Laws, Regulations and Annotations

Plaintiff motor vehicle fuel retailers sought refund of district taxes they had paid to the state which were later declared to be unconstitutional. Plaintiffs argued that they had the right to file an action for refund of such taxes even though the Legislature had adopted a comprehensive statutory scheme whereby it is the purchasers who have the right to file the claims for refund of unconstitutional district taxes, rather than retailers as is generally the case. The Court of Appeal held that the statutory scheme was constitutional and that it clearly prohibited these retailers from filing claims. Since plaintiffs had no statutory basis for maintaining an action for refund, the trial court’s dismissal of the suit was upheld. C.O.D. Gas and Oil Co., Inc. v. State Board of Equalization (1997) 59 Cal.App.4th 756.

C. R. Fedrick, Inc. v. State Board of Equalization … (1974)

Classification of Property Used in Contracts with the United States Government

Plaintiff was a subcontractor to the prime contractor, the United States Corps of Engineers, under contract to furnish and install certain alterations and improvements of airfields and air navigation equipment at California airfields. Tax was imposed on plaintiff under Revenue and Taxation Code sections 6094, 6202, and 6384 for its use of various items of tangible personal property in the performance of its contract to improve real property for United States Government.

The Court of Appeal held that California had the constitutional power to impose sales and use taxes on contractors in relation to work performed at federal facilities located in California because Congress had expressly consented to such tax and had thereby waived the sovereign immunity of the United States. The court found that while California had generally exempted from the sales tax gross receipts from the sale of tangible personal property to the United States, the state taxed tangible personal property "for use in the performance of contracts with the United States for the construction of improvements on or to real property in this state." (Rev. and Tax. Code §§ 6381, 6384.) C. R. Fedrick, Inc. v. State Board of Equalization (1974) 37 Cal.App.3d 564.

C. R. Fedrick, Inc. v. State Board of Equalization … (1988)

Pipes, Tank Settings, and Compressors Were Taxable Materials and Fixtures when Installed on U.S. Government Property

Taxpayer purchased pipes, tank settings, and compressor facilities and installed them as part of a gas transmission facility on U.S. Government property. Taxpayer contended the items were exempt sales of machinery and equipment to the U.S. Government. The Board contended the items were improvements to realty, and that the contract was a construction contract under Sales and Use Tax Regulation 1521.

The court of appeal held in favor of the Board, finding that the items were materials and fixtures, and that the Board correctly regarded the contractor as the consumer when it performed a construction project for the U.S. Government. The manner of attachment of the items was that used for fixtures, the facilities constructed were adapted to the use of the realty, and the probability of frequent relocation was low. C. R. Fedrick, Inc. v. State Board of Equalization (1988) 204 Cal.App.3d 252.

Cal-Metal Corp. v. State Board of Equalization … (1984)

Transfer of Equipment to Commencing Partnership in Exchange for Assumption of Indebtedness Is a Taxable Sale

Appellant transferred equipment to a commencing partnership as a capital contribution, and in return the partnership assumed appellants' liabilities for indebtedness on the equipment. The Board determined that the transaction constituted a taxable sale, and the amount of the sale subject to tax was the full amount of the debt assumed by the partnership. Appellant brought suit for refund, and the trial court granted judgment for the Board.

The court of appeal affirmed. It held that the transaction was a sale because appellant transferred its right, title, and interest in the property to a separate legal entity. The court further held that the Board properly measured the tax by the full amount of the indebtedness assumed by the partnership, because this constituted a valuable consideration received by appellant. Appellant, having elected the benefits of the partnership form of doing business, cannot ignore the disadvantages resulting from its election. Cal-Metal Corp. v. State Board of Equalization (1984) 161 Cal.App.3d 759.

Campbell Industries v. State Board of Equalization … (1985)

Ferry Boats Principally Used in Intrastate Transportation Are Not Tax Exempt

Taxpayer sold three ferry boats to be used for passenger service between Marin County and San Francisco. A survey determined that the ferry boats carried at least one passenger using the ferry service as a part of interstate travel on less than one percent of the voyages. The Board assessed sales tax on the sales of the ferry boats. Taxpayer sued for refund of the taxes paid.

The Court of Appeal held that in order to qualify for the tax exemption provided by Revenue and Taxation Code section 6368, taxpayer had the burden of showing that the ferry boats were principally used in the interstate transportation of passengers for hire. Also, the Board's long-standing administrative interpretation, extending the principal use standard to watercraft expressly described in Sales and Use Tax Regulation 1594(a)(1) (tugboats and ferry boats), was entitled to particular consideration, and refuted taxpayer's argument that a more relaxed rule applies to those watercraft. Campbell Industries v. State Board of Equalization (1985) 167 Cal.App.3d 863.

