Were building materials sold to a management contractor for repair and maintenance of an FHA-owned housing project exempt as sales to the United States?

Plain-English summary

A seller supplied building materials to a management broker working on a housing project owned by the Federal Housing Administration. The broker used the materials to repair, recondition, maintain, and improve the project.

The FHA argued that the broker acted on its behalf, making the purchases exempt sales to the federal government under section 6381.

The letter disagreed. Sections 6007.5 and 6384 specifically made sales of property to contractors taxable when the property was used to construct or improve United States real property, whether the contractor bought as a federal agent or for its own account and resale.

No adjustment to the seller's sales-tax determination was allowed.

Common questions

Did FHA ownership make the material sale exempt?

No.

Did the broker's claimed federal-agent status change the result?

No.

Did the rule cover repair and maintenance work?

Yes, for the work on the housing-project real property described in the letter.

Citations and references

• Cal. Rev. & Tax. Code section 6381 — general federal sale exemption asserted by the FHA
• Cal. Rev. & Tax. Code sections 6007.5 and 6384 — specific federal construction-property rules controlling the sale

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/565-0520.pdf

Original ruling text

STATE OF CALIFORNIA

565.0520

STATE BOARD OF EQUALIZATION
July 26, 1967
Gentlemen:
This is in regard to the determination of sales tax which has been made with respect to your sales of building materials to REDACTED TEXT Management Broker. "G" purchased the materials for use in repairing, reconditioning, maintaining, and improving REDACTED TEXT, a housing project owned by the Federal Housing Administration. As indicated in the letter written to you on April 11, 1967 by Mr. J. A. Carter, District Principal Auditor, the legal staff examined a copy of the contract between the Federal Housing Administration and REDACTED TEXT and concluded that sales of building materials to REDACTED TEXT for use in fulfilling his obligations under that contract were not exempt from the California sales tax. On May 26, 1967, the Director of the Federal Housing Administration sent you a copy of an opinion from the Chief of that administration. In his opinion, the Director stated his conclusion that since REDACTED TEXT was acting on behalf of the Federal Housing Administration when he ordered the materials from you, the sale of the materials was to the federal government and was, therefore, exempted from the California sales tax under Section 6381 of the Revenue and Taxation Code. We cannot agree with this conclusion. Section 638l(b) of the Revenue and Taxation Code provides for the exemption from the sales tax of the gross receipts from the sale of tangible personal property to any incorporated agency or instrumentality of the United States wholly owned by the United States, or by a corporation wholly owned by the United States. Although this section provides for a general exemption from sales tax for sales of tangible personal property to the United States and its instrumentalities, two other sections of the Revenue and Taxation Code specifically cover the type of sale made to REDACTED TEXT and provide for the application of the sales tax. Section 6007.5, effective September 7, 1955, provides: “A sale of tangible personal property to a contractor or subcontractor for use in the performance of contracts with the United States for the construction of improvements on or to real property in this State is a retail sale. The gross receipts from such a sale or the sales price of property so sold shall be included in the measure of the taxes imposed by this part.” Section 6384 also effective September 7, 1955, provides: "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 in this State." In view of the specific provisions of Sections 6007.5 and 6384, notwithstanding the conclusion reached by the Director of the Federal Housing Administration, it is our opinion that sales of tangible personal property to REDACTED TEXT for use in repairing, reconditioning, maintaining, or improving REDACTED TEXT are subject to sales tax. Accordingly, no adjustment can be made with respect to the determination of sales tax on account of such sales. Very truly yours George A. Trigueros Tax Counsel GAT:lt [lb]