Was an out-of-state manufacturer's sale of installed heaters and air-conditioning units from a closed California laboratory occasional?

Plain-English summary

An out-of-state flight-control manufacturer maintained a California engineering laboratory and later closed it. Laboratory equipment was sold both to dealers for resale and to consumers. When assigning the premises lease, the company sold four water heaters, six air-conditioning units, and twelve gas heaters in place to the assignee.

The company argued that it did not normally sell that property type. The recommendation nevertheless found a taxable retail sale. The manufacturer sold tangible property in its regular business and had also made multiple surplus-equipment sales, making it a seller whose laboratory property was held or used in a permit-requiring activity.

Even if the laboratory were separated from the main manufacturing plant, the result was the same: the heater and air-conditioner transfer was one of at least eight used-equipment sales by the laboratory, a sufficient series to require a permit.

Petition, two alternative analyses, and source limits

Associate Tax Counsel George A. Trigueros answered a redetermination petition filed by S--- P--- Company, a division of S--- R--- Corporation, through controller G. A. O---. The current official annotation identifies the petitioner as an out-of-state manufacturer; the letter says it manufactured and sold flight-control equipment to governmental and commercial customers and maintained an engineering laboratory in California.

When the laboratory closed, its equipment was sold both to dealers for resale and to consumers at retail. The petitioner conceded tax on the consumer equipment sales. It also assigned the premises lease to U--- T--- Corporation and sold the assignee, in place in the building, four hot-water heaters, six air-conditioning units, and twelve gas heaters.

The petitioner acknowledged several used-equipment sales but argued that it did not ordinarily sell this particular property type, making the assignee transfer occasional under section 6006.5 and Sales Tax Ruling 81. Trigueros applied section 6014's seller definition and section 6006.5's rule for property held or used in a permit-requiring activity. Because the company regularly manufactured and sold tangible flight-control equipment and made multiple surplus-equipment sales, counsel treated the laboratory equipment as held or used in its selling activity.

The recommendation gave a separate ground even if the laboratory equipment was not connected to the selling activity attributed to the petitioner's out-of-state plant: the installed-property transfer was one of at least eight used-equipment sales by the California engineering laboratory. That series was sufficient in number, scope, and character to require the laboratory itself to hold a permit.

Counsel concluded that the heaters and air-conditioning units were sold at retail and recommended that the Board deny the redetermination petition. The PDF does not include the petition, manufacturer and laboratory records, lease or assignment, invoices, property or installation records, buyer records, dealer resale evidence, list of the at least eight sales, seller's permit, Sales Tax Ruling 81 text, returns, audit, assessment, payment, refund claim, Board minutes or order, redetermination, collection or refund outcome, or later appeal. It does not establish that the Board adopted the recommendation.

The live annotation preserves the out-of-state manufacturer, leased California laboratory, dealer and consumer equipment sales, lease assignment and installed property, section 6014 seller status, permit-requiring-activity and series-of-sales alternatives, taxable result, and October 1, 1964 date. It omits the petitioner and controller, flight-control products and customer groups, closed laboratory, conceded consumer-sale tax, item counts, Ruling 81, petition-denial recommendation, missing records, and absent final Board action and tax outcome.

What this means for you

Out-of-state companies closing California facilities

Facility-closeout sales can be taxable when the company or the local facility repeatedly disposes of used equipment.

Accountants and tax professionals

Count every local equipment sale, distinguish resale buyers from consumers, and review how installed items and lease assignments are documented.

Common questions

Q: What installed property was sold to the lease assignee?
A: Four water heaters, six air-conditioning units, and twelve gas heaters.

Q: Did the company concede tax on any sales?
A: Yes. It conceded tax on laboratory equipment sold to consumers.

Q: Did unusual property type make the installed-equipment sale occasional?
A: No. The company had made numerous other surplus-equipment sales.

Q: What if the laboratory were treated as a separate activity?
A: Its at least eight used-equipment sales still formed a permit-requiring series.

Q: What was the petitioner's main argument?

A: Although it had made several used-equipment sales, it said it did not ordinarily sell heaters and air-conditioning equipment of the type transferred to the lease assignee.

