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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Regulations
Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration — Business Taxes (State Board of Equalization — Business Taxes — See Chapters 6 and 9.9)
Chapter 4. Sales and Use Tax
Article 3. Manufacturers, Producers, Processors
Regulation 1525.1
Regulation 1525.1. Manufacturing Aids.
Reference: Sections 6007-6009.1 and 6010.5, Revenue and Taxation Code.
Tax applies to the sale of manufacturing aids such as dies, patterns, jigs and tooling used in the manufacturing process notwithstanding the fact that the property used in manufacturing may subsequently be delivered to or held as property of the person to whom the manufactured product is sold. If the contract of sale between the manufacturer and the customer provides that title to the manufacturing aid passes to the purchaser prior to physical use of the property in the manufacturing process, then the manufacturing aid or its raw materials, if the manufacturing aid is fabricated by the manufacturer, may be purchased for resale. Tax then applies, unless otherwise exempt, to the sale of the manufacturing aid by the manufacturer to the customer, and not also with respect to the sale to the manufacturer. If the contract provides that title to the manufacturing aid passes to the customer in this state prior to use, then a retail sale subject to tax occurs in this state even though the manufacturing aid may subsequently be shipped to a point outside this state.
History—Adopted August 20, 1985, effective November 22, 1985. Added this new regulation to explain the application of the sales and use tax to the sale of manufacturing aids such as dies, patterns, jigs, and tooling used in manufacturing other items of tangible personal property.
BUSINESS TAXES GENERAL BULLETIN 61–2; JANUARY 16, 1961,
REVISED JUNE 9, 1967 AND JUNE 15, 1967.
Subject: Regulation 1525, Property Used in Manufacturing, and Regulation 1668, Resale Certificates, as Applied to Salt Used in Food Processing.
(a) Application of Tax.
(1) Section 6359 of the Sales and Use Tax Law exempts sales of "food products for human consumption", and provides that the term "food products" includes … "salt" …
Accordingly, the sale of salt for human consumption as such, or as a component part of other foods for human consumption, such as pickles and olives, is exempt from the tax.
(2) Sales of salt to manufacturers or processors of food products or other commodities are not exempt as sales for resale if the salt is purchased for any purpose other than resale as a component part of the manufactured article. Section 6007 defines a "retail sale" as "a sale for any purpose other than resale in the regular course of business in the form of tangible personal property". Thus, if salt is purchased by a manufacturer for use in the manufacturing process (other than incorporation into the manufactured product), the sale of the salt is not exempt, either as a food product for human consumption or as a sale for resale.
(A) Examples of use in the manufacturing process are:
1. As a brine for storing, curing, or pickling when the food product is withdrawn from the brine prior to sale, except that portion of the salt purchased which remains in the food product to be sold.
2. Cleaning and grading food products by means of a flotation process.
3. Water softening.
(B) Examples of incorporation into the manufactured product are:
1. The placing of salt in the containers in which food products are placed and sold.
2. The placing of salt in a brine to be placed in containers in which food products are placed and sold.
3. The placing in a brine of all of the salt intended to remain in the food product to be sold, notwithstanding the fact that a portion of the brine must be discarded because of impurities forming in the brine before all of the salt can be incorporated in the food product to be sold.
(b) Resale Certificates.
(1) The law governing the use of resale certificates is set out in several sections of the Sales and Use Tax Law as follows:
"6091. For the purpose of the proper administration of this part and to prevent evasion of the sales tax it shall be presumed that all gross receipts are subject to the tax until the contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon the person who makes the sale unless he takes from the purchaser a certificate to the effect that the property is purchased for resale.
"6092. Effect of certificate. The certificate relieves the seller from liability for sales tax only if taken in good faith from a person who is engaged in the business of selling tangible personal property and who holds the permit provided for in Article 2 (commencing with Section 6066) of this chapter.
"6094. Liability of purchaser. If a purchaser who gives a certificate makes any use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business, the use shall be taxable to the purchaser under Chapter 3 (commencing with Section 6201) of this part as of the time the property is first used by him, and the sales price of the property to him shall be the measure of the tax.
"6094.5. Any person who gives a resale certificate for property which he knows at the time of purchase is not to be resold by him in the regular course of business for the purpose of evading payment to the seller of the amount of the tax applicable to the transaction is guilty of a misdemeanor."
(2) Resale certificates given by food processors and accepted by salt vendors must meet the requirements set forth in Regulation 1668. This is further explained by Form BT-741-A regarding "Resale Certificates—Their Use and Misuse" directed by the Secretary of the Board to all persons holding sellers' permits as of March 31, 1960. Inasmuch as a portion of the salt purchased by food processors is consumed and a portion is resold (see (a) (2) (A) and (a) (2) (B) above), the processors should determine by the best means possible the approximate percentage of all salt purchased that is resold and give resale certificates covering such percentage only. The percentage may vary with the type of salt sold, the type of food being processed, the processing methods used, and other factors. Studies have been made which indicate that when undried salt is sold to food processors who use the salt to make brine in which olives or pickles are processed, about 50% of the salt is resold with the olives or pickles and the remaining 50% is consumed by the food processors. Accordingly, it is in order for vendors of undried salt to accept resale certificates for 50% of each sale of undried salt to food processors who certify that the salt is to be used in making brine for processing olives or pickles for resale. Fifty percent of each such sale will be regarded as a taxable retail sale.
(3) Where a food processor is not a "seller" as defined by Section 6014 of the Sales and Use Tax Law and therefore is not required to hold a seller's permit, the food processor may nonetheless give a resale certificate in the same fashion as though he were a "seller". A statement substantially as follows may be entered on the resale certificate in lieu of a seller's permit number:
"Food processor selling only food products for human consumption."
(4) Inasmuch as the actual use of the salt purchased is within the specific knowledge of the manufacturer or processors rather than of the salt seller, purchasers holding sellers' permits may desire to follow the procedure authorized by Section 6012 of the Sales and Use Tax Law and Regulation 1701. Under this procedure, the purchasers of the salt would reimburse the salt vendors for tax on the total price of the salt. The purchasers would then deduct on their own tax returns the purchase price of the salt which is resold rather than used for some other purpose, a matter peculiarly within their knowledge rather than their vendors'. This procedure would give the purchasers an automatic credit for tax paid on purchases for resale, subject to audit of the purchasers, and the salt vendors would be relieved of any further responsibility.