Did the historical ice exemption cover both precooling grapes for interstate shipment and storing them after harvest?

Plain-English summary

California concluded that ice used to precool grapes for interstate shipment qualified under the historical exemption even when the grapes were stored before shipment, provided they were not processed after precooling. Gassing the grapes to prevent mold did not count as further processing on the stated facts.

Ice used to store grapes from the end of harvest until shipment was different and taxable. For administration, the memorandum presumed that ice delivered ten days after the harvest season was used for storage; it does not clarify that timing boundary.

The memorandum records a conference resolution, not a tax computation or final disposition of the petition and refund claim.

Proceedings, certificates, and unresolved seller-liability issue

The memorandum is from J. D. Paulson to the file, not a letter issued to the taxpayer. It says redacted attorneys appeared in Paulson's office on July 14 with additional information they had promised after a November 1960 preliminary hearing concerning the taxpayer's petition for redetermination and claim for refund. Neither the hearing record nor the petition, claim or promised information is attached.

The taxpayer argued that former section 6421 should relieve it of additional tax because it accepted customer ice-exemption certificates in good faith under Sales Tax General Bulletin 54-26. The certificates and bulletin are absent.

E. H. Stetson described the Board's view that section 6421 added a collection right against a person issuing fraudulent certificates without limiting the State's right to assess a retailer that accepted certificates in good faith. Because he saw policy implications, Executive Secretary Harry L. Say was consulted and a 3 p.m. conference was convened. The source records no separate ultimate resolution of the certificate-liability argument or amount of additional tax.

Precooling, later storage, gas treatment, and presumption

The afternoon participants considered whether former section 6359.5 exempted ice used to precool grapes for interstate shipment when the grapes shipped immediately or remained in storage first. They noted that some grapes were stored beyond the harvest season solely to obtain a better market price.

Say's conclusion, concurred in by Stetson, the taxpayer's representatives and Paulson, was that all ice used for precooling grapes to be shipped interstate was exempt whether or not storage preceded shipment, provided the grapes were not processed after precooling.

A redacted participant said the grapes were crated and labeled before precooling and were neither repacked nor further processed before shipment. Although they were gassed to prevent mold, Say considered the gas operation not to be further processing. The source includes no packing, gas-treatment or processing records.

The participants separately treated ice used to store grapes from the end of harvest until shipment as nonexempt. For administration, they decided that ice delivered ten days after the harvest season would be presumed used for storage. The source does not define the harvest season, explain whether or how that presumption could be rebutted, or apply it to dated ice deliveries.

Live annotation and source limits

The live 400.0320 annotation accurately retains the exempt-precooling conclusion, no-further-processing condition, gas-treatment view, taxable-storage result and ten-day presumption. It omits the preliminary hearing, July 14 and 3 p.m. conferences, petition and refund posture, section 6421 certificate dispute, Bulletin 54-26, better-price purpose, crating and labeling facts, named officials, absent records and lack of a final action.

The source says ice delivered ten days after the harvest season was presumed storage ice. The older page paraphrased this as more than ten days; this audit uses the source's exact timing because the memorandum does not clarify the boundary.

The official two-page PDF has a clean rendered text layer and no case citation. Both fresh downloads and extractions matched, and the preserved original-text tail remains byte-identical after removal of only pdftotext's terminal newline and form feed.

What this means for you

Produce sellers, cold-storage operators, and ice sellers

Separate ice used for precooling an interstate food shipment from ice used for market-timing storage. Preserve harvest dates, delivery dates, actual use, processing sequence, food ownership, shipment plans and route evidence.

Accountants and tax professionals

Do not treat a good-faith certificate as automatically deciding seller liability; the memorandum records the historical Board view but supplies no final resolution for this taxpayer. Test any current presumption and certificate rule under current law.

Common questions

Did storage after precooling automatically defeat the exemption?

No, if the ice was used for precooling and the grapes were not later processed.

Did anti-mold gassing count as processing?

No, according to the conference conclusion.

Was ice used for extended storage exempt?

No.

What timing presumption did the memorandum adopt?

Ice delivered ten days after the harvest season was presumed to be storage ice.

Did good-faith exemption certificates end the seller's liability?