Canteen Corp. v. State Board of Equalization … (1985)

Vending Machine Operator Entitled to Nonreturnable Container Exemption

Taxpayer purchased nonreturnable paper cups and used the cups to hold the drinks dispensed through its vending machines. The Board contended that the taxpayer was liable for use tax on its purchases of the cups under Revenue and Taxation Code Section 6359.4, making vending machine operators consumers of tangible property sold through the vending machines for 15¢ or less. The taxpayer contended that it was nevertheless entitled to the tax exemption provided by Revenue and Taxation Code Section 6364(a) for its purchases of nonreturnable containers which it filled and resold along with the contents, even though its sales of the contents and the containers were nontaxable sales through vending machines. The trial court entered judgment in favor of the taxpayer.

The Court of Appeal, Second District, affirmed. The court held that the two sections were not irreconcilable with each other, that the taxpayer was entitled to the nonreturnable container exemption, and that the Board's Regulation 1574, which provided that vending machine operators were consumers of nonreturnable containers dispensed through the machines, was invalid as being in conflict with the statutory nonreturnable container exemption. Canteen Corp. v. State Board of Equalization (1985) 174 Cal.Ap¢p.3d 952.

Capitol Records, Inc. v. State Board of Equalization … (1984)

Master Sound Tapes Were Properly Taxable Prior to 1975 Legislation

Prior to 1975, taxpayer purchased original and duplicate master sound tapes made by other production companies, paid royalties and production costs to independent production companies to acquire master tapes, and furnished duplicate master tapes to other production companies under license agreements. The Board imposed sales and use taxes on these transactions, and taxpayer filed suit for refund. The trial court granted judgment in favor of the Board.

The court of appeal affirmed. The court held that: 1975 legislation exempting sales and purchases of master sound tapes (Revenue and Taxation Code section 6362.5) was not made retroactive to periods before 1975 by virtue of 1982 legislation amending Section 6362.5 and declaring the amendment to be declaratory of existing law; agreements between taxpayer and independent production companies were sales contracts and not employment contracts; master tapes were properly taxed as tangible personal property physically useful in the manufacturing process and not furnished as incidents to the services of the recording artists; taxpayer was not denied equal protection on the grounds that leases of motion pictures were exempt from tax while purchases of master sound tapes were taxed; and taxpayer's licenses of duplicate master tapes to other production companies together with the right to reproduce the musical recordings were taxable leases, not payments for intangible rights. Capitol Records, Inc. v. State Board of Equalization (1984) 158 Cal.App.3d 582.

Carleton; State Board of Equalization v. … (1990)

Guaranty for Past-Due Taxes Enforced Despite Changes

A surety guaranteed the tax liability of taxpayer. During an audit, taxpayer signed a waiver extending the time in which the Board might issue a delinquency determination. The surety argued that the waiver exonerated him from liability under Civil Code Section 2819, which provides that a surety is exonerated if the terms of the principal's obligation to the creditor are altered in any material way without the surety's consent.

The court of appeal allowed the Board to recover on the guaranty. The court agreed that the waiver was a material change in taxpayer's obligation, but held that the surety had consented to the change by accepting the following language in the Board's standard guarantee form: "the surety's liability shall be coextensive with that of the taxpayer and no change in the law or extensions, waivers or modifications in the liability between the taxpayer and the State Board of Equalization shall relieve the surety of his obligation herein." State Board of Equalization v. Carleton (1990) 223 Cal.App.3d 1607.

Carlson; California State Board of Equalization v. … (1970)

Lien for Discharged Taxes Not Enforceable Against Assets Acquired Following Filing of Petition in Bankruptcy

At the time of filing his petition in bankruptcy, taxpayer was indebted to the Board of Equalization for a sales and use tax liability which arose more than three years prior to the filing of the petition. That liability was then secured by liens which had been recorded by the board.

The U. S. Court of Appeals held that Section 17a(1) of the Bankruptcy Act, 11 U.S.C. §35(a), did not preserve a pre-bankruptcy tax lien as to assets acquired after bankruptcy. California State Board of Equalization v. Carlson (9th Cir. 1970) 423 F.2d 714, cert. den. (1970) 400 U.S. 819.

Cedars-Sinai Medical Center v. State Board of Equalization … (1984)

Financing Transactions Did Not Result in Taxable Sales and Leasebacks of Equipment

Taxpayer purchased medical equipment from vendors in taxable sales and placed the equipment in use. Before the equipment was fully paid for, taxpayer obtained alternative financing for the equipment by transferring title to the equipment and leasing it back from leasing companies in return for monthly payments. The leasing companies reimbursed taxpayer for the amounts it had already paid to the vendors and paid the balance of the purchase prices to the vendors. The Board imposed use tax on the lease payments, and taxpayer filed suit for refund.

