Which items in an autobody shop's miscellaneous-materials charge were taxable sales to customers rather than supplies consumed by the shop?

Plain-English summary

An absent January 16, 1997 audit memorandum and reported staff telephone conversation described a redacted body shop's hourly miscellaneous-materials charge, rented shop rags, tax-paid supply purchases, tax collected from customers, installed items, and items bought for resale. The request, call record, invoices, title terms, trucks, repairs, hours, charges, purchases, rentals, and actual transactions are not reproduced.

California separated property physically transferred with a repaired truck from supplies the body shop consumed while doing the work.

Lubricants, adhesives, nuts, and bolts actually installed on the customer's vehicle were sold to the customer when the shop separately itemized them. Those items were subject to sales tax, and the shop could buy them for resale or use the cited tax-paid-purchases-resold deduction when applicable.

Shop rags, paper products, abrasives, cleaners, masking tape, and masking paper were ordinarily used by the shop rather than transferred to the customer. Expressly assuming the invoice did not pass title before use, the shop was the consumer and owed tax on its purchase or use of those supplies. Charging the customer an amount represented as sales tax on consumed supplies created excess tax reimbursement.

Counsel said possession probably transferred when the customer picked up the repaired vehicle; the source supplies no invoice or pickup record. Its first page is dated February 21, 1997, while continuation headers say January 31. The live Annotation 315.0207.150 publishes the item classification and limited-reimbursement result but omits the assumptions, audit provenance, numbered authorities, cited prior annotation, date conflict, missing records, and any later outcome.

Common questions

Were installed nuts, bolts, adhesives, and lubricants taxable?

Yes, when physically transferred and separately charged as part of the repair.

Were rags, cleaners, abrasives, and masking materials sold to the customer?

Not under the assumed invoices. The shop consumed them.

Could the shop charge sales-tax reimbursement on consumed supplies?

No. The source treated that collection as excess tax reimbursement.

Citations and references

• California Revenue and Taxation Code section 6051 — retailer gross-receipts tax; complete text, definitions, measures, exemptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6201 and 6401 — use tax on California storage, use, or consumption when sales tax does not apply; complete text, measures, credits, exemptions, amendments, later history, and current law not supplied
• Board Regulation 1546(b)(1) — repairer retailer/consumer threshold and separate-charge rules; complete text, valuation, allocation, invoice, exceptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6006(a) and California Uniform Commercial Code section 2401 — title-or-possession sale and physical-delivery title rule; complete text, contract rules, exceptions, amendments, later history, and current law not supplied
• Board Regulations 1700 and 1701 — excess reimbursement and tax-paid-purchases-resold deduction; complete text, remedies, deduction, proof, timing, exceptions, amendments, later history, and current law not supplied
• January 16, 1997 memorandum and staff call with T--- M--- — request, call record, taxpayer details, invoices, title clauses, trucks, repairs, hours, charges, purchases, rentals, transfers, and transactions not reproduced
• February 21, 1997 Tax Counsel Warren Astleford memorandum — continuation headers print January 31, 1997; no reply, invoice, return, refund, adjustment, assessment, appeal, or later outcome supplied
• Annotation 315.0030 (May 26, 1977) — quoted in part with source-printed “body ship”; complete annotation and supporting opinion not reproduced
• Official Annotation 315.0207.150's shop, item classes, title clause, hourly charge, reimbursement and date rules — annotation omits provenance, account, tax facts, threshold, assumptions, timing, authorities, date conflict, 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/315-0207-150.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum
315.0207.150

To:

Mr. J. W. Cornelius, Supervisor
Audit Evaluation and Planning

From:

Warren Astleford
Tax Counsel

Subject:

