Were a construction joint venture and an equipment-owning partnership separate sales-tax persons even though they had the same members?

Plain-English summary

Redacted parties formed a joint venture for the limited purpose of bidding on and, if successful, constructing a subway tube. About three months after the contract award, the same parties formed a general partnership to build and own marine equipment chartered to the venture. Each vessel had its own charter, unused equipment was sometimes chartered elsewhere, and most vessels in fact went to other persons. The supporting source does not state an unredacted party count; the live annotation says four businesses.

The June 13 brief represented that the entities maintained separate identities in dealings with creditors, customers, employees, one another and their common participants. Rent was arm's-length and fair. Confused vendors received a letter explaining the distinction, and the partners and venturers held separate meetings.

The construction venture reportedly paid workers' compensation premiums of $9 per $100 of payroll, while the equipment partnership paid $2.89. Venture employees were under project-required wrap-up insurance; partnership employees were treated as a separate entity's employees and excluded. Separate entities also insulated marine-equipment construction and operation from the venture's restrictive union agreements.

The venture used completed-contract accounting; the partnership used accrual accounting, with separate books and returns. They filed separate property returns, review petitions and powers of attorney. One nearly missed a deadline because the other entity's representative could not sign for it.

The brief also argued legal distinctions: partnership mutual agency under former Corporations Code section 15009 versus limited joint-venturer authority, separate powers of attorney, and no implied assumption by a new venturer of prior obligations. Revenue Ruling 68-289 concerned three same-member partnerships merging and treated separate federal tax identities; it was an analogy, not an IRS determination about these redacted entities.

Assistant Tax Counsel Gary J. Jugum reconsidered the Board's absent November 20, 1968 position, called it erroneous, and treated this venture and partnership as separate sales-tax persons. He expressly said whether another identical-member, identical-interest combination qualified depended on that case's particular facts. The source supplies no resulting tax treatment, assessment, refund or later outcome.

Source posture and citation defects

The live 415.0100 annotation, in the 2026 revision of the Business Taxes Law Guide, preserves the project, later equipment partnership, separate meetings and returns, labor arrangements, insurance, books and accounting. It adds Four businesses, which the redacted supporting source does not reveal, and says the entities are considered separate entities by the Internal Revenue Service; the source only cites an IRS ruling about three other same-member partnerships merging. It omits arm's-length charters, third-party vessel use, vendor notices, precise insurance rates, wrap-up facts, property-assessment petitions and powers of attorney, legal distinctions and cases, defective Enos citation, reversed position, missing records and fact-specific reservation.

The reporter 210 P.2d 88 resolves to Milton Kauffman, Inc. v. Superior Court (the source prints Kaufman), and 212 P.2d 946 resolves to Sime v. Malouf. The source prints Enos v. Pacacho Gold Mining Co. at 56 Cal. App. 765; 133 P.2d 633; 56 Cal. App. 765 identifies an unrelated 1922 case and 133 P.2d 633 does not resolve. A name search finds Enos v. Picacho Gold Mining Co., 56 Cal. App. 2d 765, 133 P.2d 663 (1943). The official text remains unchanged below.

CDTFA's Annotated Legal Opinions collection says statutory law controls over an inconsistent annotation. The official four-page PDF has a clean native text layer and one page-1 stencil, so no OCR was required. Duplicate direct downloads and default extractions matched; the original-text tail remains byte-identical to the committed tail and fresh extraction after removing only terminal extractor whitespace.

What this means for you

Commonly owned entities and tax professionals

Common ownership does not by itself resolve sales-tax entity status. Document formation, purpose, contracts, authority, pricing, charters, third-party activity, meetings, employees, insurance, labor agreements, books, returns and representative powers. This opinion reversed an earlier position only for one detailed structure and announced no categorical rule.

Common questions

Q: Did identical membership make the partnership and venture one person?

A: No on these represented facts. Counsel treated this venture and partnership as separate sales-tax persons.

Q: Which facts supported separateness?

A: Separate dealings, vendor notices, meetings, books, returns, accounting methods, insurance and labor arrangements, arm's-length charters, and extensive third-party vessel use.

Q: Did the opinion establish a universal rule for common-member entities?

