How would California tax replacement generators made in Canada for a federal hydroelectric project if title passed before or after they entered California?

Plain-English summary

A Canadian manufacturer considered supplying and installing replacement generators for a Bureau of Reclamation hydroelectric project in Northern California.

The memorandum treated the generators as essential to a fixed work. If the manufacturer retained title and used a subcontractor only for installation, tax would be measured by the manufacturer's material cost. If it instead sold the generators to a subcontractor that furnished and installed them, tax would be measured by the generators' full selling price, including duties.

The attorney also raised the possibility that title would pass to the federal government while the generators remained in Canada. On that assumption, the memorandum concluded that California sales tax could not apply because the sale occurred in Canada and stated that use tax likely would not apply because neither the manufacturer nor a subcontractor would hold title in California.

Common questions

What if federal title passed while the generators were still in Canada?

The memorandum found no California sales tax and did not believe use tax would apply.

What if the manufacturer retained title and hired an installer?

The memorandum measured tax by the manufacturer's material cost.

What if the manufacturer sold to the installing subcontractor?

The memorandum measured tax by the full selling price, including duties.

Citations and references

• Lockheed Aircraft Corp. v. State Board of Equalization, 81 Cal.App.3d 257 — use-tax authority cited for the out-of-country title scenario

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/565-0640.pdf

Original ruling text

State of California

Board of Equalization

565.0640

Memorandum
To:

REDACTED TEXT

From:

Donald J. Hennessy

Subject:

United States Construction Contractors

Date:

December 30, 1988

On December 21 at 10:00 a.m., in my office, and again on December 28, in a telephone conversation, I discussed with Sacramento attorney, REDACTED TEXT, the tax implication that his Canadian client may face in supplying replacement generators to the Bureau of Reclamation, for the generation of hydro electric power as part of the Central Valley Project near Redding, California. I told him that we would see such generators as essential to a “fixed works”, and that tax would be due on material cost since his client is the manufacturer of the generators. This would be true if the client retained title to the generators and hired a subcontractor only for installation. On the other hand, tax would be due on the full selling price of the generator, including duties, if the client sold the generator to a subcontractor, who then furnished and installed the generator. In the telephone conversation, REDACTED TEXT raised the possibility that title to the generators might pass to the Federal Government while the generator was still in Canada. I told him that, in such situations, no sales tax could apply because the sale would occur in Canada and that I did not believe we would impose any use tax because neither his client, nor any subcontractor, would have title in California and, therefore, under authorities such as the Lockheed case, 81 Cal. App. 3d 257, use tax would not be applicable. DJH:jb