Could portable hospital machines and doctor call units pass through three contractor tiers as property for resale to the United States?

Plain-English summary

A hospital electrical subcontract included dictating and transcribing machines and portable doctor call units carried in a doctor's pocket. A third-tier contractor furnished that portion of the work.

Because the equipment did not become affixed to real property and title was in the United States, the third-tier contractor, subcontractor, and prime contractor could each purchase it for resale. The prime contractor's final sale to the United States was exempt.

The letter contrasted that portable equipment with installed construction property, which the installing contractor consumed, while recognizing a separate exception for qualifying machinery and equipment.

Common questions

Did the three-tier contract chain prevent resale treatment?

No.

What facts mattered most?

The equipment remained portable and unattached, and the United States held title.

Were installed real-property components treated the same way?

No.

Citations and references

• Historical Sales and Use Tax Ruling 12 — federal contractor property classification 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/565-0860.pdf

Original ruling text

565.0860

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 11, 1966
Attention:

Mr. REDACTED TEXT
Secretary-Treasurer

Gentlemen:
This is in answer to your letter of February 3, 1966, concerning your sales and use tax obligations in connection with a lump-sum subcontract to furnish and install certain equipment, along with other electrical work, in the construction of a U.S. Government Hospital, for the prime contractor. The enclosed copy of ruling 12 sets forth the basic application of tax with respect to U. S. Government Contractors. You state that included in the equipment which you furnish are dictating and transcribing machines and portable doctor call units which are carried by the doctor in his pocket. You subcontract this portion of the work to a third-tier contractor. This portable equipment which does not become affixed to real property, and which is titled in the U.S. Government, may be purchased for resale by the third-tier contractor, by you as subcontractor, and by the prime contractor whose sale to the United States is exempt from the tax. Such portable equipment has a different status for sales and use tax purposes than other equipment which is installed by any of the contractors involved in such a manner as to become a part of the real property. This is the kind of property to which ruling 12 relates. The installing contractor is the consumer of that property for purposes of the sales tax which applies with respect to the sale of the property to him. There is one exception, and this is that type of property which falls within the classification of “machinery and equipment,” and is defined and explained in ruling 12. This property, as is the case with portable equipment which does not become affixed to real property, may be purchased for resale by each purchasing contractor, and the final sale to the United States is exempt from tax. Very truly yours, E. H. Stetson Tax Counsel cc:

San Diego – District Administrator