Was a repairer's purchase of new goods to replace customer property destroyed by fire a purchase for resale?

Plain-English summary

A fire at a repairer's plant destroyed customer-owned merchandise that was awaiting or undergoing repair. The repairer planned to buy new merchandise and give it to the customers without charge as replacement.

California treated the repairer as the consumer of those replacement goods because no resale occurred. The sale to the repairer was therefore taxable. If the repairer bought the replacements ex tax under a resale certificate, it had to report their cost as consumed goods on its own return.

The letter cites no numbered statute or regulation and directs ex-tax replacement cost to Line 2 without supplying the return form. No fire, insurance, replacement, certificate, return, audit, or later outcome record is included. The live annotation omits the named company, Los Angeles plant, no-cost fact, and Line 2 instruction.

Common questions

Was the replacement purchase for resale?

No.

Did giving the goods to customers without charge matter?

Yes. The source concluded no resale occurred.

What if the goods were bought under a resale certificate?

The repairer had to report their cost as consumed.

Citations and references

• Unnumbered sales-tax and retail-sale rules — partly quoted for tax on retail sales and retail sale as sale for a purpose other than resale; complete authority, definitions, versions, exemptions, amendments, and later history not identified or reproduced
• Unnumbered Line 2 cost-reporting instruction for ex-tax replacement purchases — return form, instruction, period, computation, filing, version, amendment, and later history not identified or reproduced
• April 20 California Electric Service request — year, copy, addressee, account number, fire, property, customer, repair, insurance, reimbursement, purchase, certificate, and transaction records not reproduced
• July 27, 1953 Junior Counsel Bill Holden letter — no replies, replacement, certificate, return, payment, audit, assessment, refund claim, appeal, or later outcome supplied; copy sent to San Francisco Auditing
• Official Annotation 315.0060's loss, repairer, merchandise, replacement, taxable sale, consumer, certificate, reporting, and July 27, 1953 rules — annotation omits request provenance, named company, location, repair status, no-cost fact, Line 2, missing authority and records, later outcome, and reliance status and supplies no additional record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/315-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/315-0060.pdf

Original ruling text

315.0060

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 27, 1953

California Electric Service, Inc.
168 First Street
San Francisco 5, California
Your letter of April 20
Account No.

Attention: Mr.
Gentlemen:

You suffered a fire at your Los Angeles plant and a large quantity of customer owned merchandise was destroyed. The merchandise was waiting for and in the course of repair by you. You intend to purchase new merchandise to replace that which was lost. These replacements will be made without cost to your customers. The sales tax applies "to retail sales. A retail sale is defined as a sale for any purpose other than resale. Since you will not resell the replacement merchandise, the sale of such merchandise to you is a retail sale and therefore is subject to the tax. If you purchase such merchandise ex tax under a resale certificate, you should report its cost on Line 2 of your own sales and use tax return.

Yours very truly,

Bill Holden
Junior Counsel
BH: ja
cc: San Francisco - Auditing