Were charges and incorporated chemicals taxable when a business coated exempt seed beans?

Plain-English summary

Farmers either supplied their own seed beans for chemical treatment or bought beans already coated with Arosan or Isotox. The treatment left a protective film intended to keep worms from eating the beans after planting.

Assuming the beans were exempt seed, California excluded the treatment charge from tax. The chemicals became part of the seed and could be purchased tax free for resale. The result did not depend on whether the farmer furnished the beans or the treating business sold them.

If the treated seed was not exempt, the entire treatment or treated-seed charge was generally taxable unless the transaction separately qualified as a sale for resale.

Common questions

Was treatment of exempt seed taxable?

No.

Could incorporated treatment chemicals be bought for resale?

Yes.

Did it matter who supplied the seed beans?

No.

Citations and references

• Historical Sales and Use Tax Rulings 15 and 48

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/510-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/510-0300.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. H. B. Hoffman (LFG)

From:

E. H. Stetson (WWM)

Subject:

Application of sales tax to “Arosan” and
“Isotox” used in treating seed beans

510.0300
Sacramento, California
January 7, 1952

FACTS
In the first situation, a farmer brints his own seed beans to permittee for treatment with one of the above chemicals. The treatment results in coating the beans with a protective film that keeps them from being eaten by worms when they are planted in the ground. The charge is based on the quantity of beans treated and on the chemical used. In the second situation, permittee sells seed beans to farmers that have been treated with one of the chemicals, there being a proportionate increase in the sales price. ISSUE Is the permittee correctly handling the transaction where, in both situations, he purchases the chemicals ex-tax for resale, and, in the first situation, does not charge any tax reimbursement for the processing of beans furnished by the farmer, or, in the second situation, on the total sales price, where he sells treated beans. OPINION With respect to the first situation, if, as it appears, the chemicals become incorporated in the seed beans as a part thereof, we do not believe the chemicals should be regarded as consumed by the permittee. Accordingly, it would appear that they may properly be purchased by him ex-tax for resale. Also, in the first situation, it is our opinion that the charge for treating the seeds is not subject to the tax, assuming that these are exempt seeds within the meaning of Ruling 48. This is based on the theory that a taxable processing, within the meaning of Ruling 15, does not occur where the item processed is an item exempt from the tax. Of course, if seeds processed with these chemicals were not exempt seeds Ruling 15 would be applicable and the tax would apply to the entire charge unless the farmer was not a consumer of the seeds but was reselling the seeds in the regular course of his business.

Mr. H. B. Hoffman (LFG)

-2-

January 7, 1952
510.0300

With respect to the second situation, it would again appear that permittee might purchase the chemicals ex-tax. In addition, if, as we again assume, these seed beans are seeds, pursuant to Ruling 48, the products of which ordinarily constitute food for human consumption or are to be sold in the regular course of the farmer’s business, the addition to the sales price represented by the treatment charge would not be subject to the tax. This opinion is based on the theory that this charge would represent part of the sales price of an exmept seed. Of course, if any seeds so treated are not exempt vegetable seeds, the entire charge for the treated seed would be subject to the tax, unless the sale of the seed itself, as distinguised from its products, was a proper exempt sale for resale.

WWM:ja