US - Onsite Snowmaking in California: Taxable Sales Ruling Explained

An interesting case related to the onsite snowmaking services and application of the sales and use tax occurred in California. The case refers to an out-of-state, meaning non-Californian, company, Snowmagic, Inc., that provides snowmaking services to customers in California, and its appeal against the decision of the California Department of Tax and Fee Administration (CDTFA) imposing an obligation to pay due tax with interest.

As a governing body, the California Office of Tax Appeals (OTA) issued an Opinion on Showmagic's petition for rehearing.

Background of the Case and OTAs Decision

To fully grasp the issue, it's essential to understand how Snowmagic provides its services. Snowmagic creates snow onsite by connecting its snowmaking equipment to customers’ water supplies. This frozen water is then dispersed as ice crystals or snow on the customers’ property, creating a snow-covered area for the customers or others to utilize.

In addition, Snowmagic is responsible for managing and maintaining the snow-covered environment for days, weeks, or months, depending on the customers' needs. Once the customers no longer require the snow, all the equipment is disassembled, and everything, including any remaining snow, is removed from the customer’s property.

In 2018, the CDTFA issued a Notice to Snowmagic regarding due sales tax for services provided in California from January 2012 to December 2015, for USD 119,479, plus interest and a 10% failure-to-file penalty of USD 11,947.90. 

Snowmagic appealed against such a decision, stating that there was no taxable sale of tangible personal property, as stated by the CDTFA. In its appeal, Snowmagic added that they did not charge for the snow but only for the non-taxable service of making and maintaining snow-covered properties.

After analyzing all the statements, evidence, and past cases, the OTA found no grounds for a rehearing and denied Snowmagic's appeal.

Conclusion

OTA's Opinion provides a valuable interpretation of the sales tax rules in California, what is considered a sale of tangible personal property, and what constitutes the provision of services. This case is another example of how, in certain situations, small details can affect the application of the sales tax rules and that businesses operating across the US must be aware of different regulations and interpretations of some provisions.

However, it is vital to remember that this Opinion by OTA is non-precedential, meaning that it applies only to this case and might not affect some similar cases.

Source: Deloitte, Office of Tax Appeals Opinion