Did unsuccessful attempts to repair a purchased barge create taxable intervening use before the buyer resold it?

Plain-English summary

A buyer purchased a barge intending to use it and did not give a resale certificate or pay sales-tax reimbursement. Another company tried over an extended period to repair the barge, but the effort failed, particularly after the state condemned its boiler. The buyer never placed it into service and later sold it.

California found no taxable intervening use. Because the reconditioning failed and the property was sold in the regular course of business without actual service, the original seller's transaction was treated as an exempt sale for resale.

Common questions

Did the buyer's original intent to use the barge decide the result?

No. The source focused on the failed repair and the absence of actual service before resale.

Would successful repair followed by service be the same?

The memorandum did not say so. Its rule was limited to unsuccessful reconditioning followed by resale without actual use.

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/570-1300.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Vernon Ekstrom

From:

W. W. Mangels

Subject:

J--- H---, Inc.
XX --- Place
--- --- X, New York

570.1300
Sacramento, California
April 1, 1954

Account No. XXXXXX

S--- - R--- D--- B---, Inc.
Pier XX
--- ---, California

B-139943

Account No. - XXXXX

The legal staff finds the following facts with respect to J--- H--- Inc.’s petition for redetermination. The barge was sold in this State to S--- - R--- D--- B---, Inc. It was purchased by that customer with the intent of use in its business but no resale certificate was given, nor sales tax reimbursement paid. Over an extended period of time efforts were made by another company, S--- - R--- Co to repair the barge for S--- - R--- D--- B---, Inc., to make it suitable for use but such efforts failed, particularly in view of the fact that the boiler was condemned by the State Department of Industrial Relations. In view of such failure, H---s’ customer never put the barge into actual service but sold it to S--- - R--- Company. Conclusion There was no intervening taxable use and therefore the sale by H--- was an exempt sale for resale. Rule of Decision If a person purchases tangible personal property intending to use it and attempts to repair the property to make it suitable for use but the reconditioning effort fails and the item is sold in the regular course of business by that purchaser without being actually put into service, we will not regard the efforts to repair as a taxable intervening use. WWM:ja

cc:

San Francisco - Auditing