Were eucalyptus seedlings exempt when bought for resale or to grow trees expressly for fuel?

Plain-English summary

A seller asked whether it should charge tax on eucalyptus seedlings grown especially for fuel.

Sales for resale could be nontaxable with a resale certificate. Retail sales also qualified under section 6358.1(a) when the purchaser would grow the trees expressly for fuel and the seller timely accepted a good-faith exemption certificate.

The fuel exemption did not apply if the purchaser also bought and planted the seedlings for a specific purpose such as ornament, soil-erosion control, or seed production. Harvesting those trees for fuel later did not cure the mixed purpose.

What this means for you

Nurseries, energy-crop growers, and tax advisers

Identify the transaction type and secure the correct certificate. Record the purchaser's planting purpose; an additional nonfuel purpose can defeat an expressly-for-fuel exemption.

Common questions

Q: Were seedlings bought for resale exempt?

A: Yes, with the appropriate resale documentation.

Q: Were seedlings grown expressly for fuel exempt?

A: Yes, with a timely good-faith exemption certificate.

Q: What if they also controlled soil erosion?

A: The fuel exemption did not apply.

Citations and references

• California Revenue and Taxation Code §§ 6091, 6358.1(a), and 6421(a)
• California Sales and Use Tax Regulations 1667 and 1668, as cited in the source
• 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 596.0650
• Original supporting opinion: 596.0650 PDF

Original ruling text

596.0650

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

March 8, 1984

Mr. REDACTED TEXT

SR KH REDACTED TEXT
Dear Mr. REDACTED TEXT:
Your letter, received February 2, 1984, has been referred to me for reply. You ask if you should be charging sales tax on the sale of eucalyptus seedlings grown especially for fuel purposes. Sales of eucalyptus seedlings to persons who will either resell them, as seedlings or as mature trees, or who will grow them expressly for fuel purposes are exempt from sales tax. Regarding sales for resale, Revenue and Taxation Code Section 6091 applies: "For the purpose of the proper administration of this part and to prevent evasion of the sales tax it shall be presumed that all gross receipts are subject to the tax until the contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon the person who makes the sale unless he takes from the purchaser a certificate to the effect that the property is purchased for resale." Section 6358.1(a) exempts from sales and use tax the sale of "Organic products grown expressly for fuel purposes." To support this exemption, the seller should obtain an exemption certificate pursuant to Section 642l(a) which provides: "(a) If a purchaser certifies in writing to a seller that the property purchased will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sale as exempted by this chapter from the computation of the amount of the sales tax, and uses the property in some other manner or for some other purpose, the purchaser shall be liable for payment of sales tax as if he were a retailer making a retail sale of the property at the time of such use, and the cost of the property to him shall be deemed the gross receipts from such retail sale. The certificate shall relieve the seller from liability for the sales tax only if it is taken in good faith.”

Mr. REDACTED TEXT

-2-

March 8, 1984
596.0650

If the seller fails to obtain an exemption certificate stating the exempt purpose for which the purchased property will be used; i.e., that the seedlings will be grown for fuel, he or she would have the burden of proof of showing that the sale was exempt (Heinz v. Board of Equalization (1962) 209 Cal.App. 2d 1). We enclose a copy of Regulation 1667 on Exemption Certificates and Regulation 1668 on Resale Certificates. The exemptions discussed above do not apply if the seedlings or trees are purchased for any additional specific purposes; i.e., ornamental purposes, to prevent soil erosion, or seed production (Business Taxes Law Guide Annotation 510.0220). For example, the exemption would not apply if a purchaser buys seedlings, plants them in a manner so as to control soil erosion, then harvests the trees and sells them or consumes the trees as fuel. If we may be of further assistance, please write us. Very truly yours,

James A. Davis Tax Counsel
JAD:jlh
Enclosure
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KH - District Administrator
Mr. Donald Hennesy