Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Honeywell, Inc. v. State Board of Equalization . . . (1975)

Board's Categorization of Air Conditioning Control Components Is Not Arbitrary or Unreasonable

Plaintiff, who furnished and installed air conditioning control systems under lump sum contracts, claimed that Regulation 1521 and General Bulletin 67-8, distinguishing for sales tax purposes between fixtures and materials incorporated into structures, are vague, uncertain, ambiguous, conflicting, and unreasonable, and are also in conflict with Regulation 1615, which deals with the United States government contractors.

Regulation 1521 provides that construction contractors are consumers of materials and retailers of fixtures which they furnish and install in the performance of construction contracts. Where the contractor is the manufacturer of the fixtures, the retail selling price is considered to be the prevailing price at which similar fixtures in similar quantities ready for installation would be sold to contractors. General Bulletin 67-8 deals with the measure of tax on fixtures installed by manufacturers under lump sum construction contracts. Plaintiff claimed that the correct measure of tax is the cost to plaintiff of only the materials in the devices used in air conditioning control systems that it installs, because these systems become an integral and inseparable part of the completed structure.

The court, noting that plaintiff manufactures and sells air conditioning control devices that are packaged ready to install and that these devices can be individually and readily removed without damage to the building, stated that it is within the power of the Board to determine that such devices are fixtures rather than materials. Plaintiff argued that the tax result where the manufacturer installs the device and the sale price of the device and the charge for installation services are stated together should differ from the tax result of the sale of the device alone. The court stated that such commingling may present an accounting problem of segregation, but the legal tax consequences do not change. The court also held that in furnishing and installing the fixtures, plaintiff was a retailer and was not making sales to contractors for resale by them.

In a subsidiary issue, the court held that failure of the Board to act on a claim for refund within six months could be treated by plaintiff as a denial of the claim for purposes of instituting an action. Honeywell, Inc. v. State Board of Equalization (1975) 48 Cal.App.3d 897.