Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2010

Sales And Use Tax Court Decisions

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Overhead Electric Co. v. State Board of Equalization . . . (1991)

United States Government Contractors Subject to Use Tax on Fixtures

Taxpayer, an electrical contractor, entered into a subcontract to furnish and install an emergency standby uninterruptible power system at a U.S. Air Force base. Under Revenue and Taxation Code Sections 6384 and 6007.5, property purchased by a contractor and used in the performance of a contract with the United States for the construction of an improvement to real property is subject to sales or use tax. Section 6381 exempts from such tax the gross receipts from the sale of tangible personal property to the United States Government. Taxpayer contended that the equipment it purchased for the uninterruptible power system it supplied to the United States Government should be classified as machinery or equipment (considered tangible personal property), for which no tax need be paid, rather than as a fixture (considered an improvement to real property) subject to sales or use tax. The court of appeal held in favor of the Board. The system was intended to provide accessory power to the facility in order to maintain full security lighting in case of a power failure, and the court found that a system so crucial to the facility's operations did not fall within the definition of machinery or equipment, but rather was a fixture. In addition, the court found that the system was an essential, integral part of the operation of the facility, and thus must be classified as a taxable fixture. Finally, the court found that taxpayer purchased the system from out-of-state retailers for use in California, and was thus subject to the use tax. Overhead Electric Co. v. State Board of Equalization (1991) 227 Cal.App.3d 1230.