(4)(A), and (d)(4)(C)(2) — cited or quoted for Indian purchaser, reservation delivery and ownership transfer, non-Indian contractor materials, and fixtures; complete text, definitions, versions, other conditions, and later history not supplied
• California Sales and Use Tax Regulation 1521(b)(2)(A) and quoted subdivision (b)(2)(A)(2) — cited for contractor consumer-versus-retailer status, preinstallation title and separate materials price; complete text, definitions, versions, and later history not supplied
• California Sales and Use Tax Regulation 1668 — cited for permits and timely valid good-faith resale certificates; complete text, permit and certificate requirements, version, and later history not supplied
• January 4, 1989 redacted owner letter to the Franchise Tax Board asking about a tribe's claimed tax on project materials and procedures — request, referral, project contract, invoices, delivery and title records, payments, permits, certificates, and tax records not reproduced in the official PDF
• December 28 and December 6, 1988 tribal letters and enclosed contractor correspondence — letters, ordinance, federal recognition and exemption evidence, contractor response, tribal procedures, forms, collections, and enforcement records not reproduced
• March 31, 1989 Senior Tax Counsel John Abbott response declining to decide tribal-tax validity and explaining California treatment — no replies, contract classification, permit or certificate review, audit, assessment, refund claim, appeal, or later outcome supplied; Regulations 1521, 1616 and 1668 identified as enclosed but absent
• Official Annotation 305.0007's non-U.S.-government contractor, Regulation 1521 retailer conditions, preinstallation title, separate price, reservation improvements, Indian purchaser, material resale, and no-sales-tax-liability rules — annotation omits the referral and correspondence provenance, tribal-tax question and no-opinion, normal consumer and supplier result, fixture rule, permit and certificate requirements, absent enclosures and project records, later outcome, and reliance status; the letter says the later tribal sale “may or may not” be taxable depending on the contract, while the annotation states the exemption after its listed conditions

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0007
• Original supporting opinion: 305.0007 PDF

Original ruling text

305.0007

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6493

March 31, 1989

Mr. --- --- - Owner
A & B -----1 -. --- -----, CA 9XXXX
A & B --- – SR XXX XX-XXXXXX
E-- M-- --- “---” – SR XX XX-XXXXXX
Construction contractors – sales of materials on
Indian reservations
.
Dear Mr. ---:
Your January 4, 1989 letter to the Franchise Tax Board was referred to the State Board of Equalization for reply, since it is this agency which administers the Sales and Use Tax Law. In your letter you enclosed correspondence which you have received from the R--- V--- L--- R--- Band of P-- Indians, and from a contractor, E—M-- --- “---” (R--- and R-----, owners), concerning a construction contract performed on the Indian reservation. You relate that the P--- I--- Band’s contention is that the tribe should receive the sales tax on all materials supplied to the construction project in Redwood Valley. You ask if this is a legitimate claim, and if so are there procedures and forms to accomplish this. Among the letters you enclosed is a December 28, 1988 letter addressed to whom it may concern from the R--- V--- L--- R--- Band of P--- Indians, which states that it is a federally recognized tribe exempt from state sales taxes. Also, the Band’s December 6, 1988 letter to R--and R--- --- relates the provisions of a tribal sales tax ordinance imposing a sales tax on construction contractors engaged in business on the reservation. Opinion We cannot, of course, give you an opinion on the validity of the tribal tax imposed on contractors by the Band. This would be a matter between the Band and the construction contractors on whom its tax is imposed. I assume your letter is concerned with whether or not you are liable for sales or use tax which the State of California imposes on your sales of materials, regardless of whether or not a tribal sales tax may also apply.

Mr. --- ---

-2-

March 31, 1989
305.0007

The Board’s Sales and Use Tax Regulation 1616(d) sets out the application of sales and use tax to Indians and Indian tribes on and off the reservation. Where a non-Indian retailer makes a sale to a non-Indian customer whether on or off a reservation, or to an indian customer off a reservation, sales tax applies if the sale is otherwise taxable. Sales by non-Indian retailers to Indians are not taxable if the delivery is made to the purchaser on the reservation and ownership transfers to the purchaser on the reservation. Regulation 1616(d)(4)(A). Under Regulation 1521(b)(2)(A), construction contractors are normally consumers rather than retailers of materials which they furnish and install in the performance of a construction contract. Thus, tax applies to the sale by the vendor of the materials to the construction contractor, and tax does not apply to the transaction between the contractor and the owner of the real property on which the construction contract is performed. A construction contractor may be considered a retailer of materials, rather than a consumer of materials, if the provisions of Regulation 1521(b)(2)(A)(2) apply, which states as follows: “2. The Contractor is Seller. A construction contractor may contract to sell materials and also to install the materials sold. If the contract explicitly provides for the transfer of title to the materials prior to the time the materials are installed, and separately states the sale price of the materials, exclusive of the charge for installation, the contractor will be deemed to be the retailer of the materials.” A contractor who is a retailer rather than a consumer of materials must hold a California seller’s permit and report and pay tax on his sales of materials. Such a contractor would issue to the seller a resale certificate under Regulation 1668. If the construction contract is performed on an Indian reservation, and if the construction contractor is the consumer, not the retailer of the materials, then Regulation 1616(d)(4)(C)(2) provides as follows: “Non-Indian contractors. Sales tax applies to sales of materials to non-Indian contractors notwithstanding the delivery of the materials on the reservation and the permanent attachment of the materials to realty. Sales tax does not apply to sales of fixtures furnished and installed by non-Indian contractors on Indian reservations.” If you have sold materials to a construction contractor for use on an Indian reservation, the sales tax will normally apply to your sale of the materials since your sale was to the contractor, not to the Indian tribe. The tax will not apply to your sale only if the contractor holds a valid seller’s permit and gives you a resale certificate showing that he purchased the materials for resale. If you timely take a resale certificate in good faith from the contractor as required under Regulation 1668, then you may exclude the sale from your taxable gross receipts. The contractor’s sale of the materials to the Indian tribe may or may not be taxable depending on the contract between the contractor and the Indian tribe.

Mr. --- ---

-3-

March 31, 1989
305.0007

I enclose copies of Regulations 1521, 1616, and 1668 for your information. Please feel free to contact me if you have any further questions or comments about this letter. Sincerely,

John Abbott
Senior Tax Counsel

JA:jb
Enclosures