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Davis Wire Corp. v. State Bd. of Equalization, 17 Cal.3d 761, 553 P.2d 229, 132 Cal.Rptr. 133

Facts

Davis Wire Corporation purchased two mills, North American Wire Mills and North American Mills, which manufactured wire and paper products. Although the mills had never sold their products at retail, they held seller's permits and produced goods subject to sales tax when sold at retail. Davis paid sales tax under protest and sought a refund, arguing that the sale constituted an 'occasional sale' exempt from taxation. The trial court ruled in favor of Davis, leading to the Board's appeal.

The State Board of Equalization (Board) appeals from an order directing it to refund to plaintiff, Davis Wire Corporation (Davis), certain sales taxes paid under protest.

Issue

Did the sale of the mills by Wire Mills and Paper Mills constitute an 'occasional sale' exempt from sales tax under California law?

Did the sale of the mills by Wire Mills and Paper Mills constitute an 'occasional sale' exempt from sales tax under California law?

Rule

Sales tax applies to the retail sale of capital assets used to manufacture nonexempt goods, regardless of whether the vendor has previously sold such goods at retail. The definition of 'seller' includes any person engaged in selling tangible personal property subject to sales tax.

Sales tax applies to the retail sale of capital assets used to manufacture nonexempt goods, regardless of whether the vendor has previously sold such goods at retail.

Analysis

The court determined that the mills were 'sellers' because they manufactured products subject to sales tax when sold at retail, and thus were required to hold seller's permits. The sale of the mills was not an 'occasional sale' as defined by law, since the capital assets were held or used in the course of business activities for which the mills were obligated to hold permits. The court distinguished this case from prior rulings by emphasizing that the products were suitable for retail sale.

The court determined that the mills were 'sellers' because they manufactured products subject to sales tax when sold at retail, and thus were required to hold seller's permits.

Conclusion

The court reversed the trial court's judgment, concluding that the sale of the mills was taxable and did not qualify for the occasional sale exemption.

The court reversed the trial court's judgment, concluding that the sale of the mills was taxable and did not qualify for the occasional sale exemption.

Who won?

The State Board of Equalization prevailed in the case because the court found that the sale of the mills was taxable under California law, as the mills were considered 'sellers' required to hold permits.

The State Board of Equalization (Board) contends that a sale at retail of capital assets used to manufacture nonexempt goods is taxable even if the vendor has never before sold such equipment or such goods at retail.

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