C. R. Fedrick, Inc. v. State Board of Equalizer

The State Board of Equalization (Board) appeals from a judgment granting a recovery of sales taxes as having been erroneously collected (Rev. & Tax. Code, § 6933). The matter arises out of a contract between C. R. Fedrick, Inc. (Fedrick), and the United States for modification of facilities for separation and distribution of petroleum and natural gas extracted at the Naval Petroleum Reserve No. 1, Elk Hills, California. The question is whether or not property Fedrick purchased for use in the performance of the contract is subject to sales tax under Revenue and Taxation Code section 6384. Section 6384 provides that purchases of prop erty so used are subject to the tax if the contract is “for the construction of improvements on or to real property in this state.” The Board contends that the trial court erred in finding the purchases outside the scope of section 6384. We agree.

Factual and Procedural Background

In January 1981, Fedrick contracted for the approximate sum of $18.5 million to perform the following work: “General Description— The work consists of modification of 32 existing Stevens Zone tank setting facilities, the installation of three new gage settings and…