Was platinum catalyst taxable when used at an out-of-state refinery for six months before two years of California use under a preplanned schedule?

Plain-English summary

Board staff asked whether fresh platinum catalyst and its platinum content became subject to California use tax when a refiner used them at an out-of-state refinery for six months and then moved them to a California refinery for another two years. The planned sequence existed when the catalyst was purchased.

The memorandum answered no. It also answered yes to the reverse scenario: fresh catalyst acquired for use at a California refinery for six months and then moved to an out-of-state refinery for two years.

The source does not give a separate explanation for those two short answers. Its remaining analysis addresses different issues involving commingled platinum pools, tax-paid and ex-tax fungible goods, exchanges, salvage and recovery charges, catalyst and platinum leases, later title passage, and valuation. Those broader discussions should not be treated as an unstated rationale for the annotated result.

The annotated questions were numbers 9 and 10 among fifteen numbered groups compiled from district memoranda and earlier guidance. The underlying request chain runs from November 1970 through April 1971; none of those letters, transmittals, reports, contracts, pool accounts, or refinery records is reproduced.

The live annotation repeats the two answers but adds no authority or transaction record. No quantity, purchase price, tax calculation, audit decision, or later outcome is supplied for either six-month/two-year sequence.

Common questions

Did the memo explain why the outside-first sequence was not taxed?

No. Question 9 states the intended six-month outside and two-year California sequence and the answer is only “No.” No statute, regulation, case, factual finding, or calculation is attached to that answer.

Did it explain the reverse-sequence “Yes”?

No. Question 10 calls the California-first purchase a “use tax acquisition” and receives only “Yes.” The amount, timing, and authority remain unstated.

Can the commingled-pool analysis supply the missing reason?

Not safely. Those portions concern separate facts: tax-paid and ex-tax platinum pools, quantities, exchanges, salvage, recovery, leases, later title, and valuation. The source does not connect that analysis to questions 9 or 10.

What authorities appear elsewhere in the memorandum?

Sections 6095, 6245, 6006(a), and 6006(b), Regulation 1641, Union Oil, Standard Oil, and multiple prior staff memoranda. They support other numbered questions, not an expressed rationale for the annotated pair.

Is there a final applied tax result?

No. The source supplies no identified taxpayer transaction under questions 9 or 10, quantity, purchase price, tax computation, audit, assessment, claim, appeal, or later outcome.

Citations and references

• California Revenue and Taxation Code sections 6095 and 6245, an April 7 memorandum, and Union Oil Co. v. Johnson, 58 Cal.App.2d 636 — cited for broader commingled-pool questions; complete authorities, records, procedures, histories, later treatment, and current law not supplied
• California Revenue and Taxation Code sections 6006(a) and (b), Regulation 1641, and Standard Oil Co. v. State Board of Equalization, 232 Cal.App.2d 91 — cited for broader sale, fabrication, lease, and security questions; complete authorities, records, procedures, histories, later treatment, and current law not supplied
• 1970–1971 guidance, memoranda, transmittals, and April 12 response — no underlying writings, transaction or refinery records, applied tax computations, audits, assessments, claims, appeals, or later outcomes supplied
• Official Annotation 325.0089's historical pair and date — supplies no rationale and omits the provenance, broader structure and authorities, missing records, applied outcomes, and reliance status and supplies no additional catalyst 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/325-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0089.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Robert Nunes

From:

Gary J. Jugum

Subject:

Platinum Catalyst

325.0089

Date:

April 12, 1971

This is in response to your memorandum of March 3, 1971, to Mr. T. P. Putnam by which you forwarded to us a number of questions concerning the application of the principles set forth in your letter of November 5, 1970, to Mr. D--- B. S---, Chairman, Excise Tax Committee, W---.

I.

Responses to your memorandum of January 19, 1971:
Los Angeles (Transmittal of February 15, 1971)
[1]
“[S] Co. has not reported any use tax on purchases of new platinum metal since September 30, 1964. [S]’s contention is that the platinum used in California comes from a “commingled” mass of platinum maintained at [U] O--- Company
[U]. The “commingled” mass consists of both new and used platinum recovered from spent catalyst returned by their several refineries in this country. [S]’s theory is that so long as the quantity of used or recovered platinum on hand at [U] exceeds their California requirement at the time a California refinery draws from the “commingled” mass, no California tax is due.” [Memorandum from J. K. G--to Mr. S. S. T---, February 5, 1971.]

