How did California distinguish a watch repairer's use of a bezel in a repair from its separate sale of a bezel to a jeweler or watch owner?

Plain-English summary

The requester repaired watch cases on a wholesale basis for jewelers inside and outside California and made one part itself: a bezel. It said customers bought bezels at wholesale prices and that it charged them sales tax, while believing they would charge a second sales tax to their customers. Because the May 25 request did not make clear whether the business sold bezels or made and installed them during repairs, counsel analyzed both situations.

When the business replaced a bezel while repairing a watch, it consumed the bezel. Tax applied to its purchase of the bezel or, if it manufactured the part, to the raw materials used to make it. That treatment applied whether the repair was for a person inside or outside California.

The repair charge itself was not taxable because the business provided a repair service rather than selling tangible property. A jeweler that subcontracted the repair likewise did not tax its repair charge to the watch owner.

A bezel sold without installation was different. The letter treated a separate sale to either a jeweler performing the repair or the watch owner as a retail sale; the repair jeweler consumed rather than resold the part and could not issue a resale certificate.

California retail sales were taxable. A sale to an out-of-state person was exempt under Regulation 1620 when the contract required outside delivery and the business actually delivered outside California. For bezels sold rather than used in repair, the business could buy incorporated parts for resale by issuing its vendor a resale certificate under Regulation 1668.

Source and live-annotation limits

The PDF does not reproduce the May 25 request, repair or sale contracts, watches, bezels and materials, wholesale prices, invoices and charged tax, repair records, customer locations, resale certificates, shipping documents, returns, payments, audit, assessment, or later outcome. It says Regulation 1668 was enclosed, but the PDF contains no enclosure. No completed transaction is classified; the letter gives alternative rules.

The live annotation preserves the inside/outside jeweler setting and three repair, California-sale, and outside-delivery branches. It omits the ambiguous request and alternative-analysis reason, the requester's existing tax treatment and double-tax concern, full Regulation 1553(e) quote, repair-owner-versus-subcontracting explanation, jeweler's inability to issue a resale certificate, incorporated-part resale treatment, Regulation 1668 enclosure, missing records, and later-outcome gap.

What this means for you

Watch repairers, jewelers, and tax professionals

Document whether a bezel is installed as a repair part or sold separately, who owns the watch, customer and delivery location, contract-required destination, actual shipment, raw-material tax, resale certificates, and separately stated repair and part charges.

Common questions

Was an installed bezel resold to the repair customer?

No. The source treated it as consumed by the repairer.

Was the labor charge for replacing the bezel taxable?

No. The letter treated it as a repair-service charge.

Could a jeweler give a resale certificate for a separately purchased repair bezel?

No. The jeweler was also the consumer when it used the bezel in a repair.

Citations and references

• California Sales and Use Tax Regulation 1553(e), quoted
• California Sales and Use Tax Regulation 1620
• California Sales and Use Tax Regulation 1668
• May 25, 1990 request, repair and sale contracts, bezels and materials, invoices, resale certificates, delivery records, and enclosed Regulation 1668 — described or referenced but not included

Verbatim support

From the official June 21, 1990 letter:

In situations in which you repair a watch by replacing a bezel, you are a consumer of that bezel, with tax applying to your purchase of the bezel.

In either case, you are making a retail sale. You may not take a resale certificate from a jeweler who will perform repairs because the jeweler is the consumer of the bezel and is not regarded as reselling it.

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/355-0075.pdf

Original ruling text

355.0075

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-5550

June 21, 1990

Mr. J--- O. G--C--- W--- C--- Company
XXX --- ---, Suite #XXX
--- ---, CA XXXXX
Re:

SR -- XX-XXXXXX

Dear Mr. G---:
This is in response to your letter dated May 25, 1990 regarding the application of sales tax to your repairs of watches. You state that you repair watch cases on a wholesale basis for jewelers both inside and outside California. You make one part yourself, a bezel. You state that your customers buy this part from you on a wholesale basis and that you charge them sales tax although you believe that they in turn will have to charge a second sales tax from their customers on a retail basis. It is unclear whether you sell the bezels to your customers or if you repair watches for your customers by making and installing bezels onto watches. I will therefore analyze both situations. Subdivision (e) of Sales and Use Tax Regulation 1553 explains the application of tax to watch and jewelry repairers. It states: “Watch and jewelry repairmen are consumers of watch, clock and jewelry repair parts and materials such as crystals, findings, and chain links, used in repairing watches, clocks and jewelry. Tax applies with respect to the sale to them of such property. They are, however, retailers of wrist watch straps, metal bands, watches, clocks, chains, and other tangible personal property which they sell to consumers in the regular course of business, and tax applies to the gross receipts from such retail sales.” In situations in which you repair a watch by replacing a bezel, you are a consumer of that bezel, with tax applying to your purchase of the bezel. If you make the bezel yourself, tax applies to your purchase of the materials you use to make the bezel. Tax applies to your use of the bezel, or the materials used to make the bezel, whether the person for whom you perform the repairs is inside or outside California. No sales or use tax would be applicable to your charge for repairing the watch since you are not selling tangible personal property but rather are providing the service of

Mr. J--- O. G---

-2-

June 21, 1990
355.0075

repairing the watch. This applies whether you perform the repairs for the owner of the watch or for another jeweler who in turn charges the owner of the watch for repairs. In the later case, the jeweler would not charge the customer sales tax for its charges for repairs just as you would not charge tax on your charges for repairs. I assume that when you sell bezels without performing the repairs that you sell either to a person who will perform the repairs, such as a jeweler, or to the owner of the watch. In either case, you are making a retail sale. You may not take a resale certificate from a jeweler who will perform repairs because the jeweler is the consumer of the bezel and is not regarded as reselling it. Of course, that repairer should not charge sales tax on his charges for the repairs. When you sell the bezel to a person in California, your sale is subject to sales tax. When you sell a bezel to a person outside California, and your contract requires you to deliver the bezel outside California and you do so, your sale is exempt from sales tax. (Reg. 1620.) When you sell bezels (as opposed to using them in repairs), you may purchase the parts incorporated into those bezels for resale (i.e., without paying tax) by issuing your vendor a resale certificate. This is discussed in Regulation 1668, a copy of which is enclosed. In summary, it appears that sales tax applies to your business as follows: 1. You repair a watch by replacing the bezel. Tax applies to the sale to you of the bezel or the parts used to make the bezel. No tax applies to your charges for such repairs nor does tax apply to charges that a jeweler makes to his customers for repairs subcontracted to you. 2. You sell a bezel at retail to a person in California. Sales tax applies to your charges. You may purchase for resale the parts incorporated into the bezel you sell. 3. You sell a bezel to a person outside California and the contract requires you to deliver the bezel outside California and you do so. No tax applies to your sale of the bezel. You may purchase for resale the parts incorporated into the bezel you sell. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Tax Counsel
DHL:wak
2260C
Enclosure