S--- C--- P--Account No. SY -- XX-XXXXXX

Date: February 21, 1997

This is in response to your January 16, 1997 memorandum to Mr. David Levine asking how tax applies on lump sum charges made by a body and paint shop for miscellaneous materials both installed and consumed in the course of performing repair work. You provide the following summary of the taxpayer’s operations: “[T]he taxpayer purchases materials which are not installed during repair operations and pays sales tax reimbursement on the purchase thereof. The taxpayer includes a miscellaneous materials charge on customer invoices for such materials and collects tax thereon. The miscellaneous materials charge is based on an hourly labor rate and represents the use of rented shop rags, small amounts of lubricants, adhesives, paper products, abrasives, cleaners, masking tape, masking paper, and other materials during repairs. In a telephone conversation with a member of my staff, Mr. T--- M--- further explained that certain items such as lubricants, adhesives, and nuts and bolts, are installed on trucks during repair operations and included in the miscellaneous materials charge. The taxpayer purchases the lubricants, adhesives, and nuts and bolts for resale.” Discussion Sales tax is imposed on a retailer’s gross receipts from the retail sale of tangible personal property inside this state unless an exemption otherwise applies. (Rev. & Tax. Code § 6051.) When sales tax does not apply, use tax is imposed on the sales price of property purchased from a retailer for the storage, use, or consumption of property inside this state. (Rev. & Tax. Code §§ 6201, 6401.) A person performing repairs is the retailer of parts and materials furnished with the repair where the retail value of the parts and materials is more than ten

Mr. J. W. Cornelius

2

January 31, 1997
315.0207.150

percent of the total charge, or where the repairer makes a separate charge for the property. (Reg 1546(b)(1).) A repairer is the consumer of such property where the retail value of the parts and materials is ten percent or less of the total charge and no separate charge is made for the property. (Id.) We understand that the taxpayer makes a separate charge for parts and materials on customer invoices as part of its truck repair services. Pursuant to Regulation 1546, tax applies on the retail value of the parts and materials it furnishes to its customers. The key to this case, however, is determining whether (and what) the taxpayer actually sells to its customer and what (if anything) the taxpayer consumes in the course of providing its repairs. The taxpayer must report and pay sales tax on its sales of parts and materials to customers. A charge that is not for the sale of tangible personal property is not subject to tax. If the taxpayer consumes any parts and materials in performing repairs rather than selling them, sales tax applies on the sale of that property to the taxpayer or use tax applies on the purchase price of such property. The taxpayer is collecting excess tax reimbursement to the extent it collects an amount as “sales tax” for materials that it consumes in the course of providing repairs or does not otherwise sell to its customers. (See Reg. 1700.) As relevant here, a sale contemplates the transfer of title or possession to tangible personal property for a consideration. (Rev. & Tax. Code § 6006(a).) Title to tangible personal property passes no later than the time a taxpayer completes its responsibilities with respect to physical delivery of that property. (Cal. U. Com. Code § 2401.) Under the taxpayer’s circumstances, a sale occurs when it transfers physical possession of tangible personal property which was separately itemized on that customer’s repair invoice. The transfer of possession of this property probably occurs at the time a customer picks up its vehicle after completion of the repairs by the taxpayer. The taxpayer appears to transfer possession to only some of the tangible personal property listed above. Items such as lubricants, adhesives, nuts and bolts which are actually installed on to a customer’s vehicle are sold to that customer since physical possession of these items is transferred to the customer and the taxpayer separately itemizes its charges for these items. Tax applies on the sale of these items and the taxpayer may purchase this property for resale. (The taxpayer may alternately take a tax-paid purchases resold deduction pursuant to Regulation 1701 where it previously paid tax or tax reimbursement when purchasing the property it resells to its customers.) Physical possession to the remaining items such as shop rags, paper products, abrasives, cleaners, masking tape and paper does not appear to be transferred to the customer. These items are instead used (and not sold) by the taxpayer in performing the repairs and body work provided there is no provision in the taxpayer’s invoice passing title to these items to the customer prior to any use. (We assume there is no such title passage clause in the taxpayer’s invoices for purposes of this opinion.) The taxpayer must selfreport use tax on these items if tax was not reported and paid to the Board on the sale of these items to the taxpayer.

Mr. J. W. Cornelius

3

January 31, 1997
315.0207.150

Based on the above analysis, we agree with your conclusion that the taxpayer may only collect sales tax reimbursement on that portion of its charge which represents the sale of parts and materials actually installed on repaired trucks. A portion of Annotation 315.0030 (5/26/77) is consistent with this position: “Items purchased and used by the body shops such as masking tape, thinner and the like are not regarded by the Board as items sold by the repairer and, accordingly, the repair shop should not charge tax to its customers. As a consumer of such materials, the body ship is guilty of a misdemeanor under the Sales and Use Tax Law when ‘tax’ or ‘tax reimbursement’ is charged to the customers. Such charges will be regarded as excess tax reimbursement and will have to be refunded to the customers or they will be retained by the Board. “....” If you have any further questions, please write again.

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