Which agricultural marketing committees qualified as United States instrumentalities, and what made the Mushroom Council exempt?

Plain-English summary

California treated agricultural organizations as federal instrumentalities when federal law created them and the U.S. Department of Agriculture controlled their operations.

The 1989 letter exempted purchases by the Kiwifruit Administrative Committee, created under federal Marketing Order No. 920. The 1990 source describes 17 marketing orders and later refers to 17 committees, but its table actually names 18 bodies: the Navel Orange, Valencia Orange, Lemon, Nectarine, Pear, Peach, Plum, Kiwifruit, California Desert Grape, Tokay, Winter Pear, California Olive, Oregon-California Potato, Almond, Walnut, California Date, Raisin, and Prune committees or boards. The page preserves that official count-versus-list conflict rather than choosing one. Sellers still needed Regulation 1614(g) documentation.

The 1990 correspondence also limited the annotation to the federally created bodies. A redacted state board was not created by federal regulation even though it was described as part of a federal order, so the Board proposed rescinding that entity's prior treatment under section 6596.

The 1994 memorandum added the Mushroom Council. Congress authorized the program; the Agriculture Secretary appointed the council, defined its duties, approved its budgets and projects, could investigate and regulate it, and enforced recordkeeping and penalties. That degree of federal creation and oversight meant the council could not realistically be viewed as separate from the United States.

What this means for you

Agricultural boards, commodity committees, vendors, and tax advisers

Match the exact purchasing body to the federal order or statute that creates and controls it. Participation in a federal program is not enough when state law created the organization.

Common questions

Q: Was the Kiwifruit Administrative Committee exempt?

A: Yes, under the 1989 letter.

Q: Why was the Mushroom Council exempt?

A: USDA created it under federal authority and controlled its plans, budgets, records, investigations, and enforcement.

Q: Did being part of a federal order automatically exempt a state board?

A: No. The 1990 correspondence excluded a state-created body.

Citations and references

• California Revenue and Taxation Code §§ 6051, 6381, and 6596
• California Sales and Use Tax Regulation 1614(g)
• Mushroom Promotion, Research, and Consumer Information Act of 1990, 7 U.S.C. §§ 6101–6112
• The source lists the federal committee-creating regulations in 7 C.F.R. §§ 907.20, 908.20, 910.20, 916.20, 917.20, 920.20, 925.20, 926.20, 927.20, 932.25, 947.25, 981.30, 984.35, 987.16, 989.23, and 993.24.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0360
• Original supporting opinion: 505.0360 PDF

Original ruling text

505.0360

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 445-8485

April 25, 1989
REDACTED TEXT

Dear REDACTED TEXT:
Your March 1, 1989 letter to Tax Counsel, David Levine, has been referred to the undersigned for reply. You have requested an opinion concerning whether all sales of tangible personal property to the Kiwifruit Administrative Committee are exempt from sales tax. Effective October 12, 1984, Marketing Order No. 920, issued by the United States Department of Agriculture, authorized the Kiwifruit Administrative Committee to administer the marketing order for the California Kiwifruit Industry. Except as specifically exempted by statute, sales tax applies to the gross receipts of retailers from all retail sales of tangible personal property in this state. (Rev. & Tax. Code
§ 6051). Revenue and Taxation Code Section 6381 exempts from sales tax the gross receipts from the sale of any tangible personal property to unincorporated agencies and instrumentalities of the United States. It is our opinion that the Kiwifruit Administrative Committee is an unincorporated agency or instrumentality of the United States. Accordingly, sales of tangible personal property to the Kiwifruit Administrative Committee are exempt from the imposition of tax. (See Business Taxes Law Guide Annotation 505.0360 (5/23/74).) This subject is discussed in Regulation 1614, a copy of which is enclosed. Subdivision (g) sets forth the documentation required for a seller to establish that a sale is exempt as a sale to the United States or its instrumentalities. If you should have any further questions, please feel free to write again. Very truly yours,

E. L. Sorensen, Jr.
Senior Tax Counsel
bc:

Sacramento District Administrator
Mr. Donald J. Hennessy (Annotation 505.0360, which covers marketing orders, should be amended to include the Kiwifruit Administrative Committee.

