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)

Validity of Regulation 1521 Upheld

Plaintiffs, who manufactured and installed elevators or temperature control systems, sought a declaratory judgment that Regulation 1521 was arbitrary and ambiguous and therefore void as applied to transactions that plaintiffs had entered into for the installation of their products. 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.

Plaintiffs also contended that the regulation was discriminatory since it distinguished between contractors generally and United States government contractors in the application of tax.

While the court stated that a taxpayer may test the validity of a tax regulation by an action for declaratory relief before he has acted so that he may govern his conduct accordingly, it seriously questioned whether such an action is appropriate after a taxpayer has entered into a transaction which the taxing authorities claim is taxable. Granting such relief would appear to circumvent Section 6931 of the Revenue and Taxation Code which prohibits the granting of an injunction or writ of mandamus to prevent the collection of tax.

The court went on to uphold the validity of Regulation 1521, stating that any difficulty in drawing lines stemmed from problems inherent in the basic legal concept of fixtures. The uncertainty in drawing a line between fixtures and materials justifies a process of initial administrative determination subject to judicial review, since it is better to resolve gray areas, no matter how laborious the effort, than to allow retail sellers of fixtures to escape their fair share of tax.

The court also held that since the United States government has a unique taxable status, a rule is not necessarily invalid just because it distinguishes between contractors generally and United States government contractors. Honeywell, Inc. v. State Board of Equalization (1975) 48 Cal.App.3d 907.