Did connecting a tax-paid water-softener tank to installed home plumbing with temporary slip fittings change its form and make monthly charges taxable?

Plain-English summary

After an undocumented July 1 discussion, the Board restated a “typical” situation for unidentified water-softener dealers and their association. A dealer bought a fully assembled tank and pipe, fittings and valves with sales-tax reimbursement or purchase-price use tax paid.

At a homeowner's house, the dealer attached plumbing to divert softened water to selected outlets and connected the tank with two slip fittings releasable in seconds. About monthly, the dealer replaced it with another tank containing treated minerals. The removed tank returned to the dealer, where its minerals were restored before later reuse as a replacement. The homeowner paid monthly.

The Board had previously concluded that tank and attached plumbing formed one unit. On the facts as newly understood, it instead treated the tank as separable and unchanged. Three points mattered: very temporary attachment, intended removal after a short time and the tank's independent performance of the water-softening function.

Section 6006(g)(5)'s historical tax-paid same-form exclusion therefore removed the monthly tank charges from tax. The dealer was treated as consumer of both tank and plumbing items.

The letter says other questions raised in the discussion by the recipient and association members did not receive favorable answers, but does not identify them. The discussion, participants, prior contrary conclusion, other questions, purchases and tax, installation/replacement records, charges, returns, audit and later outcome are absent.

The first page and live Annotation 330.4190 say July 7, 1970; the continuation header says July 7, 1990. The official sources do not resolve the conflict, so the first-page/live date controls. The live entry also omits the prior one-unit conclusion and unfavorable treatment of the undisclosed other questions.

Common questions

Did connecting the tank to house plumbing create one transformed unit?

Not on the newly understood facts. The temporary slip connections, short replacement cycle and tank's independent function kept it separate.

How often was the tank expected to be removed?

Approximately monthly for replacement and mineral treatment.

Were the monthly homeowner charges taxable?

No under the stated tax-paid, same-form facts.

Who was treated as the consumer of the equipment?

The dealer, for both the tank and the plumbing items.

Had the Board always viewed the tank as separate?

No. The letter says it previously treated tank and plumbing as one unit, but that prior conclusion is absent.

What other association questions were decided?

The letter says they did not receive favorable answers but does not disclose the questions.

Was the letter dated 1970 or 1990?

Its first page and live annotation say 1970; only the continuation header says 1990, without explanation.

Citations and references

• Historical California Revenue and Taxation Code section 6006(g)(5) — tax-paid same-form lease exclusion
• Unidentified prior Board conclusion — tank and plumbing previously treated as one unit; source absent
• Live Annotation 330.4190 — July 7, 1970 same-form result
• Discussion/parties, prior view, other questions, transactions, returns/audit and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.4190
• Original supporting opinion: 330.4190 PDF

Original ruling text

STATE OF CALIFORNIA

330.4190

STATE BOARD OF EQUALIZATION

July 7, 1970

--- --- ----- --- ----- --- --Gentlemen:
Pursuant to our discussion on July 1, we have given further consideration to the question of whether or not a transaction in which a water softener tank and plumbing fittings, pipe, etc., are furnished to a customer constitutes a lease of property in substantially the same form as acquired by the lessor. We understand that a typical situation is as follows: A water softener dealer purchases a fully assembled water softener tank, paying sales tax reimbursement or use tax measured by the purchase price. He also purchases plumbing items such as pipe, fittings and valves, paying sales tax reimbursement or use tax measured by the purchase price of those items. He attaches the plumbing items to the plumbing system of the house of a homeowner customer in a manner designed to divert soft water from the tank into the desired outlets in the house. He then installs the tank, connecting it to the plumbing by means of two slip connections. The slip connections can easily be released in a few seconds. Approximately once a month the tank is replaced by the dealer with another tank containing minerals treated in a manner to effectively soften water. The tank which is removed is returned to the dealer’s place of business where the minerals are treated to restore their effectiveness and that tank later serves as a replacement. The dealer makes a monthly charge to the homeowner. Section 6006(g)(5) of the Revenue and Taxation Code excludes from the definition of “sale”, and thus from tax on rentals, those leases of property acquired tax paid and leased in substantially the same form as acquired. We have previously concluded that a tank leased together with the plumbing items attached to the homeowner’s plumbing system was part of an entire unit consisting of the plumbing items and the tank. Based on the facts as we now understand them, it is our opinion that the tank is separable from the plumbing items and that its form should not be regarded as changed by reason of its attachment to those items. The facts which are of particular significance in reaching this conclusion are that the tank is connected to the plumbing in a very temporary manner, is intended to be removed in a relatively short time, and is a unit which in itself performs the function of softening the water. Accordingly, we believe that the monthly charges are not subject to tax because the tank is leased in substantially the same form as acquired, tax paid, by the dealer. The dealer will be regarded as the consumer of the tank as well as the plumbing items.

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July 7, 1990
330.4190

We cannot give you a favorable response to other questions which were raised by you and the members of your association in the course of our discussion, but it is our understanding that the conclusion we have expressed in this letter will reduce your problems to a considerable extent. Very truly yours,

T.P. Putnam
Assistant Chief Counsel

TPP:kc [lb]