The Court of Appeal held that only one sale of the equipment (from the vendors to taxpayer) had occurred, and that the object of the transactions between taxpayer and the leasing companies was to obtain financing for the purchase of the equipment, not to make taxable sales and leasebacks. Despite taxpayer's transfer of title, it remained the owner of the equipment, and no taxable sale or lease occurred under the Uniform Commercial Code and the Sales and Use Tax Law. Cedars-Sinai Medical Center v. State Board of Equalization (1984) 162 Cal.App.3d 1182.

Century Geophysical Corp. v. California Board of Equalization … (1977)

Effect of Order of Bankruptcy Court

The Board of Equalization filed a claim in bankruptcy against a parent corporation, under Revenue and Taxation Code section 6812 (successor liability), for tax allegedly due from parent's wholly owned subsidiary. The bankruptcy referee disallowed the claim in its entirety on the ground that it described a debt which was not a debt of the bankrupt parent corporation. The Board failed to appeal the order disallowing its claim.

Since the Board failed to appeal the order below, the matter was considered by the Court of Appeals as one where the seller had no tax liability. (If the Board had wished to contest that finding, it should have appealed it.) Accordingly, since the seller had no tax liability, the purchaser could not have liability under the successor liability provisions which apply only when the seller does have a tax liability. Century Geophysical Corp. v. California Board of Equalization (9th Cir. 1977) 564 F.2d 342.

Century Plaza Hotel Company v. City of Los Angeles … (1970)
[Uniform Local Sales and Use Tax]

Localities Banned From Imposing Excise Tax on Alcoholic Beverages

Plaintiff hotel company brought an action to enjoin the City of Los Angeles from enforcing a municipal ordinance, a so-called "tipplers' tax," which imposed an excise tax of five percent upon the purchase price of alcoholic beverages sold by a retailer for consumption on the premises where sold. Plaintiff argued that because there was no limit upon the amount of tax which could be imposed, the tax infringed upon the state’s constitutional right to regulate alcoholic beverage sales.

The court found that the ordinance violated Revenue and Taxation Code section 32010, which provides that the taxes imposed by the Alcoholic Beverage Tax Law are in lieu of all county, municipal, or district taxes on the sale of beer, wine, or distilled spirits. In doing so, the court rejected the City’s argument that the ordinance only taxed the "purchase" of alcoholic beverages, rather than the "sale." The court concluded that the statute and ordinance were in irreconcilable conflict, and that section 32010 clearly indicated the Legislature's intention to preempt the field of taxation on transactions in alcoholic beverages. The court acknowledged that taxation for municipal purposes was ordinarily a "municipal affair"; however, given the historical context of the regulation of alcohol, the court found that there was no purely municipal affair to consider, but a matter of statewide significance. Century Plaza Hotel Company v. City of Los Angeles (1970) 7 Cal.App.3d 616.

Chahine v. State Board of Equalization … (1990)

Claim for Refund of Partial Payment of Periodic Tax Liability Must Be Filed within Six Months of Date of Partial Payment

The Board issued notices of determination to taxpayer, assessing additional taxes due concerning the taxpayer's sale of mobile homes. After the assessments became final, taxpayer made several partial payments and filed a claim for refund of seven installments he had paid over the preceding fourteen years. The court of appeal upheld the Board's position that Revenue and Taxation Code Section 6902 requires a taxpayer who seeks a refund of taxes he or she has paid in partial satisfaction of a periodic tax liability to petition for refund thereof within six months from the date of such partial payment. The court rejected the taxpayer's contention that the time limit for pursuing the administrative remedy which must be exhausted prior to filing suit should not begin until a tax liability is fully paid. The result of such a construction would be to provide no time limit for the recovery of amounts paid as long as some portion of a periodic liability was left unsatisfied, frustrating the public policy enforcing prompt payment of public tax revenue. Chahine v. State Board of Equalization (1990) 222 Cal.App.3d 485.

Chemed Corp. v. State Board of Equalization … (1987)

The Sale of Service Division Assets Is Not an Occasional Sale if It Is One of a Series of Sales

Plaintiff had three divisions that made sales requiring a seller's permit, and one medical testing services division that conducted activities which did not require a permit. Plaintiff sold all the assets of the service division in a single transaction and contended the sale was an exempt occasional sale since that service division was autonomous from the other retail divisions.

The Board assessed tax on the grounds that the sale of the service division's assets was one of a series of sales by plaintiff.

