Could a cable company report tax on converter and remote-control rental receipts despite using the equipment to provide its service?

Plain-English summary

An unnamed Principal Tax Auditor's October 28, 1984 memorandum to Don Hennessy identified an apparent conflict between a March 27 Legal memorandum concerning V--- C--- T---, Inc. and Business Taxes Law Guide Annotation 330.2310. Neither item is reproduced. Les Sorensen said he had raised the same inconsistency at a March 21 Administration–Legal meeting.

Staff distinguished mobile-telephone pagers from cable converters/remotes. Pager customers considerably handled their receiving units. Cable customers had some hands-on use, but staff thought the cable company primarily used converters and remotes to facilitate its television service.

Despite that service nature, the meeting decided to continue permitting the service supplier to report tax on rental receipts where the contract separately stated periodic service-element charges and tangible-personal-property charges. Separate statement was treated as intent to lease, consistent with earlier advice to unidentified similarly situated taxpayers.

The memorandum does not identify statutory/regulatory authority for that administrative treatment. It supplies no cable contract, device or charge amount, acquisition-tax status, tax return, audit adjustment or company outcome.

The live annotation simplifies this to: cable companies are lessors of separately charged remotes/converters because separate statement shows lease intent. It omits the conflict, pager distinction, primary company use, service nature, internal meeting, continue to permit language and missing evidence. It is marked amended 2005-2, but no amendment record or prior wording appears.

Common questions

Did the source say cable service itself was a lease?

No. It acknowledged the service nature of the business and addressed separately charged equipment.

Who primarily used the converter and remote under the memorandum?

Staff thought the cable company did, to facilitate cable service, although the customer had some hands-on use.

Why did separate statement matter?

The agency treated separate periodic equipment charges as evidence that the provider intended to lease the devices.

Were cable converters treated exactly like mobile pagers?

No. The memorandum distinguished them based on customer hands-on use and the provider's primary utilization of the equipment.

Was this a new statutory interpretation?

The source describes an administrative decision to continue to permit reporting consistent with prior advice, but cites no statute or regulation for the result.

Were the underlying internal memoranda and contracts supplied?

No. The March 27 Legal memo, October 28 auditor memo, contracts and prior taxpayer advice are absent.

Did the source show how V--- C--- T---, Inc. was ultimately taxed?

No. No audit adjustment, return, payment, claim or appeal is supplied.

Does the 1984 treatment necessarily apply to current cable devices?

No. The annotation was amended in 2005, and technology, contracts, and current law may differ materially.

What did amendment 2005-2 change?

The live annotation has the marker, but the amendment record and earlier wording are absent, so this page does not infer the change.

Citations and references

• BTLG Annotation 330.2310 — pager treatment cited as an apparent conflict; underlying source/text absent
• March 21, 1984 Administration–Legal meeting — administrative conclusion reported; minutes absent
• March 27, 1984 Legal memorandum to Sepulveda Audit — identified in subject line; absent
• October 28, 1984 Principal Tax Auditor memorandum — conflict request referenced; absent
• Prior similarly situated taxpayer advice — mentioned but unidentified/unavailable
• December 6, 1984 Les Sorensen memorandum — reports decision without contracts, authority or implemented outcome
• Official Annotation 330.2001 — amended-2005-2 lease-intent rule without internal/source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2001
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2001.pdf

Original ruling text

State of California

Memorandum

To:

Principal Tax Auditor

From:

Les Sorensen

Subject:

Memorandum of March 27, 1984, from Legal (ELS)
to Sepulveda – Audit re V--- C--- T---, Inc.

Board of Equalization

330.2001

December 6, 1984

This is in response to your memorandum of October 28, 1984 to Don Hennessy. I agree with your observation that there is an apparent conflict between the position taken in the subject memorandum and BTLG Annotation 330.2310. As you may recall, I raised the apparent inconsistency at the March 21, 1984 meeting between Administration and Legal. It was concluded at the meeting, however, that there was a distinguishable difference between the mobile telephone pager industry and the cable television industry which justified the difference in treatment. In the former, there is considerable hands-on use by the customer of the receiving unit, whereas, in the latter, while there is some hands-on use by the customer, it was felt the primary utilization of the converters and remote control units was by the cable television company to facilitate the provision of its cable television service to the customers. It was also concluded at the meeting that, notwithstanding the service nature of the cable television business, we would continue to permit the service supplier to report tax based upon rental receipts where periodic charges for the service element and charges for the tangible personal property provided the customer were separately stated in the contract. Such separate statement was viewed as an intention to lease the property and treatment of the charges in this manner was consistent with advice previously given similarly situated taxpayers.

ELS:md

cc:

Don J. Hennessy