Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Western Contracting Corp. v. State Board of Equalization . . . (1974)

No Exemption for Equipment and Supplies Used in Construction Contract Entered Into for Fixed Price Prior to August 1, 1967

Plaintiff was awarded a lump-sum fixed price contract with the State Department of Water Resources for the construction of a dam. Subsequently, the state legislature increased the sales and use tax rate by 1 percent, effective August 1, 1967, and also added Section 6376 to the law, providing an exemption from the increase for the sale and use of materials and fixtures obligated pursuant to an engineering construction contract entered into for a fixed price prior to the effective date of the rate increase. The Board took the position that the exemption was applicable only to "materials" and "fixtures" as those terms had previously been defined in the Board's Ruling 11 "Construction Contractors." This interpretation excluded from the exemption other tangible personal property such as construction equipment and supplies.

Plaintiff sought declaratory relief that the Section 6376 exemption covered equipment and supplies, and sought other alternative relief against the state as a party to the contract. Plaintiff subsequently paid approximately $102,000 in additional taxes, unsuccessfully sought a refund from the Board, and filed a suite for refund. In the consolidated actions, the trial court found that Section 6376 did not exempt the transactions in dispute and denied plaintiff relief against the state as a party to the contract.

In affirming the judgment of the lower court denying plaintiff's claim for refund of tax, the court of appeal held that the words "materials and fixtures" did not include construction equipment and supplies. The court found that it was reasonable to assume that the Legislature used the words "materials and fixtures" advisedly and in the sense which had been given them by long-standing administrative ruling and by judicial decision. Even without reference to the administrative ruling, the court observed, by no stretch of the imagination could construction equipment and supplies be considered either "fixtures" or "materials." Further, both the language of Section 6376 and the post-enactment history of the section strongly supported the interpretation urged by the Board. The court further held that the construction contract did not provide for additional compensation on account of the increased tax burden, and that plaintiff was not subject to any unconstitutional impairment of its contract with the Department of Water Resources as a result of any additional burden falling on it by virtue of the increased tax. Western Contracting Corp. v. State Board of Equalization (1974) 39 Cal.App.3d 341.