Were charges taxable for drilling holes, flattening angle ends, or cutting customer-furnished steel into desired lengths?

Plain-English summary

Customers brought in steel to have holes drilled, angle ends flattened, or bars cut into desired lengths.

Ruling 15, as cited, taxed fabrication or processing of consumer-furnished materials. These operations normally created an essentially new item or adapted the steel to a new and different use, so the charges were taxable fabrication.

Ruling 26 distinguished repair, meaning reconditioning property or restoring it to the use for which it was originally intended. The letter did not identify facts making the listed steel work repair.

Citations and references

• California Sales and Use Tax Rulings 15 and 26 (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/435-1580.pdf

Original ruling text

435.1580

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
June 2, 1953

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Attention:

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Gentlemen:
You inquire concerning the application of sales tax to your charges if a customer brings in a piece of steel to have some holes drilled or some pieces of angle to be flattened on the ends or a bar of steel to be cut into lengths. As indicated in Sales and Use Tax Ruling 15 (copy enclosed) the tax applies to charges for fabricating or processing tangible personal property for a consumer who furnishes the materials. In the case of repair work, however, charges for labor are generally not subject to sales tax. See Ruling 26 (copy enclosed). The problem is to distinguish between fabrication and repair. Repair is the reconditioning of property or the restoration of property to the use for which it was originally intended. Fabrication is the creating of something now or the modifying of property to fit it for a new and different use. Normally the operations about which you inquired are regarded as taxable fabrication labor since they involve the creation of what is essentially a new item of tangible personal property. Yours very truly,

Bill Holden
Junior Counsel
BH:ja
cc:

Pasadena - Auditing