Laws, Regulations and Annotations


Business Taxes Law Guide – Revision 2023

Sales and Use Tax Memorandum Opinions

Cushion Cut, Inc.

As diamond saw blades are not materials or fixtures, the exemption from tax rate increases for materials and fixtures furnished under fixed price construction contracts was not available with respect to sales of such saw blades to contractors.


In the Matter of the Petition of CUSHION CUT, INC.


For Petitioner:

Mr. Lester Kuzmick

For Staff:

Mr. J. Kenneth McManigal
Tax Counsel


This opinion considers the merit of a petition for redetermination of a portion of tax in the amount of $1,297.30, plus statutory interest determined against petitioner for the period October 1, 1966 to September 30, 1969.

Petitioner is a manufacturer of saws and diamond saw blades. During the audit period, it sold diamond saw blades to a construction contractor for use in performing engineering construction project contracts. In so doing, petitioner would submit to the contractor a bid based upon a specific cutting cost per foot for the job for which the contractor wished to bid. The contractor then used this cost in submitting his bid for that job, and when it was the successful bidder, the diamond saw blades were delivered to it, were stored at the jobsite, and were used as needed. The contractor forwarded a detailed report on each job indicating the actual amount of feet cut and petitioner invoiced accordingly. Portions of diamond saw blades not consumed on jobs were returned to petitioner's stock and were used on subsequent jobs.

Effective August 1, 1967, Revenue and Taxation Code Section 6376 exempted from 25 percent of the sales tax the gross receipts from the sale of material and fixtures, if the sales of the material and fixtures were obligated pursuant to an engineering construction project contract entered into for a fixed price prior to that date. Petitioner regarded its sales of diamond saw blades to the contractor as sales of material, the gross receipts from which were exempt from 25 percent of the sales tax under Section 6376, and petitioner asserted that on and after August 1, 1967, it should have only reported and paid State sales tax at the rate of 3 percent rather than at the rate of 4 percent of its gross receipts from such sales. It is 25 percent of the sales tax, 1 percent of the State sales tax rate, applied to petitioner's gross receipts from its sales of diamond saw blades to the contractor on and after August 1, 1967, sales tax in the amount of $177.71, which petitioner protests.

In enacting Section 6376, the Legislature did not define the terms "material" and "fixtures". Thus, it was determined that the definitions of those terms as set forth in Sales and Use Tax Ruling 11 would be used to define "material" and "fixtures" for purposes of Section 6376. Business Taxes General Bulletin 67-12, Part 3, so provided:

"c. 'Materials' and 'fixtures' as used herein have the meanings ascribed thereto in sales and use tax rulings 11 and 12."

In this regard, Ruling 11(a) provided:

"(3) The term 'materials' as used herein means tangible personal property which when combined with other tangible personal property loses its identity to become an integral and inseparable part of the completed structure.

"(4) The term 'fixtures' as used herein means things which are accessory to a building and which do not lose their identity as accessories when placed or installed."

Ruling 12, Part 4, provided, in part:

" 'Fixtures' … are things which are necessary to a structure and so firmly attached to the realty as to constitute a part of the structure. They are essential to the use of the building or other structure. …"

We have construed the exemption provided by Section 6376 as being available only in cases where tangible personal property sold constitutes material or fixtures per Bulletin 67-12. For example, we have done so in the petition matters of Western Contracting Corporation, which has filed actions in Los Angeles Superior Court challenging this construction as to the availability of the exemption.

In our view, the diamond saw blades were not material or fixtures per Bulletin 67-12. While some bits and pieces from used diamond saw blades no doubt settled in highway roadbeds, this was not a combining of the diamond saw blades with other tangible personal property to become an integral and inseparable part of a completed structure, the meaning ascribed to "material" therein. In addition, the Office of the Attorney General advised on December 7, 1967 that tools purchased and consumed in the performance of contracts referenced in Section 6376 did not qualify for the exemption provided therein.

Consistent with the interpretation of Section 6376 as set forth in Bulletin 67-12 and consistent with our position in the Western Contracting Corporation actions now pending, we have concluded that as diamond saw blades are not material or fixtures as defined in Bulletin 67-12, the exemption provided by Section 6376 was not available in the case of petitioner's sales thereof to the contractor, and the applicable State sales tax rate to those sales made on and after August 1, 1967 was the 4 percent rate. Accordingly, the tax as determined shall be redetermined without adjustment.

Done at Sacramento, California, this 14th day of September, 1971.

Richard Nevins, Chairman

John W. Lynch, Member

George R. Reilly, Member

William M. Bennett, Member

Attested by: H. F. Freeman, Executive Secretary