See our memorandum of April 7, 1971, to Mr. Donald F. Brady, re “Platinum Catalyst – S--- O--- Corporate Pool/[SO]” where we take the position that where a commingled mass of fungible goods, part “California tax paid” and part “ex California tax,” is maintained by a taxpayer outside this state, taxpayer may bring into this state, for use here, without payment of additional California tax, an amount of the goods equivalent to the amount of California tax-paid goods maintained in the commingled mass at the time withdrawal is made--a “tax-paid-first-out” principle with respect to withdrawals made by taxpayer for use in this state. We think that this position is consistent with the principle of sections 6245 and 6095 of the Revenue and Taxation Code. Additionally, by virtue of the fact that California tax has been paid on a part of the commingled mass of goods, that part has already been identified as having been purchased by taxpayer for use in this state.

Mr. Robert Nunes

-2-

April 12, 1971
325.0089

[P] Co. –
[2]

“[P] would order, and [U] would ship, fresh catalyst, including the platinum and rhenium activator, the catalyst would be leased at the regular monthly rate specified by contract. The platinum and rhenium activator would be leased at their respective “turnaround” charges (flat dollar amounts per troy ounce for 35 days). “Upon receipt of the fresh catalyst, [P] would ship to [U] the spent catalyst from its reactors. [U] would recover the rhenium from the spent catalyst and, to the extent of the amount recovered, terminate the lease of the rhenium contained in the fresh catalyst. Title to the recovered rhenium would transfer to [U] Title to the rhenium content of the fresh catalyst would transfer to [P]. Since [P] now leases all its platinum requirements from [U], … no transfer of title to platinum would occur. “Would the measure of tax include the value of the rhenium component of the spent catalyst subsequently recovered by and furnished to the catalyst manufacturer by the refiner?” [Memorandum from G--- S--- to Mr. G--- G---, February 8, 1971.]

The measure of tax would include the value of the rhenium component of the spent catalyst subsequently recovered by and furnished to the catalyst manufacturer by the refiner, as described in example (3) of Mr. Nunes’ letter of November 5, 1970. San Francisco (Transmittal of February 1, 1971) SO –
[3]

“What is the measure of tax when noble metal is exchanged? Cost? Producer’s price? Market price?”

“Sales price,” the measure of tax, includes “the total amount for which tangible personal property is sold… valued in money, whether paid in money or otherwise….” The agreements with which we are familiar provide that. “… should REFINER’S platinum stock account deficit exist ninety days after (shipment of the fresh catalyst] REFINER hereby authorizes [U] to purchase for the account of REFINER a quantity of platinum equal to REFINER’S platinum stock account deficit at the then market price of the platinum so required.” When the refiner makes up the deficit amount owed to [U], the measure is not cost but the then current market value of the platinum furnished by the refiner. Information supplemental to the contract may indicate that as between
[U] and the refiner “market price” means “producers’ price.”

Mr. Robert Nunes

[4]

-3-

April 12, 1971
325.0089

“Under fungible goods sections 6095 and 6245, how should a transfer from one mass of commingled goods to another separate mass of commingled goods be handled?”

The example given indicates a transfer from SO to A--- C--- of platinum maintained by SO, in its corporate pool, at [U] The transfer to A--- C--- should be treated in the same manner as transfers from SO to its corporate subsidiaries, as described in our memorandum of April 7, 1971, to Mr. Brady. Additionally, we think that where a commingled mass of fungible goods, part California tax paid and part ex California tax, is maintained by a taxpayer outside this state, taxpayer may transfer, to third parties, from that mass, amounts of the goods up to the amount of the ex California tax portion of the mass, without loss of the California tax-paid status of the remaining portion of the commingled mass of fungible goods--an “ex California tax first out principle” with respect to sales to third parties.
[5]

“How should we include the out-of'-state salvage charges in the measure of tax when the salvage charge may have been paid by SO or by one of the out-of-state subsidiaries of SO? Also, how should we include the salvage charge in the measure of tax when the subsequent batch of catalyst mayor may not come into California?”

Only those salvage charges connected with catalyst shipped into California are taxable. That is, with respect to each “load” of fresh catalyst shipped into this state the salvage charge made with respect to that “load” is subject to tax. Tax applies when the platinum is returned to California.

II.

Questions previously raised:
San Francisco (Memoranda of November 23, 1970, and January 11, 1971)
[6]

“How is the value ‘… of the platinum component of the spent catalyst subsequently furnished to the catalyst manufacturer…’ [as described in Mr. Nunes’ letter of November 5, 1970] to be determined? Cost? Market price? Producer's price?”

See answer to question [3] above.

Mr. Robert Nunes

[7]

-4-

April 12, 1971
325.0089

“How many ounces are subject to use tax” in the following example: “Refiner’s Platinum Account at the O/S Catalyst Manufacturer’s Plant 1-1-70 (1) 2000 oz 1-5-70 (2) 2000 oz. “1-10-70 (3) 3000 oz “(1)

Salvaged from refiner’s spent catalyst that came
from refiner’s out of state refinery wherein the
catalyst had been used for two years.

