How did California tax materials and fixtures furnished by non-Indian contractors building homes on reservation land?

Plain-English summary

A tribe used federal grants for low-income reservation housing and hired a non-Indian general contractor, which hired subcontractors for construction services, materials and fixtures. Its absent January 12, 1995 letter said the Board's Visalia office had denied the contractors seller's permits and asserted without cited authority that state or federal law barred material tax.

California said sales of construction materials to non-Indian contractors were taxable even when the materials were delivered to the reservation and permanently attached to realty.

Fixtures were different. Sales tax did not apply to fixtures furnished and installed by non-Indian contractors on the reservation.

Seller's permits should be issued only to contractors selling fixtures and used only for fixture purchases for resale. Contractors merely consuming materials should not receive permits for those purchases.

A July 6, 2001 editorial note qualifies the permit discussion by stating that a contractor may separately qualify as a retailer of materials under Regulation 1521.

The PDF supplies no grants, contracts, classification records, permit files, transactions, Visalia response, audit, appeal, or later outcome. The 2001 note's author is identified only by the initials “DHL,” and no supporting editorial record is supplied.

What this means for you

Tribes, contractors, subcontractors, and suppliers

Materials and fixtures had different tax and permit treatment despite the same reservation project.

Accountants and tax professionals

Classify each item under Regulation 1521, document delivery and installation, identify contractor retailer or consumer status, and limit resale documentation to qualifying property.

Common questions

Q: Were materials sold to non-Indian contractors taxable?

A: Yes.

Q: Were fixtures furnished and installed on the reservation taxable?

A: No.

Q: Could every contractor use a seller's permit for materials?

A: No; the source limited permits, subject to the later retailer-of-materials note.

Citations and references

• California Sales and Use Tax Regulation 1616(d)(4)(C)(2) — quoted for non-Indian contractor materials and fixtures; complete text, definitions, version, and later history not supplied
• California Sales and Use Tax Regulation 1521(b)(2) and (a)(5) — cited or quoted for contractor treatment and fixture definition; complete text, additional examples, versions, and later history not supplied
• January 12, 1995 tribal-counsel letter describing grants, project, contractors, property and permit denial — request, grants, status, contracts, project, classifications, permit files, invoices, and tax records not reproduced
• Unsupported requester assertion that tax was barred by California or federal law — no authority identified or reproduced
• March 31, 1995 Senior Staff Counsel Robert W. Lambert response — no replies, permit action, transaction, return, audit, assessment, refund claim, appeal, or later outcome supplied; copies sent to Glenn Bystrom, Gary Jugum and Peter Smith
• July 6, 2001 editorial note signed “DHL” qualifying the permit conclusion — request, author identity beyond initials, analysis, amendment history, implementation, affected transactions, and later treatment not supplied
• Official Annotation 305.0028's tribe, non-Indian construction contractor, reservation improvements, taxable materials despite delivery and attachment, exempt furnished-and-installed fixtures, and March 31, 1995 rules — annotation omits the request, grant and housing facts, subcontractors, permit denial, unsupported claim, Regulation 1521 and permit rulings, 2001 note, missing records, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0028
• Original supporting opinion: 305.0028 PDF

Original ruling text

305.0028

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Tele: (916) 324-6593
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

March 31, 1995

KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

SENT BY FAX AND REGULAR MAIL
J--- S---, Esq.
A--- & K--XXXX --- Avenue, Suite XXX
---, CA XXXXX
Re:

Sales and Use Tax Liability
of T--- R--- Tribe Contractors

Dear Mr. S---:
This is in response to the request for a legal opinion set forth in your letter dated January 12, 1995. In your letter, you state that the T--- R--- Indian Tribe (the Tribe) has federal grants to construct low-income houses on the T--- R--- Indian Reservation and that, pursuant to those grants, the Tribe has hired a non-Indian general contractor to carry out the construction project. You further state that the non-Indian general contractor has contracted with various subcontractors to "perform certain construction services and procure construction materials and fixtures." Finally, you state that the Board's Visalia office has denied seller's permits to the Tribe's construction contractors, whom you contend "should not be liable for State sales taxes." Contrary to this contention, however, subdivision (d)(4)(C)(2) of section 1616 of the Board's Sales and Use Tax Regulations provides as follows: "2.

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." [Emphasis added.]

J--- S---, Esq.

-2-

March 31, 1995
305.0028

Under the sales and use tax law as it applies to construction contracts, it is necessary to determine whether or not a contractor is utilizing "materials" in performing its contract, or, on the other hand, is a retailer of a "fixture" within the meaning of Regulation 1521(b)(2). A "fixture," as set forth in Regulation 1521(a)(5), is an "accessory" to a building which, upon installation, does not lose its identity as an accessory; such as, an air conditioning unit, an awning, etc. While you assert in your letter that the imposition of sales tax on the sale of materials to non-Indian contractors "is not permitted by California or Federal law," you fail to cite any authority substantiating this assertion. Thus, we are unable to agree with your position. As a result, our conclusions in this matter are set forth below: 1.

The Board should issue seller's permits only to those contractors who are going to be engaged in the sale of fixtures; and those contractors will only be authorized to utilize their seller's permits with respect to the purchase for resale of fixtures (as that term is defined in the Board's Sales and Use Tax Regulations). These contractors will not be authorized to utilize their seller's permits with respect to the purchase for resale of materials.

2.

The Board should not issue seller's permits to those contractors who are merely going to consume materials in the course of carrying out their construction contracts.

Please call if you have any questions or comments with regard to this letter. Unless they qualify as retailers of the materials under Reg. 1521. DHL 7/6/01

RWL:plh
T---.L01

cc:

Mr. Glenn Bystrom
Mr. Gary Jugum
Mr. Peter Smith - DHD

Very truly yours,

Robert W. Lambert
Senior Staff Counsel