Was charcoal made from wild mesquite cut for cooking fuel exempt as an organic fuel product or forest waste by-product?

Plain-English summary

A seller argued that mesquite charcoal from Mexico was expressly grown, exported, and used as cooking fuel and therefore qualified under section 6358.1.

California understood the mesquite to grow wild and be cut for charcoal. It read "grown expressly for fuel purposes" to require that the organic product be planted, grown, and harvested for fuel. Merely cutting a wild plant for fuel was not enough.

The waste-by-product provision also did not apply because charcoal used for cooking was not used in an industrial facility. The seller had to continue treating sales as taxable unless it submitted evidence that Board staff approved showing the mesquite met the planted-grown-harvested test.

What this means for you

Charcoal importers, fuel sellers, restaurants, and tax advisers

Keep cultivation and harvest evidence. Intended fuel use does not prove the product was grown expressly for fuel, and ordinary cooking use may not satisfy an industrial-facility requirement.

Common questions

Q: Did wild mesquite qualify as grown expressly for fuel?

A: No.

Q: Was cooking treated as industrial-facility use?

A: No.

Q: Could the seller submit additional evidence?

A: Yes, showing the mesquite was planted, grown, and harvested expressly for fuel.

Citations and references

• California Revenue and Taxation Code § 6358.1
• H. J. Heinz Co. v. State Board of Equalization, 209 Cal. App. 2d 1 (1962)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 596.0400
• Original supporting opinion: 596.0400 PDF

Original ruling text

596.0400

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 323-7712

August 15, 1984

Mr. REDACTED TEXT

Dear Mr. REDACTED TEXT:
The Board’s San Diego District Office has referred your letter of June 1, 1984, to the legal staff for response. We understand you are in the business of selling mesquite charcoal. Your letter states: “Mesquite charcoal is grown in Mexico and managed by their department of forestry. It is harvested expressly to be used as charcoal. It is grown, exported, and used expressly for fuel purposes, which is as a charcoal fuel for cooking over.” You then state that Senate Bill 1031 (Boatwright, Chapter 1059, Stats. 1983) was adopted amending Revenue and Taxation Code Section 6358.1 and ask whether it is correct that your product is no longer subject to sales tax. Revenue and Taxation Code Section 6358.1 is the statutory exemption for organic products and waste by-products used expressly for fuel, and, as amended, states: “There are exempted from taxes imposed by this part the gross receipts from the sale of and the storage, use, or other consumption in this state of either of the following: “(a)

Organic products grown expressly for fuel purposes.

“(b) Waste byproducts from agricultural or forest products operations, municipal refuse, or manufacturing which are sued in an industrial facility as a fuel source in lieu of the use of either oil, natural gas or coal.

Mr. REDACTED TEXT

-2-

April 15, 1984
596.0400

“This section shall remain in effect until December 31, 1986, and as of December 31, 1986, is repealed unless a later enacted statute which is chaptered before December 31, 1986, deletes or extends such date. “(c) In addition to subdivisions (a) or (b), the exemption under this section shall include the use of still gas produced in the refining process from purchased crude oil.” Senate Bill 1031 makes two amendments to Revenue and Taxation Code section 6358.1: 1) in subdivision (b) the requirements that waste by-products be delivered in bulk is deleted, and 2) subdivision is added to include still gas in the exemption. As you can see, subdivision (a) upon which you rely is unaltered. Although your facts state that mesquite is “grown, exported, and used expressly for fuel purposes,” it is our understanding that mesquite grows wild and is cut to be used as charcoal. In our opinion, the language “grown expressly” in Section 6358.1 requires that the organic product must be planted, grown, and harvested for fuel purposes. The mere cutting of a wild organic product to be used for fuel purposes does not suffice for the exemption provided by subdivision (a) of Section 6358.1. This interpretation is in line with H. J. Heinz v. State Board of Equalization, 209 Cal.App 2d 1, in which it was held that exemptions from the sales or use tax are to be narrowly construed against the taxpayer. Subsection (b), as amended does not apply because, in our opinion, charcoal used in cooking is not used in an “industrial” facility. In summary, we are of the opinion that you should continue to regard the sale of mesquite charcoal as subject to sales tax until you submit, and the Board staff approves, evidence to the effect that your mesquite charcoal was planted, grown, and harvested expressly for fuel purposes. If we may be of further assistance, please write this office. Very truly yours,

James A. Davis
Tax Counsel
JAD:jlh
bc:

San Diego – Auditing
Mr. W. D. Dunn - I’d appreciate being kept up to date on any developments in the area of organic products grown expressly as fuel.