Could a federal construction contractor buy all non-realty property for resale to the United States?

Plain-English summary

A federal construction contractor asked whether every item of tangible personal property not incorporated into real property could be bought ex tax for resale to the United States.

An earlier letter had approved resale treatment for office supplies because the contract passed title to the government before the contractor functionally used them. The analysis also assumed those supplies were totally consumed and used exclusively in performing the federal contract.

This letter extended the same result to other non-realty tangible personal property only if all of those same factors were present. The contractor's sale to the United States would then be exempt under Revenue and Taxation Code section 6381.

Common questions

Was non-incorporation into realty enough by itself?

No.

When did title have to pass?

Before the contractor's functional use of the property.

Could the property be used on other work?

Not under the assumptions stated; it had to be exclusively used and totally consumed on the identified contract.

Citations and references

• Cal. Code Regs., tit. 18, reg. 1521(b)(1) — federal construction-contractor treatment
• Cal. Rev. & Tax. Code section 6381 — exempt sale to the United States
• January 6, 1984 prior opinion — incorporated factual and contract basis not reproduced in this source

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/565-1460.pdf

Original ruling text

565.1460

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-8485
December 17, 1984
Dear REDACTED TEXT,
This is in response to your letter of November 19, 1984 which raised the following question: “Can all tangible personal property acquired for the REDACTED TEXT contract, that is not incorporated on or into real property, be acquired ex-tax for resale to the U.S. Government?” In our January 6, 1984 letter to you, it was concluded that the referenced REDACTED TEXT contract was a construction contract for the U.S. Government. As such, Regulation 1521(b)(1) has application. It was also concluded in our analysis, under the heading “Item(d)” that, pursuant to the contract title to various office supplies passed to the U.S. Government prior to functional use of such items, and; therefore, the sales of the items to the contractor were exempt sales for resale and the subsequent sale by the contractor to the U.S. Government are exempt sales pursuant to Revenue and Taxation Code Section 6381. Our conclusion regarding the office supplies was grounded on our assumption that all supplies in question would be totally consumed and exclusively utilized in performing the REDACTED TEXT contract. Assuming that the same factors relied on in reaching our conclusion with respect to the office supplies are in evidence with respect to the other tangible personal property, alluded to in your question, the same conclusion is in order. Very truly yours, E. Leslie Sorensen, Jr. Tax Counsel ELS:rar