Was reprocessing a customer-supplied silicon 'test wafer' nontaxable repair or taxable fabrication?

Plain-English summary

California said reprocessing a silicon “test wafer” could be either nontaxable repair labor or taxable fabrication, depending on what “test” meant.

If the customer had already used the wafer to test other wafers or equipment, or had used it in research, the wafer was used property. Restoring it to its original condition for its original use was nontaxable repair labor.

If the customer had only tested the wafer itself and rejected it because it failed specifications, the wafer was still new. Reprocessing that customer-furnished new wafer was taxable fabrication.

Common questions

Did the name “test wafer” control?

No.

When was the work repair?

When an actually used wafer was restored for its original use.

When was it fabrication?

When a new wafer had merely failed specification testing.

Citations and references

• California Revenue and Taxation Code § 6006(b)

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/315-0305.pdf

Original ruling text

0305.0305

STATE OF CALIFORNIA

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

MEMBER
First District
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

March 24, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. M--- C--E---, Inc.
XXXX --- --- ----- ---, CA XXXXX
Re:

SR – XX-XXXXXX

Dear Mr. C---:
This is in response to your inquiry which you faxed to the Legal Unit of the Board on February 10, 1992. Included in the fax were copies of correspondence between you and the Legal Unit in which the Legal Unit concluded in its last letter that your charges for fabricating silicon wafers were taxable under Revenue and Taxation Code section 6006(b). The Legal Unit assumed that the wafers were new, i.e., had never been used by your customers, when they supplied them to your business. You state in your fax: "We have knowledge that the majority of wafers we see were originally purchased as test wafers and we are simply restoring the wafer for its original use; we [are] not fabricating the wafer in the sense that we are changing its intended purpose." If by "test wafers" you mean that your customers used these wafers to test other wafers or other property, such as electronic equipment, or used them for research prior to transferring the wafers to your business, such wafers are used, not new. If your processing of the wafers restores them to their original condition for their original use, your charges are for nontaxable repair labor. If by "test wafers" you mean that the wafers were tested by the customer and determined to be inadequate or substandard because they did not meet specifications, such wafers are new, not used. In that case, your business is performing taxable fabrication labor for property furnished by a consumer.

Mr. M--- C---

-2-

March 24, 1993
315.0305

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
bc:

--- --- District Administrator