Searles Valley Minerals Operations, Inc. v. State Board of Equalization

The California Sales and Use Tax Law (Rev. & Tax. Code, § 6001 et seq.) generally imposes a sales tax on a retailer for the privilege of selling tangible personal property at retail and a comparable tax (known as a use tax) on tangible personal property that is purchased from a retailer outside the state but that is thereafter stored, used or consumed by the purchaser within the state. (Rev. & Tax. Code, §§ 6002, 6051; all further statutory references are to this code except as otherwise noted.) Where, however, a purchaser buys or uses tangible personal property for resale in the regular course of its business, neither of these taxes applies. (§§ 6007, 6008, 6009.)

This case presents the issue of whether coal that is purchased outside California and used by the purchaser to produce electricity in the state is subject to the California use tax. The answer to this fundamental issue requires a resolution of two underlying questions: (1) whether the electricity is “tangible personal property” for purposes of the Sales and Use Tax Law, such that the coal used to produce it might qualify as having been purchased for resale; and (2) whether the coal (through its chemical…