“(2)

New platinum purchased by refiner ex tax from O/S
supplier.

“(3)

Platinum content of fresh catalyst shipped to refiner
in California.

“Question:

How many oz are subject to use tax?”

One thousand five hundred ounces are subject to tax. The refiner should be regarded as having made a pro rata withdrawal from the commingled inventory. [CF. Union Oil Co. v. Johnson, 58 Cal.App.2d 636.]
[8]

“How many ounces are subject to use tax” in the following example: “Refiner’s Platinum Account at the O/S Catalyst Manufacturer’s Plant 1-1-70 (1) 2000 oz 1-5-70 (2) 2000 oz. “1-10-70 (3) 2000 oz “(1)

Salvaged from refiner’s spent catalyst that came
from refiner’s California refinery wherein the
platinum content had been California tax paid.

“(2)

New platinum purchased by refiner O/S ex tax and
shipped to catalyst manufacturer.

Mr. Robert Nunes

-5-

“(3)

April 12, 1971
325.0089

Platinum content of fresh catalyst shipped to
refiner’s California refinery.

“Question:

How many oz are subject to use tax?”

Zero ounces are subject to tax. See discussion in [1] above.
[9]

“If a refiner uses fresh platinum catalyst at one of its out-of-state refineries for six months and then ships this catalyst to a California refinery where it will be used for two years more, is the catalyst and platinum content subject to use tax assuming that it was the refiner’s intention to follow this procedure when he first purchased the catalyst?”

No.
[10]

“If a refiner uses fresh platinum catalyst (use tax acquisition) at one of its California refineries for six months and then ships this catalyst to an outof-state refinery where it will be used for two years more, is the catalyst and platinum content subject to use tax assuming that it was the refiner’s intention to follow this procedure when he first purchased the catalyst?”

Yes.
[11]

“In example (3) [of Mr. Nunes’ letter of November 23, 1970] are we interpreting the application of tax correctly to mean that when a California refiner exchanges its California tax-paid platinum with an out-of-state subsidiary refiner…that the transaction should be treated as a purchase of new ex-tax platinum from the subsidiary? … If the transaction should be treated as a purchase of new ex-tax platinum from the subsidiary, then it appears that sections 6095 and 6245 pertaining to fungible goods may be included.

In our opinion the transaction should be treated as a purchase of new ex-tax platinum. The principle of commingled fungible goods, discussed in [1] above, would then be relevant, as indicated in the following examples:

Mr. Robert Nunes

-6-

April 12, 1971
325.0089

“Refiner’s Platinum Account
at the O/S Catalyst
Manufacturer’s Plant
1-1-70 (1) 2000 oz
1-5-70 (2) 2000 oz.
“1-10-70 (3) 2000 oz
“1-15-70 (4) 2000 oz
“(1)

Salvaged from refiner’s spent catalyst that came
from refiner’s California refinery wherein the
platinum content had been California tax paid.

“(2)

Salvaged from subsidiary’s O/S refinery and
purchased by SO via exchange.

“(3)

Platinum content sold to O/S subsidiary via
exchange as described in our reports of 4-7-69 and
7-1-69.

“(4)

Platinum content of fresh catalyst shipped to refiner
in California for own use.”

Tax does not apply to platinum shipped to refiner in California for own use. This is the “ex California tax first out” principle with respect to property withdrawn for sale outside this state. “Refiner’s Platinum Account at the O/S Catalyst Manufacturer’s Plant 1-1-70 (1) 2000 oz 1-5-70 (2) 2000 oz. “1-10-70 (3) 2000 oz “1-15-70 (4) 2000 oz

“(1)

Salvaged from refiner’s spent catalyst that came
from refiner’s California refinery wherein the
platinum content had been California tax paid.

“(2)

Salvaged from subsidiary’s O/S refinery and
purchased by SO via exchange.

Mr. Robert Nunes

-7-

“(3)

Platinum content of fresh catalyst shipped to refiner
in California for own use.

“(4)

Platinum content sold to O/S subsidiary via
exchange.

April 12, 1971
325.0089

Tax does not apply to platinum shipped to California. This is the “tax paid first out” principle, with respect to withdrawals for use by taxpayer in this state. Los Angeles (Transmittal of November 18, 1970)
[12]

“In example 4 [of Mr. Nunes’ letter or November 5, 1970], title to the ‘spent’ platinum is retained by the refiner. Presumably the refiner would pay the manufacturer in full for the ‘load.’ Does this occur? It would seem unusual to tie up large amounts of capital in this manner.”
[Memorandum from J--- T. Q--- to Mr. J--- W. T---, November 17, 1970.]