The court of appeal held in favor of the Board. It held that the Board was not required to consider only sales of equipment used in the service division in determining whether the taxpayer had made a series of sales requiring a permit. The language of the Revenue and Taxation Code defining an occasional sale provided no basis on which to segregate that sale of assets from like sales of other property used in other regions of that division or in other divisions. Chemed Corp. v. State Board of Equalization (1987) 192 Cal.App.3d 967.

Chevron U.S.A. Inc. v. State Board of Equalization … (1997)

Completion of Manufacture and Sale by Second Retailer

A purchaser contracted with a company to manufacture and deliver an oil platform to an offshore location outside California. The original contractor began constructing the platform at a California site but did not complete construction due to a dispute with the purchaser. Nevertheless, the contractor's employees continued working under an interim agreement. A second contractor then finished building the platform at the same site and, delivered it to the offshore location by common carrier.

The Board assessed tax against the original contractor for its partial completion of the platform, reasoning that the purchaser had taken delivery of the partially completed platform upon termination of the original contract. The court held, however, that under the particular facts of this case, the change in contractors prior to the completion of the full contract did not constitute 'delivery' of the platform to the purchaser. Thus, the sale remained an exempt sale in interstate commerce. Chevron U.S.A. Inc. v. State Board of Equalization (1997) 53 Cal.App.4th 289.

Chula Vista Electric Co. v. State Board of Equalization … (1975)

Tax Applies to Purchase Price of Materials Used in the Installation of an Electric Transmission Line on Real Property Owned and Occupied by the United States

Plaintiff contracted with the United States to replace electrical transmission cable on real property owned and occupied by the United States. The Board asserted and collected use tax based on the purchase price of the cable, and plaintiff sued for a refund. Plaintiff claimed that no tax was due because the cable was machinery and equipment exempt from tax under Section 6381 of the Revenue and Taxation Code as personal property sold to the United States. Plaintiff further claimed that if the cable was not machinery and equipment, it was not tangible personal property covered by the Sales and Use Tax Law because it was an electrical transmission line excluded from the definition of tangible personal property by Section 6016.5 of the Code.

The trial court denied plaintiff's claim, and the court of appeal affirmed. The court held that the electrical transmission line as a whole was a structure which was part of the real property and the cable was a fixture in relation to it; thus the cable was used in the performance of a contract with the United States to improve real property within the state and subject to tax under Section 6384 of the Code and under Regulation 1615, which interpreted that section. The court also held that Section 6016.5 of the Code excludes from the definition of tangible personal property only completed electrical transmission lines and not components used in the construction or repair of the lines. Accordingly, the purchase of the cable by plaintiff to use in the performance of the contract to improve real property was subject to tax. Chula Vista Electric Co. v. State Board of Equalization (1975) 53 Cal.App.3d 445.

City of Culver City v. State Board of Equalization … (1972)
[Uniform Local Sales and Use Tax]

Local Tax Revenues May Not Be Withheld for Failure to Turn Over a Dissolved Redevelopment Agency’s Funds

Culver City petitioned for a writ of mandate ordering the Board to redistribute to it all local sales tax revenue remitted to the Board from 1956 to 1969 by a business located in Culver City, which was erroneously distributed to the City of Los Angeles. Upon notification by Culver City that the business was actually located in Culver City, the Board redistributed to Culver City only the revenue allowed by Revenue and Taxation Code section 7209 (present quarter plus two previous quarters).

The court of appeal ruled that mandamus was not a proper remedy for alleged breach of the contract by which the Board administered both cities’ local sales tax ordinances. Culver City had also initiated a separate action against Los Angeles for breach of contract for recovery of all monies erroneously distributed, which the court ruled was the proper action to enforce the parties’ contractual obligations. City of Culver City v. State Bd. of Equalization (1972) 29 Cal.App.3d 404.

City of Fillmore v. Board of Equalization … (2011)

Decision reallocating local sales tax revenue became final in absence of timely administrative appeal.

The Court of Appeal held that the City of Fillmore's failure to file timely an administrative appeal caused BOE's decision reallocating local sales tax revenues to become final. Absent a timely administrative appeal, BOE had a ministerial duty to reallocate the revenues. The court further held that the exhaustion of remedies doctrine did not preclude two petitioning cities from intervening to seek mandate relief because BOE's jurisdiction to consider an administrative appeal was disputed. City of Fillmore v. Board of Equalization (2011) 194 Cal.App.4th 716.

