Was a heat-treating company selling dry ice when it used the ice to keep aluminum parts cold during customer delivery?

Plain-English summary

California treated the heat-treating company as consumer of dry ice used to keep aluminum parts cold while shipping them to customers. The company could continue buying the dry ice tax-paid and had no further sales or use tax liability on the ice itself.

Its one-half- to three-quarter-cent-per-pound handling-and-waste charge attributable to the ice did not have to be included in the sales-tax measure on its returns. The opinion also said the company did not need to separately pass through the vendor tax amount to customers.

The source's Los Angeles audit notation says a recent audit had picked up $6,773 as omitted dry-ice sales. It gives no audit period, calculation, revised workpaper, determination or final liability.

Request, handling charge, audit treatment, and answer

The April 15 letter responds to a March 23 request whose year and text are not reproduced. The redacted company bought dry ice to keep aluminum parts cold while shipping them to customers after it heat-treated the parts.

The company charged customers one-half to three-quarters of a cent per pound as a handling and waste charge, and customers discarded the ice on receipt. The source gives no pounds, invoice, shipment, delivery term, customer, aluminum part, treatment specification or cooling record.

Tax Counsel E. H. Stetson said an auditor apparently treated the ice-related charge as taxable while crediting tax reimbursement the company had paid its dry-ice vendors. The company then tried to pass the tax amount to customers as a separate item. Counsel regarded the customers' particular objections as without merit, but neither states the objections nor reproduces the audit workpapers or invoices.

Despite that view of the objections, Counsel classified the company as consumer of the ice. It could continue purchasing the ice tax-paid, would have no further sales or use tax liability on the ice, and did not include the related handling-and-waste charge in the measure declared and paid on its returns. It also did not need to separately charge customers the amount of tax paid to ice vendors.

The letter says Los Angeles audit staff would be informed. Its copy notation tells that staff a recent audit had picked up $6,773 as omitted dry-ice sales. It does not say whether staff revised that measure, whether $6,773 covered only this charge, or what the final tax was.

Live annotation, later use, and source limits

The live 400.0380 annotation accurately retains the consumer conclusion, tax-paid purchase, return-measure result and April 15, 1960 date. It omits the March 23 request, exact handling charge, customer disposal and objections, apparent auditor theory and reimbursement credit, separate tax pass-through effort, audit instruction, $6,773 notation and absent final outcome.

The later Annotation 400.0266 supporting opinion quotes 400.0380 as an analogy when treating a frozen-epoxy seller as consumer of dry ice used for processing and shipment. That later source does not supply this company's missing audit outcome.

The official one-page PDF has a clean rendered text layer and only a small seal image. Both fresh downloads and text extractions matched, and the original-text tail remains byte-identical after removing only pdftotext's terminal newline and form feed. No case or statute citation appears.

What this means for you

Processors shipping temperature-sensitive property

Document whether cooling material is consumed in delivering the service or goods, whether customers receive or discard it, and precisely what any separate charge covers. Similar physical delivery does not itself prove resale.

Accountants and tax professionals

Trace vendor tax, customer charges, invoices and return measures separately. The $6,773 notation is an audit measure, not the final tax, and the source gives no implemented adjustment.

Common questions

Was the dry ice treated as resold to the customer?

No. The company was the consumer.

How could it buy the dry ice?

On a tax-paid basis.

Was the customer charge for the ice part of the taxable sales measure?

No, under the stated facts.

What happened to the dry ice after delivery?

The customer discarded it.

How large was the handling-and-waste charge?

One-half to three-quarters of a cent per pound.

What was the $6,773 amount?

The copy notation says audit picked it up as omitted dry-ice sales. The source does not call it tax due or provide a calculation.

Did the source show the audit was changed?

No. Counsel said Los Angeles audit staff would be informed, but no revision, determination, payment or refund outcome is included.

Citations and references

• March 23 request — answered but not reproduced; its year is not stated
• Recent Los Angeles audit — apparent charge treatment, vendor-tax credit and $6,773 omitted-sales measure described; period, workpapers, report, revision and final action absent
• Annotation 400.0266 — 1987 supporting opinion later quotes this opinion as a consumer analogy
• Company and customers; aluminum parts and dry ice; quantities, heat treatment and cooling specifications; shipments and delivery terms; customer objections; purchases and sales; contracts, invoices and prices; vendor reimbursement; tax period, gross receipts, measure and rate; returns, audit assessment, payment, claim, appeal and outcome — described or implicated but not included

Verbatim support

From the official April 15, 1960 letter:

By purchasing the ice in this manner you will have no further liability for sales or use tax with respect thereto, and the charge made on account of the ice need not be included in the measure of the tax declared and paid on your returns. It is, of course, not necessary for you to make a separate charge to your customers in the amount of tax which you pay to your vendors of the ice.

Los Angeles – Auditing: In your recent audit of this firm you picked up as sales of dry ice omitted $6,773.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0380
• Original supporting opinion: 400.0380 PDF

Original ruling text

400.0380

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 15, 1960

Gentlemen:
This is in reply to your letter of March 23, in which you explain that you buy dry ice for the purpose of keeping aluminum parts cold while the parts are being shipped to your customer after they have been heat-treated by you. You charged one-half to three-quarters of a cent per pound “handling and waste charge” and your customer discards the dry ice upon receipt. Apparently our auditor regarded as taxable the charge made by you on account of the ice and gave you credit for the amount of tax reimbursement which you paid to your vendors of the dry ice. Since then, you have been attempting to pass on to your customer as a separate item the amount of the tax. Although the particular objections which you state your customers have raised are, in our opinion, without merit, we nevertheless believe that you are properly regarded as the consumer of the ice and that you may, accordingly, buy the ice on a tax-paid basis as you have been doing, apparently without any complaint from your customers. By purchasing the ice in this manner you will have no further liability for sales or use tax with respect thereto, and the charge made on account of the ice need not be included in the measure of the tax declared and paid on your returns. It is, of course, not necessary for you to make a separate charge to your customers in the amount of tax which you pay to your vendors of the ice. We are so informing our Los Angeles audit staff. Very truly yours,

E.H. Stetson
Tax Counsel
EHS:tl
cc:
Los Angeles – Auditing: In your recent audit of this firm you picked up as sales of dry ice omitted $6,773.