Was equipment that raised and lowered part of a federal roadway-causeway machinery and equipment or a fixture?

Plain-English summary

A federal subcontract involved a roadway-causeway with a section that could be raised so ships could pass underneath.

The taxpayer argued that the intact roadway was a fixed work but the lifting equipment was separate machinery and equipment. The memorandum rejected that distinction and treated the entire causeway, including the movable portion's lifting mechanism, as a fixed work.

The audited items were therefore fixtures consumed in improving California real property, not exempt machinery and equipment sold to the United States.

Common questions

Did the movable function make the lifting device machinery and equipment?

No.

How was the project viewed?

As one fixed roadway-causeway work, including its movable section.

Does this page cover the memorandum's die-reworking issue?

No.

Citations and references

• Federal roadway-causeway subcontract — project described in the memorandum
• Business Taxes Law Guide Annotation 435.0480 — cited only for the separate die-reworking issue, not relied on for this causeway holding

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/565-0248.pdf

Original ruling text

State of California

Board of Equalization

565.0248
Memorandum
To:

Auditing – Oakland (LHW)

From:

Gary J. Jugum

Subject:

REDACTED TEXT

Date:

March 19, 1984

This is in response to your memorandum of February 7, 1934. We understand that in the process of a l0-day letter hearing, two points of dispute have arisen with respect to which you have deemed it desirable to seek our counsel. First, taxpayer has a subcontract with respect to the roadway-causeway located at REDACTED TEXT. It is your position that the causeway at REDACTED TEXT including that portion of roadway that can be elevated to allow ships to pass underneath, constitutes in total a fixed work. Taxpayer's position is that the roadway-causeway, when intact as a roadway, is the fixed work but that equipment used to raise and lower the roadway is not a part of the realty but is simply "machinery and equipment" necessary to accomplish the raising of the roadway to allow the ships to pass underneath. We are in agreement with your analysis. The items in question in the audit are not exempt as machinery and equipment sold to the United States but are taxable as fixtures consumed in making an improvement to real property in this state. Second, taxpayer reworks existing dies commensurate with the advent of a new truck model year for REDACTED TEXT. It is your position that anything that changes, even slightly, an existing die from its old configuration constitutes taxable fabrication labor, particularly with a new model year. Not included in this view would be the simple add-on of metal to rebuild the die to its original tolerances. Taxpayer's view is that if the die still serves its same purpose, for example, part of a die for the side of a truck, the rework does not constitute fabrication labor. parts."

Included within the point in dispute is the taxability of changes for "relocation of tooling Business Taxes Law Guide, annotation 435.0480, provides as follows: "Alterations. Dies used by a supplier of automobile seat springs to an automobile manufacturer are owned by the latter. Alterations in the dies by the supplier necessitated by the yearly change in automobile models constitutes taxable fabrication labor by the

supplier. A design change results in a new product being produced and the alterations go beyond the limits of reconditioning and repair." It has been our interpretation in the past, as evidenced by the annotation, that as a general rule making alterations in a used die constitutes taxable fabrication labor because the die is used to produce a new item of property even though the property may generally be of the same type previously produced. Not every change in an existing die has been treated as fabrication labor, however. We have taken the position that rework of the type in question is not taxable when some minimal change or configuration is made in the die by means of some change in the assembly of the die. That is, if a die is "programmable," in that parts can be disassembled, rearranged, and reassembled, then we have not treated the product as a new product but as a previously finished product “tuned” to a new specification. This may be what taxpayer means by "relocation of tooling parts." If relocation of tooling parts occurs alone, we would view this as a nontaxable service charge. Where parts are added to the die, or where parts are physically reworked, the change constitutes taxable fabrication. Where there is relocation together with such a physical reworking of the die to cause it to be treated as a new product, the tax would apply to all charges made for changing the die. GJJ/jkr