Did Regulation 1630 apply to a contractor that packed military household goods but did not itself perform the shipment?

Plain-English summary

California appeals staff said Regulation 1630 applied even though the contractor packed and crated chiefly military personnel's household goods but did not itself perform shipment. The regulation addressed packing and loading activities, not only physical transportation.

The Armed Forces contracts paid unit prices per hundredweight without breaking out labor or supplies and did not expressly pass title to assessed materials. Because the true object was packaging and loading service rather than buying unlisted, unaccounted-for supplies, the contractor consumed those materials. The $261,155 protested measure was properly taxed on the existing record.

The officer allowed 30 days to prove separately charged Type II container sales. The representative said there might have been as many as ten but could not say whether any occurred in the determination period. No later evidence or final redetermination is supplied.

Hearing, contract scope, government-property clause, and assessed materials

The petition covered January 1, 1970 through December 31, 1972 and a $261,155 state/local/county measure for packing materials, crates and containers used in moving and storage. A hearing occurred May 20, 1975 in San Jose; the redacted taxpayer's president and Board representative Mr. Rosenblum appeared. The Notice of Determination, petition, hearing record, exhibits and tax calculation are absent.

The corporation packed, crated and otherwise prepared property—chiefly military personnel's household goods—for shipment under contracts with various United States Armed Forces branches. A representative contract was part of the audit report, not the published source, and generally paid a specified price per CWT without labor or supply breakdown.

Quoted contract item C111 required services and materials for movement or storage, appliance service, drayage and related work. The contractor supplied materials, equipment, plant and labor except government-owned Type II, CONEX and Air Cargo containers, and performed containerization, stenciling, recooperage, drayage and decontainerization. Complete-through-movement work purchased by Through Government Bill of Lading was excluded.

Quoted Schedule I Item 1 covered complete outbound service: surveys, appliance servicing, furniture disassembly, packing tasks, inventorying, marking, weighing, drayage and loading line-haul equipment. It used government-furnished containers and treated overflow under Item 3. The full schedule, rates, orders, shipments and materials are absent.

The contract did not expressly pass title to property used in packing and loading. It incorporated Armed Services Procurement Regulation Clause 7-104.24(a), Government Property (Fixed Price), and said a true photocopy was attached as Exhibit A. The PDF contains no exhibit. The hearing officer said that clause concerned government-furnished property, not the items subjected to tax.

The taxpayer sometimes obtained unused cardboard containers from incoming shipments. Except for Type II containers, it did not have to account to the government for assessed property. No inventory or accounting record is supplied.

The auditor classified taxpayer as consumer of materials and supplies bought without sales-tax reimbursement or use tax and used in packing and loading. The source gives no item list, vendor, purchase, cost, resale certificate, use-tax return, workpaper or reconciliation to $261,155.

Shipping argument, federal-sale claim, true object, and open evidence window

Taxpayer argued that property was sold to the United States before use and that Regulation 1630 did not apply because it did not perform shipping. The hearing officer rejected both grounds on the existing record.

Regulation 1630 collectively called packers, loaders and shippers shippers, but its applications did not always require actual shipment. The contractor's packing operation fell within it. The rule treated a packer as consumer when property conditioned, preserved or protected goods during shipment or when the container supplier did not expressly contract for a separately charged sale.

The federal-sale theory failed because the contract did not pass title to assessed materials and the cited clause governed different, government-furnished property. None of taxpayer's existing charges qualified under Regulation 1630.

The officer said Regulation 1630 was regularly adopted and presumptively valid under Revenue and Taxation Code section 7051. Regulation 1501's true-object standard also supported service treatment: the government bought packaging and loading service, not unlisted supplies for which no inventory or accounting was maintained.

Type II containers were different because the taxpayer sometimes constructed one and a separate charge was authorized. Its representative estimated up to ten but could not place any in 1970–1972. The recommendation allowed 30 days for sales evidence and otherwise directed redetermination without adjustment. No evidence, separate charge, adjusted measure or final action appears.

The live 400.0170 annotation publishes only that Regulation 1630 applies to persons who pack and package without shipping. It omits the period and measure, contracts and true object, federal-sale claim, title defect, government-property clause and missing exhibit, untaxed purchases, Type II exception, 30-day window and absent outcome.

The official four-page PDF has a clean rendered text layer and no body-page image. Two fresh downloads and extractions matched exactly, and the preserved source tail remains byte-identical after removal of only pdftotext's terminal newline and form feed. It preserves household goads in the quoted contract. No case citation appears.

