How did California's historical tax measure differ for fixtures fabricated under federal and private construction contracts?

Plain-English summary

The letter contrasted historical tax treatment for federal construction with construction for private persons or corporations.

For a federal contract, the taxable transaction was the sale of tangible personal property to the contractor, whether the property was material or a fixture. Tax was measured by the seller's gross receipts from that sale.

If the federal contractor fabricated fixtures from raw materials, tax applied to the raw materials' sale price. The letter contrasted that result with nongovernment construction, where historical Ruling 11 used the fabricated fixture's fair retail value.

The source also separately stated that religious, educational, and charitable institutions had no general California sales-and-use-tax exemption and were treated like other purchasers.

Common questions

What sale was taxable on federal construction work?

The sale of materials or fixtures to the contractor.

How were contractor-fabricated fixtures measured?

For federal work, by the contractor's raw-material purchase price rather than the finished fixture's fair retail value.

Did religious, educational, or charitable status create a general exemption?

No, according to the historical letter.

Citations and references

• Historical Sales and Use Tax Ruling 11 — nongovernment construction and institutional-purchase treatment discussed
• Historical Sales and Use Tax Ruling 12 — United States contractor treatment applied

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/565-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/565-0040.pdf

Original ruling text

565.0040

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 2, 1951
Attention:

Mr. Robert W. Johnson
Legal Department

Gentlemen:
It appears that we have never answered in writing your letter of November 16, 1950, although I believe that the subject matter thereof was pretty well covered by our conference on January 8. Sales and Use Tax Ruling 11 provides the answers to questions (1) and (2) of your letter and paragraphs (3) and (4) are pretty generally covered by Sales and Use Tax Ruling 12, United State Contractors. In the case of contracts with the federal government, the application of the tax differs from that in the case of a contractor with a private person or corporation in that, pursuant to express provisions of law, the sale to the contractor of any tangible personal property, whether "materials" or "fixtures", is the taxable sale measured by the gross receipts from that sale. Even if the contractor fabricates "fixtures" from raw materials purchased by him, the tax applies not to the fair retail value of the fabricated fixtures, as in the case of nongovernment contracts, but applies to the sale price of the raw material to the contractor. With respect to contracts with religious, educational, or charitable institutions, the sales tax or the use tax applies in the same manner as it applies with respect to contractors generally, as indicated by Ruling 11. There is no "exempt" status insofar as sales and use tax is concerned in this state enjoyed by religious, educational, or charitable institutions. Sales directly to such institutions are subject to sales tax and purchases by them are subject to the use tax to the same extent as by other purchasers. Very truly yours, E. H. Stetson Tax Counsel