Did sub-$20, same-day boat rentals qualify for the on-premises-use exclusion when customers used public lakes?

Plain-English summary

A corporation operated boating concessions at two Water Conservation District lakes. Customers could rent boats alone or boats with motors for a lump sum, never motors alone. Some boats were bought ex-tax and some tax-paid; all motors were bought ex-tax. The audit treated rentals of ex-tax property as taxable leases.

The revised audit for January 1, 1980 through December 31, 1982 asserted tax on rental receipts of $586,989 for state/local/county tax and $50,520 LACT; petitioner protested an undisclosed portion. It argued rentals were excluded from lease because they lasted less than a day, cost less than $20 and stayed at its business location.

A private attorney's letter described only one lake: about 20 miles of shoreline, a comprehensive lease/concession, a Federal Power Permit requiring public access, exclusive concessions, and fees of $10 for a five-hour weekday bare boat up to $16 for an all-day weekend/holiday boat, plus $5–$14 for a motor. All-day use ran sunrise to sunset, with no multi-day rentals. But petitioner produced neither the alleged agreement nor federal permit and alleged nothing about the second lake.

Audit staff reported only concession rights, not either lake leased to petitioner. One lake admitted the public free; the other charged a small access fee paid to the redacted district. At both, people sailed private boats without petitioner's permission or payment. Petitioner did not deny those findings.

The historical exclusion required less than one continuous 24-hour period, a charge under $20 and use confined to a building/specific area owned, leased or exclusively usable by the grantor. Prices ranged $10–$30, but petitioner supplied no breakdown showing how much audit measure involved sub-$20 rentals. More fundamentally, unsupported one-lake assertions could not overcome public private-boat use and the absence of lease/exclusive-use proof for both lakes.

The hearing officer therefore recommended redetermination without other tax adjustment. Yet the two determinations' total tax exceeded the audit/revised-audit tax, so the Petition Unit had to investigate and adjust their face amounts as necessary. Petitioner had also partially paid and claimed a refund; refund action was deferred until the petitions and full payment of any redetermined liability were resolved. No adjusted or final outcome is supplied.

The live annotation states only that rental tax applied because lake use was not confined to lessor-owned/leased/exclusive premises. It omits the pricing and quantification failure, evidence conflict, audit amounts, determination discrepancy, partial-payment/refund branch and recommendation-only posture.

Common questions

Were all same-day rentals excluded from the lease definition?

No. The historical rule also required a charge below $20 and restriction to the lessor's qualifying premises or business location.

Were all described charges under $20?

No. The attorney's figures ranged from $10 for a bare boat to $30 for a boat-and-motor combination.

Did petitioner quantify the rentals below $20?

No. The report could not determine that part of the audit measure.

Why did lake use fail the location test?

The concessionaire did not prove it owned, leased, or had exclusive use of either lake, and the public could use them independently.

Did the private attorney's opinion letter prove the leasehold?

No. The source found its assertions unsupported and limited to only one lake.

What evidence contradicted exclusivity?

Audit staff reported that private boats could use both lakes without petitioner's permission or payment, and petitioner did not deny it.

Did the source cover both lakes equally?

No. The attorney letter concerned only one, and petitioner made no allegation about operations at the other.

What happened to the refund claim?

It was deferred until the petitions were resolved and any redetermined liability was fully paid.

Was the exact assessment amount finally approved?

Not without review. The recommendation asked staff to investigate why the determinations exceeded the audit and revised-audit tax.

Is a final signed disposition supplied?

No. The recommendation and review date/signature lines are blank, and no later adjustment or decision appears.

Citations and references

• Revenue and Taxation Code section 6006.3 — historical less-than-day/less-than-$20/business-location exclusion
• Regulation 1660(e) — continuous-24-hour, charge and owned/leased/exclusive-area requirements
• 1980–1982 audit/revised audit — asserted measures stated; documents absent
• Private attorney opinion — one-lake rights/pricing quoted; complete letter and support absent
• Alleged concession lease and Federal Power Permit — expressly absent
• Audit-staff public-access/concession-only findings — reported; workpapers absent
• June 14, 1985 Decision and Recommendation — tax sustained subject to face-amount investigation; refund deferred; final outcome absent
• Official Annotation 330.1933 — publishes the core premises result without evidence/procedural limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.1933
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-1933.pdf

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION

In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law

Taxpayer

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330.1933
6/14/85

DECISION AND RECOMMENDATION
No. ----

The preliminary hearing on the above taxpayer's petitions for redetermination was scheduled for January 18, 1985, in Santa Barbara, California. Petitioner waived appearance.

