Was a cap-and-gown lessor's school lease taxable when the school supplied the garments to students?

Plain-English summary

An unnamed cap-and-gown lessor's December 3, 1981 letter argued that, after an earlier redacted petition hearing report, recurring laundry should be an essential part of any of its school lease agreements. Counsel disagreed.

The absent prior report involved leases to a school for more than one year, where recurring laundry was assumed and treated as essential. Although student renters might expect clean garments, a new contract with a school for each lease did not contain recurring laundry essential to the lessor-school contract. That lease was a taxable sale with tax on rent.

If the school actually subleased caps/gowns to students, however, the lessor's school lease was a sale for resale. The school had to collect tax on student subleases and give the lessor a resale certificate.

No resale treatment applied when the school did not lease or otherwise sell to students. The letter gives two examples: student use falling within section 6006.3's historical less-than-one-day, less-than-$20, premises/business-location exclusion, and school-donated use at no charge. Because neither was a lease/resale, the lessor's school rent stayed taxable.

No underlying contract, student charge, cleaning record or resale certificate is supplied. Nor does the source show a return, audit or later result.

The live annotation presents a somewhat different summary: generally, a one-year university lease lacks recurring laundry; an over-one-year lease is assumed to include it as essential, so section 6006(g)(2) excludes the lease from sale and makes the lessor consumer. The PDF instead says a new contract ... for each lease versus leases more than one year, cites section 6006.3 rather than 6006(g)(2), and devotes much of its answer to student resale/no-charge scenarios omitted live.

Common questions

Did students' expectation of clean garments make every agreement a laundry-service arrangement?

No. The opinion said a new contract for each lease did not contain the recurring laundry feature assumed in the earlier multiyear contract.

What contract difference mattered in the PDF?

The prior absent hearing report involved leases over one year, while the requester entered a new school contract for each lease.

When could the lessor treat its school lease as a sale for resale?

When the school actually subleased the caps and gowns to students, collected the applicable tax, and issued the lessor a resale certificate.

What if the school gave students the garments for free?

Then the school was not making a resale, so the original lease to the school was taxable.

What short use did the cited statute exclude from “lease”?

The reproduced 1982 source quoted an exclusion for use lasting less than one day, costing less than $20, and restricted to the grantor's premises or business location. Current law should be checked before using that historical threshold.

Did the live annotation and PDF use the same duration formulation?

No. The live entry says one year versus more than one year; the PDF says a new contract for each lease versus the earlier report's leases over one year.

Does the PDF cite section 6006(g)(2)?

No. That citation and explicit lessor-consumer conclusion appear in the live annotation, not the PDF.

Were the earlier hearing report and contracts supplied?

No. Their absence prevents independent checking of duration, laundry and student transaction facts.

Is a completed tax result shown?

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

Citations and references

• Revenue and Taxation Code section 6006.3 — historical short-use/low-charge/on-premises exclusion quoted in the PDF
• Revenue and Taxation Code section 6006(g)(2) — recurring-service exclusion cited only in the live annotation
• Prior redacted hearing report — over-one-year leases/recurring laundry described; report absent
• December 3, 1981 request — referenced but not independently reproduced
• School/student contracts, charges, cleaning and resale documents — absent
• June 2, 1982 counsel letter — taxable-school-lease/resale alternatives without implemented outcome
• Official Annotation 330.2019 — duration/laundry/consumer formulation that omits PDF resale and section 6006.3 branches

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2019
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2019.pdf

Original ruling text

330.2019

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 2, 1982

Your December 3, 1981 letter to this Board's Out-of-State District Office has been referred to the legal staff for reply. You believe that, in the aftermath of the hearing report on the petition of the --- --recurring laundry provision should be considered an essential part of any of --- Cap and Gown's --- lease agreements. We disagree. The facts in the --- petition showed the leases to the school were for more than one year. In such case, we assume that a recurring laundry service is provided and is an essential part ·of the lease agreement. Although a student who rents a cap and gown may expect laundered articles, if --enters into a new contract with a school for each lease, there is no recurring laundry essential to ---'s lease contract with the school. In such case, the lease to the school would be a sale, and tax would apply to the lease receipts. Assuming that ---‘s lease of caps and gowns to a school is a sale, ---'s lease to the school would be subject to tax unless the school subleases the caps and gowns to the students. If the school subleases the caps and gowns, --- lease to the school is a sale for resale. The school would be liable for collecting tax on the sublease to the students and should issue a resale certificate to ---. However, the resale procedure would not apply if the school did not lease or otherwise sell the caps and gowns to the students. For instance, Revenue and Taxation Code, Section 6006.3 provides: "'Lease' includes rental, hire and license. ‘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." Since a use by the school in accordance with Section 6006.3 would not be a "lease", the lease by --- to the school would be subject to tax. Likewise, "if a school

merely donated the use of caps and gowns to the students, for no charge, the lease by --to the school would be subject to tax. If you have further questions, feel free to write directly to this office.

Very truly yours,

Ronald L. Dick
Tax Counsel

RLD: rar
cc:
Mr. Donald Brady
Mr. Jack Warner