City of Fillmore, et al.; City of Industry, et al. v. … (2011)
[Uniform Local Sales and Use Tax]

The Doctrine of Exhaustion of Administrative Remedies Is Inapplicable Where the Issues Raised Do Not Implicate the Regulatory Authority and Expertise of the State Board of Equalization

The Cities of Industry and Livermore brought action against the City of Fillmore arising from the alleged diversion of local sales tax revenues to Fillmore and away from Industry and Livermore due to an alleged scheme whereby various retailers set up sham offices in Fillmore and then allocated all of their sales and purchases to that location.

The court of appeal held that the petitioner cities’ claims were timely; petitioners had standing to pursue their causes of action even if they were not taxpayers; cities were not required to exhaust administrative remedies with the Board to pursue actions against each other; cities stated a cause of action for fraud against all defendants as coconspirators; cities' fraud and conspiracy causes of action did not arise from protected activity under anti-SLAPP statute; and prelitigation attorney fees and costs were not recoverable on city's partially successful anti-SLAPP motion. City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191.

City of Fontana v. California Dept. of Tax and Fee Administration … (2017)
[Uniform Local Sales and Use Tax]

Trial Courts and Appellate Courts Apply the Substantial Evidence Standard to Review the Administrative Record

The cities of Fontana and Lathrop petitioned for a writ of mandate to challenge the State Board of Equalization’s decision to reallocate to a third city the local sales tax remitted to the two cities following a reorganization by the retailer. The court of appeal concluded that the decision of the Board to reallocate the local sales tax revenue was required to be supported by substantial evidence, and that substantial evidence supported the Board’s decision that title to the tangible personal property at issue (retail health care products) passed to consumers by the new subsidiary company, rather than the parent corporation, and so local sales tax was properly allocated to the third city, the California location of the subsidiary. City of Fontana v. California Dept. of Tax and Fee Administration (2017) 17 Cal.App.5th 899.

City of Gilroy v. State Board of Equalization … (1989)

City Has Standing to Challenge Board’s Actions to Reclaim Sales Tax Revenue From City

Scientific Games, Inc., a lottery ticket printer, paid sales taxes on its sales of printed lottery tickets to the California Lottery Commission. Scientific Games was granted a refund for these taxes from the Board, pursuant to the exemption for sale of lottery tickets under Government Code section 8880.68. The City of Gilroy, a recipient of sales taxes from the Board, sought declaratory and injunctive relief, as well as a writ of mandate directing the Board to reverse its refund decision and to collect and transmit taxes from Scientific Games to Gilroy. The court of appeal affirmed the trial court’s decision denying the City of Gilroy’s petition for writ of mandate, ruling that the City of Gilroy lacked standing to challenge the decision, but reversed the trial court’s ruling as to prospective taxation, holding that the sale of printed tickets did not come within the section 8880.68 exemption, which was intended to apply to the sale of tickets to the public. City of Gilroy v. State Board of Equalization (1989) 212 Cal.App.3d 589.

City of Industry, et al. v. City of Fillmore, et al. … (2011)
[Uniform Local Sales and Use Tax]

The Doctrine of Exhaustion of Administrative Remedies Is Inapplicable Where the Issues Raised Do Not Implicate the Regulatory Authority and Expertise of the State Board of Equalization

City of Palmdale, et al. v. State Board of Equalization, et al. … (2012)
[Uniform Local Sales and Use Tax]

Where the Trial Court Concluded that the Decision-making Process was Deficient, Such Finding Can Preclude the Court of Appeal from Vacating the Trial Court’s Judgment Pursuant to a Stipulation

The court of appeal denied the cities', redevelopment agencies', and State Board of Equalization's (SBE) stipulated motion to vacate trial court judgment partially granting cities' and agencies' administrative mandamus petition to invalidate SBE's reallocation of local sales tax revenues because the interests of the public would be adversely affected if the judgment was vacated, where the trial court concluded that SBE's reallocation violated the doctrine of laches and might also have violated due process and the Administrative Procedure Act (APA), and the trial court concluded that SBE's decision improperly failed to set forth express findings and a discussion of the evidence; to vacate the judgment would undermine its effectiveness in exposing SBE's deficiencies. City of Palmdale, et al. v. State Board of Equalization, et al. (2012) 206 Cal.App.4th 329.

City of Pomona v. State Bd. of Equalization … (1959)
[Uniform Local Sales and Use Tax]

Application of Local Sales Tax When a Retailer Is Located on the Border Between Two Cities

The city of Pomona brought a mandamus proceeding to compel the Board to award the entire amount of sales tax collected from a retailer located on the boundary between it and the city of Montclair. The trial court entered judgment that apportioned the sales tax between Montclair and Pomona based on the sales by each department of the establishment located within the respective city (the so-called "cashbox rule"). On appeal, the court of appeal held that the local tax statutes did not expressly provide for a situation where a unitary place of business was located on the boundary dividing different taxing localities. Because no express provision existed, the court held that the trial court's apportionment was fair and reasonable as Revenue and Taxation Code section 7202(h)(1) provided that sales tax should be determined by the receipts from goods which were sold "in the city." The court noted that the trial court properly apportioned the receipts of a department located partially within each city on the basis of the proportion of the principal sales area of the department which was located within each of the two cities. City of Pomona v. State Bd. of Equalization (1959) 53 Cal.2d 305.