505.0360

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-6450

December 4, 1990
REDACTED TEXT

Dear REDACTED TEXT:
This is in reply to your October 16, 1990 letter regarding the application of sales tax to various marketing committees. You note the following facts: “The REDACTED TEXT is given the task of administering the seventeen marketing orders which are in operation in California and Hawaii. The Committees include: Valencia and naval oranges, lemons, nectarines, peaches, plums, pears, kiwifruit, grapes grown in the Coachella valley, Tokay grapes, papayas grown in Hawaii, olives, almonds, walnuts, dates, raisins and prunes. Most of the administrative committees have indicated that, at one time or another, they have experienced difficulty in purchasing items and explaining why the committee is tax-exempt….” As you noted, on April 25, 1989, this office provided an opinion to the REDACTED TEXT which concluded that sales to the committee are exempt from California sales tax pursuant to Revenue and Taxation Code section 6381. Subdivision (a) of section 6381 exempts from sales tax the gross receipts from the sale of any tangible personal property to the United States and its unincorporated agencies and instrumentalities. You asked that we provide a similar letter concerning the committees you listed above. We have examined Title 7 of the Code of Federal Regulations (7 CFR) and have determined that the following committees are unincorporated instrumentalities of the United States such that sales to the listed committees are exempt from sales tax. Following the name of each committee, we have listed the applicable CFR section which creates that committee: Committee Navel Orange Administrative Committee Valencia Orange Administrative Committee Lemon Administrative Committee Nectarine Administrative Committee Pear Commodity Committee Peach Commodity Committee Plum Commodity Committee Kiwifruit Administrative Committee

Section
907.20
908.20
910.20
916.20
917.20
917.20
917.20
920.20

REDACTED TEXT

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December 4,1990
505.0600

Committee

Section

California Desert Grape Administrative Committee
Tokay Industry Committee
Winter Pear Control Committee
California Olive Committee
Oregon-California Potato Committee
Almond Board of California
Walnut Marketing Board
California Date Administrative Committee
Raisin Administrative Committee
Prune Marketing Committee

925.20
926.20
927.20
932.25
947.25
981.30
984.35
987.16
989.23
993.24

Enclosed is a copy of Sales and Use Tax Regulation 1614, Sales to the United States and Its Instrumentalities. Subdivision (g) of the regulation provides the documentation required for a seller to establish that a sale to one of the entities is exempt as a sale to the United States or its instrumentalities. You also noted that you understand that the administrative committees are exempt from taxation by each county on the property they own. I am sending a copy of your letter to Mr. Richard H. Ochsner, Assistant Chief Counsel, State Board of Equalization Legal Division, Property Tax Section, for consideration. If you have further questions regarding the application of the sales tax, feel free to write to this office again. Very truly yours, Ronald L. Dick Senior Tax Counsel RLD:sr Enc. bc: Mr. John Abbot – I suggest that Annotation 505.0360 be amended to include only these seventeen committees. These are the only committees pertaining to California in the CFR. According to REDACTED TEXT some of them are successors to committees listed in the annotation, and the REDACTED TEXT and REDACTED TEXT have been terminated. REDACTED TEXT is not created pursuant to federal regulation but is a state board created pursuant to Food and Agriculture Code section 58841. The back-up correspondence to the annotation contains a list prepared by a representative of the U. S. Department of Agriculture that notes that the REDACTED TEXT is “part of the Federal order” but that it is a state marketing order body. I did not find a reference to the REDACTED TEXT in 7 CFR 989. We should notify the REDACTED TEXT that we are rescinding the annotation as to them in order to comply with Revenue and Taxation Code section 6596.

