Were separate charges taxable for recovering platinum and rhodium from exhausted gauze when the customer received a metal-value credit?

Plain-English summary

A manufacturer sold petroleum refiners catalytic gauzes, screens, filters, and sponges containing platinum and rhodium. After the material became contaminated, customers returned it so the manufacturer could recover and purify the precious metal, which was pooled rather than identified by customer.

When a customer bought replacement gauze, the manufacturer charged for the new metal but credited the value of metal in the customer's account. It billed tax on the difference and separately charged for recovery and refining.

The memorandum included the recovery and refining charge in the taxable measure. Combining the replacement-gauze billing and refining charge while subtracting the recovered-metal credit excluded only the approximate value of the exhausted metal the customer returned.

A pre-1959 rule for separately charged out-of-state processing of catalytic platinum was no longer controlling after the cited amendment to section 6010.

Citations and references

• California Revenue and Taxation Code section 6010, as amended in 1959 (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/435-1360.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-State Auditing (DMA)

From:

Tax Counsel (PRD)

Subject:

X-------------------------

435.1360

Date:

March 11, 1965

This is in reply to your memo requesting our opinion on the taxability of a separate charge for recovering precious metals in a pure state. We understand the facts to be as follows: Taxpayer is a manufacturer of catalytic gauzes, screens, filters and sponges which contain platinum and rhodium and are sold to petroleum refiners. After a period of time the utility of the gauze, etc., is exhausted by contamination with impurities, and the customer returns the gauze or filter to taxpayer for the purpose of recovering the precious metals. Taxpayer makes a separate charge to the customer for recovering the precious metals and removing the impurities. The value of the recovered metal is credited to the customer's account by taxpayer, but there is no identification as to any particular customer's metal. When a customer orders a replacement gauze, etc. (usually coincidentally with the return of the exhausted gauze), the customer is charged for the value of the metal in the replacement gauze less the value of any recovered metal the customer has on deposit. Tax is billed by taxpayer on the difference between the total charge for the gauze and the value of the metal drawn from the customer's account. It is our opinion that the charge for refining the metal and recovering it from the exhausted gauze should also be included in the measure of the tax. Since the value of the recovered metal in its pure state is subtracted from the price of the new gauze, including both the billings for the replacement gauze and for the refining, in the measure of the tax will result in excluding from tax only the approximate value of the exhausted metal sent to taxpayer. Prior to the 1959 amendment of Section 6010, we considered a separate charge for out-of-state processing to remove catalytic platinum from alumina beads not to be properly included in the measure of the tax. Since the above enactment, we do not consider this rule to be now controlling. Thus, a separate charge for removing the platinum from the gauze and refining it to its pure state is taxable. PRD:ls [lb]