How was a repairer's sale of repaired but unclaimed watches taxed when it had already paid tax on the incorporated repair materials?

Plain-English summary

A jewelry and watch-repair concession at a redacted Marine Base asked about proposed sales of repaired customer items that had never been picked up or paid for. It had paid sales tax when buying all repair materials and proposed prices based on actual material cost plus labor.

The letter taxed the full gross receipts from those sales. In the sale to a new buyer, the business acted as a retailer of the watch rather than as a repairer providing services on property the buyer already owned.

The business could deduct the tax-paid purchase price of repair materials incorporated into the sold watches on line 12 of its return as “tax-paid purchases resold” under former Ruling 71.

Source and live-annotation limits

The letter does not reproduce the June 26 request, concession agreement, repair authorizations, customer and item identities, abandonment or ownership evidence, notices, legal authority to sell unclaimed property, material invoices and tax, price calculations, return, completed sales, audit, assessment, or later outcome. It says Ruling 71 was enclosed, but the PDF contains no enclosure. No numbered statute, regulation, case, or other authority is cited.

The live annotation preserves only the taxable sale of repaired unclaimed watches and the tax-paid-purchases-resold deduction for incorporated repair materials. It omits the concession and Marine Base, proposed-sale posture, items never picked up or paid, materials-plus-labor price, full-gross-receipts rule, retailer-versus-repairer reasoning, line 12, June 26 request, missing enclosure and records, and unclaimed-property-law limit.

What this means for you

Repair shops and tax professionals

Separate legal authority to dispose of an unclaimed item from tax on a later sale. Retain repair authorizations, customer notices, ownership records, material invoices and tax, sale price, incorporated-part details, and return deductions.

Common questions

Could labor be excluded from the selling price?

No. The full receipts were taxable in the retail sale described.

Why was this not treated as a repair service?

The new buyer acquired property in the watch rather than repairs to a watch the buyer already owned.

What deduction was allowed?

The tax-paid purchase price of repair materials incorporated into the sold items, reported on the return line identified in the historical letter.

Citations and references

• Former California Sales and Use Tax Ruling 71 — cited and listed as enclosed but not reproduced
• June 26, 1964 request, repaired items, customer and ownership records, material purchases, proposed prices, return, and sales records — described or referenced but not included
• No numbered statute, regulation, case, or other legal authority is cited in the opinion

Verbatim support

From the official July 29, 1964 letter:

In our opinion, these sales are subject to tax measured by the full amount of the gross receipts you receive.

You will be considered as a retailer of the watches since the buyers are receiving property in the watches and not merely repair services for watches which they already own.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/355-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/355-0060.pdf

Original ruling text

355.0060

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 29, 1964

"R"
This is in reply to your letter of June 26 in which you inquire about the application of the sales tax to certain sales you propose to make in connection with your jewelry and watch repair concession at “T” Marine Base. As we understand the situation, you propose to sell a number of items which you have repaired for your customers but which have never been picked up or paid for. You paid the sales tax on all the repair materials at the time of their purchase. You will sell the repaired items on the basis of actual cost of materials plus your labor, and you question whether you should charge tax on these sales. In our opinion, these sales are subject to tax measured by the full amount of the gross receipts you receive. You will, however, be entitled to a deduction, on line 12 of your return, in the amount of your tax-paid purchase price of the repair materials. In these particular transactions, you will not be regarded as a repairer of the items you will sell. You will be considered as a retailer of the watches since the buyers are receiving property in the watches and not merely repair services for watches which they already own. Consequently, the purchase price of the materials which are resold is allowable as a deduction entitled "tax-paid purchases resold" (see Ruling 71, copy enclosed). If you have any further questions, please do not hesitate in writing to us again.

Very truly yours,

E. H. Stetson
Tax Counsel

By Philip R. Dougherty

PRD:dse [lb]