State of California

Board of Equalization

Legal Department-MIC: 82

505.0360

Memorandum
To:

Ms. Lori J. Mayoya
Audit Evaluation & Planning Section (MIC:40)

From:

Sharon Jarvis
Staff Counsel

Subject:

Mushroom Council Designation as a Federal Instrumentality

Date:

May 17, 1994

In your memorandum of March 9, 1994 you ask whether the Mushroom Council, authorized by the Mushroom Promotion, Research, and Consumer Information Act of 1990, is an instrumentality of the United States for Sales and Use Tax purposes. Discussion: Gross receipts from the sale of tangible personal property to an unincorporated instrumentality of the United States or to an incorporated instrumentality wholly owned by the United States are exempt from sales tax. (Rev. & Tax. Code § 6381.) The United States Supreme Court has concluded that an entity is an instrumentality exempt from state taxes only when that entity is so closely connected to the federal government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned. (United States v. Mexico (1981) 455 U.S. 720, 735; Standard Oil Co. of Cal. v. Johnson (1941) 316 U.S. 481; see also United States v. California (1993) 507 U.S. REDACTED TEXT [123 L.Ed.2d 528, 538; 113 S.Ct. 1748, REDACTED TEXT].) Therefore, the issue here is whether the Mushroom Council can realistically be considered an entity independent of the United States. If so, a tax on it cannot be viewed as a tax on the United States itself (see United States v. Mexico, supra, at p. 738), and the sales tax is properly applied. If, on the other hand, the Mushroom Council cannot realistically be viewed as an entity separate and independent of the United States, it is a federal instrumentality and exempt from sales tax. If the United States Supreme Court has determined that a particular entity cannot be viewed as independent from the United States, then we are, of course, bound by that determination. If the Court or some other appropriate authority has not made a determination with regard to a particular entity, we must make that determination. To do so, we must analyze all the factual circumstances of that entity's relationship to the United States. The Mushroom Promotion, Research, and Consumer Information Act of 1990 (7 U.S.C. §§ 6101-6112) defines the Mushroom Council's relationship to the United States. The Act declares the policy of Congress to authorize the development of a program to strengthen, maintain and expand the mushroom market. To effectuate this policy, the Act provides for

Ms. Lori J. Mayoya

-2-

March 17, 1994
505.0360

the establishment of a Mushroom Council, to be created by an order of the United States Secretary of Agriculture. The Act provides that by order the Secretary appoints the Mushroom Council, composed of mushroom producers and importers. The Act provides that the Council's powers and duties are defined by the Secretary's order, and include the duty to submit budgets, plans and projects of mushroom promotion, research, consumer information, and industry information to the Secretary for approval, and to implement the plans or projects only with that approval. The Act provides that mushroom producers and importers shall be assessed to pay for the implementation and administrative expenses of the Act, including the administrative costs incurred by the Secretary in administering and implementing the Act. The Act provides that the Secretary may issue any regulations necessary to carry out the Act; that the Secretary may make any investigation considered necessary for the effective administration of the Act; and that first handlers and importers of mushrooms must maintain certain books and records which must be available to the Secretary as needed to administer and enforce the Act, its orders or regulations. The Act also provides for civil and criminal penalties for persons violating any order or regulation issued by the Secretary under the Act. Through the Act, Congress has effectuated the creation and oversight of the Mushroom Council by the United States Secretary of Agriculture. All of the Council's projects and plans, as well as its budget, are subject to the Secretary's review and approval. This degree of oversight and involvement by the United States Secretary of Agriculture in the creation and functioning of the Mushroom Council shows that the Mushroom Council is so closely related to the United States that it is a federal instrumentality. The Mushroom Council cannot be viewed as an entity separate from the United States when all of its activities are subject to the Secretary's scrutiny and approval. We conclude that the Mushroom Council is an instrumentality of the United States for Sales and Use Tax purposes. SJ:es