## Facts

- Kaiser Steel Corporation operated a Fontana, California steel plant manufacturing steel, pig iron, and related products for sale.
- Kaiser bought materials used in steelmaking (including limestone, burnt lime, fluorspar, dolomite, bentonite, aluminum bar and shot, gravel, and aluminum magnesium alloy).
- The materials were used to charge furnaces and remove impurities from molten metal; impurities combined with the inputs to form slag.
- Portions of the inputs were incorporated into finished steel, remained in the steel without intended effect, or were dissipated during processing.
- Large percentages of certain inputs (about 52% to 97%, depending on the material) became components of slag; only these slag portions were disputed.
- Kaiser arranged for an independent company to remove slag, paying Kaiser one cent per ton removed and a 10% royalty on net sales of reprocessed slag; Kaiser recouped about 8.7% of the raw-material costs through this arrangement.
- Kaiser paid sales tax to vendors or used resale certificates and later paid use tax, then sought refunds for taxes attributable to the portions of inputs that became slag.
- The trial court, on stipulated facts, denied relief; Kaiser appealed.

## Issues

1. Whether Kaiser’s purchases of materials that later became part of slag were made “for resale” or “for a purpose other than resale” under California Revenue and Taxation Code section 6007, determining whether the transactions were taxable retail sales.
2. Whether the incidental formation and subsequent sale of slag as a by-product converted the original purchases into exempt purchases for resale.

## Decision

- The California Supreme Court affirmed judgment for the State Board of Equalization.
- The court held Kaiser purchased the disputed materials for a purpose other than resale, making the transactions taxable retail sales under Revenue and Taxation Code section 6007.
- Kaiser was not entitled to refunds of sales or use taxes for the portions of materials that became slag.

## Legal Principles

- Under Revenue and Taxation Code section 6007, whether a purchase is “for resale” turns on the purchaser’s purpose at the time of acquisition; purchases for use or consumption in manufacturing are taxable retail sales.
- A downstream sale of a manufacturing by-product does not, by itself, convert inputs acquired for manufacturing use into tax-exempt purchases for resale.
- When materials are primarily acquired to perform functions in production (e.g., charging furnaces and removing impurities), later recovery of some value from residual by-products is treated as incidental and does not control resale-exemption analysis.

## Conclusion

The court treated slag as an incidental by-product of steelmaking and held that inputs acquired to facilitate production were purchased for use rather than resale, so Kaiser’s purchases remained taxable retail sales despite subsequent sale and royalties from reprocessed slag.


Kaiser Steel Corp. v. State Bd. of Equalization, 24 Cal. 3d 188, 593 P.2d 864 (Cal. 1979)