Did a subcontractor that fabricated and installed reinforced-concrete pipe consume the materials even if furnishing and installation were split?
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This page answers the general question as of 1953. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A United States Army prime contractor subcontracted one portion of a canal project. The subcontractor would fabricate and lay 48-inch reinforced-concrete pipe, grade the trench, mortar and point the joints, place the sections, and test the completed line.
The letter treated the subcontractor as the consumer of the pipe materials and other tangible property used in the work. Tax applied to sales of those materials to the subcontractor, not to the subcontractor's charges to the prime contractor.
Dividing the subcontract into one part for materials and another for placement did not change the result. The actual undertaking was to furnish, fabricate, join, and install a complete pipeline.
Common questions
Who consumed the pipeline materials?
The subcontractor.
Were the subcontractor's charges to the prime contractor taxable?
No. The letter placed tax on sales of materials to the subcontractor.
Did separating supply and installation into two parts matter?
No. The complete integrated undertaking controlled.
Citations and references
- Historical Sales and Use Tax Ruling 12 — contractor-consumer treatment applied by the letter
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/565-0420.pdf
Original ruling text
565.0420
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
April 23, 1953
Dear Mr. REDACTED TEXT,
In your letter of April 20, written following our discussion on April 17, you explain that you hold a prime contract with the U.S. Army for construction of a canal and have negotiated a subcontract for the construction of a pipe line, one of the items of work of the prime contract. You describe the work of the subcontractor as follows: "The subcontract involves fabrication and laying of 48" reinforced concrete pipe. The laying involves fine grading of the bottom of the trench, mortaring the joints of the pipe, placing the sections, pointing completed joints and testing of the line". It is our opinion that the subcontractor, in performing the work as described, will be regarded for sales tax purposes as the consumer of the material from which the pipe is fabricated and any other tangible personal property used in the performance of the contract. Thus, pursuant to Sales and Use Tax Ruling 12, copy enclosed, the tax will apply with respect to the sale of such materials to the subcontractor and not to the subcontractor's charges to you. The fact that the subcontract may be in form divided into two parts, one for the furnishing of the materials, and the other for their placing or laying in the ground, appears immaterial for sales tax purposes. The actual undertaking, as we understand the facts, is that the subcontractor shall furnish, fabricate, and lay, and place the pipe joining the sections together to form a complete pipe line in place. Very truly yours, E. H. Stetson Tax Counsel EHS : ph cc: Marysville - Tax Administrator
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