Was a drilling-tool repairer the consumer of hard-surfacing material used to retip worn tools?

Plain-English summary

Oil-well drilling tools were retipped by welding hard-surfacing material onto their worn surfaces. The material did not remain a separately identifiable part.

California treated the repairer as the consumer when material cost averaged roughly ten percent of the total customer charge. The memorandum accepted that average rather than requiring separation of individual jobs above and below ten percent, even though some jobs used material worth as much as twenty percent.

Common questions

Was the welded material treated as a separately sold part?

No.

What average did the source assume?

Roughly ten percent of the total charge.

Did every individual job use ten percent or less?

No. The source said some could reach twenty percent.

Citations and references

• Historical Ruling 26 (predecessor to California Code of Regulations, title 18, Regulation 1546)

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/315-0820.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Fresno – Tax Administrator

From:

Headquarters – Sales Tax Counsel (JDP)

Subject:

Application of Ruling 26 to Bit Retipping

315.0820

Date:

Sacramento
August 9, 1957

In your memorandum of August 2 you inquire regarding the application of Ruling 26 to the process of retipping oil well drilling tools. From the information contained in your letter, the percentage of material used in retipping the tools varies from a very minor percentage up to 20%. It is our understanding that the hard surfacing material is applied to the surface of the tool by welding process and is not a separately identifiable part attached to the tip of the tool. It is our opinion that where the cost of the material to the repairer is roughly 10% of the total charge to the customer, the repairman is the consumer of the material used although a particular bit may require more than this amount of material for retipping. We believe the average should be used rather than requiring the repairman to segregate the transactions which require over 10% of material from the ones requiring 10% or less. This opinion is based on the assumption that the average amount of material used will approximate 10% of the total charge to the customer. Jack D. Paulson

JDP:rc