Was equipment 'used' for California tax purposes when it was held available as standby replacement property but never physically operated?

Plain-English summary

California distinguished equipment actually held available as a standby replacement from property merely purchased and later resold.

If the item was available to replace operating units when needed, it had been used for standby purposes even though it was never physically operated. That use mattered for sales and use tax.

A prior conclusion could still apply if the earlier facts were correct: the mill had never been installed, operated, or actually held for standby use and was sold after the company decided it was unnecessary. The source does not resolve which factual account was ultimately accepted.

Common questions

Did physical operation have to occur?

No. Actual availability for standby replacement could itself be use.

Was every item described internally as possible replacement property taxable?

The memorandum did not say that. It required the property to have been used in fact for standby purposes and distinguished an item never installed or actually held as standby before resale.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/570-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/570-0380.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Long Beach – Auditing (RNH)

From:

Tax Counsel (EHS) - Headquarters

Subject:

S--- C--- Div. of S--- O--- Co.
XXXXX So. --- Avenue

570.0380

November 7, 1966

SY – XX XXXXXX

I have reviewed your memorandum of October 31, 1966, and the memorandum from Mr. Anderson referred to therein, dated May 11, 1964. I note that Mr. Anderson’s opinion was based upon an understanding that although the P--- M--- purchased by S--- was intended to be used as a standby mill, it was not actually so used. Mr. Anderson’s letter states: “It was later determined that they did not need it as a standby, and they sold it. S--- never actually operated the mill nor did they ever install the mill so that it could be operated if needed.” Your memorandum, however, indicates that the merchandise was purchased “for possible replacement of similar units in operation and were available for use although not actually used in the physical sense.” I agree with you that if property is, in fact, used for “standby” purposes it has been used for purposes of determining the application of sales tax and use tax. If, however, as Mr. Anderson appeared to understand, it was never, in fact, used for this purpose, then I agree with the conclusion expressed in his letter.

EHS:fb
cc:

Los Angeles District – District Administrator