Was cement sold for federal machinery foundations taxable when the contractor immediately rebilled it and passed title to the United States?
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This page answers the general question as of 1952. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A seller provided cement to a contractor for machinery foundations. The contractor rebilled the cement to the United States, and title passed to the government immediately.
The letter treated the machinery foundation as part of the real property. Because the contractor used the cement to improve realty under a United States contract, the sale of the cement to the contractor was taxable.
Section 6384 controlled despite immediate government title. The letter explained that the rule applied whether the contractor bought as a federal agent or for its own account before reselling the property to the United States.
Common questions
Was the machinery foundation real property?
Yes. The letter said the foundation was part of the realty.
Did immediate title passage to the United States avoid tax?
No.
Did it matter that the larger contract principally involved personal property?
No. The letter said that fact was immaterial to the cement used for the real-property improvement.
Citations and references
- Cal. Rev. & Tax. Code section 6384 — federal-contractor sale rule quoted and applied
- Historical Sales and Use Tax Ruling 12 — materials used in United States real-property construction
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/565-0200.pdf
Original ruling text
565.0200
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
May 9, 1952
Attention: REDACTED TEXT
Account No. REDACTED TEXT
Gentlemen:
This is in reply to your letter of April 10 concerning the application of sales tax to the sale of cement by you to REDACTED TEXT for use by REDACTED TEXT in constructing machinery foundations. REDACTED TEXT rebilled the cement to the United States with title passing immediately to the United States. As indicated in Sales and Use Tax Ruling 12, copy enclosed, sales tax applies with respect to sales of materials to contractors for use in the performance of contracts with the United States for the construction of improvements to real property. The fact that the contract may provide principally for the manufacture or acquisition of tangible personal property is immaterial. The cement sold by you was used by REDACTED TEXT to construct a foundation for machinery. The foundation is part of the realty. Accordingly, REDACTED TEXT used the cement in the performance of a contract with the United States for the improvement of realty and the sale of the cement to REDACTED TEXT is subject to sales tax. Ruling 12 was adopted in accordance with Section 6384 of the California Revenue and Taxation Code which specifically provides that notwithstanding any other provision of law the tax imposed under this part shall apply to the gross receipts from the sale of any tangible personal property to contractors purchasing such property either as the agents of the United States or for their own account and subsequent resale to the United States for use in the performance of contracts with the United States for the construction of improvements on or to real property. Very truly yours, W. W. Mangels Assistant Counsel NBH : ja
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