Is a charge for bending steel mesh taxable when an affiliate supplies the mesh?

Plain-English summary

The December 29, 1988 letter answered a November 8 request that the Board received on December 22. An affiliated company had purchased steel mesh and delivered it to the requester for bending by machine. The question was whether the requester's charge to the affiliate was taxable.

Section 6006 defined a sale to include producing, fabricating, or processing tangible property for consideration for a consumer who directly or indirectly furnishes the material. Bending the steel mesh was fabrication, but that classification alone did not decide the charge.

The fabricator's charge to its affiliated company was not taxable if the affiliate sold the mesh in the regular course of business, because the work was then performed for a reseller rather than a consumer.

The charge was taxable if the affiliate was a construction contractor that furnished and installed the bent mesh. Under Regulation 1521, that contractor consumed the mesh it furnished and installed.

Source and live-annotation limits

The opinion offers alternative answers but does not say which role the affiliate actually had or whether a transaction occurred. It does not reproduce the request, affiliate records, mesh purchase and delivery documents, specifications, fabrication charge or invoice, resale evidence, construction contract, installation records, tax return, audit, assessment, payment, or later outcome. The listed Regulation 1521 enclosure also is absent.

The live annotation preserves only the construction-contractor branch and identifies section 6006(b). It omits the affiliate, customer-furnished material and machine, regular-course resale branch, consumer limitation, conditional posture, request and receipt dates, absent regulation enclosure, and missing transaction records.

What this means for you

Fabricators, affiliates, contractors, and tax professionals

Document who buys and owns the mesh, whether the customer resells it, whether a construction contract requires that customer to furnish and install it, and the fabrication charge. The customer's role as reseller or consumer changed the result here.

Common questions

Was bending steel mesh fabrication?

Yes.

Was every bending charge taxable?

No. The letter treated the charge as nontaxable when the affiliate sold the mesh in its regular business.

When was the charge taxable?

When the affiliate was a construction contractor that furnished and installed the mesh and therefore consumed it under Regulation 1521.

Citations and references

• California Revenue and Taxation Code section 6006, with subdivision (b) identified in the live annotation
• California Sales and Use Tax Regulation 1521
• November 8, 1988 request, affiliate purchase and transfer records, fabrication charges, resale records, construction contracts, and enclosed Regulation 1521 — described or referenced but not included

Verbatim support

From the official December 29, 1988 letter:

The bending of steel mesh constitutes fabrication labor of the type described under Section 6006. However, it does not follow that the charges in question are subject to tax.

If your affiliate company is a construction contractor which will furnish and install the bent steel mesh pursuant to a construction contract, then the charge made to the affiliate company is taxable because construction contractors are consumers of steel mesh which they furnish and install (see our Regulation 1521, “Construction Contractors," copy enclosed for your reference).

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/345-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/345-0005.pdf

Original ruling text

345.0005

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-3723

December 29, 1988

This is in reply to your letter of November 8, 1988, which was received in this office on December 22. You inquire as to the California sales and use tax consequences of a certain transaction as follows: Your affiliate company delivers to you --- steel mesh (purchased by them) to be bent using a bending machine. The question is whether charges made by you to your affiliate company are subject to tax. Revenue and Taxation Code Section 6006 defines ·sale· to include ·the producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing, or imprinting.· (Emphasis added.) The bending of steel mesh constitutes fabrication labor of the type described under Section 6006. However, it does not follow that the charges in question are subject to tax. If the affiliate company sells the steel mesh in the regular course of its business, then your charges to the affiliate company are-not taxable, because ·sale" in this' context includes only fabrication labor done for consumers, not fabrication labor done for persons who will resell the property. If your affiliate company is a construction contractor which will furnish and install the bent steel mesh pursuant to a construction contract, then the charge made to the affiliate company is taxable because construction contractors are consumers of steel mesh which they furnish and install (see our Regulation 1521, “Construction Contractors," copy enclosed for your reference). If you have further questions on this matter, we suggest that you call the undersigned directly at (916) 445-3723, in order that further delay may be avoided.

Very truly yours,
Gary J. Jugum
Assistant Chief Counsel
GJJ:jb
Enclosure