Q: Does the source identify all eight laboratory sales?

A: No. It states the count threshold but supplies no inventory, dates, buyers, invoices, or prices for the full series.

Q: Did the Board issue a final denial in this source?

A: No. Associate Tax Counsel recommended denial, but the PDF contains no Board order or later disposition.

Citations and references

• California Revenue and Taxation Code sections 6006.5 and 6014
• California Sales Tax Ruling 81 — cited but not reproduced
• Redetermination petition, company and laboratory records, lease and assignment, assets and installed-property records, dealer and consumer transactions, eight-sale series, permits, tax proceeding, Board action, and outcome — described or implicated but not included

Verbatim support

From the official October 1, 1964 Associate Tax Counsel letter:

You have conceded the application of tax with respect to the sale of laboratory equipment to consumers.

It is your contention that, although the S--- P--- Division has made a number of sales of used equipment, it does not normally sell the type of property in question and that the sale thereof to the U--- T--- Corporation was an occasional sale under § 6006.5 of the Revenue and Taxation Code and sales tax ruling 81.

Therefore, the sale to U--- T--- Corporation was one of a series of sales sufficient in number, scope and character to constitute an activity requiring the holding of a seller's permit by the --- engineering laboratory.

Accordingly, we must recommend to the board that your petition for redetermination of sales tax be denied.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0300
• Original supporting opinion: 395.0300 PDF

Original ruling text

395.0300

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 1, 1964

S--- P--- Company, Division of
S--- R--- Corporation
XXXXX N. XXth Avenue
---, --Attention:

XX-XXXXXX
-- - XXXX

Mr. G. A. O---, Controller

Gentlemen:
Your petition for Redetermination has been referred to the legal staff for consideration. As you have stated in your petition, the S--- P--- Company is in the business of manufacturing and selling flight control equipment to governmental and commercial customers. S--- P--- Company maintained an engineering laboratory in ---, California. The laboratory was closed and laboratory equipment was sold to dealers for resale and to consumers at retail. You have conceded the application of tax with respect to the sale of laboratory equipment to consumers. It is our understanding that S--- P--- assigned its lease of the premises to U--- T--Corporation and sold them four (4) hot water heaters, six (6) air conditioning units, and twelve (12) gas heaters, in place in the building. It is your contention that, although the S--- P--- Division has made a number of sales of used equipment, it does not normally sell the type of property in question and that the sale thereof to the U--- T--- Corporation was an occasional sale under § 6006.5 of the Revenue and Taxation Code and sales tax ruling 81. Under § 6014 of the Revenue and Taxation Code, a seller is defined as including every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax. Under § 6006.5 an occasional sale is defined as including a sale of property not held or used by a seller in the course of an activity for which he is required to hold a seller’s permit, providing such sale is not one of a series of sales sufficient in number, scope and character to constitute an activity requiring the holding of a seller’s permit. As you have indicated in your petition, S--- P--- Company is in the business of manufacturing and selling flight control equipment to governmental and commercial customers and has made a number of sales of surplus equipment. It, therefore, appears that S--- P--- Company is a seller as defined in § 6014 and that the sales of laboratory equipment, including the hot water

S--- P--- Co. (-- - XXXX)

-2-

October 1, 1964
395.0300

heaters, air conditioning units, and gas heaters (property held and used in an activity requiring a seller’s permit) were not occasional sales, as defined in § 6006.5. It further appears to us, that even if the laboratory equipment were not regarded as held or used in connection with selling activities attributable to the P--- plant, nevertheless the sale of the water heaters, air conditioning units, and gas heaters was one of at least eight sales of used equipment by the --- engineering laboratory. Therefore, the sale to U--- T--- Corporation was one of a series of sales sufficient in number, scope and character to constitute an activity requiring the holding of a seller’s permit by the --- engineering laboratory. In view of the foregoing, it is our opinion that the sale of the hot water heaters, air conditioning units, and gas heaters was a taxable retail sale. Accordingly, we must recommend to the board that your petition for redetermination of sales tax be denied. Very truly yours,

George A. Trigueros
Associate Tax Counsel

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