Could a contractor and conforming subcontractors buy materials and fixtures for resale when building reservation homes for an Indian Housing Authority?

Plain-English summary

An Oregon contractor's absent January 6, 1986 letter asked four questions about permits, resale treatment, the main contract, and conforming subcontracts. The supporting letter describes a $1,798,000 contract to build 30 homes and related improvements for an Indian Housing Authority and separately prices materials at $584,971, excluding installation. The live annotation says 40 homes and supplies no record resolving the conflict.

Title to materials delivered and properly stored at the jobsite and covered by partial payment passed to the Housing Authority before installation.

Those terms made the contractor the seller and retailer of materials under Regulation 1521. It had to obtain a seller's permit and could issue resale certificates to suppliers. Its sales of materials to the Housing Authority on the reservation were exempt.

The contractor was also the retailer of fixtures and could buy them for resale; its on-reservation fixture sales to the Housing Authority were likewise exempt.

Subcontractors using conforming title-passage and pricing language could apply for permits and receive the same treatment.

That subcontract language was described only through a January 15 telephone representation. The contracts and three enclosed regulations are absent, and the PDF supplies no implementation, transaction, audit, appeal, or later outcome.

What this means for you

Housing authorities, contractors, subcontractors, and suppliers

The source required contract language and actual performance that separated the material sale from installation and passed title beforehand.

Accountants and tax professionals

Retain the contract price allocation, jobsite delivery, storage, partial-payment records, title passage, permits, resale certificates, fixture classifications, and conforming subcontracts.

Common questions

Q: What made the contractor a retailer of materials?

A: Separate material pricing and title transfer before installation.

Q: Could the contractor buy materials and fixtures for resale?

A: Yes.

Q: Could conforming subcontractors obtain the same treatment?

A: Yes.

Citations and references

• California Revenue and Taxation Code section 6066 and California Sales and Use Tax Regulation 1668 — cited for seller's permits and resale certificates; complete text, requirements, versions, and later history not supplied
• California Sales and Use Tax Regulation 1521(b)(2)(A)(2) and (b)(2)(B) — quoted or cited for material and fixture retailer treatment; complete text, definitions, versions, and later history not supplied
• California Revenue and Taxation Code section 6352 and California Sales and Use Tax Regulation 1616 — cited for exempt Housing Authority reservation sales; complete text, requirements, versions, and later history not supplied
• January 6, 1986 requester letter, contract Cal 97-7/9, proposed subcontract, and January 15 telephone conversation — request, call record, contracts, bids, scopes, permits, certificates, and supporting records not reproduced in the official PDF
• Contract facts stating $1,798,000 total, $584,971 materials, 30 homes, and conditional preinstallation title — full contract, Housing Authority status, jobsite, materials and fixtures, delivery, storage, payment, title and performance records not reproduced
• January 16, 1986 Tax Counsel E. Leslie Sorensen, Jr. response treating the contractor and conforming subcontractors as retailers — no replies, implementation, transaction review, return, audit, assessment, refund claim, appeal, or later outcome supplied; Regulations 1668, 1521 and 1616 identified as enclosed but absent
• Official Annotation 305.0016's Housing Authority, 40 homes, delivered-and-stored materials, partial payment, preinstallation title, separate material and installation price, retailer, exempt reservation sale, and January 16, 1986 rules — the live annotation says 40 homes while the supporting letter says 30 and supplies no record resolving the conflict; annotation omits the request and call, four questions, amounts, fixtures, permits and certificates, subcontract assumption, absent contracts and enclosures, later outcome, and reliance status

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0016
• Original supporting opinion: 305.0016 PDF

Original ruling text

305.0016
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

CONWAY H. COLLIS
First District, Los Angeles

1020 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 1799, SACRAMENTO, CALIFORNIA 95808)
(916) 445-8485

ERNEST J. DRONENBURG, JR
Second District, San Diego
WILLIAM M. BENNETT
Third District, Kentfield

