Could a cabinet retailer exclude installation labor from taxable gross receipts without separately stating it?

Plain-English summary

An absent November 20, 1991 request said a cabinet business worked as both contractor and subcontractor, included sales tax in subcontracting bids but not contractor bids, and did not separately list installation on bids or invoices. The full request, other referenced bid forms, contracts, invoices, cabinet facts, installation records, and actual transactions are not reproduced.

Expressly assuming the installed cabinets were fixtures and the seller-installer was their retailer rather than a construction-material consumer, California said the price received for installation labor was excluded from taxable gross receipts. The exclusion applied even if the bid, contract, or invoice did not separately state installation, and it applied whether the business acted as contractor or subcontractor.

The opinion nevertheless recommended separately listing installation charges to simplify an audit. Whether separately stated or not, the business had to keep adequate records showing that the excluded amounts actually represented nontaxable installation labor.

The source also warned that a bid saying tax was “excluded” could be ambiguous. Sales tax was imposed on the retailer, while tax reimbursement could be added to the buyer's price by agreement; the seller might therefore clarify that tax would be added to the invoice.

The live Annotation 315.0123 publishes only the cabinet-installation exclusion. It omits the threshold fixture and retailer assumptions, recordkeeping duty, audit recommendation, bid and reimbursement warning, enclosures, missing records, and any later outcome.

Common questions

Did installation labor have to be separately stated to be excluded?

No.

Could the seller exclude an unsupported estimate?

No. It needed adequate records proving the installation amount.

Did the opinion decide whether every cabinet is a fixture?

No. It expressly assumed fixture treatment.

Citations and references

• California Revenue and Taxation Code section 6051 — gross-receipts measure and retailer liability; complete text, definitions, measures, exceptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6012(c)(3) and Board Regulation 1546(a), “Installing, Repairing, Reconditioning in General” — installation exclusion; complete text, allocation and proof rules, exceptions, amendments, later history, and current law not supplied
• Board Regulation 1521(c)(2), “Construction Contracts” — cabinet-fixture and material-versus-fixture rules; enclosed copy, complete text, classification facts, exceptions, amendments, later history, and current law not supplied
• California Civil Code section 1656.1 and Revenue and Taxation Code section 6051 — sales-tax reimbursement by agreement; complete text, requirements, presumptions, exceptions, amendments, later history, and current law not supplied
• November 20, 1991 request — request, other referenced bid forms, contracts, invoices, cabinet specifications, classifications, installation records, costs, reimbursements, and transactions not reproduced
• January 23, 1992 Tax Counsel Elizabeth Abreu letter — no reply, clarified bid, enclosures, contract, invoice, records, audit, assessment, payment, refund claim, appeal, or later outcome supplied
• Official Annotation 315.0123's cabinet contract, installation exclusion, no-separate-statement rule, authority, and date — annotation omits the assumptions, broader facts, proof duty, recommendation, reimbursement warning, enclosures, missing 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/315-0123.pdf

Original ruling text

315.0123

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

January 23, 1992

Mr. K--- M--K--- M--- & Associates, Inc.
XXXX --- Way
--- ---, California XXXXX
Re:

Application of Sales Tax to Installation Costs

Dear Mr. M---:
Your letter dated November 20, 1991, to the Board of Equalization has been referred to me for a response. In your letter you state that you sell and install cabinets as a contractor and subcontractor. You include sales tax in your bids for subcontracting work but not in your bids for your work as a contractor. You do not separately list installation charges in any of your bids or invoices. You ask whether you should include the cost of installation in the measure of sales tax. In answering your letter we are assuming that the cabinets you sell are fixtures and therefore your sales are taxable because you are the retailer, not the consumer, of the cabinets. Sales and Use Tax Regulation 1521(c)(2), entitled “Construction Contracts,” explains when a cabinet is considered a fixture. This regulation (a copy of which is enclosed) further explains other rules applicable to construction contracts, including the difference in application of tax between materials and fixtures. Sales tax is measured by the gross receipts from the retail sale of tangible personal property. Rev. & Tax. Code § 6051. “Gross receipts” do not include the price received for labor or services used in installing or applying the property sold. Rev. & Tax. Code § 6012(c)(3) and Sales and Use Tax Regulation 1546(a), “Installing, Repairing, Reconditioning in General.” Under the statute and the regulation, installation charges are excluded from the measure of tax even though they are not separately stated in a bid, contract, or invoice. And such charges are excludible whether you are the contractor or subcontractor. As a matter of practice, however, we recommend that you list installation charges separately in such documents. If your business is audited, the audit will be easier and less time consuming for you if such charges are stated separately. Whether you separately state such charges or not, though, you must maintain adequate records to show that any amounts you exclude from the measure of sale tax on this basis represent nontaxable installation charges.

Mr. K--- M---

-2-

January 23, 1992
315.0123

We note for your information one concern about your bids. You state that your third type of bid provides: “TOTAL PRICE DELIVERED INCLUDING INSTALLATION, EXCLUDING TAX - - $XXXXXXXXXXX.” Sales tax is imposed upon the retailer, not the buyer, but the retailer may add sales tax reimbursement to the sales price by the terms of agreement of sale. Rev. & Tax Code § 6051 and Civ. Code § 1656.1. Your bid is ambiguous and could be construed to mean that you are not charging the buyer sales tax reimbursement. You may wish to clarify your bid by stating that the bid amount excludes tax but tax will be added to the invoice. We are enclosing a copy of Regulation 1546 for your information. If you have further questions regarding sales and use tax law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel

EA:cl
0552E
Enclosures