Why did a 1950 California letter recommend no adjustment for x-ray and gamma-ray pictures furnished to shipyards?

Plain-English summary

The taxpayer argued that it provided engineering and inspection services rather than furnishing x-ray pictures under historical Ruling 23(C). A partner's affidavit said the taxpayer's contract copies were lost and recalled equipment, personnel, supplies, x-ray and gamma-ray examinations of welded pipe and flanges, and advice on discovered defects. It also said the films had value only to the engineer and were used by shipyards only to compute contract payment.

Agency district staff nevertheless reported examining a contract that required the taxpayer to furnish x-ray pictures at a stipulated price per picture, with the shipyard providing quarters and setup facilities. Shipyard vouchers described remittances as payment for purchases of x-ray pictures. The letter treated those records as sales of tangible pictures rather than only inspection services.

Pictures made by exposing film to gamma rays were taxable on the same basis as ordinary x-rays. The source found insufficient evidence to remove any visual-inspection charges from the assessment and rejected the claimed federal-government exemption under the described prime contracts.

The letter recommended no adjustment and said the requested Board hearing would be scheduled unless the taxpayer supplied more evidence or waived it. It does not record the final Board outcome.

Live annotation and source posture

The current live annotation accurately states the source's two headline results: stipulated-price x-ray pictures sold to shipyards were taxable, and gamma-ray pictures were treated the same way. It omits the petition's service argument, conflicting contract record, visual-inspection evidence gap, federal-contract claim, no-adjustment recommendation, requested hearing, and 30-day hold.

On visual inspection, the agency said it could not recommend relief without books, records or other evidence showing that visual-inspection charges were in the tax measure and quantifying them. None of those materials appears in the PDF.

On the government-contract ground, the letter relied on redacted information that the prime contracts were lump sums and did not pass title to property that would not become vessel components. It also says the determination covered only later redacted periods. The contracts, relevant dates, title clauses, vessels and component-property evidence are unavailable, so the source does not support extending that conclusion beyond its record.

The January 23, 1950 affidavit, petition, taxpayer contract copies, agency-reviewed contracts, shipyard vouchers, books, records and exhibits are absent. No taxpayer, shipyard, prime contractor, government agency, vessel, tax measure, interest, audit period, hearing date, Board ruling, payment or refund outcome is supplied.

CDTFA's Annotated Legal Opinions collection says these letters are summarized as annotations and statutory law controls over an inconsistent annotation. The official two-page PDF has a native text layer and one page-one letterhead stencil, so no OCR was required. Two fresh direct PDF downloads and two live-page downloads were byte-identical; duplicate default text extractions also matched.

What this means for you

Contract labels do not displace the underlying records. Here, stipulated per-picture pricing and purchase vouchers outweighed an affidavit characterizing the work as engineering service. Preserve contracts, vouchers, visual-inspection allocations, title clauses and evidence of the purchaser's federal relationship.

Common questions

Q: Why did the letter treat x-ray pictures as sales?

A: Agency-reviewed contract terms required pictures at a stipulated price, and shipyard vouchers described purchases of those pictures.

Q: Were gamma-ray pictures treated differently?

A: No. The letter said a retail picture sale remained taxable regardless of whether x-rays or gamma rays exposed the film.

Q: Why was no visual-inspection adjustment recommended?

A: The taxpayer did not supply books, records or other evidence establishing the included charges and amount.

Q: Did the taxpayer receive a final Board decision?

A: The source does not say. It records a requested hearing and a 30-day scheduling delay only.

Missing evidence and references

• Petition and January 23, 1950 letter, affidavit and enclosures — described but absent
• Taxpayer, shipyard, contractor, agency and vessel identities — redacted
• Taxpayer contract copies, agency-reviewed contracts and vouchers — absent
• Books, records and visual-inspection charge evidence — absent
• Determination periods, measure, interest and federal title evidence — redacted or absent
• Board hearing, final action, payment and refund outcome — not supplied

Verbatim support

From the official July 27, 1950 Tax Counsel letter:

Examination of your client's contract with the X----------------------------- by our district office staff revealed that your client agreed to furnish x-ray pictures as required at a stipulated price for each picture and that the shipyard would furnish quarters and facilities for setting up its equipment for taking the pictures.

