Was a sawmill taxed when it used lumber from its own production for repairs and added construction at its California plant?

Plain-English summary

A sawmill produced lumber from purchased logs and used some of that lumber for repairs and additional construction at its own California plant.

California treated the internal use as taxable rather than resale. If the logs were bought in California under resale certificates, using the resulting lumber at the mill was self-consumption. If the logs were bought outside California, the portion used here was subject to use tax.

The tax measure was the proportional purchase price of the source logs. The letter's example taxed one-tenth of the log cost when 1,000 board feet from a 10,000-board-foot output was used by the mill.

Common questions

Was tax measured by the finished lumber's market value?

No. The source used the proportional purchase cost of the logs.

Did producing the lumber itself make the later plant use exempt?

No. Using it for the mill's own repair or construction was taxable self-consumption.

Citations and references

• Cal. Rev. & Tax. Code §§ 6091, 6094, 6201, and 6244 — resale-certificate, self-use, and use-tax provisions cited by the source
• Sales and Use Tax Ruling 69 — historical self-consumed-property rule cited by the 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/570-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/570-1280.pdf

Original ruling text

570.1280

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 14, 1953

Mr. K--- E. L--Certified Public Accountant
XXX --- ----- ---, Oregon
Dear Mr. L---:
Your inquiry concerns the application of the California Sales and Use Tax Law to lumber produced by a sawmill in the course of its operations but used in repair and additional construction by that mill at its own plant in California. We assume that the sawmill purchases logs for its operation. If these logs are purchased in California, we assume they are purchased for resale and a resale certificate given. (Section 6091 and following of the California Sales and Use Tax Law, copy enclosed.) If they are purchased outside of California and brought into this State for cutting into lumber, then, of course, a resale certificate would not be given at the time of the purchase but any use of the logs other than for resale would be subject to the California use tax. (Section 6201.) Thus, the use of the lumber for repair and construction by the sawmill would be a taxable sale or use of that lumber in California and subject to tax. (See Sections 6094 and 6244 of the Law and the first paragraph of Ruling 69, copy enclosed. The measure of the tax is the purchase price to the sawmill of the portion of the logs from which the lumber that is used is cut. For example, if the mill buys logs from which 10,000 bd. ft. of lumber is cut and the mill uses 1,000 bd. ft. in making repairs or in additional construction, then the tax would apply to the 1,000 bd. ft. of lumber and the measure of the tax would be one-tenth of the purchase price of the logs from which the 10,000 bd. ft. was produced. We trust this sufficiently answers your question. Very truly yours,

E. H. Stetson
Tax Counsel
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