Were roto-blasting and unloading charges taxable for new pipe furnished by consumers as part of wrapping and coating?

Plain-English summary

Roto-blasting new pipe furnished by consumers was an integral step in wrapping and coating the pipe. It was taxable fabrication or production rather than repair.

Unloading charges connected with similar fabrication activity were also included in the taxable fabrication measure. The staff proposed increasing one determination by the unloading charges.

The letter separately rejected arguments that a 1949 equipment exchange was a liquidation distribution or an occasional sale under section 6006.5(b), because the required activity, series-of-sales, and substantially-similar-ownership facts were not established. The source records proposed recommendations and leaves later Board action unresolved.

Citations and references

• California Revenue and Taxation Code section 6006.5(b) (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/435-1400.pdf

Original ruling text

STATE OF CALIFORNIA

435.1400

STATE BOARD OF EQUALIZATION

May 16, 1952

X----------------------Account No. X----------Dear Mr. X---------------: Since the hearing in Los Angeles on May 5, 1952, we have carefully reviewed the arguments presented on behalf of the taxpayer, including the information and statements in your letter of May 13, 1952. Inasmuch as the tangible personal property transferred to X-----------------------. Under the agreement of March 12, 1949, was in exchange for other tangible personal property and not in complete or partial cancelation of shares of stock, we are unable to concede that the transaction was in the nature of a distribution in liquidation of X----------------------. We are also unable to concur with the Petitioner’s contention that the transaction constituted an occasional sale within the meaning of Section 6006.5 of the Revenue and Taxation Code, for the reason that the Petitioner has not established that the exchanged equipment was not held or used in the activity for which a seller’s permit was required, and was not one of a series of sales; or that the ultimate ownership of the property remained substantially similar following its transfer, as required by Section 6006.5(b). With respect to the letter point, it is our position that the ownership of 50% of the shares of the transferee corporation by individuals not previously having any interested in the transferred property took the transaction out of Section 6006.5(b), as the ultimate ownership of the property did not, under such circumstances, remain substantially similar following the transfer. With respect to new pipe furnished to the Petitioner by consumers, we are of the opinion that roto blasting is an integral part of the wrapping and coating process, constituting a step in the fabrication and production of the wrapped pipe rather than a repair operation. We have also ascertained that, in similar types of activities, i.e., the fabrication of tangible personal property furnished by consumers, this Board has considered charges by the fabricator for unloading the property as a part of the fabrication charges and, accordingly, includible in the measure of the tax. In view of the foregoing conclusions, we propose to recommend that our determination of November 2, 1950, be increased, upon redetermination, in the aggregate

amount of unloading charges; and that our determination of April 4, 1952, be redetermined without adjustment. Although you have not requested an oral hearing before this Board, we shall be pleased to arrange for such a hearing if you should now desire it. So that you may advise us of your wishes we shall withhold for another 30 days any action toward redetermination of the tax. Very truly yours,

R. G. Hamlin,
Tax Counsel
RGH:ja