Vouchers of the X------------------ and the X--------------------- indicate that their remittances to your client were in payment of the purchase price of x-ray pictures.

Thus, the retail sale of a picture produced by exposure of the film to gamma rays would be subject to the tax to the same extent as the retail sale of an ordinary x-ray picture.

In view of the foregoing conclusions we are unable to recommend any adjustment upon redetermination of the tax.

So that you may advise us of your client's desires, we shall delay placing this matter in our schedule of Board hearings for another thirty days.

Citations and references

• Historical California Sales and Use Taxes Ruling 23(C)
• Prime-contract title provisions and federal-government exemption claim — underlying contracts and authorities absent

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 420.0740
• Original supporting opinion: 420.0740 PDF

Original ruling text

420.0740

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
July 27, 1950

Gentlemen:
We have reviewed our files and the enclosures forwarded with your letter of January 23 with respect to your client's petition for redetermination of our determination against it of August 17, 1949. Your client's petition for redetermination appears to be based on several grounds, as follows:

1. That it performed a service and that x-ray pictures were not "furnished to a
   user" within the meaning of Paragraph C of Sales and Use Tax Ruling 23.
2. That said Paragraph C refers only to x-ray pictures while many of the tests of
   parts for the X------------------------ were by means of magnetic processes, gamma ray inspection, and visual inspection.
3. That under the terms of the prime contracts of X------------ companies with the
   X--------------------, the title to all materials intended for use or incorporation in the vessels passed to the United States upon delivery to the prime contractor and that the imposition of the sales tax constitutes an unconstitutional tax upon the United States. The affidavit dated January 23, 1950, executed by X--------------------, a partner, states that copies of their contracts with X--------------------- have been lost but that his recollection is that the contracts provided for his firm to furnish equipment, personnel, supplies, and engineering services, consisting of x-ray and gamma ray examinations of pipe and flange welding, and advise on control and elimination of defects discovered. It is also stated that the films produced were of no value to anyone but the engineer making the analysis and were not used by the shipyards for any purpose other than computing the amount due under the contract. The affidavit is apparently in support of your client's first contention, i.e., that it performed a service and is not a retailer of x-ray pictures. The following represents our views with respect to each of the points advanced by your client.
4. Examination of your client's contract with the X----------------------------- by our
   district office staff revealed that your client agreed to furnish x-ray pictures as

required at a stipulated price for each picture and that the shipyard would furnish quarters and facilities for setting up its equipment for taking the pictures. Vouchers of the X------------------ and the X--------------------- indicate that their remittances to your client were in payment of the purchase price of x-ray pictures. It is our opinion that the above facts require the conclusion that your client produced and sold x-ray pictures to the shipyards.

2. That Paragraph C of Ruling 23 refers only to x-ray pictures does not appear to
   preclude the application of the tax to the retail sale of pictures taken by other methods. The test would appear to be whether or not a sale of tangible personal property occurred. The ruling is interpretative of the law with respect to sales of x-ray pictures but does not purport to exclude sales of other types of property. Thus, the retail sale of a picture produced by exposure of the film to gamma rays would be subject to the tax to the same extent as the retail sale of an ordinary xray picture. Our determination against your client is based upon our examination of your contracts with the X----------------------- and the X---------------------------- and of the vouchers purporting to cover payments for x-ray pictures purchased from your client. Unless your client furnishes us with his books and records, or other evidence, supporting its contention that charges for visual inspections are included in the measure of the tax, and the amount thereof, we are unable to recommend any adjustment upon this ground.
3. Our information indicates that on and after X------------------, the contracts of
   X-------------- and X----------------------- with the X----------------- were lump sum contracts under which the X------------------------ did not acquire title to property not becoming a component part of the vessels. As indicated by the Notice of Determination, our determination covers only periods subsequent to X---------------------. We, therefore, are of the opinion that your client's sales of x-ray pictures are not exempt as sales to the United States. In view of the foregoing conclusions we are unable to recommend any adjustment upon redetermination of the tax. As your client has requested a Board hearing in Sacramento, this matter will be placed on the Board's schedule unless you have additional evidence to furnish us or now wish to waive a hearing. So that you may advise us of your client's desires, we shall delay placing this matter in our schedule of Board hearings for another thirty days. Very truly yours,

E. H. Stetson
Tax Counsel
EHS:HB