A: No. Counsel expressly reserved other identical-member, identical-interest combinations for their particular facts.

Q: Did the IRS specifically rule that these two entities were separate?

A: No. The source cites Revenue Ruling 68-289 about three other same-member partnerships merging; the live annotation overstates that analogy.

Q: Is the printed Enos citation accurate?

A: No. The source prints the name, intermediate reporter and Pacific reporter incorrectly; the named case is Enos v. Picacho Gold Mining Co., 56 Cal. App. 2d 765, 133 P.2d 663.

Citations and references

• California Revenue and Taxation Code sections 6005 and 6019; former California Corporations Code section 15009
• 36 Virginia Law Review 444; Milton Kaufman, Inc. v. Superior Court, 210 P.2d 88; Sime v. Malouf, 212 P.2d 946
• Enos v. Pacacho Gold Mining Co., printed at 56 Cal. App. 765 and 133 P.2d 633 — named case is Enos v. Picacho, 56 Cal. App. 2d 765, 133 P.2d 663
• Revenue Ruling 68-289, 1968 I.R.B. 22, and Internal Revenue Code section 732(b)
• June 13 brief, November 20 prior position, formations, award, agreements, charters, vendor notice, meetings, insurance, labor records, books, returns, assessment and outcome — absent

Verbatim support

From the official October 27, 1969 opinion:

Most of the vessels have in fact been chartered to other persons.

You state that at all times the partners went to great lengths to maintain the separate identities of the parties in all of their respective dealings with creditors, customers, employees, X--------------- and among the partners, themselves.

We have reconsidered our position of November 20, 1968, in light of the arguments and points summarized above, and it is now our opinion that our initial position was erroneous and that under the factual situation as it exists in this case, X-----a joint venture, and X------------------------ a partnership, are separate persons for purposes of the sales tax law.

Whether we would regard other joint venture-partnership combinations, where the joint venture and the partnership are made up of identical members with identical interests in each “entity,” as separate “persons” under section 6005 of the Revenue and Taxation Code would depend, as does our conclusion in this case, on the particular facts of the particular case.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 415.0100
• Original supporting opinion: 415.0100 PDF

Original ruling text

STATE OF CALIFORNIA

415.0100

STATE BOARD OF EQUALIZATION

October 27, 1969

Attention: X----------------------

Gentlemen:

Thank you for your illuminating brief of June 13, 1969, as to the “separateness” of X-------------------, a partnership consisting of X---------------------- and X---------------------, a joint venture of these same parties. You point our that X-------------------- was formed on X-------------------- for the limited purpose of bidding and, if successful, constructing a subway “tube” X----------------------. On X------------- the construction was awarded X---------------. Approximately three months later on X----------------, the parties who formed X------------, formed a general partnership, X-----------------. The partnership was formed specifically for the purpose of building and owning marine equipment which equipment was to be chartered to X---------- for use in the construct of X------------ tube. Each vessel was the subject of separate charter parties. When such equipment was not in use, it was occasionally chartered to other lessees. Most of the vessels have in fact been chartered to other persons. You state that at all times the partners went to great lengths to maintain the separate identities of the parties in all of their respective dealings with creditors, customers, employees, X--------------- and among the partners, themselves. Thus, the rental charged by one entity to the other was, in fact, an arms length fair rental. When it appeared that vendors dealing with both of the entities might be confused, a letter was sent to the vendors explaining the diversity. The partners in X-------- and the joint venturers in X-------------- scheduled and held separate meetings. You note that formation of separate entities resulted in substantial savings. Thus, while X-------- was required to pay workmen’s compensation insurance premiums of
$9.00 per each $100.00 of payroll, X---------’s premium was only $2.89 per each
$100.00. Such savings resulted, in part, from the fact that all employees of X--------were covered by the so-called “wrap-up” insurance required by the X--------------------,

