Was road oil applied to logging roads merely maintenance when the treated surface lasted only three to five months?

Plain-English summary

The contractor applied road oil to logging roads under United States government construction contracts. Its representative argued that the work was maintenance because the oiled surface lasted only three to five months.

The Board's counsel concluded that the road oil still produced an improvement to real property. Dispersal through time and use did not turn the work into mere maintenance.

The sale of the oil to the contractor was therefore taxable under section 6384. If the contractor gave its supplier a resale certificate, the letter said the contractor owed use tax under section 6094.

Common questions

Did the road surface need to last for years to be an improvement?

No. The letter said a three-month surface could still be an improvement to realty.

Was applying the oil treated as maintenance?

No. The contractor was treated as making a real-property improvement.

What if the contractor bought the oil with a resale certificate?

The letter said the contractor was liable for use tax.

Citations and references

• Cal. Rev. & Tax. Code section 6384 — taxable sale of road oil used in federal real-property construction
• Cal. Rev. & Tax. Code section 6094 — use-tax consequence when the contractor gave a resale certificate
• Enclosed California Attorney General opinion — quoted on federal repair and maintenance materials but not reproduced in the source PDF

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/565-0540.pdf

Original ruling text

565.0540

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
Sacramento
12-7-61
Gentlemen:
This is in reply to your letter of November 30, 1961, in which you stated that the road oil which is furnished by your client, the REDACTED TEXT, lasted in the case of logging roads, for a period of only three to five months. You also noted that oiling logging roads should be considered a maintenance operation rather than an improvement to real property. As stated in our earlier letter (dated October 26, 1961) we do not believe the fact that the road oil becomes dispersed by time and use is sufficient to keep it from being an improvement to realty. If the oiled surface lasts for only a period of three months rather than three years, it is still our opinion that your client, in applying the oil to the road surface, is a construction contractor making improvements to real property. The subject of whether maintenance constitutes an improvement to realty has been a subject of an opinion of the California Attorney General. We are enclosing a copy of that opinion for your information. You will not that the last paragraph of this opinion states: “In view of the legislative history and the interpretation placed upon the legislation by your Board, we are of the opinion that materials used by contractors with the United States or its agencies in repairing or maintaining such property are subject to the sales tax.” Accordingly, we are of the opinion that the sale of the road oil to your client for use in construction contracts with the United States Government was a taxable sale under Section 6384 of the California Sales and Use Tax Law (Revenue and Taxation Code), and if he gave a resale certificate to his supplier, he is liable for use tax under Section 6094. Very truly yours, E. H. Stetson Tax Counsel By JHK:o’b Enclosure cc: Fresno - Administrator

John H. Knowles