Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Howell , In re . . . (1984)

Tax on Sales of Materials and Fixtures to Federal Construction Contractors Is Constitutional

In a bankruptcy proceeding, the Board filed a claim for sales and use taxes due on sales of materials and fixtures to a construction contractor improving real property under contracts with the U.S. Government. The U.S. District Court allowed the claim.

The U.S. Court of Appeals, Ninth Circuit, affirmed. The court held that the Sales and Use Tax Law did not discriminate against federal contractors because the legal incidence of the taxes fell on the contractor, not the United States, and the contractor had the opportunity to pass on the economic burden of the taxes to the United States. The court also held that Revenue and Taxation Code sections 6007.5 and 6384 provided statutory authority for the Board's Regulation 1521, which classified the federal contractor as a consumer of materials and fixtures, because the statutes tax the sales by suppliers to federal contractors as retail sales.

Finally, the court held that there was a rational basis for the state to distinguish between federal contractors and other sellers who sell property to the United States, because the use of property in a construction contract by attaching it to realty changes the form of the property. In re Howell (9th Cir. 1984) 731 F.2d 624.