California Revenue and Taxation Code ("R&T Code") Sec. 6016 defines "tangible personal property" as "personal property which may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses." The R&T Code requires all retailers that sell tangible personal property to consumers to pay sales tax based on the receipts or money that the retailer receives in the transaction." (R&T Code Secs. §6007, 6051, 6051.1.) The Code also imposes a "use tax" on storage, use, or other consumption of tangible personal property that is purchased from any retailer. (R&T Code Sec. 6201.)

R&T Code Sec. 6016.5 specifically states that, for purposes of sales and use tax, tangible personal property does not include "telephone and telegraph lines, electrical transmission and distribution lines, and the poles, towers or conduit by which they are supported or in which they are contained." Thus, these specific items are not subject to state taxation.

Judicial Interpretations of the Revenue and Taxation Code

Loeffler v. Target Corp.

“In Loeffler v. Target Corp. (2014) 58 Cal. 4th 1081 our Supreme Court reviewed the history and development of California law on the issues raised by Littlejohn's complaint.” (Littlejohn v. Costco Wholesale Corp (2018) 25 Cal.App.5th 251, 277.) “In a brief overview, the court summarized: ‘under California's sales tax law, the taxpayer is the retailer, not the consumer. In addition, the taxability question, whether a particular sale is subject to or is exempt from sales tax, is exceedingly closely regulated, complex, and highly technical. A comprehensive administrative scheme is provided to resolve these and other tax questions and to govern disputes between the taxpayer and the Board. Under these administrative procedures, it is for the Board in the first instance to interpret and administer an intensely detailed and fact-specific sales tax system governing an enormous universe of transactions. Administrative procedures must be exhausted before the taxpayer may resort to court. ... [T]his comprehensive statutory scheme is inconsistent with consumer claims such as plaintiffs' by which a party other than the taxpayer would seek to litigate whether a sale is taxable or exempt.’” (Littlejohn citing Loeffler, supra, 58 Cal. 4th at 1103.)

“For that reason the court rejected unfair business practice claims against a retailer based on the allegation that the retailer had collected a sales tax reimbursement on takeout sales of coffee allegedly not subject to a sales tax, because resolution of the claims would require the court to determine the taxability of the transactions.” (Littlejohn v. Costco Wholesale Corp (2018) 25 Cal.App.5th 251, 277.)

Customer Class Actions for Refunds 2019 Supreme Court Decision McClain et al. v. SAV-ON Drugs et al. S241471, decided March 4, 2019, (Cert. for Pub.)

“The question [presented was] whether customers who have paid sales tax reimbursement on purchases they believe to be exempt from sales tax may file suit to compel the retailers to seek a tax refund from the Department when there has been no determination by the Department or a court that the purchases are exempt. In Javor, we authorized a customer suit where the Board, upon determining that certain retailers had collected excess sales tax reimbursement, had promulgated rules to provide refunds to overpaying customers. The trial court declined to extend Javor to authorize a similar judicial remedy in this case, and the Court of Appeal affirmed. (McClain v. SavOn Drugs (2017) 9 Cal.App.5th 684, 700–702 (McClain).) We agree with the courts below in refusing to extend Javor and affirm the judgment sustaining defendants’ demurrer.

Concurrent Case On Point for Customer Class Action Remedies

Littlejohn v. Costco Wholesale Corp (2018) 25 Cal.App.5th 251, a class action suit concerned the following issues:

• the charging sales tax reimbursement on products not actually subject to tax
• unfair business practices by representing to customers that sales of Ensure were taxable and collecting sales tax reimbursement on such sales
• the [Tax] Board as a constructive trustee of the sales tax erroneously collected and paid to the state by Costco on its sales of Ensure

(Id. at 256)

The prayer for relief was: “that sales tax should be refunded to Costco and in turn refunded to the Costco customers who paid the sales tax reimbursement. This cause of action seeks to require the court to "[o]rder Costco to immediately apply to the full extent it legally can do so to the [Board] for reimbursement of all sales tax it paid to the [Board] due to sales of Ensure in order to immediately return to the class the sales tax reimbursement it paid to Costco for Ensure and to pay interest on said sums from the date they were paid to Costco to the full extent allowed by law.” (Id.)

The court in Littlejohn, acknowledging the similarity to McClain v. Sav-On DrugsThe stated in relevant part, “[T]he most recent published case to reject a possible Javor cause of action is McClain v. Sav-On Drugs (2017) 9 Cal. App. 5th 684, (review granted June 14, 2017, S241471.) McClain distilled from Decorative Carpets and Javor three factors for courts to consider in deciding whether to recognize a Javor cause of action. They are:

1. whether the plaintiff has an available statutory remedy for a tax refund;
2. whether the proposed judicial remedy would be consonant with statutory tax refund procedures; and
3. whether there has been a "precursor determination" either by the Board or as a result of legal action by a taxpayer that a tax refund is due and owing.

Although the Littlejohn court did find that the first two Javor identified in McClain, the court declined to agree with Littlejohn, stating in relevant part, “appellant has not shown that the Board made a precursor determination that sales tax paid on purchases of Ensure between May 30, 2009, and mid-2014 must be refunded.” (Littlejohn, supra, 25 Cal. App. 5th at 260.)

Exemptions or No Exemptions

Sample cases holding that there is no exemption on the gross receipts from the sale of component parts of a finished product include: National Aircraft Leasing Ltd. v. State Bd. of Equalization 90 Cal. App. 3d 529, 557, applying R&T Code Secs. 6366 and 6366.1); King v. State Bd. of Equalization (1972) 22 Cal. App. 3d 1006, 1012-1013 (discussing § 6006's provisions for precluding evasion of applicable tax for sale of only component parts); Chula Vista Elec. Co. v. State Bd. of Equalization (1975) 53 Cal. App. 3d 445 (holding that while electrical transmission and distribution lines are not tangible personal property under the state sales and use tax laws, the component parts of the transmission and distribution lines, including the cable used to the conduct electricity, are tangible personal property); CR Fedrick, Inc. v. State Bd. of Equalization (1974) 38 Cal. App. 3d 385, 399-400.

In Chula Vista, the Plaintiff company contracted with the federal government to remove electrical cable from an existing underground conduit at an air station, and replace it with new cable. Plaintiff paid $ 90,000 for the new cable, and the state assessed a tax measured by that price. In a lawsuit to recover the tax assessed, the trial and appellate courts found that the tax was properly assessed. In addition to applicable exemptions related direct sales to the federal government under Rev. & Tax. Code Sec. 6381 and Sec. 6384, the court concluded that the cable constituted tangible personal property that was taxable under Sec. 6384, and did not qualify under the Sec. 6016.5 exclusion of "electrical transmission lines" from the definition of taxable tangible personal property because that exclusion encompassed only completed lines and not components used in the construction or repair of lines.

Taxes and Wireless Communication Devices

18 Cal.Code Regs. Sec. 1585(b)(3), discusses sales and use taxes with respect to cellular telephones, pagers, and other wireless telecommunication devices, and provides in relevant part:

“Bundled Transactions: Tax applies to the gross receipts from the retail sale of a wireless telecommunication device sold in a bundled transaction, measured by the unbundled sales price of that device. Tax applies to the unbundled sales price whether the wireless telecommunication device and utility service are sold for a single price or are separately itemized in the context of a sale or on a sales invoice. The retailer of the wireless telecommunication device is required to report and pay tax measured by the unbundled sales price of the device and may collect tax or tax reimbursement from its customer measured by the unbundled sales price. Tax does not apply to the charges in excess of the unbundled sales price made for telecommunication services.”