Ezel / Tax Rulings / CA

Were receipts for designing and building temporary tooling taxable when the customer used it to make test objects before deciding whether to order a permanent model?

Short answer No. California treated the contract as engineering and design services that conveyed information; the vendor consumed the materials used in the temporary tooling.
State
CA
Ruling
Annotation 515.0760
Tax type
Sales and Use Tax
Issued
1965-11-10
Issued by
California State Board of Equalization
Requested by
A temporary-tooling designer and builder (identity redacted)
Topics
engineering services design services prototypes
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1965. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1965
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a California State Board of Equalization Associate Tax Counsel opinion dated November 10, 1965, published by CDTFA as support for a sales and use tax annotation. It concerns temporary tooling designed from general customer specifications, used as a mold for test objects, and followed by a possible order for a permanent model. Another designer or manufacturer should check current engineering-service, prototype, tooling, testing, material-consumption, transfer, and sales-and-use-tax rules. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A vendor agreed to design and build temporary tooling from general specifications. The customer would use the tooling as a mold to form several plastic objects, analyze those objects, and then decide whether to order a permanent model for commercial production.

California treated the temporary tooling as a way to convey information to the customer. The vendor was primarily performing engineering and design services rather than selling the tooling as the transaction's main object.

The vendor was the consumer of the materials used to construct the temporary tooling, and its contract receipts were not subject to tax.

What this means for you

Tooling designers and manufacturers

The temporary item's purpose mattered: it was built for testing and analysis before any permanent production order.

Accountants and tax professionals

Document the specifications, test purpose, customer analysis, material use, ownership and delivery terms, and any later permanent-tooling order.

Common questions

Q: Were the temporary-tooling contract receipts taxable?

A: No.

Q: What was the vendor selling?

A: Primarily engineering and design services.

Q: Who consumed the construction materials?

A: The vendor.

Source

Original ruling text

STATE OF CALIFORNIA

515.0760

STATE BOARD OF EQUALIZATION
November 10, 1965

Gentlemen:
This is in reply to your letter of October 21.
It is our understanding that you have entered into a contract pursuant to which you will design and construct a piece of temporary tooling, according to general specifications given by your customer. The customer will use the tooling as a mold on which he will form several plastic objects. These objects will be analyzed by the customer and if he is satisfied with their characteristics, he will place an order with you for a permanent model, presumably to be used for the commercial production of the plastic objects. On the basis of the foregoing, it appears that you will produce the piece of temporary tooling for the purpose of conveying information to your customer. It is therefore our opinion that you will be primarily performing engineering and design services and you will be the consumer of the materials which you use in constructing the piece of temporary tooling. Therefore, your receipts from such contract will not be subject to tax.

Very truly yours,

George A. Trigueros
Associate Tax Counsel

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