MODERN PAINT & BODY SUPPLY, INC. v. State Bd. of Equalization

The State Board of Equalization (the Board) appeals from a summary judgment awarding a refund of sales taxes, interest, and penalties in favor of Modem Paint and Body Supply, Inc. (Modem). Modem is a business that sells products used in auto body repair. It sold items to auto repair shops which the repair shops consumed or used up during the auto repair process and which were not physically incorporated into the repaired cars, such as sandpaper, masking tape, and paint thinner. Both parties refer to these items as “supplies.” The Board, following audits showing that Modern had not paid sales tax on the sales of supplies to auto repair shops, determined that the sales were subject to sales tax. The trial court disagreed, finding that Modern’s sales of the supplies were sales for resale and thus not subject to sales tax under California Code of Regulations, title 18 (Regulations), section 1668, subdivision (c)(1). We conclude that Modem’s sales of supplies to auto repair shops were not sales for resale, and therefore will reverse the summary judgment.

Procedural Background

After unsuccessfully pursuing its administrative remedies and paying assessed deficiencies, Modem…