Was coating used pipe taxable fabrication or nontaxable repair, and how was field-joint work on installed pipe treated?

Plain-English summary

Field-joint work performed on pipe already in place was an improvement to real property rather than processing of tangible personal property, so those charges were removed.

Applying somastic coating to used pipe made more than a repair when it added valuable characteristics not present even in new pipe. Other coatings or wrapping received the same taxable treatment if they similarly produced new qualities.

By contrast, replacing used pipe's original wrapping or coating with a substitute such as paint was repair or reconditioning when it merely restored the pipe and added no qualities beyond those present when new.

Citations and references

• No numbered statute or regulation was cited in the source memorandum.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/435-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/435-0400.pdf

Original ruling text

STATE BOARD OF EQUALIZATION
OFFICE CORRESPONDENCE

435.0400
Place:
Date:

To:

Los Angeles – Auditing (LJR)

From:

Headquarters – Sales Tax Counsel

Re:

P--- P--- C--- Company
XXXX --- --- Avenue
---

Sacramento, California
October 2, 1953

-- XX XXXXXX Aux. Petition File

Your Memo of August 18
With respect to “field joint” (page 4 of L---’s report of July 13), we deleted charges for this work upon the basis that it was performed upon pipe in place in the field, and is thus improving real property rather than processing personal property. With regard to reconditioning used pipe, perhaps the apparent conflict results from not distinguishing between somastic coating and other types of protective coating. It is my recollection that the application of somastic coating made such a change in the characteristics of pipe that even its application to used pipe would result in a product quite different from new pipe, i.e., it would do more than merely restore the pipe to its original condition. It would add valuable qualities not present in new pipe, and thus results in more than mere repair or reconditioning. If other types of wrapping or coating have the same result, the application of the tax should, or course, be the same. On the other hand, if used pipe is wrapped with material intended to act merely as a substitute for its original wrapping or coating, e.g., paint, without giving it added qualities not present in the new pipe, the operation is a repair or reconditioning.

E. H. Stetson

EHS:ph