Ezel / Tax Rulings / CA

Could a vendor accept a resale certificate for an overhead item used across both commercial and qualifying federal contracts?

Short answer Yes. The contractor could buy the item ex-tax, allocate part to qualifying government contracts, and report use tax on the commercial share.
State
CA
Ruling
Annotation 565.1600
Tax type
Sales and Use Tax
Issued
1992-02-26
Issued by
California State Board of Equalization
Requested by
Vendor declining federal contractors' resale certificates
Topics
federal contracts resale certificate commercial contracts government contracts allocation use tax aerospace
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1992. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1992
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: The exact same February 26, 1992 official opinion supports both Annotation 565.1600 and Annotation 565.1585. This page focuses on the vendor's acceptance of resale certificates; the companion page focuses on allocation and self-accrual for the same mixed-use overhead purchase. The source says the position would continue absent legislative or court action. CDTFA says statutory law controls if it conflicts with an annotation. Title clauses, item use, allocation method, certificate validity, commercial share, reporting, and current law can change the result.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A vendor had refused resale certificates from federal contractors buying overhead items, such as reference books, for use across both government and commercial work.

After senior legal and audit review, California changed the conclusion in an earlier letter. If the government contracts contained appropriate title-passage clauses, Aerospace allowed the contractor to allocate part of the overhead purchase price to those contracts.

The contractor could issue a resale certificate and buy the entire item ex-tax. It then had to report and pay use tax on the purchase-price portion allocated to private and commercial contracts.

The opinion asked the vendor to notify its customers of the corrected conclusion.

Common questions

Could the vendor accept a resale certificate for a mixed-use item?

Yes.

Did that make the entire purchase permanently tax-free?

No. The contractor owed use tax on the nonqualifying commercial share.

What federal condition was required?

Appropriate title-passage clauses in the government contracts.

Does another annotation use the same source?

Yes. Annotation 565.1585 uses the identical opinion for the allocation issue.

Citations and references

  • Aerospace Corp. v. State Board of Equalization, 218 Cal.App.3d 1300 (1990) — allocation of mixed-use overhead under qualifying federal title clauses
  • December 17, 1991 prior opinion — conclusion corrected by the February 26, 1992 letter

Source

Original ruling text

565.1600

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 920-6563

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

February 26, 1992

GRAY DAVIS
Controller, Sacramento
BURTON W. OLIVER
Executive Director

Dear Mr. REDACTED TEXT,
Several purchasers of REDACTED TEXT’s products which have contracts with the United States have telephoned me to say that you are sending them copies of my letter to you dated December 17, 1991, on the above subject, and that your company is refusing to accept their resale certificates. The subject of the interpretation of the Aerospace decision when the issue is a contractor's purchase of overhead items which it may use in the accomplishment of both its government and commercial contracts has been the object of much discussion. After I wrote you, this matter was reviewed by several senior members of the legal and auditing staffs. This matter is certainly not free from doubt, as you are aware. However, it has been determined that, while the legal reasoning expressed in my letter is correct, the sense, if not the actual letter, of the Aerospace ruling requires a different conclusion. We have concluded that, in the situation where a contractor is buying an overhead item (such as one of REDACTED TEXT’s books) which it will use in the performance of both its commercial and governmental contracts and those governmental contracts contain the appropriate title-passage clauses, the Aerospace decision permits the contractor to allocate part of the purchase price to its government contracts. The contractor may thus purchase the item ex-tax by issuing a resale certificate to the seller. He must then report and pay use tax on the amount of the sales price which he allocates to his private and commercial contracts. This rule will be followed in the future barring legislative or court action. Please notify your clients of our conclusion. I apologize for any inconvenience our previous opinion may have caused you. Sincerely, John L. Waid Tax Counsel JLW:es 4320I

What does the law say today, for your facts?

This ruling is from 1992. Ezel checks current California tax law against your situation and cites the authority it relies on.

Opens in Ezel Pro.

  • Checks the law as it stands today, not only this page
  • Cites every source it relies on, so you can verify it
  • Chat, drafting and research in one workspace