Application of Local Sales Tax When a Retailer Is Located on the Border Between Two Cities

The City of San Joaquin brought an action against the Board for a declaration as to whether a seller and installer of deep well agricultural pumps, which had its principal place of business in the city, was a construction contractor for purpose of allocating sales tax revenue to counties and cities in which pumps were installed (versus the City of San Joaquin, where the seller was located), and for a declaration of the legality of the Board’s administrative pooling procedure in allocating local revenues from construction contracts (which the city argued was an invalid underground regulation). Under the new administrative ruling, the Board began classifying the seller as a contractor and the pumps sold by the seller as fixtures, which resulted in a decrease in the amount received by the city on the pump sales. Consequently, the city challenged the Board's power to classify the pumps as fixtures as well as the legality of the "pooling procedure" used by the Board in allocating revenues from construction contracts.

The court of appeal found that the seller was engaged only in the business of installing machinery and equipment that did not improve real property, and thus it was taxable by the city. The court also found that the pooling procedure used by the Board was not a regulation, but an accounting system that did not unconstitutionally deprive plaintiff of its tax revenues. City of San Joaquin v. State Board of Equalization (1970) 9 Cal.App.3d 365.

Firm Selling and Installing Deep Well Agricultural Pumps Is Not a Construction Contractor; Board's Pooling Arrangement for Allocation of Local Taxes Is Valid

Plaintiff was a pump company engaged in the business of selling and installing deep well agricultural pumps. It had a permanent place of business in the City of San Joaquin, Fresno County, and conducted all of its business from that plant, but it installed the pumps at various sites throughout Fresno, Kings, Tulare, and Madera Counties.

Under ruling 11, the Board had classified all retail dealers of deep well agricultural pumps as construction contractors, and had classified the pumps as fixtures. The effect of this was to make each jobsite where the pumps were installed a place of business of the pump company. This meant that the Bradley-Burns uniform local sales and use tax due on sales of pumps was then to be allocated to the county where each pump was installed rather than to the City of San Joaquin.

The court held that these deep well agricultural pumps were not fixtures, because they were not affixed to the land in a permanent fashion, had a useful life of only a few years, and did not become an integral part of an irrigation system. Because they were set in open spaces, were held in place by gravity, were movable, and were often moved from one well to another and were moved to San Joaquin for repairs, the pump company was not a construction contractor, but was instead a seller and installer of machinery and equipment with regard to these pumps.

On another issue in the same case, the court upheld the Board's pooling arrangement for allocation of Bradley-Burns local taxes generated by construction contracts. On over the counter sales, the revenues are allocated to each taxing jurisdiction in direct proportion to the reported sales attributable to that jurisdiction. Taxes derived from construction contracts are not allocated on a transaction for transaction basis, but are placed in a countywide pool and allocated to each jurisdiction in the same proportion as the revenue from over-the-counter sales for the same quarterly periods. City of San Joaquin v. State Board of Equalization (1970) 9 Cal.App.3d 365.

The Uniform Local Sales Tax Law and the State Sales and Use Tax Law Are Identical When Determining Whether to Apply a Sales or Use Tax

Cities of Alameda, Brisbane, and South San Francisco petitioned for writ of mandate challenging the Board's determination that under Bradley–Burns Uniform Local Sales and Use Tax Law, state use tax rather than local sales tax applied to transactions where purchased items were shipped from out-of-state warehouses to California consumers after transactions were consummated at retail stores in California. The court of appeal concluded that where state use tax applied, so did local use tax under local tax statutes and regulations. The court also concluded that it was within the Board’s discretion to use the provisions of the Uniform Commercial Code to determine where sales take place in order to determine whether sales tax or use tax applies to given transactions. City of South San Francisco v. State Bd. of Equalization (2014) 232 Cal.App.4th 707.

Board's Categorization of Elevator Components as Fixtures and Materials Is Not Arbitrary or Unreasonable

Plaintiff, which furnished and installed elevators, claimed that Regulation 1521 and General Bulletin 67-9, distinguishing for sales tax purposes between fixtures and materials incorporated into structures, are vague, uncertain, ambiguous, conflicting, and unreasonable, and in addition, result in taxation of real property contrary to law.

