Were the described local and central-station burglar-alarm contracts equipment leases?

Plain-English summary

After a May 18, 1966 conference, the Board reconsidered unnamed local and central-station burglar-alarm agreements. Under its then-current understanding, both systems required the company to go to the customer's premises after every alarm—whether it learned through a direct line, customer or police notification, or calls from nearby observers.

Customer-site equipment value was small compared with service receipts. Its placement was regarded primarily as installation rather than substantial fabrication, so the customer-site part was not substantially changed in form under section 6006.

The company retained reasonable premises access and could change, add or alter equipment as needed for satisfactory alarms. Customers lacked the right to repair, alter or manipulate it because that might undermine accurate, efficient warnings. Thus, equipment remained under the company's control and dominion to the extent needed for service.

Taken together, those facts made the agreements integrated alarm services, not leases under sections 6006 and 6006.3. The company could acquire all equipment tax-paid as consumer, and no customer payment was rental income. The letter also notes that the rate after the original contract period was usually higher, but attaches no separate legal consequence.

No contract, equipment schedule, price comparison or performance record is supplied. The live annotation turns the letter into a four-condition may be regarded service rule—low relative equipment value, nonsubstantial fabrication, company alteration control and response after each alarm—and states the consumer result. It omits notification paths, customer restrictions, later rate and the letter's present-understanding limit.

Common questions

Did the result cover both local and central-station systems?

Yes, as the Board understood the described systems: both required company response after an alarm.

How could the company learn of a local alarm?

By direct lines, notification from the customer or police, or calls from observers near the premises; under the source, the company still responded onsite.

Did equipment at the customer's premises automatically create a lease?

No. The opinion treated that equipment as incidental to the integrated service on these facts.

Why did equipment value matter?

It was small compared with the money paid for service, supporting its incidental role in the integrated service.

Who controlled the equipment?

The alarm company retained access and operational control; the customer lacked the right to repair, alter, or manipulate it.

Could the customer repair or alter it?

No. That could interfere with the company's accurate and efficient warning service.

How was the company to acquire its equipment?

The opinion said the company could acquire all equipment on a tax-paid basis as the consumer providing the service.

Were the agreements and price records published?

No. The letter describes the systems but supplies no contracts, equipment values, service charges or performance records.

Was a completed tax proceeding shown?

No. There is no return, audit, assessment, payment, claim or appeal.

Citations and references

• Revenue and Taxation Code sections 6006 and 6006.3 — historical lease/same-form analysis
• May 18, 1966 conference — source of factual understanding; submissions/minutes absent
• Local and central-station agreements — described but not supplied
• May 26, 1966 counsel letter — conditional service classification with no implemented outcome
• Official Annotation 330.1920 — four-factor service/consumer rule without full factual or source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.1920
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-1920.pdf

Original ruling text

330.1920

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 26, 1966

Dear Mr. --We have again reviewed the matter of the taxability of burglar alarm systems in the light of information you presented at our conference of May 18, 1966. As a result of the conference, we have come to the conclusion that the burglar alarm agreements discussed are not leases as that term is used in § 6006 and 6006.3 of the Sales and Use Tax Law. We have relied in this decision on our present understanding of the nature of local systems and central station systems. In practice, both the so-called local alarms and the central station alarms require the burglar alarm company to go to the premises of the customer after each alarm. This is true whether notice of the alarm is received by the company through direct lines by notification by the customer, the police, or calls from observers near the customer's premises. It is also relevant that even in local or simple alarms the value of the equipment on the customer's premises is small compared to the money received for the service from the customer. It is also of note that the installation of the equipment on the customer's premises may almost completely be regarded as installation rather than only as fabrication labor. For this reason, the part of the system placed on the customer's premises is not substantially changed in form within the meaning of 6006. In this light, the agreements appear to be fairly characterized as agreements for the provision of alarm services rather than agreements for the installation of specific tangible personal property on the premises of the customer. It is noted that the alarm companies are considered to have reasonable access to the customers’ premises to change, add, or alter equipment as the company deems necessary to provide satisfactory alarms. Correspondingly, from the viewpoint of the customer, the equipment on his premises is within the control and dominion of the alarm company to the extent necessary to provide the service, and he does not have the right to repair, alter, or manipulate the equipment, because it is extremely likely that such actions would impede the alarm company's ability to give accurate and efficient warnings through the company's use of all its equipment. It is of further interest that, after the expiration of the original contract period, the rate charged usually is greater than before.

In conclusion, it appears proper for the company to acquire all of its equipment on a taxpaid basis and to consider none of the payments from its customers to be rental payments from the lease of tangible personal property.

Very truly yours,

Philip R. Dougherty
Associate Tax Counsel

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cc:

Los Angeles District ~iDistr1ctc>AdrIlinistrator
West Los Angeles - Subdistrict Administrator