Not under the Board view Stetson described. The memorandum says section 6421 did not limit collection from the retailer, but it supplies no ultimate action on this taxpayer's argument.

Was the petition or refund claim finally decided?

The source does not provide a final order, redetermination, refund decision, payment or tax amount.

Citations and references

• Former California Revenue and Taxation Code section 6359.5 — historical interstate food-shipping ice exemption discussed
• Former California Revenue and Taxation Code section 6421 — good-faith exemption-certificate argument and Board collection policy discussed
• Sales Tax General Bulletin 54-26 — certificate practice cited by the taxpayer
• November 1960 preliminary hearing; petition for redetermination and refund claim; promised additional information; certificates; bulletin; July 14 and 3 p.m. conference records; grapes, ice, harvest and delivery evidence; crating, labeling, gas and processing records; interstate shipments and routes; invoices and prices; audit period and schedules; additional-tax measure and rate; determination; payment; refund and final action — referenced or implicated but not included

Verbatim support

From the official July 19, 1961 internal memorandum:

It was ultimately concluded by Mr. Say, and concurred in by Mr. Stetson, the taxpayer's representatives and the undersigned, that all ice used for precooling grapes to be shipped in interstate commerce is exempt from tax, whether or not the grapes are held in storage prior to shipment, provided the grapes are not processed after precooling.

It was determined that ice used for storing grapes from the end of the harvest season until date of shipment was used in a non-exempt manner and sales thereof for that purpose would be taxable. It was further decided, for administrative purposes, that ice delivered ten days after the harvest season would be presumed to be used for storage purposes.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0320
• Original supporting memorandum: 400.0320 PDF

Original ruling text

400.0320

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

Place:
Date:
To:

File

From:

J.D. Paulson

Re:

[X]

Sacramento
July 19, 1961

Mr. [X], attorneys for taxpayer, appeared in my office on July 14, to present additional information to be furnished by them subsequent to a preliminary hearing held in November, 1960, regarding a petition for redetermination and a claim for refund for the taxpayer. An initial discussion was held regarding the nature of the taxpayer’s operation. It was contended by Mr. [X] that Section 6421 of the Sales and Use Tax Law should apply in exonerating the taxpayer from the additional tax in as much as the taxpayer took ice exemption certificates from its customers in good faith pursuant to the provisions of Sales Tax General Bulletin 54-26. At this point of the conference, Mr. Stetson was consulted to determine what the Board policy was with respect to this section of the law. Mr. Stetson stated that the code section had been regarded by the Board as an additional right conferred upon the State to collect tax from persons issuing fraudulent certificates, but did not limit the State's right to assert the tax against the retailer although the retailer had accepted the certificates in good faith. However, Mr. Stetson believed the matter involved policy considerations which should be discussed with Mr. Harry L. Say, Executive Secretary or the Board. Mr. Say was contacted, and a conference was set up for 3:00 p.m. At 3:00 p.m., Messrs. [K], [C], Stetson, Say, and the undersigned held a conference regarding the entire subject matter; to wit: whether ice used in precooling grapes subsequently to be shipped in interstate commerce should be exempt from tax under Section 6359.5 of the law whether the grapes are immediately shipped interstate, or whether they are stored for a period of time prior to shipment. It was determined that a quantity or grapes are actually stored after the harvest season is over for the sole purpose of marketing them at a better price. It was ultimately concluded by Mr. Say, and concurred in by Mr. Stetson, the taxpayer's representatives and the undersigned, that all ice used for precooling grapes to be shipped in interstate commerce is exempt from tax, whether or not the grapes are held in storage prior to shipment, provided the grapes are not processed after precooling. In this regard, Mr. [X] stated the grapes are crated and labeled prior to being precooled, and are not repacked or further processed prior to shipment. However, it was stated that the grapes are gassed to prevent molding. Mr. Say was of the opinion that the gas operation would not constitute further processing.

File

-2-

July 19, 1961
400.0320

It was determined that ice used for storing grapes from the end of the harvest season until date of shipment was used in a non-exempt manner and sales thereof for that purpose would be taxable. It was further decided, for administrative purposes, that ice delivered ten days after the harvest season would be presumed to be used for storage purposes.

JDP:o’b