One Percent Tax on Lumber and Engineered Wood Products Begins January 1, 2013
Retailers and construction contractors who make retail sales will start collecting a 1 percent tax from California consumers who buy lumber and engineered wood products beginning January 1, 2013. A new law (AB 1492, Chapter 289, Statutes of 2012) requires the state Board of Equalization (BOE) to collect the assessment from retailers for various state agencies including the Department of Forestry and Fire Protection. BOE estimates the new lumber products tax will generate $35 million in fiscal year 2013-14 for the Timber Regulation and Forest Restoration Fund.
Under the new law, receipts given to customers must clearly state the 1 percent lumber products assessment. The assessment is not subject to sales or use tax.
How does the new law affect construction contractors?
Contractors may be either consumers or retailers of lumber products or engineered wood products.
- As a consumer of lumber products or engineered wood products, contractors will be required to pay the assessment to their California vendors.
- As a consumer of lumber products or engineered wood products, contractors will be required to pay the assessment directly to BOE on purchases made from outside of California for use in this state.
- As a retailer of lumber products, contractors will be required to charge and collect the assessment from their customers and report and pay the assessment to BOE on their sales and use tax return.
- As a retailer of items that a contractor manufactures, assembles, processes, or produces from lumber products or engineered wood products (for example, prefabricated cabinets), no assessment is due on either the contractor's purchase or on their subsequent sale of these items.
Contractors that hold a seller's permit and sell lumber products or engineered wood products to consumers in this state may offset their reported lumber products assessment amounts against start-up costs of $250 per business location. For more information about construction contractors, click here (BOE's publication 9, Construction and Building Contractors).
What products are subject to the lumber assessment?
In general, lumber products and engineered wood products subject to the 1 percent assessment are defined as "primary" wood products in which wood is a principal component (at least 10 percent of total content).
However, wood products that have been manufactured, assembled, processed, or produced from primary wood products are not subject to the 1 percent tax. These include "secondary" wood products where there has been additional labor that adds significant value to the product. See the examples below of products subject to the assessment and products not subject to the assessment:
| Subject to Lumber Assessment | Not Subject to Lumber Assessment |
|---|---|
| Lumber | Furniture |
| Plywood particle board | Firewood |
| Fiberboard | Paper products |
| Poles | Indoor finished flooring |
| Posts | Wainscoting (facing or paneling applied to walls) |
| Structural panels | Paneling |
| Decking | Shutters |
| Railings | Blinds |
| Fencing (poles, solid board) | Frames |
| Roofing (shakes and wooden shingles) | Windows |
| Siding | Doors |
| Sub-flooring | Cabinets |
| Oriented strandboard | Molding |
| Glue-laminated timber | Millwork (for example, baseboards) |
| Laminated veneer lumber | Trusses |
| Lath (for example, a thin, narrow strip of wood used for support) | Pre-constructed railing sections
Carvings and craft products |