Hearing Officer:

James E. Mahler

Protested Item
Petitioner protests two determinations issued as a result of an audit and revised audit for the combined period January 1, 1980, through December 31, 1982. The revised audit asserted tax on rental receipts of $586,989 (state, local and county) and $50,520 (LACT), of which petitioner is protesting an undisclosed portion. Taxpayer's Contention "Petitioner takes exception to the finding as stated in the audit report that petitioner's rentals of the property subject to tax may be characterized as leases under California Revenue and Taxation Code Section 6006.3 and Section 1660 of Title 18 of the California Administrative Code. This finding is erroneous in that the rentals of the property subject to tax constituted uses by the public of tangible personal property for a period of less than one (1) day for a charge of less than $20.00 where the privilege to use such property was restricted to the business location of the petitioner." Summary Petitioner is a corporation which operates --- boating concessions at --- Lake and Lake --California. We understand that customers have an option to rent boats alone, or to rent boats and motors for a lump-sum charge, but not motors alone. Petitioner purchased the boats and motors from various retailers. Some of the boats were purchased ex-tax and some tax-paid, while all of the motors were purchased ex-tax.

Apparently both lakes are situated on property owned by the --- Water Conservation District (herein-after ---). According to an opinion letter which petitioner received from a private attorney: "Lake --- is an enclosed body of water with a shorel1ne of approximately 20 miles. [Petitioner] operates boat and outboard motor concessions on Lake --- pursuant to a comprehensive lease and concession agreement between [petitioner] and --- Lake --- and the surrounding recreation area are owned by --- and operated primarily as a conservation facility. Under the terms of its Federal Power Permit, --- is required to provide the general public with reasonable access to Lake --- for recreational purposes. ---’s entire recreation program was turned over to [petitioner]. Under the agreement, [petitioner] has the exclusive right to operate several designated concessions, including boat rental and outboard motor rental services, in the Lake ---. Recreation Park. [Petitioner] rents boats for fees ranging from $10.00 for 5 hours on a weekday to $16.00 for an entire day on a weekend or holiday. Inclusion of an outboard motor with the boat results in an additional fee ranging from $5.00 to $14.00. All-day rentals may be used from sunrise to sunset. Rentals for more than one day are not permitted." Petitioner has submitted no evidence to support these statements. In particular, neither the alleged lease contract nor ---’s Federal Power Permit have been presented. Furthermore, the opinion letter deals only with Lake --- and petitioner has not made any allegations with respect to the operations on --- Lake. According to the audit staff, petitioner has only concessionnaire's rights at these two lakes and is not leasing either lake from --- --- Lake is open to the general public without charge. Lake --- is open to the general public upon payment of a small access fee to ---. At both lakes, --- allows the general public to sail private boats without seeking permission from or making any payment to petitioner. The audit found that, to the extent the boats and motors had been purchased extax, the rentals by petitioner were taxable leases. Petitioner contends that the rentals come within the exclusion from the term "lease" provided by Revenue and Taxation Code Section 6006.3. Analysis and Conclusions

1. Section 6006.3 of the Revenue and Taxation. Code provides that the term
   "lease" does not include:
   "… a use of tangible personal property for a period of less than one day for a charge of less than twenty dollars ($20) when the privilege to use the

property is restricted to use thereof on the premises or at a business location of the grantor of the privilege." This statute is interpretated in subdivision (e) of Sales and Use Tax Regulation 1660, which provides in relevant part: "… To fall within the exclusion, the use must be for a period of less than one continuous 24-hour period, the charge must be less than $20, and the use of the property must be restricted to use on the premises or at a business location of the grantor of the privilege to use the property.... 'Premises' or 'business location' means a building or specific area owned or leased by a grantor or to which a grantor has an exclusive right of use .... " According to the figures in the opinion letter which petitioner received from its attorney, the rental prices ranged from a minimum of $10 (for the least expensive bareboat rental) to a maximum of $30 (for the most expensive boat and motor combination) per day. Petitioner has submitted no evidence to show the extent to which the audit measure of tax includes rentals of less than $20 per day. Lacking such evidence, we are unable to determine the amount in controversy. More importantly, petitioner has failed to show that the rentals were restricted to petitioner's premises or business location. Petitioner relies solely on the allegations in its attorney's opinion letter. These allegations are unsupported by any evidence and do not even purport to deal with the --- Lake facility. Furthermore, the allegations are contradicted by the audit staff's findings, which petitioner has not denied, that --- allows members of the general public to sail private boats on both lakes without permission from petitioner. On the state of the record before us, therefore, we conclude that the rentals were not restricted to petitioner's premises or business locations because petitioner was not leasing either lake from ---, and because petitioner did not have a right to exclusive use of either lake.

2. We note that two determinations have been issued against petitioner. The total
   tax asserted in the two determinations exceeds the tax shown to be due in the audit and revised audit. We recommend that the Petition Unit investigate and make any necessary adjustments prior to redetermination.
3. We are also advised that petitioner has made a partial payment and claimed a
   refund. We recommend that action on the refund claim be deferred pending resolution of the petitions, and pending full payment of any redetermined liability. Recommendation

Petition Unit is to investigate and make any necessary adjustments to the amount of tax shown of the face of the determinations. Redetermine without other adjustment to the tax. Defer action on the claim for refund.

James E. Mahler, Hearing Officer

Date

REVIEWED FOR AUDIT:

Principal Tax Auditor

Date