Western Concrete Structures, Inc. v. State Bd. of Equalization

• Decision Date: 27 January 1977
• Citation: 66 Cal.App.3d 543,136 Cal.Rptr. 93
• Parties: WESTERN CONCRETE STRUCTURES, INC., a California Corporation, Plaintiff and Respondent, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant and Appellant. Civ. 48209.
• Court: California Court of Appeals Court of Appeals

Page 93

136 Cal.Rptr. 93

66 Cal.App.3d 543

WESTERN CONCRETE STRUCTURES, INC., a California Corporation, Plaintiff and Respondent, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant and Appellant.

Civ. 48209.

Court of Appeal, Second District, Division 5, California.

Jan. 27, 1977.

Rehearing Denied Feb. 25, 1977.

Evelle J. Younger, Atty. Gen., Philip C. Griffin, and Rodney Lilyquist, Jr., Deputy Attys. Gen., for defendant and appellant.

Spensley, Horn, Jubas & Lubitz, Marvin Jubas and Daniel L. Dawes, Los Angeles, for plaintiff and respondent.

HASTINGS, Associate Justice.

Western Concrete Structures, Inc. (WCS), plaintiff and respondent, paid under protest to the State Board of Equalization (Board), defendant and appellant, an assessment for state sales and use tax. The amount in controversy is $35,348.00 plus interest as provided by law. A written stipulation of facts was presented by the parties and oral and documentary evidence was introduced by WCS. The trial court held that WCS was a construction contractor on the contracts in question and thus entitled to be treated as a 'consumer' of materials under California Administrative Code, title 18, article 12, section 1521. Therefore, judgment was entered in favor of WCS and against Board.

During the period in question WCS entered into certain transactions under lump sum contracts in which it furnished shop drawings, post-tensioning tendons (steel strand, end anchorage hardware and sheathing), rental of stressing equipment, and field supervision. The architectural and engineering plans required that a specified amount of force was to be supplied by WCS's post-tensioning system. From these plans WCS calculated the quantity of tendons and the stress to be applied thereto necessary to provide the specified force, allowing for friction and loss of force over the useful life of the structure.

Once WCS signed a contract, it prepared shop drawings which showed the numbers and lengths of tendons, the placement location of the tendons, and the contrete pouring sequences. The drawings were then approved by the general contractor and the project owner's representative. WCS thereafter fabricated and cut the tendons and delivered them to the jobsite.

Non-WCS employees were responsible for unloading the tendons at the jobsite. All placement, installation and stressing of the tendons at the jobsite was performed by non-WCS employees, either personnel employed by the general contractor or a placing subcontractor. WCS conferred with the placing subcontractor and general contractor and inspected and approved the placement. WCS inspected the use of its stressing equipment by the placing subcontractor and consulted with the placing subcontractor whenever a problem in installation or stressing occurred. WCS was responsible for its work, materials, and equipment. If for any reason the required force was not produced, WCS corrected the problem. If the fault was that of WCS then WCS was liable and paid for the corrective work. It, however, was not liable for the work of the placing subcontractors in the installation of the tendons nor of the work performed by the concrete pouring subcontractors; if the latter subcontractors were at fault, they were responsible for payment of the corrective work undertaken by WCS.

It is Board's position that under the Sales and Use Tax Law, the steel tendons constitute tangible personal property and a sales tax was applicable to the transactions (Rev. & Tax.Code, § 6051.) WCS, however, argues that it was a 'consumer of materials used by them in fulfilling construction contracts,' and therefore exempt from the tax by reason of section 1521. ¹

WCS enters into two kinds of post-tensioning contracts. Under the first contract, it is obligated to calculate the quantity of tendons, fabricate them, determine the stress to be applied to furnish the required 'force' and to install and stress the tendons either by its own employees or by its own subcontractors at the jobsite. As to these contracts, Board agrees that WCS is a 'consumer' under section 1521 and is exempt from sales tax on these transactions. In the second type of contract, WCS performs the same service except that installation stressing is performed by the general contractor or a subcontractor of the general contractor. Board's position is that the actual installation of the tendons must be performed by WCS in order for it to qualify as a 'consumer.' The trial court was unimpressed by this argument. We also conclude that the distinction between the two contracts as urged by Board is superficial when WCS's responsibilities under both are fully understood. On the contracts in question, WCS performed a substantial portion of the work of construction, and it was obligated and did perform services which continued throughout all building phases, ending only with the final acceptance of the structure. The incorporation and proper stressing of the tendons were substantial ² parts of the improvement to real property in that they were important and material to the very structural existence of the building throughout its lifetime. There was evidence that WCS was contractually responsible and directly provided all supervision and testing in the installation of the tendons and was required to make necessary corrections in the installed tendons, whenever there was a force failure. Only WCS had the required expertise. The findings detail the work performed by WCS and the record supports the findings. ³ Board belittles many of these activities, implying they were performed for WCS's own benefit. This interpretation is, however, contradicted by several findings, particularly No. 30, to the effect that 'whenever a problem develops due to an inadequate force, Plaintiff (WCS) is through contract interpretation, custom and practice called upon to make corrections regardless of two is at fault . . .' The fact that the...