whereas employees of X-------------- were considered to be employees of a separate entity and, therefore, were not covered by the wrap-up insurance. Further, the use of separate entities provided an "opportunity to insulate the construction and operation of marine equipment from labor difficulties. X------------- was subject to restrictive agreements with labor unions whereas X-------------was not. It should also be noted that there were several financial and accounting reasons for establishing X------------------ and X----------------------- as separate entities. Thus, X------ books and records were maintained, and the tax returns filed upon the so-called completed contract method of accounting, whereas X---------------------- books and records were maintained, and the tax and information returns filed upon the accrual method of accounting. It is your contention that “As a matter of law, a joint venture and a general partnership are separate and distinct entities, not withstanding that each is composed of common members.” You point out that although partnership principles are applicable in part to joint ventures, there are several important distinctions. Thus while a corporation may participate in a joint venture, it is generally barred from engaging in a partnership. 36 Virg. L.R. 444. This, historically, was California law. Milton Kaufman, Inc. v. Superior Court 210 P.2d 88 (1949). By weight of authority, in most jurisdictions a corporation may not enter into a partnership in the absence of statutory authorization. Some courts have distinguished between a partnership and a joint venture on the grounds that there is no element of mutual agency in a joint venture. Generally, a partner is the agent of the other partners and can bind them in the ordinary course of business. Cal. Corp. Code, § 15009. On the other hand, the California “rule” is that a joint venturer does not have authority to bind the other joint venturers. Sime v. Malouf, 212 P.2d 946 (1950). The "mutual agency" distinctions between partnerships and joint ventures become apparent in industry practices. Thus, the sponsoring joint venturer obtains a specific power of attorney from the other venturers authorizing him to perform specific limited acts. In fact, in the construction industry, the project owner frequently specifies the provisions to be contained in the power of attorney. By way of contrast, the powers of each of the partners in a partnership are set forth in substantial detail in the partnership agreement and, unless limited thereby, substantial powers of the various partners to bind each other are implied. Similarly, although a new partner assumes the· then existing liability of the partnership, under California law, one does not impliedly assume obligations then existing even though such obligations were incurred in connection with the subject matter

of the joint venture. Enos v. Pacacho Gold Mining Co., 56 Cal. App. 765; 133 P.2d 633 (1943). You further point out that the distinction between co-partnerships and joint ventures is recognized in the Sales and Use Tax Law itself. (§§ 6005, 6019.) You also discuss the property and income tax aspects of the issue before us. You state that both entities have consistently filed separate returns of tangible personal property with X------------------------ respectively, with the full knowledge of the respective assessors as to the nature of the entity. It was necessary for the entities to file separate petitions for review of such assessment and to file separate powers of attorney designating their respective representatives in both X--------------------------. In fact, one of the entities almost failed to file a timely petition because its attorney-in-fact had inadvertently failed to sign the necessary document and the representative of the other entity was not allowed by the X---------------------------- office to execute such document, even though it was doubtful whether the authorized individual would be able to execute the document before the deadline for filing had passed. Recognition has been given by the Internal Revenue Service to the separate existence of three partnerships with identical general and limited partners. Where three partnerships with the same general partners and the same limited partners merged, the partnership contributing the greatest dollar value of assets is considered the resulting partnership and the other partnerships arc considered terminated. The partners in the terminated partnerships are considered to have received in liquidation partnership interests in the resulting partnership with a basis to them as determined under Code § 732(b). Rev. Rul. 68-289, 1968 I.R.B. 22. Finally you observe that if this board adheres to its present position, the construction industry will suffer. The practice of joint venturing unusually large or hazardous projects is widespread. When major projects of the scope of the X------------large dams are undertaken, only a handful of contractors can participate--even as participants in joint ventures. As a result, there is a fairly common phenomenon within the construction industry of multiple joint ventures, each consisting of identical members. If these joint ventures are not separate and distinct, there is an unanticipated risk that the resulting entity will be deemed an association taxable, for income tax purposes, as a corporation.

We have reconsidered our position of November 20, 1968, in light of the arguments and points summarized above, and it is now our opinion that our initial position was erroneous and that under the factual situation as it exists in this case, X-----a joint venture, and X------------------------ a partnership, are separate persons for purposes of the sales tax law.

Whether we would regard other joint venture-partnership combinations, where the joint venture and the partnership are made up of identical members with identical interests in each “entity,” as separate “persons” under section 6005 of the Revenue and Taxation Code would depend, as does our conclusion in this case, on the particular facts of the particular case. Very truly yours, Gary J. Jugum Assistant Tax Counsel

GJJ:ab
be: Out-of-State - District Administrator Chicago