Could a metal-casting company buy Dycastal for resale when some additive was lost to slag or oxidation but its hydrogen entered the castings?

Plain-English summary

A metal-casting company added Dycastal, made of boron, oxygen, hydrogen, and calcium, to molten metal before pouring. The additive supplied elemental hydrogen that entered the finished casting and gave it desired strength.

Dycastal qualified as a resale purchase under Regulation 1525. Its primary purpose was incorporating an essential ingredient into castings sold by the company. The fact that some additive could be lost in slag or through oxidation did not change that purpose; the nonincorporated portion was used in accomplishing the incorporation of hydrogen.

Citations and references

• California Sales and Use Tax Regulation 1525 (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/440-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/440-2750.pdf

Original ruling text

440.2750

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
916/445-6493

October 19, 1984

Mr. P--- C. S--Purchasing Agent
C--- C--- Corporation
XXXX --- -----, CA XXXXX-XXXX
Dear Mr. S---i:
Your letters of August 13, 1984, and September 12, 1984 to Mr. R. B. Fitzgerald of our Oakland District Office, have been referred to me for response. You request our opinion as to the correct application of tax to your use of the metal additive, “Dycastal,” in the production of metal castings. We understand that Dycastal (manufactured by F---, Inc.) is a product which is composed of the following constituents: boron, oxygen, hydrogen, and calcium. Dycastal is added to molten metal prior to pouring in order to incorporate elemental hydrogen into the final casted product which is sold by your company. Supposedly, Dycastal is designed to be a source of this elemental hydrogen, which, as an ingredient of the metal, imparts a certain desired quality of strength to the finished article. A portion of the Dycastal may not become incorporated into the finished metal casting because there may be loss in the metal’s slag, or there may be some loss due to oxidation. Subsection (a) of Regulation 1525 provides that tax applies to the sale of tangible personal property to persons who purchase it for the purpose of use in manufacturing, producing, or processing tangible personal property and not for the purpose of physically incorporating it into the manufactured article to be sold. Subsection (b) of this regulation further provides, however, that tax does not apply to the sale of tangible personal property to persons who purchase it for the purpose of incorporating it into manufactured articles to be sold, as for example, any raw materials becoming an ingredient or component part of the manufactured article.

C--- C--- C---

-2-

October 19, 1984
440.2750

Although a portion of the additive does not remain in the finished article, it appears this nonincorporated portion is used only for the purpose of incorporating the elemental hydrogen component of Dycastal into the end product to be sold. Therefore, it is our opinion that Dycastal is purchased primarily for the purpose of incorporation as an essential ingredient in the production of metal castings which are resold. Accordingly, tax does not apply to the sale of Dycastal when you purchase it for the purpose of incorporating elemental hydrogen into the metal castings which your company sells. If you have any further questions, please write this office. Very truly yours,

Charles J. Graziano
Tax Counsel

CJG:ba