Were purchases by the Raisin Advisory Board and California Avocado Commission exempt because related agricultural boards had federal status?

Plain-English summary

California distinguished agricultural bodies created and controlled under federal law from similar-sounding state bodies.

The 1990 letter found 17 named commodity committees in Title 7 of the Code of Federal Regulations and treated their purchases as exempt purchases by unincorporated United States instrumentalities. But the published annotation identifies the Raisin Advisory Board as a state board created under California law rather than federal regulation, so its purchases were taxable.

The 2005 memorandum drew the same line for avocado organizations. The Hass Avocado Board was federally authorized and subject to extensive federal oversight, so it qualified as a United States instrumentality. The California Avocado Commission was instead a corporate instrumentality of California with no federal official controlling its activities. Its purchases were taxable unless another exemption applied. The USDA corrected an earlier letter that had mistakenly described the California commission as federally authorized and tax-exempt.

What this means for you

Agricultural boards, vendors, purchasing teams, and tax advisers

Do not infer exemption from an organization's commodity, mission, or relationship with a federal program. Identify the law that created the exact purchasing entity and who controls its plans, budgets, and activities.

Common questions

Q: Were all agricultural marketing committees exempt?

A: No. The 1990 letter exempted the federally created committees it identified, not state-created bodies generally.

Q: Was the California Avocado Commission exempt?

A: No. It was a California instrumentality, and its activities were not federally controlled.

Q: Was the Hass Avocado Board treated differently?

A: Yes. Its federal authorization and extensive federal oversight supported federal-instrumentality status.

Citations and references

• California Revenue and Taxation Code §§ 6381 and 6596
• California Food and Agricultural Code § 58841
• California Food and Agricultural Code §§ 67001–67144, 67051, and 67056
• 7 U.S.C. §§ 7801–7813
• California Sales and Use Tax Regulation 1614
• United States v. New Mexico, 455 U.S. 720, 735

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0600
• Original supporting opinion: 505.0600 PDF

Original ruling text

505.0600

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

505.0600

Memorandum
To:

Mr. Maywood Wong
Business Taxes Compliance Supervisor
Santa Ana District Office (EA)

From:

Carole F. Ruward
Tax Counsel

Subject:

Tax-Exempt Status of Hass Avocado Commission and
California Avocado Commission

Date:

April 19, 2005

Telephone: (916) 322-3682
CalNet: 8-492-3682

This memorandum is in response to your e-mail request dated January 20, 2005, regarding the tax-exempt status of the Hass Avocado Commission and the California Avocado Commission. On January 14, 2005, taxpayer REDACTED TEXT submitted to you a letter from the United States Department of Agriculture (USDA), dated March 23, 2004, stating that both organizations were exempt from all taxes, including “sales taxes.” You have requested clarification on whether transactions involving sales to either organization are exempt from state sales and use taxes. As you know, 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.) Unless federal law so provides, this exemption also extends to tax on the storage, use, or other consumption of tangible personal property by the U.S. Government or its agencies and instrumentalities. (Cal. Code Regs., tit. 18, § 1614, subd. (a)(4).) 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. New Mexico (1981) 455 U.S. 720, 735.) The Hass Avocado Board (Hass Board) is an agricultural research and promotion board authorized by the Hass Avocado Promotion, Research, and Information Act of 2000 (Act). (7 U.S.C. §§ 7801 – 7813.) This enabling legislation not only creates and empowers the Hass Board, it also mandates an extensive degree of oversight, involvement, and approval of the Hass Board’s plans, budgets, and activities by the United States Secretary of Agriculture. (See also 17 C.F.R.
§§ 1219.1 – 1219.202.) Thus, the Hass Board is an instrumentality of the United States for Sales and Use Tax purposes. The California Avocado Commission (Commission), on the other hand, is a corporate instrumentality of the State of California (Food & Agr. Code, §§ 67051 & 67056), authorized and governed by sections 67001 through 67144 of the Food and Agriculture Code. Its activities are not subject to the approval or control of any federal official or agency. Therefore, it is not an

Mr. Maywood Wong

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April 19, 2005
505.0600

instrumentality of the U.S. Government, and gross receipts from the sale of tangible personal property to the Commission are subject to tax unless another exemption applies. In addition, I inquired with REDACTED TEXT of the USDA’s Research and Promotion Branch of Fruit and Vegetables Programs and the signatory of the March 23, 2004, letter. She confirmed that the March 23, 2004, letter erred in stating that the California Avocado Commission was authorized by the Act and was “also exempt from taxation.” She provided me with a “corrected letter” dated February 14, 2005 (copy enclosed), stating that the Hass Avocado Board is authorized by the Act and is exempt from all taxation, including sales taxes. The corrected letter makes no reference to the California Avocado Commission. I hope this provides you with the information you requested. CFR/ds Enclosure: cc:

February 14, 2005, Letter From REDACTED TEXT of the USDA

Mr. Peter Horton (MIC:50)