Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2017

Revenue and Taxation Code

Property Taxation

Part 1. General Provisions

Chapter 1. Construction

Section 129

129. "Business inventories." "Business inventories" shall include goods intended for sale or lease in the ordinary course of business and shall include raw materials and work in process with respect to such goods. "Business inventories" shall also include animals and crops held primarily for sale or lease, or animals used in the production of food or fiber and feed for such animals.

"Business inventories" shall not include any goods actually leased or rented on the lien date nor shall "business inventories" include business machinery or equipment or office furniture, machines or equipment, except when such property is held for sale or lease in the ordinary course of business. "Business inventories" shall not include any item held for lease which has been or is intended to be used by the lessor prior to or subsequent to the lease. "Business inventories" shall not include goods intended for sale or lease in the ordinary course of business which cannot be legally sold or leased in this state. If goods which cannot be legally sold or leased are not reported by the taxpayer pursuant to Section 441, it shall be conclusively presumed that the value of the goods when discovered is the value of the goods on the preceding lien date.

"Business inventories" shall also include goods held by a licensed contractor and not yet incorporated into real property.

History.—Added by Stats. 1968, p. 7 (First Extra Session), in effect September 23, 1968, operative March 1, 1969. Stats. 1970, p. 542, in effect June 30, 1970, added "or lease" in the first and second sentences of the first paragraph and the first sentence of the second paragraph; substituted "actually leased" for "being leased" in the first sentence of the second paragraph and added the second sentence of the second paragraph. Stats. 1970, p. 2069, in effect November 23, 1970, provided that the amendments contained in Stats. 1970, p. 542, are to apply prospectively to the 1971–72 fiscal year and fiscal years thereafter. Stats. 1978, Ch. 1394, in effect January 1, 1979, added the third paragraph. Stats. 1986, Ch. 1420, effective January 1, 1987, added the third and fourth sentences in the second paragraph, dealing with illegal goods and services.

Note.—Section 3 of Stats. 1978, Ch. 1394, provided no payment by state to local governments because local agencies have classified property in the hands of contractors as business inventories and so Section 1 is declaratory of existing law. Sec. 4 thereof provided no escape assessment shall be levied against property described in the amendment as enacted by Section 1 by any local agency which assessed property of that type as business inventory for the 1974–75, 1975–76, 1976–77, and 1977–78 fiscal years. This act shall be operative for the 1978–79 fiscal year and following fiscal years.

Construction.—"Business inventories" includes price tags, price tickets, sales checks, cash register tapes, restaurant paper goods, gift boxes, wrapping paper, and twine where title thereto passes to purchasers upon sale of merchandise purchased. May Department Stores Co. v. Los Angeles County, 196 Cal.App.3d 755.

Goods intended for sale.—Replacement spare parts that rotated between the vendor's supply of spare parts and its customers' computer equipment did not qualify as business inventory. The replacement parts were not inventory intended for sale because customers paid no consideration and received any and all replacement parts at no additional cost and the vendor did not treat the pool of replacement parts as inventory for income tax and accounting purposes. Amdahl Corp. v. County of Santa Clara, 16 Cal.App.4th 604.

Raw materials.—Cobalt 60 used by a taxpayer for the purpose of irradiating its customers products did not constitute business inventory. Although de minimis amount of mass were lost and absorbed into the customers' products in the irradiating process, the cobalt 60 was not an item delivered as part of the provided services. Sterigenics International v. Orange County, 47 Cal.App.4th 1541.

Form letters.—Form letters sent by a collection service to debtors qualify as exempt business inventory of a nonprofessional service. Property of nonprofessional service enterprises constitutes exempt business inventory if it is delivered incidental to the rendition of the service, regardless of whether it is delivered to the customer or to a third party designated by the customer. Transworld Systems, Inc. v. Sonoma County, 78 Cal.App.4th 713.

Reusable containers.—Reusable containers in which a soft drink manufacturer supplied carbon dioxide gas and component syrup to its wholesale customers do not constitute business inventory. As the manufacturer retained control over them and as they were subject to retrieval by the manufacturer's representatives, the containers were not intended for sale. Westinghouse Beverage Group, Inc. v. San Diego County, 203 Cal.App.3d 1442.