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Kaiser Steel Corp. v. State Board of Equalization, 24 Cal.3d 188, 593 P.2d 864, 154 Cal.Rptr. 919

Facts

Kaiser Steel Corporation purchased various materials to aid in the manufacturing of steel, including limestone and aluminum. These materials were used to remove impurities from molten metal and formed slag as a by-product. Kaiser claimed that these materials were purchased for resale in the form of slag, but the Board determined that the primary purpose of the purchases was to assist in steel production, making them taxable.

The case was tried by the court upon stipulated facts as follows: At its plant in Fontana, Kaiser is engaged in the manufacture and production for sale of steel, pig iron, and other products. Kaiser purchased certain materials to charge its furnaces and to remove impurities from the molten metal, namely, limestone, burnt lime, fluorspar, raw dolomite, burnt dolomite, bentonite, aluminum bar and shot, gravel, and aluminum magnesium alloy (materials).

Issue

Did Kaiser Steel Corporation purchase the materials for a purpose other than resale, thus making the purchases subject to sales and use tax?

Did Kaiser Steel Corporation purchase the materials for a purpose other than resale, thus making the purchases subject to sales and use tax?

Rule

The primary purpose of the purchase determines the taxability of raw materials; if purchased for use in manufacturing rather than for resale, the sale is taxable.

The primary purpose of the purchase determines the taxability of raw materials; if purchased for use in manufacturing rather than for resale, the sale is taxable.

Analysis

The court applied the primary purpose test to determine that Kaiser's dominant motive in purchasing the materials was to use them in the manufacturing process, rather than for resale. Although some materials ended up as slag, the court found that the primary intent was to aid in steel production, which is a nonexempt use.

The court applied the primary purpose test to determine that Kaiser's dominant motive in purchasing the materials was to use them in the manufacturing process, rather than for resale.

Conclusion

The court affirmed the judgment, concluding that the materials were purchased for a purpose other than resale and were therefore subject to sales and use tax.

The court affirmed the judgment, concluding that the materials were purchased for a purpose other than resale and were therefore subject to sales and use tax.

Who won?

State Board of Equalization prevailed because the court upheld its determination that the materials were used primarily for manufacturing steel, not for resale.

State Board of Equalization prevailed because the court upheld its determination that the materials were used primarily for manufacturing steel, not for resale.

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