Which charges were taxable when a bus dealer sold or received a bus and performed full, partial, or preliminary conversion into a motorhome?

Plain-English summary

A registered used-bus dealer sold buses and separately offered full conversions, partial conversions, and preliminary stripping or gutting for later motorhome work. It also converted buses supplied by customers.

When the dealer sold a used bus and later signed a separate conversion contract, the agreements formed one integrated sale of the converted bus. The bus price and every separately stated conversion charge were taxable, regardless of delay between the contracts or whether the work was full, partial, or only preconversion.

For a customer-provided new bus bought for conversion, the entire charge for full, partial, or preliminary conversion was taxable fabrication. The source treated a bus as bought for conversion when the conversion contract was signed within 60 days after its first DMV registration.

For a customer-provided used bus, tax applied to new parts and equipment sold or fabricated by the converter, but not to separately identified installation labor.

Citations and references

• California Revenue and Taxation Code section 6051 (as cited)
• California Sales and Use Tax Regulation 1526 (as cited)
• Business Taxes Law Guide Annotation 435.0470 (September 8, 1977) (as cited)

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/435-0418.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

435.0418

Memorandum
To:

Mr. Dennis Fox
Program Planning Manager (MIC: 92)

From:

Sophia H. Chung
Tax Counsel

Subject:

M--- A--- K--Account No. SR -- XX-XXXXXX

Date: December 13, 1996

Your memorandum dated September 9, 1996, to Mr. Gary J. Jugum, Assistant Chief Counsel, has been referred to me for response. You request a legal opinion addressing whether charges made by the referenced taxpayer, a registered dealer of used buses, for converting used buses into motorhomes constitute taxable fabrication labor. You state that after the taxpayer contracts with a customer for the sale of a used bus, if the customer wants the taxpayer to convert the bus into a motorhome, a separate agreement is entered for the conversion work. The customer is not required to have the bus purchased from the taxpayer converted by the taxpayer. In addition, the taxpayer advertises that conversion work will be performed on a bus provided by the customer and not purchased from the taxpayer. The Torrance District office has requested assistance in determining whether the following constitutes taxable fabrication labor: (1) full conversions from used buses to motorhomes; (2) partial conversions where the taxpayer performs some, but not all of the conversion work; and (3) preconversions involving only a stripping or gutting of a bus in preparation for conversion by the customer or a third party. DISCUSSION As you know, Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales in this state of tangible personal property, unless the sale is specifically exempt from taxation by statute. Sales and Use Tax Regulation 1526 provides that tax applies to charges for the producing, fabricating or processing of tangible personal property for a consideration for consumers who furnish, either directly or indirectly, the materials used in the production or fabrication of the tangible personal property.

Mr. Dennis Fox

2

December 13, 1996
435.0418

Producing, fabricating or processing include any operation which results in the creation or production of tangible personal property or which is a step in a process or series of operations resulting in the creation or production of tangible personal property. (Reg. 1526.) Where the taxpayer contracts to sell a used bus to a customer, then subsequently contracts with the customer to convert the bus into a motorhome, such contracts constitute a single integrated transaction for the sale of the converted used bus, the gross receipts from which are subject to tax. That is, tax applies to the charge made for the bus as well as to any separately stated charges related to conversion work performed by the taxpayer. A delay in executing the contract to convert the bus into a motorhome is immaterial for sales and use tax purposes. This analysis applies whether the taxpayer performs full conversion, partial conversion or preconversion work. Where a customer provides the taxpayer with a new bus for conversion into a motorhome, tax applies to the entire charge made by the taxpayer for the full conversion, partial conversion or preconversion work if the bus was purchased for the purpose of converting it into a motorhome. A new bus will be considered to have been purchased for this purpose if the contract for the conversion work is entered into within 60 days of the date the bus was first registered with the Department of Motor Vehicles. (See BTLG Annot. 435.0470 (9/8/77).) Where the customer provides the taxpayer with a used bus for conversion, tax applies to charges for the sale of new parts and equipment whether the parts and equipment are withdrawn from inventory or fabricated by the taxpayer. (Id.) However, tax does not apply to the charges for installing the property sold. (Id.) SHC:rz cc:

Mr. Gary J. Jugum
Mr. David H. Levine
Mr. Ronald L. Dick
Sales and Use Tax Attorneys