Were separately stated engineering and design charges taxable when a vendor was obligated to deliver a finished mold?

Plain-English summary

California told a mold company that engineering and design costs incurred to perform a contract to sell a mold could not be excluded from taxable receipts merely because they were separately stated.

A different result could apply when the company contracted only for engineering and design and had no obligation to deliver a finished product. Those charges could be nontaxable services.

The company had not supplied the requested contracts or other information showing such standalone work. California asked it to provide the material or proceed to a preliminary hearing on its redetermination petition.

The source has conflicting dates. Its first page is dated June 19, 1954, while the continuation header and official annotation page print July 19, 1954. The formal first-page date is used here.

What this means for you

Mold vendors and purchasers

Separate pricing did not separate engineering performed to fulfill an existing mold-sale obligation.

Accountants and tax professionals

Document the contracts, timing, finished-product duties, separate service engagements, engineering charges, evidence submitted, and hearing posture.

Common questions

Q: Were engineering costs for a required finished mold taxable?

A: Yes.

Q: Could standalone engineering with no product obligation be nontaxable?

A: Yes.

Q: Which issue date does this page use?

A: June 19, 1954, the formal first-page date.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0560
• Original supporting opinion: 515.0560 PDF

Original ruling text

515.0560

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 19, 1954

O--- M--- Company, Inc.
P.O. Box XXX
---, Indiana
Attention:

Mr. R. L. W--Assistant Secretary-Treasurer

now:

-- - XXXX
SR -- XX-XXXXXX

Gentlemen:
Your petition for redetermination of the determination of $197.46 against you on April 30, 1954, was acknowledged by us under date of May 24 and referred to the undersigned. Prior to levying of the determination we had some correspondence with your customer, M--- G--- Company, and in our letter dated March 2 to that company, a copy of which was sent to you, we explained the basis of our position and suggested that we be furnished with typical contracts showing that you undertook to perform engineering services for your customer without being obligated thereunder to deliver a finished product. For your ready reference we quote the following paragraph from our letter: “If O--- contracts to sell you a mold and in order to perform that contract must incur costs for engineering and design, we believe such costs cannot be excluded from the measure of the tax even though separately stated. If O--- merely contracts to do certain engineering and design, without being obligated to deliver a finished product, we do not think its charges for such engineering and design are taxable. If such contracts were entered into between you and O---, it is suggested that you forward us copies of typical contracts of this type. Presumably, such contracts would be the basis of ‘engineering and design charges that are not actually a part of a general fabrication program’ referred to in your letter of February 19 to O---. We have not received any copies of contracts or other information in response to our suggestion. If it is feasible for you to do so, we suggest that you make available to us this material. Otherwise, it appears that the matter can best be handled by scheduling your petition for a preliminary hearing before a hearing officer in Los Angeles.

Mr. R. L. Wallace

-2-

We would appreciate hearing from you at your convenience.

Very truly yours,

E. H. Stetson
Tax Counsel

EHS:ph
cc:

Downey - Auditing

July 19, 1954
515.0560