Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2012
Sales and Use Tax Annotations
345.0000 MANUFACTURERS OF PERSONAL PROPERTY—Regulation 1524
- 345.0003 Applying Teflon Coating to New and Used Equipment
- 345.0005 Bending of Steel Mesh
- 345.0007 Correction of Manufacturing Defects
- 345.0010 Cutting and Serging
- 345.0040 Painting and Lettering.
- 345.0060. Painting and Lettering
- 345.0080 Painting and Lettering
- 345.0082 Quality Assurance Testing Charges
- 345.0085 Refurbishing Cabinets
- 345.0200 Standby Repair Labor and Set Strike Labor
345.0000 MANUFACTURERS OF PERSONAL PROPERTY—Regulation 1524
See Producing, Fabricating and Processing Property Furnished by Consumers—General Rules; Repainting and Refinishing. Manufacturing Aids, see also Property Used in Manufacturing.
345.0003 Applying Teflon Coating to New and Used Equipment. Taxpayer is in the business of applying Teflon coating at its place of business in California to new and used equipment furnished by its customers. Taxpayer is performing fabrication when it applies the Teflon to new equipment, and tax applies to the taxpayer's total charge unless the sale is otherwise exempt.
Taxpayer is repairing or reconditioning property when it applies Teflon to the used equipment of its customers. Thus, taxpayer is the consumer of the Teflon it furnishes in such operations if the retail value of the Teflon (and any other materials furnished) is 10 percent or less of taxpayer's lump-sum charge. If such is the case, tax applies to the sale to or use by taxpayer of the Teflon (and other materials). If, however, the taxpayer separately states its charges for the Teflon (and any other materials) regardless of its retail value or if its value exceeds 10 percent of the taxpayer's total charge, the taxpayer is the retailer of the Teflon and other materials it furnishes. If such is the case, tax applies to taxpayer's separately stated charge (or if not separately stated, the fair retail value) for such property unless the sale is exempt from tax. 6/26/97.
345.0005 Bending of Steel Mesh. The bending of steel mesh for a construction contractor is a sale subject to tax pursuant to section 6006(b), fabrication labor. 12/29/88.
345.0007 Correction of Manufacturing Defects. A taxpayer operates an inspection and certification service utilizing, among others, radiographic (x-ray) inspection procedures. The taxpayer also does fabrication and repair. If defects are found in the product, the taxpayer grinds out the defective area and corrects it by a welding process. Upon completion of the process, the taxpayer bills the customer for the inspection, for the corrections made (if any were needed), and for the number of x-ray films exposed and examined in the process. The films may be delivered to the customer along with the inspected products and the certification.
Although the films are correctly purchased tax-paid by the taxpayer, their subsequent retail sale by the taxpayer after use in the inspection process is subject to tax in those cases where title or possession passes to the customer without credit for the tax paid on the purchase. The charge for correcting defects is taxable if the item is new as the correction would be a step in the process of fabricating the item into a finished, usable product. If the item was used, the correction of defect would be repair labor, not subject to tax. 6/19/80.
345.0010 Cutting and Serging. A taxpayer cuts sweatshirts around the neckline and serged the cut edges to prevent raveling. If the sweatshirts were new, the taxpayer's labor charges are taxable, because they constitute the completion of manufacture of tangible personal property. If the sweatshirts were used, the taxpayer's labor charges are for nontaxable repair. The above is true whether the used sweatshirts provided by the customer were purchased from the taxpayer or someone else. 3/16/94.
345.0040 Painting and Lettering. Charges for applying a coating to store windows are similar to charges for painting real property, and exempt. 5/20/55.
345.0060. Painting and Lettering. Tax does not apply to charge for lettering signs on trucks or automobiles, whether new or used. 12/4/50.
345.0080 Painting and Lettering. Tax applies to entire charge for lettering new, but not used, luggage. 12/4/50.
345.0082 Quality Assurance Testing Charges. A manufacturer of printed circuit boards offers a testing service in connection with its sales of printed circuit boards.
In order to test the printed board, the manufacturer assembles a "fixture" which adapts the board to be tested to the bare board tester. The only part of the "fixture" that is special for a particular customer's board is a piece of plastic which is drilled to match the holes in the customer's board. This specially drilled board is reusable and becomes the property of the customer.
Generally, charges for quality assurance testing are taxable or nontaxable, depending upon whether the item tested is sold for resale or sold at retail. Generally, testing charges are nontaxable, even if separately stated, when the item tested is sold for resale. Generally, testing charges are taxable, whether separately stated or not, if the item tested is sold at retail.
The problem is complicated when tooling or fixtures are sold to the customer. The charge made to the customer for the tooling, which becomes the property of the customer, is always taxable whether the items tested are sold for resale or sold at retail. Property becoming a component part of the tooling fixtures which the manufacturer sells to the customer may be purchased by the manufacturer for resale.
In this case, it is evident that the only piece of the fixture which is possibly sold to the customer is the drilled plexiglass plate. It is clear that title to other tooling items are retained by the manufacturer. Accordingly, tax applies to some portion of the fixture charge, the portion of the charge attributable to the fabricated plexiglass plate.
If the facts were that the customer did not become the owner of the plate, matters would be simplified greatly. The manufacturer would be the consumer of all tooling items, including the plexiglass materials, and tax would apply on the sale of these items to the manufacturer. Then, the taxability of the itemized testing charge to the client is dependent only upon the nature of the sale of the parts as a resale or a sale at retail, as previously discussed.
If the manufacturer provides testing service only, the charge is not subject to tax. The assumption here is that it is testing customer furnished parts and it does not transfer title to any property to the customer. 7/10/91.
345.0085 Refurbishing Cabinets. Charges for refacing and refurbishing existing cabinets affixed to real property are not subject to tax under Regulation 1524(b)(3). The refinisher is the consumer of materials (e.g., paint, varnish, door knobs etc.) used to reface and refurbish the cabinets. Tax is due on the purchase price of these materials. 6/22/93.
345.0200 Standby Repair Labor and Set Strike Labor. A taxpayer fabricates and sells sets for motion pictures. It makes a separate charge for standby labor and for strike labor. Charges for standby labor, if strictly for repair, and for strike labor, if optional, are not subject to tax. 3/10/94.