Could a cement maker buy T.D.A. grinding aid for resale because it remained in and may have improved the finished cement?

Plain-English summary

A cement maker added T.D.A. during grinding. The 1955 memorandum reported that it reduced roller replacement and might improve later strength, warehouse stability, flow, and workability. Substantially all of it remained permanently in the cement within industry specification limits.

The original memorandum allowed resale treatment because T.D.A. became part of the finished cement, probably had some finished-product usefulness, and had not been shown to be primarily a manufacturing aid.

A June 19, 1998 note appended to the source called that conclusion “very shaky.” It said the treatment would continue for this particular product because it had been applied for more than 40 years, unless evidence showed that T.D.A.'s physical presence was not the purpose sought. The note also corrected the original analytical burden: sales are presumed retail, and the manufacturer must prove resale rather than requiring the agency to prove manufacturing use.

Because the PDF itself incorporates that later correction, this page uses June 19, 1998 as the controlling published-analysis date while preserving the January 4, 1955 memorandum below.

Citations and references

• American Standard Association specification for Portland cement, including stated T.D.A. percentage limits (described in the source)

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/440-2980.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Jose – Auditing (RGS)

From:

Headquarters – Tax Counsel (BH)

Subject:

P--- C--- Co.
---, California

440.2980
January 4, 1955

C-XXXXX

This is in reply to your letters of October 18 and December 21, 1954. The taxpayer purchases a product known as “T.D.A.” from D--- and A--- C--- Company. This is added to the cement and the question arises whether it is consumed by the taxpayer or may be purchased for resale. Your thought that this product might be taxable is based principally upon a conversation with Auditor Vogel had with a Mr. W--- who is a cost accountant, and has the title of Assistant to the Controller. Mr. W--- indicates that T.D.A. was a grinding aid and had the advantage of reducing the costly replacement of rollers utilized in the grinding process. He mentioned that the vendor also claims that T.D.A improves the quality of the finished cement. The standard specification for portland cement approved by the American Standard Association allows the addition to cement of certain materials which have been shown to be non-harmful by tests carried on by a committee of the Association. The committee has declared as non-harmful the inclusion of T.D.A in an amount not exceeding .048% by weight, except that in Type III cement the limit is .08%. Mr. J. M. G---, Plant Manager of the taxpayer’s Cement Mill describes T.D.A. in a memo and states that its benefits are not entirely clear. However, it is thought that T.D.A. lowers the water cement ratio, thereby giving slightly better strength particularly in later ages, reduces warehouse set tendencies, thereby allowing longer periods of warehousing, adds greatly to free flowing characteristics, and may or may not add to workability of cement. We assume that there is no question but that, except for a normal amount of loss inevitable in any manufacturing process, substantially all the T.D.A. is incorporated permanently into the finished cement. On the basis that it becomes a part of the finished product and probably has some usefulness in that finished product and is not shown definitely to be used primarily as a manufacturing aid, it is our opinion that the taxpayer is not the consumer of T.D.A. and that its purchases are for resale.

BH:ja

This is a very shaky conclusion. Since we have applied this for over 40 years, we will continue to do so, as to thisparticular product, unless we become aware that its physical presence in the end product is not what is sought by its incorporation during the manufacturing process. The proper rule is that all sales are presumed to be at retail. Thus, a manufacturer has the burden of proving property is purchased for resale and not as a manufacturing aid. I.e., the last sentence is backwards for the proper analysis. DHL 6/19/98.