Were payments for battered ends or irrecoverable sheets taxable receipts when tax-paid steel piling was leased in the same form as bought?

Plain-English summary

A redacted company said it paid tax on steel-piling purchase price and leased the piling in the same form as acquired. The October 13 request and all supporting records are absent.

Occasionally, end battering slightly damaged piling and required cutting off the ends. The reusable remainder was rented again. Some sheets could not be recovered from the ground.

The agreement required damage payments for damaged ends or irrecoverable sheets. Counsel treated those amounts as damages rather than receipts from a sale because the lessee could neither retain usable material nor benefit from damaged or unremovable piling.

The amounts therefore were excluded from the tax measure. Under all stated conditions, sales and use tax paid on the company's purchase satisfied its obligations for subsequent leasing.

The live annotation calls the amounts “additional compensation” and “not taxable rental charges.” The PDF instead calls them damages and says they are not sale receipts. Neither source supplies the agreement or a governing authority.

Common questions

Did every lessee payment count as taxable rent?

No. These amounts compensated for damage or loss rather than a sale.

Why did the lessee's rights matter?

The lessee could not retain usable material or benefit from the damaged piling.

What happened to piling with only damaged ends?

The ends were cut off and the reusable remainder was rented again.

Did the source show how damages were calculated?

No. It supplies no agreement, formula, payment amount, damaged length, replacement cost or invoice.

What authority made the payments nontaxable?

None is cited. The conclusion rests on their stated character and the lessee's lack of retention right or benefit.

Was a completed audit or tax outcome supplied?

No. There is no return, audit, assessment, payment, refund or later proceeding.

Citations and references

• October 13 requester letter — identified without year, not reproduced
• Steel-piling lease agreement — described, not reproduced
• Purchase-tax payment and same-form leasing — stated without records
• Official Annotation 330.1820 — recasts damages as additional compensation and rental charges

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.1820
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-1820.pdf

Original ruling text

330.1820

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 21, 1965

Gentlemen:
It appears from your letter of October 13 that the steel pilings are leased under conditions not requiring the rental receipts to be held subject to sales or use tax. You point out that the piling is purchased with tax paid on the purchase price, and that it is leased in the same form in which purchased. On occasion, it becomes slightly damaged through battering of the ends and the ends must be cut off, but the remainder of the piling is reusable and is rented again. The agreement provides for a payment to the company of damages in the case of damaged ends or irrecoverable sheets of piling. The amount of such damages does not, in our opinion, represent receipts from a sale and is not required to be included in the measure of tax. The lessee has no right to retain usable materials and receives no benefit from the damaged steel piling or piling which cannot be removed from the ground. Under the conditions stated, it appears that payment of sales and use taxes with respect to the purchase by the company of steel piling satisfied its sales and use tax obligations with respect to the subsequent leasing of the piling. Very truly yours,

E. H. Stetson
Tax Counsel

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