Could electrical transmission and distribution lines installed for the United States be treated as machinery and equipment because they powered machinery?

Plain-English summary

The memorandum considered electrical transmission and distribution lines covered by Revenue and Taxation Code section 6016.5.

It concluded that, after the statute's effective date, those lines were improvements to real property for all sales-and-use-tax purposes. They could not be reclassified as machinery and equipment merely because they supplied power to machinery.

For a United States contract, tax therefore applied to the contractor's purchase or use of property used to construct the lines.

Common questions

Did powering machinery make the lines machinery and equipment?

No.

How did the statute classify the lines?

As improvements to real property.

Who bore tax on the construction inputs?

The contractor's purchase or use was taxable under the memorandum.

Citations and references

• Cal. Rev. & Tax. Code section 6016.5 — classification of covered electrical transmission and distribution lines
• Cal. Rev. & Tax. Code section 6384 — United States real-property construction rule
• Former Cal. Code Regs., tit. 18, reg. 1615 — predecessor machinery-and-equipment rule cited by the memorandum

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/565-0270.pdf

Original ruling text

State of California

Board of Equalization

565.0270

Memorandum
To:

Mr. Robert Nunes

From:

T. P. Putnam

Subject:

REDACTED TEXT

Date:

May 29, 1973

In response to your memo of May 8, electrical transmission and distribution lines within the meaning of Section 6016.5 are, on and after the effective date of that section, improvements to real property for all purposes of the Sales and Use Tax Law. They may not be treated as “machinery and equipment” under Regulation 1615, with a resulting exemption for a contractor who installs them under a contract with the United States, whether or not they are used to power machinery and equipment. Since Section 6016.5 provides that such lines are not personal property for purposes of the Sales and Use Tax Law, they must necessarily be improvements to real property under Section 6384. Accordingly, tax applies to the sale to or use by a contractor of property used by him in constructing such lines under contract with the United States. TPP:lb