Regulation 1521 provides that construction contractors are the consumers of materials and the retailers of fixtures which they furnish and install in the performance of construction contracts. Where the contractor is the manufacturer of the fixtures, the retail selling price is considered to be the prevailing price at which similar fixtures in similar quantities ready for installation would be sold to contractors. General Bulletin 67-9 categorizes elevator components as either materials or fixtures. Plaintiff claimed that elevator systems that it installs constitute an integrated portion of the structures, are not accessory to the structures, and are required for the operation of the services of the structures. They cannot be removed without substantial damage to the structure and clearly seem to meet all of the tests of materials incorporated into a structure. The court, following General Electric Co. v. State Board of Equalization (1952) 111 Cal.4th 180, held that the legal issue is not the status of the subject matter in the hands of the buyer but in the hands of the seller. Even if General Electric Co. v. State Board of Equalization were not followed, services included in the sales price of personal property are subject to tax. Where a retailer fabricates parts which are incorporated into a fixture, such fabrication is included in the sales price of the fixture. Where classifications established by an administrative agency are not arbitrary or capricious, a court will not substitute its own judgment for that of the agency. The showing made by the plaintiff failed to establish that the rules and policies of the Board were arbitrary or had no rational basis. Coast Elevator Co. v. State Board of Equalization (1975) 44 Cal.App.3d 576.

Sales Price of Elevators Includes Preinstallation Labor to Assemble Component Fixtures

Taxpayer sold and installed elevator systems. Taxpayer purchased component fixtures and, at its factory, assembled the components into the elevators prior to installing the elevators at the jobsite. The Board determined that taxpayer was a manufacturer of fixtures and assessed sales tax on the labor and overhead attributable to the factory assembly of the components. Taxpayer contended that it was the retailer of the component fixtures, and the factory labor to affix the components to other components of the elevator system was nontaxable installation labor.

The court of appeal held in favor of the Board. The court held that the Board's Regulation 1521 (Construction Contractors) correctly applies tax to assembly labor which occurs before the affixation of fixtures to real property. Labor is properly regarded as taxable fabrication labor when, at the factory or at the jobsite, component fixtures are assembled into other component fixtures before the completed elevator system is finally installed as an attachment to real property. Coast Elevator Co. v. State Board of Equalization (1986) 186 Cal.App.3d 206.

A District Tax Adopted by a Simple Majority Vote Is Valid Because It Is Not a Special Tax

The voters of Santa Clara County adopted a new district tax during the 1996 general election by a simple majority vote (51.8 percent). This tax was adopted as Measure B, which specified that the ½ percent sales and use tax would be used for general county purposes. During the same election, the voters also approved Measure A by 77.6 percent of the vote. This was characterized in the measure itself and in the voter pamphlet as advisory only. It specified the voters' intent that any new sales tax revenue should be spent on certain projects specified in that measure.

Plaintiffs challenged the new tax as an attempt to circumvent the supermajority requirement for special taxes in that the measures were inseparably linked, meaning that Measure B was actually a special tax requiring a two-thirds vote to be validly adopted rather than a mere majority vote as required for a general tax. The Court of Appeal held that, although the two ballot measures were closely related to each other, they were not, in fact, legally connected. By itself, Measure B was a general tax which could be adopted by majority vote. Despite the passage of Measure A, the County was free to spend Measure B revenue on any and all County purposes without restriction, and the validity of neither measure was dependent on the passage of the other. The court therefore upheld the validity of the new tax. Coleman v. County of Santa Clara (1998) 64 Cal.App.4th 662.

Regeneration of Water Purification Tanks Is Taxable Sale

Taxpayer was in the business of selling and servicing water purification tanks. After resins in the tanks became depleted and were no longer usable to remove impurities, taxpayer replaced the tanks with similar tanks which had been regenerated at the taxpayer's plant. Taxpayer contended that the regeneration charges for replacing the depleted tanks were service transactions not subject to tax.

The court of appeal held in favor of the Board, stating that Sales and Use Tax Regulation 1546(b)(4) provides that a taxable sale includes the reconditioning of tangible personal property by delivery to the customer of reconditioned property which has been commingled with the same kind of property as that the customer originally delivered to the reconditioner. The court held that under the authority of Regulation 1546 and Culligan Water Conditioning v. State Board of Equalization (1976) 17 Cal.3d 86, the taxpayer's regeneration charges were taxable sales of the regenerated tanks. Continental Water Conditioning Co. v. State Board of Equalization (1989) 207 Cal.App.3d 783.