This kind of transaction probably does not occur very often, but the example was added to make our explanation of our position analytically complete.
[13]

“[In example 5 of Mr. Nunes’ letter of November 5, 1970] there is a probability that occasionally new platinum is obtained by refiners from original sources. Our audit contains information that [S] obtains platinum directly from the producers. In such a case, how do we get tax?” [Ibid.]

Tax applies upon the shipment of the ex tax platinum into this state for use here. See also discussion in respect to questions [l] and [8] above.
[14]

“I am not in accord with the facts and application of tax” [as outlined in example (3) of Mr. Nunes’ letter of November 5, 1970].

“This example requires clarification. Mr. Nunes in his description of the problem and the application of the tax refers to the rental of platinum catalyst and the rental of the platinum component of the catalyst as if these were interchangeable terms. This is not correct. “Mr. Nunes also appears to imply that the catalyst manufacturer uses a ‘platinum account’ to account, by weight, for the precious metal receipts and issues only under special circumstances. It is my understanding that it is a regular business practice for these companies to maintain memorandum accounts of this nature for the oil refiners.

Mr. Robert Nunes

-8-

April 12, 1971
325.0089

"It has been our experience in this office that the only rental encountered in audits of oil companies involving this problem has been the rental of the platinum component or the catalyst.
..................................................................... “It is my understanding that, even when a rental or the platinum component is involved, the manufacturer issues a regular billing for the platinum catalyst with title passing upon shipment. Under these terms the transaction is subject to the use tax. “Since the platinum supplied by the manufacturer becomes an integral component of a finished product (platinum catalyst) upon which title passes at the shipping point, it appears to be inconsistent to accept passage of title to the platinum component at any other point. “Also, it appears from the actions of the parties involved that a sale of the platinum component is contemplated from the inception of the transaction. The language used in the contract is misleading and not in accord with the factual situation.” With respect to the question as to whether the rental of an integral component (platinum) of a finished product (platinum catalyst) is permissible under the Sales and Use Tax Law, we see no reason why such an arrangement should not be recognized in this case. According to the basic Catalyst Supply Contract of [U] with which we are familiar, “Title to catalyst, except title to platinum (in catalyst), leased by [U] to REFINER, if any, … shall pass to refiner upon delivery of such catalyst by [U] to the carrier at [U]’s point of shipment.” The contract further provides that, “Title to the used catalyst, exclusive of the platinum content thereof, shall pass to
[U] upon delivery of such catalyst by refiner to the carrier at refiner’s point of shipment.” In our opinion tax applies to the “recovery charge” and the contract “price of catalyst” (but does not include the value of the refiner-furnished platinum component) at the time the catalyst is brought into this state. The use tax is applicable with respect to these charges. Tax then applies, upon the subsequent passage of title to the platinum component of the catalyst, in the manner described in example (3) of Mr. Nunes’ letter. This tax is a sales tax. This case just considered differs factually from example (3) given in Mr. Nunes’ letter in that this case involves both a sale of tangible personal property under section 6006(a) of the Revenue and Taxation Code and a fabrication of consumer-furnished property under section 6006(b) of the code whereas the example given in Mr. Nunes’ letter involves exclusively a “fabrication” transaction under section 6006(b).

Mr. Robert Nunes

-9-

April 12, 1971
325.0089

Mr. Nunes’ letter of November 5, 1970, was intended, as suggested above, to be analytically complete. We recognize that it is a regular business practice for these companies to maintain memorandum accounts for platinum and other precious metals. Regulation 1641 “Credit Sales and Repossessions” provides that: “If tangible personal property is, for all intents and purposes, sold, but the transaction is designated as a lease or rental for the purpose of retaining title in the seller as security for payment of the purchase price, or for the purpose of avoiding the tax, the transaction is taxable [at its inception] as a sale under a security agreement.” Where, however, a transaction is structured by the parties in such a way as to bring it within the purview of the Sales and Use Tax Law, and where the agreement, if given effect as structured does not lead to tax avoidance, we have recognized the agreement as effective on its own terms. [See Standard Oil Co. v. State Board of Equalization, 232 Cal.App.2d 91.] In our opinion we should regard these transactions as true lease transactions. The parties will avoid no tax by paying tax on both the rental payments and the subsequent sale of the leased platinum to the refiner.
[15]

“I am not in accord with the facts” [as described in example (4) of Mr. Nunes' letter of November 5, 1970.]

“In order to maintain a proper balance in this account it would be necessary for the manufacturer to charge the account for the quantity of platinum shipped and credit the account for the quantity of platinum recovered from the spent catalyst returned.” We agree. However, this example is intended to illustrate the application of the tax where taxpayer pays tax on two “loads” of platinum and then continues to maintain a credit balance with the catalyst manufacturer. Subsequent transactions would then be taxed on the “net exchange” basis and not on the “trade-in” basis.

GJJ/ab