Did an insurer's tax protection prevent use tax on computer equipment rented to its independent agents?

Plain-English summary

An insurance company rented IBM computer equipment to agents who sold only that company's insurance. The agents were not employees: they were commission-paid independent operators working from their own offices.

Counsel concluded that use tax measured by the rental receipts was proper. A tax on insurance agents was constitutionally and statutorily prohibited only when it directly affected the insurance company, and the effect of taxing these independent agents was described as minimal and indirect.

The memorandum referred to a March 4, 1980 letter for the underlying legal analysis, but that earlier letter is not included in the official PDF.

Common questions

Did selling only one company's insurance make the agents employees?

No on the stated facts. The memorandum relied on their independent operations, commission pay, and separate offices.

Does the PDF explain the underlying constitutional rule in detail?

No. It summarizes the rule and points to an earlier letter that is not reproduced.

Citations and references

• March 4, 1980 letter to a redacted insurance company (referenced but not reproduced)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/135-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/135-0176.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
135.0176

To:

Out-of-State
District Principal Auditor

From:

HQ – Legal (LS)

Subject:

S--- Company.
SC -- XX-XXXXXX

Date:

July 15, 1983

This is in reply to your memorandum of May 31, 1983. The issue raised is whether rental receipts from IBM computer equipment leased by S--- Company (S---) to its independent agents are subject to tax. Our understanding is that, although the agents in question sell S--- insurance only, they are not S--- employees but, rather, are independent operators who are paid on a commission basis and who operate out of their own offices. Under such circumstances, we are of the opinion that the imposition of use tax upon thes agents based on rental receipts has an impact on S--- which is at most minimal and indirect. As discussed in our March 4, 1980 letter to S--- I--- Company, a copy of which was attached to your memorandum, a tax imposed on insurance agents is constitutionally and statutorily prohibited only where it directly affects the insurance company. It follows, imposition of the tax in this matter was proper.

LS:rar