1986 Legislation Provided Retroactive Exemption from Tax of Sales of Geothermal Steam

The County of Sonoma and an individual resident of that county brought an action to compel the Board to assess and collect tax on sales of geothermal steam at The Geysers.

Plaintiffs contended that the pre-1986 sales and use tax exemption for sales of gas and water through mains, lines, or pipes did not exempt geothermal steam and that the Board lacked authority to exempt geothermal steam from tax.

The Board (and intervenors—companies who would be assessed tax if their sales of geothermal steam were found to be taxable) contended: (1) that the Board's longstanding administrative interpretation was correct and (2) that 1986 legislation (SB 2315) expressly exempted geothermal steam and intended that this exemption apply retroactively.

The court of appeal held in favor of the Board, concluding that a clear legislative intent of SB 2315 was to exempt retroactively pre-1986 sales of geothermal steam. The court held that the retroactive exemption was not a constitutionally prohibited gift of public funds since the exemption served an important public purpose, the protection of alternative energy sources including geothermal energy. County of Sonoma v. State Board of Equalization (1987) 195 Cal.App.3d 982.

Plaintiff Cannot Voluntarily Dismiss Complaint to Avoid Summary Judgment Motion

Plaintiff filed a complaint in connection with an audit conducted at its business accusing the Board of negligence in failing to treat plaintiff with respect and dignity and in failing to investigate charges by her. The Board filed a motion for summary judgment, but before the hearing and without filing any opposition to the Board's motion, plaintiff filed a request for dismissal without prejudice. Although the clerk completed the form stating that the dismissal was entered before the hearing, the Board received no notice of the dismissal and therefore appeared at the hearing on the summary judgment motion. The trial court granted the summary judgment in the Board's favor, and this appeal followed.

The Court of Appeal held that the right of the plaintiff to voluntarily dismiss an action before trial is not absolute. The court followed an earlier decision which did not allow the plaintiff to avoid summary judgment by voluntarily dismissing, without prejudice, for the purpose of reasserting the same allegations after refiling the complaint that the plaintiff could not, or would not, defend when challenged by the defendant's summary judgment motion. In this case, the court upheld that the trial court's finding that the Board's moving papers met the Board's burden, and that plaintiff could not avoid the adverse ruling by the strategem of filing a last minute request for dismissal without prejudice. Cravens v. State Board of Equalization (1997) 52 Cal.App.4th 253.

Furnishing of Water Conditioning "Exchange Units" Is Lease Rather Than Service

Plaintiff furnished to its customers water conditioning "exchange units" acquired without payment of sales tax reimbursement or use tax. The exchange units were inserted into the plumbing of customers homes and were replaced periodically by plaintiff in order to provide soft water continuously. The customers paid an initial charge for plumbing system alterations and thereafter paid monthly or bi-monthly charges. The Board asserted tax on the periodic payments on the basis that they were receipts from the lease of tangible personal property. Plaintiff paid the tax asserted and sued for refund on the basis that the periodic payments were for the service of providing soft water, and receipts from sales of services are not subject to tax.

The Supreme Court overruled the trial court and upheld the position of the Board. The court held that while an administrative agency's interpretation of its own regulation deserves great weight, the ultimate resolution of such legal questions rests with the courts. The court then went on to find that the transaction contained the requisite elements of a "hiring" under Civil Code Section 1925 as well as the elements of a "lease," and that the "real object" of the customer within the meaning of Sales and Use Tax Regulation 1501 was to obtain the property produced by the service rather than the service per se. Culligan Water Conditioning v. State Board of Equalization (1976) 17 Cal.3d 86.

Use Tax Collection Duties Imposed Upon Out-of-State Retailer Owned by Company Engaged In Same or Similar Business Held Unconstitutional

Plaintiff was an out-of-state mail-order company whose only connection with customers in California was by common carrier or United States mail. The plaintiff was acquired by a corporation who was a retailer engaged in business in California. The Board regarded plaintiff as a retailer engaged in business in California required to collect use tax under subdivision (g) of Revenue and Taxation Code section 6203.

The court of appeal held that the mail-order company was immune from the duty to collect use tax under the Commerce Clause, and its acquisition by a company engaged in business in California did not render it liable for collecting the tax. The plaintiff and the acquiring company did not have integrated operations or management, were organized and operated as separate and distinct corporate entities, and neither was the alter ego or agent of the other for any purpose. The plaintiff did not have sufficient physical nexus with California to justify the imposition of the duty to collect use tax, and, as applied to the plaintiff, the statute was unconstitutional as violative of the Commerce Clause. Current, Inc. v. State Board of Equalization (1994) 24 Cal.App.4th 382.

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C.O.D. Gas and Oil Co., Inc. v. State Board of Equalization … (1997)