Were cap-and-gown rentals exempt as linen-service leases or tax-paid same-form property when the supplier manufactured the garments?

Plain-English summary

An unnamed student-owned nonprofit store said supplier C had told it that 5% tax applied to rented caps and gowns. C manufactured the garments and shipped them directly to California. The January 30, 1968 request and C's letter are absent.

California law had treated tangible-personal-property leases as sales from August 1, 1965, subject to exceptions. Section 6006(g)(2)'s linen/similar-article exception did not apply because recurring laundering was not essential to this lease.

Section 6006(g)(5)'s tax-paid same-form exception also failed. The lessor acquired materials and manufactured finished caps/gowns, so it leased them in substantially different form. Whether tax had been paid on inputs did not make that exception fit the finished garments.

Thus, despite student ownership and nonprofit status, rental receipts and handling charges were taxable. The source identifies neither a distinct nonprofit exemption nor a separate handling-charge authority.

The store apparently quoted information another company had received. Counsel did not know when, assumed it preceded August 1, 1965 and said it would have been correct for leases entered or renewed before then, when leases were not sales and changed form did not matter. For post-date manufacture leases/renewals, rent was taxable.

Based only on limited information, counsel said rentals by another school in the district also appeared taxable. No contracts, transactions, charges, returns or later outcomes for either entity are supplied. An enclosed Sales and Use Tax Law pamphlet is also absent.

The live annotation publishes only the recurring-cleaning failure under section 6006(g)(2). It omits the independent manufacture/same-form holding, nonprofit status, handling charges, historical cutoff, assumed other-company advice, conditional other-school result and missing records.

Common questions

Were caps and gowns treated like recurring linen service?

No. The lease did not essentially include recurring laundering or cleaning.

Did the same-form exclusion apply?

No. The lessor manufactured the finished garments.

Did tax paid on raw materials establish same-form treatment?

No. The source focused on the supplier manufacturing finished garments from property acquired in a different form.

Did nonprofit student ownership create an exemption?

No under the opinion.

Were handling charges taxable?

Yes.

Why did August 1, 1965 matter?

The letter says leases/renewals became sales then. It assumed older advice concerned a pre-date lease, when changed form did not matter.

Was the other company's advice supplied or dated?

No. Counsel expressly did not know when it was received and assumed it predated the statutory change.

Was the other school definitively decided?

No. Counsel said its rentals appear taxable from limited information.

Were the leases, supplier letter and tax records published?

No. The source provides the legal answer without those supporting records or a later tax outcome.

Citations and references

• Revenue and Taxation Code section 6006(g) — post-August 1, 1965 lease-as-sale rule; enclosed pamphlet absent
• Revenue and Taxation Code section 6006(g)(2) — recurring linen/cleaning exclusion found inapplicable
• Revenue and Taxation Code section 6006(g)(5) — tax-paid same-form exclusion found inapplicable to manufactured garments
• January 30, 1968 request and supplier C's 5% letter — referenced/described but absent
• Other-company information — quoted by requester but unavailable/undated; pre-August-1965 timing assumed
• Leases, manufacturing/tax proof, handling and other-school facts — absent
• March 11, 1968 counsel letter — rent/handling answer and tentative other-school result without outcome
• Official Annotation 330.2020 — publishes only the recurring-cleaning branch

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2020
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2020.pdf

Original ruling text

330.2020

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 11, 1968

Gentlemen:
You state in your letter of January 30, 1968 that you recently received a letter from "C", your supplier, informing you that 5 percent tax is payable on the rental of caps and gowns. These caps and gowns are manufactured by your supplier's company and are shipped directly to California. As expressed in Section 6006(g) of the Sales and Use Tax Law, pamphlet enclosed, on or after August 1, 1965, leases of tangible personal property with certain enumerated exceptions are sales and are subject to tax. Only two of these exceptions are pertinent here; namely, Section 6006(g) (2) and Section 6006(g) (5). Section 6006(g) (2) excludes from the definition of sale a lease of: "Linen supplies and similar articles when an essential part of the lease agreement is the furnishing of the recurring service of laundering or cleaning the articles." We do not consider this exclusion as being applicable to the rental of caps and gowns since an essential part of the lease agreement is not the furnishing of a recurring laundering service. Section 6006(g) (5) excludes from the definition of sale a lease of: “Tangible personal property leased in substantially the same form as acquired by the lessor... as to which the lessor... has paid sales tax reimbursement… or has paid use tax measured by the purchase price of the property.” This exclusion is not operative in your case since your lessor is leasing the caps and gowns in substantially a different form than they were acquired (i.e., it manufactures them). Notwithstanding the fact your student store is student owned and is a nonprofit organization, it is our opinion that the lease of the caps and gowns is subject to tax measured by the rental receipts. The handling charges are also subject to tax.

We have no way of knowing when the other company received the information you quoted, but we assume it was before August 1, 1965, and was, therefore, concerned with the law relating to leases entered into or renewed before that time. If such was the case, the information received was correct since prior to that date, leases were not sales, and it did not make any difference if the tangible personal property was leased in substantially a different form than acquired. However, on or after August 1, 1965, a lease or renewal of tangible personal property which has been manufactured by a lessor is subject to tax measured by rental receipts since there has been a substantial change in form. It appears from the limited information that the rentals of the caps and gowns by the other school in your district would also be subject to tax.

Very truly yours,

Glenn L. Rigby
Tax Counsel

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