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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
C
190.0000 Construction Contractors—Regulation 1521
Annotation 190.0033
(a) In General—Activities Constituting Contracting or Making of Improvements
190.0033 Asphalt Concrete Furnished by Contractor. A Company is engaged in the business of furnishing asphalt concrete. The following examples explain the application of tax for different types of transactions entered into by the Company:
(1) The Company, either independently as a prime contractor or by subcontracting with a prime contractor, enters into a lump-sum contract to furnish, haul, and install asphaltic concrete. The installation is performed by the Company's employees.
The Company is the consumer of materials. Sales tax reimbursement or use tax must be paid on all materials purchased, but there will be no sales or use tax as to the materials mined by the Company.
(2) The Company, either independently as a prime contractor or by subcontracting with a prime contractor, enters into a lump-sum contract to furnish, haul and install asphaltic concrete. The Company subcontracts the hauling and installation of the asphaltic concrete to an unrelated third party. The installation occurs under the direction of the Company and is performed by employees of the third party subcontractor.
The Company is the consumer of materials. Sales tax reimbursement or use tax must be paid on all materials purchased, but there will be no sales or use tax as to the materials mined by Company. The result would be the same even if the installation was not under the direction of the Company.
(3) The Company enters into a lump-sum contract with a prime contractor to furnish, haul and install asphaltic concrete. The Company subcontracts the hauling and installation of the asphaltic concrete to the prime contractor. The installation occurs under the direction and supervision of the Company and is performed by employees of the prime contractor.
The Company is the retailer of the materials with sales tax applying to its gross receipts from the sale of the materials. The "two" contracts are treated as one integrated agreement for California sales and use tax purposes. The obligation of the Company to "furnish and install" is without substance for California sales and use tax purposes.
(4) The Company enters into a lump-sum contract with a prime contractor to furnish, haul and install asphaltic concrete. The Company subcontracts the hauling and installation of the asphaltic concrete to an affiliate of the prime contractor. The installation occurs under the direction and supervision of the Company and is performed by employees of the prime contractor's affiliate.
The Company will be regarded as a construction contractor provided the "affiliate" is a legal entity separate and apart from the prime, not just a division, and the affiliate is actually independently engaged in the business of hauling and installing asphaltic concrete. That is, the affiliate must have employees, equipment, and be actively engaged in the business. If the affiliate is without independent business substance, the Company is regarded as a retailer of materials.
(5) The Company enters into a lump-sum contract with a prime contractor to furnish, haul and install asphaltic concrete. The Company subcontracts the hauling and installation of the asphaltic concrete to an affiliate of the prime contractor. The affiliate then subcontracts the installation of the asphaltic concrete to the prime contractor. The installation occurs under the direction and supervision of the Company and is performed by employees of the prime contractor.
As in Example 3, the Company is the retailer of the materials with sales tax applying to its gross receipts from the sale of the materials. 7/2/91.