Did California use tax apply when an enrolled-Indian partnership bought pipe from Nevada for installation on a reservation and took title there?

Plain-English summary

After July 10 telephone advice, counsel confirmed that a two-person partnership composed entirely of enrolled Indians contracted to furnish and install water and sewer systems on an Indian reservation. The live annotation instead says “water and service systems” and supplies no record resolving the wording difference. The partnership bought pipe from a Reno, Nevada supplier that delivered it directly across the state boundary to the reservation jobsite.

California treated the contract as a construction contract and the pipe as materials under Regulation 1521(a)(3). The partnership therefore was the consumer of the pipe, so tax ordinarily would apply to the sale to it.

The applicable tax would have been use tax rather than sales tax because the Nevada seller delivered the pipe across the state line. But title appeared to pass to the partnership on the reservation, and both partners were enrolled Indians.

The opinion applied California's position that use tax did not apply when an enrolled Indian, or a partnership composed exclusively of enrolled Indians, purchased property on an Indian reservation. It therefore found the pipe purchase exempt from California use tax.

The source does not identify the authority for that prior position. It supplies no call record, enrollment or partnership evidence, contract, invoice, shipping or title document, audit, appeal, or later outcome; the Regulation 1521 enclosure is also absent.

What this means for you

Tribal contractors and suppliers

The result depended on the partnership's composition, the reservation purchase situs, direct delivery, title passage, and the pipe's treatment as construction materials.

Accountants and tax professionals

Document enrollment status, partnership ownership, contract type, material classification, supplier location, delivery route, title passage, and reservation location.

Common questions

Q: Was the partnership the consumer of the pipe?

A: Yes.

Q: Which California tax was potentially applicable?

A: Use tax rather than sales tax.

Q: Why did the opinion find no use tax?

A: The purchaser was a partnership composed exclusively of enrolled Indians, and the purchase and title passage occurred on the reservation.

Citations and references

• California Sales and Use Tax Regulation 1521 and paragraph (a)(3) — cited for construction-contract treatment, pipe as material, and the contractor as consumer; complete text, definitions, version, and later history not supplied, and the enclosed copy is absent
• Prior unidentified California position excluding use tax for an enrolled Indian or exclusively enrolled-Indian partnership purchasing on a reservation — authority, date, identifier, facts, text, distribution, implementation, and later history not identified or reproduced
• July 10, 1975 telephone advice — call participants beyond requester, notes or transcript, partnership agreement, enrollment evidence, construction contract, project and reservation identity, and title terms not reproduced
• Nevada supplier transaction with direct interstate reservation delivery and apparent on-reservation title passage — purchase order, invoice, shipping documents, delivery receipt, title provision, payment, installation and use records not reproduced
• July 15, 1975 Tax Counsel Gary J. Jugum response treating the partnership as consumer and finding no use tax — no replies, transaction review, return, audit, assessment, refund claim, appeal, or later outcome supplied
• Official Annotation 305.0020's enrolled-Indian partnership, out-of-state pipe, direct reservation shipment and installation, use tax, reservation purchase, and July 15, 1975 rules — the live annotation says “water and service systems” while the supporting letter says “water and sewer systems”; it omits the telephone, two-partner, consumer, Nevada, title and prior-authority details, missing enclosure and records, later outcome, and reliance status and supplies no record resolving the project-description difference

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0020
• Original supporting opinion: 305.0020 PDF

Original ruling text

305.0020

STATE OF CALIFORNIA

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

July 15, 1975

Mr. M--- T--Q--- E--- Company
General Delivery
--- ---, CA XXXXX
Dear Mr. T---:
This is in confirmation of our telephone advice to you of July 10, 1975. We understand that Q--- E--- Co. is a partnership consisting of you and one other individual. Both members of the partnership are enrolled Indians. You have a contract to furnish and install certain water and sewer systems on an Indian reservation. You have purchased pipe to be used in your construction contract from a supplier located in Reno, Nevada. The supplier delivers the pipe from Reno to the jobsite on the Indian reservation. As we advised you, we are of the opinion that your contract is a construction contract under our Regulation 1521 “Construction Contractors”, copy enclosed for your reference. The pipe installed by you is regarded as “materials” under paragraph (a)(3) of the regulation. Accordingly, your partnership, as the construction contractor, is the consumer of these materials, and tax would ordinarily apply to the sale of such materials to you. In the case before us, however, it would appear that the proper tax is not the sales tax but the use tax since the seller of the pipe is located in Reno, Nevada, and since the pipe will be delivered across the state boundary. Further, it appears that title to the pipe will pass to your partnership on an Indian reservation. We have taken the position in the past that California use tax will not apply where the purchaser is an enrolled Indian, or a partnership composed exclusively of enrolled Indians, and the purchase takes place on an Indian reservation. It would thus appear that your purchase of the pipe in question is exempt from the California use tax. Very truly yours,

Gary J. Jugum
Tax Counsel
Enclosure