State & Local Tax Blog

Electricity Held to be Tangible Personal Property in CA

This recent CA appeals court case about coal purchased by a producer of electricity caught my eye. (Searles Valley Minerals Operations, Inc. v. State Board of Equalization, California Court of Appeal, Fourth Appellate District, No. D049905, February 26, 2008). The court held that coal doesn’t become part of the final product and therefore cannot be purchased for resale in CA. That could have been expected. The interesting part to me was that they first went through an analysis of whether electricity is even “tangible personal property” for purposes of CA sales/use tax.

  As reported by CCH: “The term “tangible personal property” is defined in the sales and use tax laws as personal property that may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses. The evidence at trial established that electricity can be measured and felt and is perceptible to the senses. As such, electricity constitutes tangible personal property. Based on the unambiguous language of the applicable statute and the evidence presented, the court concluded that electricity is tangible personal property for purposes of the sales and use tax law.” This is important because it might lead to other refunds being sought in CA, for example, plain old telephone service (POTS) is essentially an electric signal. Telephone companies spend a lot of money on electricity needed to generate telecommunications. So maybe telecommunications is tangible personal property and since the electricity purchased becomes a part of the ultimate item sold, maybe it’s exempt in CA now? Or maybe, telecommunications is taxable as the sale of TPP in CA now?

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