Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Lockheed Aircraft Corporation v. State Board of Equalization . . . (1978)

Tax Does Not Apply to Special Test Equipment Purchased by Defense Contractors

Plaintiffs, two defense contractors, sought a refund of tax assessed on special test equipment which they had acquired or manufactured and stored on their premises pursuant to defense contracts with the United States government. Under the terms of the contract, title to the equipment passed to the federal government as soon as it was ready for use. The Board, in imposing the tax, relied upon Sales Tax General Bulletin 57-22 which provided that tax applied to test equipment which is used successively to test end products during and after the manufacturing process, and which is not built into the end product, or is not itself the end product called for by the contract.

The court of appeal affirmed the Superior Court's judgment for plaintiffs, holding that plaintiffs purchased the special test equipment for resale and resold it to the federal government. Such a sale is exempt from tax. Any use or storage thereafter was not that of plaintiffs, but of the federal government in which title immediately vested. There was, therefore, no basis upon which to assess plaintiffs tax on the equipment. Lockheed Aircraft Corporation v. State Board of Equalization (1978) 81 Cal.App.3d 257.