Could a lessor buy packing materials for resale when it unpacked and assembled leased equipment at the lessee's premises?

Plain-English summary

A lessor packaged equipment, delivered it to the lessee, then unpacked and assembled it at the lessee's premises. The lease was treated as a continuing sale, with tax reported on rental receipts.

California concluded that the packing material was sold to the lessee with the leased equipment even though the lessor removed the packaging and performed assembly onsite.

The lessor could buy the packing material under a resale certificate. The audit memorandum directed that the policy be applied retroactively when the same circumstances existed.

Common questions

Did onsite unpacking make the lessor the packaging consumer?

No, under the stated continuing-sale lease facts.

Did the tax method matter?

Yes. The memorandum expressly addressed tax reported on the rental-receipts basis.

Citations and references

• Recent petition concerning packing materials used for equipment leased as a continuing sale — date, taxpayer, identifier, and petition copy not provided in the official PDF
• D. F. Brady's February 10, 1982 memorandum to District and Subdistrict Principal Auditors — continuing-sale lease packing policy and retroactive direction
• Gary Jugum's undated Non-Attorney Opinions memorandum to Glenn Bystrom — concurrence with Brady's memorandum
• Copies to J. D. Dotson, R. Nunes, G. Jugum, R. Lively, and Headquarters Audit Unit Supervisors — copy recipients listed; no separate transmittal records supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/195-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/195-2029.pdf

Original ruling text

195.2029

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
To

:

Mr. Glenn Bystrom

From

:

Gary Jugum

Subject

:

Non-Attorney Opinions

I have reviewed D F. Brady's memorandum of February 10, 1982 to District and Subdistrict Principal Auditors. We are in agreement with his conclusion, as follows:

Packing Material -Leased Equipment. Leased equipment which is packaged by the lessor is delivered to the lessee's premises and unpacked and assembled by the lessor. The packing material is "sold" with leased property when tax on the lease is reported on the rental receipts basis. The lessor may properly issue a resale certificate. 2/10/82

State of California

Board of Equalization

Memorandum

To:

District and Subdistrict Principal Auditors

From:

Headquarters – Principal Tax Auditor

Subject:

Containers Used to Ship Rental Equipment

195.2029

Date:

February 10, 1982

A recent petition raised the question of whether packaging material used to package property that is leased, under conditions making the lease a continuing sale, may be purchased for resale or whether it is consumed by the lessor. In this case, the equipment was unpacked by the lessor on the lessees premises and set up (assembled) by the lessor. It was originally held that, since the lease did not commence until the equipment was unpacked and set up, the packing material did not qualify as non-returnable containers sold with the product. The Board found that such packing material is sold to the lessee with the leased property and that the lessor may properly purchase the packing materials under a resale certificate. This policy should be applied retroactively when the same circumstances are encountered. DFB:j cc:

Mr. J. D. Dotson
Mr. R. Nunes
Mr. G. Jugum.
Mr. R. Lively
Headquarters Audit Unit Supervisors