Could a home-furnishings store exclude installation labor from a lease contract treated as a sale?

Plain-English summary

An absent November 25, 1953 request presented a home-furnishings lease with merchandise and labor separately itemized. The response reproduces the question but not the requester, business, lease, merchandise, charges, invoices, or actual transactions.

Counsel expressly assumed that the lease contract was in lieu of a sale, so the merchandise covered by it was taxed as sold property. The source does not establish that classification from a lease or other evidence.

California excluded separately stated installation labor from taxable gross receipts when the amount was reasonably related to the service. Examples included connecting a stove, connecting a washing machine, and laying carpet.

The source distinguished installation from making a completed fabricated article, such as a rug or wall-to-wall carpet fabricated in the store before delivery.

The live Annotation 315.0180 publishes the lease-sale and installation results but presents the assumed lease classification as fact and omits the separate-statement and reasonable-amount conditions, fabrication distinction, missing records, and any later outcome.

Common questions

Was the lease itself outside sales tax?

No. The opinion assumed it was a lease in lieu of sale and taxable as a sale.

Could appliance-connection labor be excluded?

Yes, if separately stated and reasonable.

Did the same exclusion cover pre-delivery fabrication?

No.

Did the source prove that the contract was a taxable lease in lieu of sale?

No. Counsel expressly assumed that classification.

Citations and references

• California Revenue and Taxation Code section 6012 — quoted in part for the installation-service exclusion; complete text, gross-receipts definition, lease rules, allocation and proof requirements, exceptions, amendments, later history, and current law not supplied
• November 25, 1953 request — letter beyond the quoted question, requester, business, lease, merchandise, charges, invoices, fabrication, installation, and transactions not reproduced
• December 4, 1953 Associate Tax Counsel John H. Murray letter, copied to San Francisco Auditing — no reply, lease, amount, reasonableness evidence, return, audit, assessment, refund claim, appeal, or later outcome supplied
• Official Annotation 315.0180's home-furnishings lease, sale treatment, installation examples, exclusion, and date rules — annotation presents an assumption as fact and omits the separate-statement, reasonable-amount and fabrication limits, provenance, missing records, later outcome, and reliance status and supplies no additional record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/315-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/315-0180.pdf

Original ruling text

315.0180

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 4, 1953

Dear Mr.
In your letter of November 25, 1953, you asked the following question: "A home furnishings store sells merchandise on a lease contract basis. While the total sum of the lease contract is for one amount, a portion of it represents labor, such as connecting a stove, connecting a washing machine, laying carpets, etc. When the lease contract on its face shows the amount of the merchandise and the amount of the labor, each in a separate item and making the total of the lease contract, sales tax is due on the merchandise only and not on the labor. It is understood, of course, that this is not the case where a completed article, such as a fabricated rug or fabricated wall-to-wall carpet has been made up in the store prior to delivery." We assume that the "lease contract" to which you refer is a lease in lieu of a sale and taxable as a sale of the property covered by the lease. Section 6012 of the California Sales and Use Tax Law excludes from the measure of sales tax "the price received for labor or services used in installing or applying the property sold". Accordingly, the price received for labor in connecting a stove, connecting a washing machine, laying carpets, etc. is not subject to sales tax where it is separately stated and where it represents an amount reasonably related to the service rendered.

We trust this sufficiently answers your question.

Very truly yours,

John H. Murray
Associate Tax Counsel
JHM:tj
cc: San Francisco - Auditing