How did title clauses, separate material pricing, and contractor status change tax treatment across three Indian Housing Authority construction contracts?

Plain-English summary

At the Principal Tax Auditor's request, counsel compared three Indian Housing Authority contracts using shorthand names from earlier discussions and prior advice in an absent January 7, 1985 letter.

The first contract separately stated the material price and transferred title to the Housing Authority before installation. Those terms made the non-Indian contractors and subcontractors retailers under Regulation 1521. They could buy materials for resale, and their on-reservation retail sales to the Housing Authority were exempt.

The second contract separately priced materials but had no explicit pre-installation title clause. Its non-Indian contractors were consumers, could not buy materials ex-tax for resale, and owed tax on their material purchases.

The third contract had similar deficient language, but the contractors and subcontractors were Indians living on the reservation. Assuming materials were delivered to them on the reservation, those sales were exempt under Regulation 1616.

The contracts, prices, title records, contractor-status proof, deliveries, certificates, audit disposition, and later outcome are absent. The live annotation also cites Amendment 2000-1 without supplying the amendment or explaining its effect.

The official annotation dates the opinion January 4, 1988. The PDF itself contains inconsistent malformed/1987 date headers, which this page does not silently normalize.

What this means for you

Housing authorities, contractors, and suppliers

For non-Indian contractors, separate pricing without a title clause was insufficient; qualifying Indian-contractor status and reservation delivery created a separate path.

Accountants and tax professionals

Compare contract wording, title timing, material pricing, contractor status and residence, delivery location, resale certificates, and actual performance.

Common questions

Q: Were separate material prices alone enough?

A: No.

Q: What else was required for non-Indian retailer treatment?

A: Explicit title transfer before installation.

Q: Could reservation-delivered materials to qualifying Indian contractors be exempt?

A: Yes.

Citations and references

• California Sales and Use Tax Regulation 1521(b)(2)(A)(1) and (2) — cited for contractor consumer-versus-retailer treatment, separate material pricing and preinstallation title; complete text, definitions, versions, and later history not supplied
• California Revenue and Taxation Code section 6352 and California Sales and Use Tax Regulation 1616(d) and (d)(4)(C) — cited for Housing Authority sales and Indian-contractor reservation-delivery treatment; complete text, status, purchaser, delivery and title requirements, versions, and later history not supplied
• January 7, 1985 counsel letter giving prior advice — letter, requester, contracts, facts, authorities, distribution, implementation, and later history not reproduced
• Three redacted Indian Housing Authority contracts with different title, pricing and contractor-status facts — contracts, prices, amendments, bids, scopes, title records, identities and status evidence, invoices, delivery records, resale certificates, and performance records not reproduced
• Principal Tax Auditor request for review — request, earlier discussions, contact notes, submissions, and auditor analysis not reproduced
• Senior Tax Counsel E. L. Sorensen, Jr. response classifying the three contracts — no replies, transaction review, audit result, assessment, refund claim, appeal, or later outcome supplied; copy sent to Glenn A. Bystrom
• Official Annotation 305.0008's non-Indian-contractor and Housing-Authority contract, preinstallation title, separate material price, retailer-or-consumer classification, exempt on-reservation sale, January 4, 1988, and Amendment 2000-1 rules — the PDF's first page says malformed “January 4, 19878” and its second says January 4, 1987, with no record resolving either against the live date; annotation omits the prior letter and auditor-request provenance, three-contract comparison, Indian-contractor alternative, missing records, later outcome, and reliance status and supplies no Amendment 2000-1 record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0008
• Original supporting opinion: 305.0008 PDF

Original ruling text

STATE OF CALIFORNIA

305.0008

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-8485

January 4, 19878

Mr. --- -. --Attorney at Law
P. O. Box XXX
--- --- --- Street
---, CA 9XXXX

Dear Mr. ---:

The Board’s Principal Tax Auditor has asked me to review three construction contracts entered into by the --- --- Indian Housing Authority (Housing Authority) and to correspond with you regarding the application of the Sales and use Tax Law to those contracts. It is my understanding that the following nomenclature has been used to identify the contracts in prior discussions with you: The R-- Contract; the M-- - P-- --- Contract and; the H-Contract. For the sake of convenience, we will continue to utilize this nomenclature in our discussion herein. The R-- Contract This contract provides that the housing authority will pay the contractor a stipulated amount ($---) for performance of the contract. However, the total sales price of all materials ($---), exclusive of the charge for installation, is also stated in the contract. Additionally, Section 7 of the contract, entitled “Partial Payments”, provides in subsection (c) that title to all materials to be used in the project is transferred to the owner (Housing Authority) prior to the time the materials are installed by the contractor or subcontractor. We understand the contractors and subcontractors are non-Indians. Pursuant to the advice which I gave you in my letter of January 7, 1985, it is our opinion that the foregoing contract provisions operate to make the construction contractors and subcontractors “sellers” of materials within the meaning of Regulation 1521(b)(2)(A)2. It follows the contractors and subcontractors who furnish and install materials on the reservation as required by this contract may purchase such materials from their vendors ex-tax by issuing resale certificates. The subsequent retail sales of materials to the Housing Authority on the reservation are exempt from tax (see Revenue and Taxation code §6352; Regulation 1616 (d)).

Mr. D--- J. R---

-2-

January 4, 1987
305.0008

The M-- - P-- --- Contract
Similar to the R-- Contract discussed above, this contract stipulates an amount for performance of the contract ($---). It also lists the sales price of all materials used in the project ($---), exclusive of the charge for installation. Further, we understand the contractors and subcontractors are non-Indians. However, this contract differs significantly from the R-- contract in that there is no explicit requirement that title pass prior to installation. Again, as indicated in my letter of January 7, 1985, it is critical that there be both a separate statement of charges for materials as well as specific title passage provisions in order for the contractors or subcontractors to be deemed “sellers” of materials. It follows, the contractors or subcontractors working under this contract are deemed to “consumers” rather than the “sellers” of the materials. They may not purchase such materials ex-tax for resale from their suppliers, rather they come within the general provisions of Regulation 1521(b)(2)(A)1 and tax applies based upon their purchases of such materials. The H-- Contract The terms of this contract are similar to those of the M-- - P-- --- Contract discussed above. However, it is our understanding that the contractors and subcontractors performing this contract are Indians living on the reservation. Assuming delivery of the materials to the Indian contractors and subcontractors is on the reservation, the sales of materials to them would be exempt from tax in accordance with Regulation 1616(d)(4)(C). If you have any questions with respect to the foregoing discussion, feel free to contact me at (916) 445-8485. Sincerely,

E. L. Sorensen, Jr.
Senior Tax Counsel

ELS:jb
cc:

Mr. Glenn A. Bystrom