Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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

Taxpayer Held Not Subject to Tax on Transactions with Related Corporation

Plaintiff was a corporation wholly owned by WED Enterprises, Inc. (WED) which in turn was wholly owned by Walt Disney Productions (Productions). Plaintiff manufactured devices designed by WED using materials furnished by Productions. Plaintiff's services were performed solely for Productions and another related corporation. Productions retained title to all materials, ideas, and completed devices. The officers of plaintiff were on the payroll of WED. Productions and WED took care of plaintiff's payroll, purchasing, accounting functions, and insurance coverage. Plaintiff recorded no profits. A long-time employee of Productions, who was carried on the payroll of WED, supervised the day-to-day operations of plaintiff. Plaintiff was formed solely to facilitate union agreements, and was in existence for only a few years. Before it was formed, and after it was dissolved, the same operations were carried on through a division of Productions.

The issue was whether plaintiff's services constituted "sales" within the meaning of Section 6006(b) of the Revenue and Taxation Code, which provides that "sale" includes producing, fabricating, or processing tangible personal property for a consideration for consumers who furnish the materials used.

On the particular facts involved, the court concluded that Productions was fabricating items for itself through its employees in fact, and therefore no sales tax was payable. Mapo, Inc. v. State Board of Equalization (1975) 53 Cal.App.3d 245.