What this means for you

Packing and crating contractors

Not performing transportation did not avoid Regulation 1630. Document the customer's true object, every material, contract title term, separate charge, inventory and whether government-furnished property differs from contractor-supplied property.

Government contractors and tax professionals

A general government-property clause did not transfer the assessed supplies. Preserve the exact procurement clause, exhibits, delivery and acceptance, title timing, pricing, contract schedules and audit reconciliation; this source's Exhibit A and final action are absent.

Common questions

Did the absence of actual shipping remove the contractor from Regulation 1630?

No. The rule reached packing and loading functions without requiring the contractor to transport the goods.

Why did the federal-government exemption not cover the materials?

The contracts did not establish a sale or title passage for the assessed materials; the government-property clause concerned different, government-furnished property.

What did the per-hundredweight price show?

It did not separate labor and supplies, identify assessed materials, or establish container sales.

Could any separately charged Type II containers qualify?

Possibly. A separate charge was authorized, and the recommendation allowed 30 days for proof. No evidence or result is supplied.

What amount was protested?

A $261,155 measure for packing materials, crates and containers during 1970–1972. The tax rate and liability amount are not supplied.

Was Exhibit A available?

No. The source says a photocopy of the government-property clause was attached and incorporated, but the official PDF does not reproduce it.

Was the tax finally redetermined without adjustment?

The recommendation says that should happen if no Type II evidence arrived. The source provides neither evidence nor final redetermination.

Citations and references

• California Sales and Use Tax Regulation 1630 — applied to packing and loading even without shipment
• California Sales and Use Tax Regulation 1501 — true-object service-versus-property standard applied
• California Revenue and Taxation Code section 7051 — rulemaking authority cited
• Armed Services Procurement Regulation Clause 7-104.24(a), Government Property (Fixed Price) — incorporated as Exhibit A but not reproduced
• Representative Armed Forces contract and audit report — quoted in part but not included
• Notice of Determination; petition and hearing record; contracts and schedules; materials and containers; title records; invoices and separate charges; purchase tax; inventory and accounting; audit workpapers; Type II evidence; redetermination; payment; claim; appeal; and outcome — described or implicated but not included

Verbatim support

From the official July 11, 1975 decision and recommendation:

Summarily, we find no basis for a finding that the regulation is not applicable to the taxpayer’s packaging operation.

The parties’ contract does not provide for the passage of title to the property in question. The cited title provision relates to “government furnished property” which is not included in the items subjected to the tax.

It seems clear that the “true object” of the contract, insofar as the government purchaser was concerned, was the service of packaging and loading, and not the purchase of unlisted supplies for which no inventory or accounting was maintained.

If no additional evidence is received during the allotted period, then the taxes should be redetermined without adjustment.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0170
• Original supporting opinion: 400.0170 PDF

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION

In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law
[XYZ]
Petitioner

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400.0170

DECISION AND RECOMMENDATION
OF HEARING OFFICER

Account No. -- -- XX-XXXXX

This matter came on regularly for hearing in San Jose, California, on May 20, 1975. Mr. [X], president, appeared for the taxpayer. Mr. Rosenblum appeared for the board.

Protested Item
(Period 1-1-70 to 12-31-72)

Packing materials, crates, and containers
used in moving and storage operations.

$261,155

Contentions of Taxpayer

1. The property was sold to the U. S. Government prior to use.
2. The provisions of Sales and Use Tax Regulation 1630 are not applicable to the taxpayer’s
   operations.
   Summary of Petition
   The taxpayer is a corporation engaged in the business of packing and crating and otherwise preparing property (chiefly household goods of military personnel) for shipment pursuant to contracts entered into with the various branches of the United States Armed Forces. The contracts, a representative copy of which has been made a part of the audit report, generally provide for payment on the basis of a specified unit price per CWT without breakdown for labor or supplies.