RICHARD NEVINS
Fourth District, Pasadena

January 16, 1986

KENNETH CORY
Controller, Sacramento

DOUGLAS D. BELL
Executive Secretary

Mr. S--- J--P--- & J--- C--Construction, Inc.
XXXX --- Hwy.
---, Oregon XXXXX
Dear Mr. J---:
This is in response to your letter of January 6, 1986. We understand that P--- & J--Construction Inc. (P&J) an Oregon based contractor, has entered into a contract (Cal 97-7/9) with the R--- V--- I--- H--- A--- (RVIHA) to construct 30 homes and related improvements to realty on the C--- in northern California. Below are questions from your letter followed by our responses to those questions. Question No. 1 “What steps should be taken by P&J in order to obtain a Resale Number for this Project? Response As will be discussed below, we are of the view that P&J is the seller and retailer of “materials” to be furnished and installed in performing Cal 97-7/9. Under California law, sellers are required to apply for sellers permits (Rev. & Tax. Code §6066). We assume the sellers permit number is what you refer to as a “Resale Number”. We suggest that you contact the
[BOE] Branch Office in order to apply for the permit. Once a sellers permit is obtained, P&J may then issue resale certificates to its suppliers of materials in accordance with our Regulation 1668, copy enclosed. Question No. 2 “Once a Resale Number is obtained, is the Contract worded in such a manner that the fixtures and materials are not subject to the State Sales Tax?”

Mr. S--- J---

-2-

January 16, 1986
305.0016

Response
Regulation 1521(b)(2)(A)2 provides in pertinent part:
“When 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.” Our view of the contract indicates the following title passage provision: “Title to all materials to be used in this project which are delivered to and properly stored on the job site and the subject of a partial payment shall transfer to owner prior to the time the materials are installed by the Contractor or any subcontractor”. Additionally, the contract provides: “The
[RV]IHA shall pay the Contractor for performance of the contract, subject to additions or deductions as provided in the Contract the sum of One million seven hundred ninety-eight thousand and no/100 Dollars ($1,798,000.00). The total sales price of all materials used in this project is Five hundred eighty-four thousand nine hundred seventy-one Dollars ($584,971.00), exclusive of the charge for installation”. The above cited passage clause plus the language separately stating the sales price of the materials is sufficient to qualify P&J as the seller and retailer of materials to RVIHA pursuant to Regulation 1521. Since sales to RVIHA on the reservation are exempt from tax, sales tax otherwise normally due does not apply (See Rev. & Tax. Code §6352; Reg. 1616, copy enclosed). We note, with respect to “fixtures” that P&J is the seller and retailer of such “fixtures” to RVIHA (see Reg. 1521(b)(2)(B), copy enclosed). As in the case of the “materials” discussed above, P&J’s purchases of fixtures may be purchased ex-tax by issuing resale certificates to suppliers; and, sales of the “fixtures” by P&J to RVIHA are, similarly, exempt. Question No. 3 “What steps do subcontractors to P&J and other suppliers and lower tier subcontractors need to take in order to obtain a Resale Number for this project?” Response All contractors and subcontractors who will be furnishing and installing improvements to realty for RVIHA and who have entered into contracts containing the title passage clause and pricing language discussed above may apply for sellers permits in the same manner as P&J.

Mr. S--- J---

-3-

January 16, 1986
305.0016

Question No. 4
“Once a Resale Number is obtained by a subcontractor/Supplier, is the proposed Subcontract structured in such a manner that the State Sales Tax is not applicable?” Response In our conversation of January 15, 1986, you indicated the subcontract language pertaining to the title passage clause as well as language pertaining to pricing would be conformed to the language utilized in Cal 97-7/9 discussed above. Assuming such conformity is achieved, our conclusion is as indicated with respect to Cal 97-7/9. Sincerely,

E. Leslie Sorensen, Jr.
Tax Counsel
ELS:rar
Enclosures