[XYZ]

-2-

July 11, 1975
400.0170

Item C111 listed on page 10 of the contract generally defines the “SCOPE OF CONTRACT” as follows: “SCOPE OF CONTRACT (1970 MAY) “The contractor shall furnish services and materials for the preparation of personal property (including servicing of appliances) for movement or storage, drayage and related services. Unless otherwise indicated in the schedule, the contractor shall (i) furnish all materials, except Government-owned containers (Type II, CONEX and Air Cargo), all equipment, plant and labor, and (ii) perform all work in accomplishing containerization of personal property from overseas or domestic movement or storage; stenciling; recooperage; drayage of personal property in connection with other services; and decontainerization of inbound shipments of personal property. Excluded from the scope of this contract is the furnishing of like services or material which are provided incident to complete movement of personal property when purchased by the Through Government Bill of Lading method.” Schedule I, item 1, listed at page 23 of the contract, contains a description of the type of services that are involved in the transactions here considered. It reads as follows: “Item 1. Complete Service - Outbound (HUGs). Services shall include premove survey, servicing of appliances, disassembly of furniture if required, preliminary packing, inventorying, tagging, wrapping, padding, packing and bracing of household goads in Government-owned and furnished shipping containers (Type II, CONEX or Air Cargo) at owner’s residence, or at contractor’s facility when ordered by the Contracting Officer, properly securing and sealing for shipment, weighing, obliterating old markings, marking, strapping, and drayage of the container within area of performance. Service shall include loading of shipments on line-haul carrier’s equipment at the contractor’s facility. When containers will not accommodate all articles of any one lot, loose articles shall be packed in the said containers before any over packed articles are placed therein. Overflow articles which require packing and containerization shall be paid for under Item 3.” The contract does not provide for an express passage of title to the property utilized in the packing and loading of the goods. However, the contract does incorporate the provisions of Armed Service Procurement Regulation Clause No. 7-104.24(a) entitled “Government Property (Fixed Price)”, a true photocopy of which is attached hereto as Exhibit A and incorporated herein by reference.

[XYZ]

-3-

July 11, 1975
400.0170

On occasion the taxpayer will construct and provide the government with a Type II container for use in the shipment for which a separate charge is authorized. The taxpayer’s representative indicated that the corporation may have provided the government agency with as many as ten of these containers. He was unable to state whether any of the transactions occurred within the period covered by the determination. Unused cardboard containers are sometimes obtained from incoming shipments. However, with the exception of the Type II containers the taxpayer was not required to account to the government for the property. The auditor classified the taxpayer as the consumer of the materials and supplies that it acquired without payment of sales tax reimbursement or use tax and utilized in the performance or the packing and loading. (Per Sales and Use Taxes Regulation 1630.) The taxpayer contends that the property in question qualifies for exemption as property sold to the U.S. Government. As a second and separate ground for exemption, it contends that the provisions of Regulation 1630 are not applicable to the taxpayer’s operation because it does not perform any of the “shipping”. Analysis and Conclusions We first conclude that the contention that the provisions of Regulation 1630 are inapplicable because the taxpayer does not perform shipping is without merit. While the regulation is headed “packers, loaders and shippers” and collectively refers to them as “shippers”, its provisions are directed to certain performances which do not necessarily require shipment as a condition for the particular application of the tax. Summarily, we find no basis for a finding that the regulation is not applicable to the taxpayer’s packaging operation. Secondly, we conclude that the taxes have been properly applied in accordance with the provisions of Sales and Use Taxes Regulation 1630. The regulation authorizes the board to classify the person performing the packaging as the consumer and user of the property where the property is purchased for the purpose of conditioning, preserving or protecting the goods during shipment or where the person supplying a container does not expressly contract for a sale of the container and make a separate charge therefor. The parties’ contract does not provide for the passage of title to the property in question. The cited title provision relates to “government furnished property” which is not included in the items subjected to the tax.

[XYZ]

-4-

July 11, 1975
400.0170

None of the taxpayer’s charges qualify for exemption under the provisions of Regulation 1630. The regulation was regularly adopted, and is presumptively valid as an authorized exercise of the board’s rule-making power to promulgate rules and regulations relating to the enforcement and administration of the tax law (Revenue and Taxation Code section 7051). Finally, the classification is in accordance with the standard prescribed by Sales and Use Taxes Regulation 1501, for distinguishing between a sale of property and utilization of property in the performance of a service activity. It seems clear that the “true object” of the contract, insofar as the government purchaser was concerned, was the service of packaging and loading, and not the purchase of unlisted supplies for which no inventory or accounting was maintained. Recommendation It is recommended that the taxpayer be afforded a period of thirty days to submit evidence of sales of Type II containers for which a separate charge was rendered. If no additional evidence is received during the allotted period, then the taxes should be redetermined without adjustment.

W. E. Burkett, Hearing Officer

7-11-75