Were separately billed charges for extra chemical-toilet servicing included in taxable rent?

Plain-English summary

Return Review asked Legal whether a Determination of Tax against portable-toilet lessor T---, Inc. was proper. A taxpayer representative's partially reproduced letter called an additional-service amount nontaxable labor on return Line 6: monthly rent included weekly service; a customer needing service two or three times weekly was billed extra.

The memo assumed the property was chemical toilets and that no one disputed weekly-service rent was already included in T---'s tax measure. It also assumed—because it appeared likely, rather than from a supplied invoice—that the additional charge was stated separately from rent.

Chemical-toilet leases were an exception to ordinary lessor election rules: Regulation 1660 made them continuing sales taxed on lease/rental price in all circumstances. Required lease payments entered the tax measure, while (c)(1)(F) excluded separately stated optional insurance, maintenance and warranty contracts.

Applying Annotation 330.2080, counsel excluded extra toilet service only because it was above included weekly service, furnished only at customer request and separately stated. He concurred with McNeill's assessment that the Determination should be cancelled.

No determination, amount, cancellation, lease, invoice, service order or adjusted return is supplied. The representative's extract begins at item 2, showing other content was omitted from the PDF.

The live annotation publishes the weekly versus two/three-times-weekly facts and optional-service result. It omits Line 6, all regulatory/cross-annotation authority, correspondence history, cancellation recommendation and missing records.

Common questions

Was the ordinary weekly service excluded?

No. It was already included in the taxable monthly lease charge.

Why were the extra visits excluded?

They occurred only at the customer's request and were separately stated from rent.

Was separate statement proven by an invoice?

No. Counsel said it appears likely and treated it as an assumption.

Could the lessor elect to pay tax only on the toilet's purchase price?

No. The memorandum said chemical-toilet leases were taxable continuing sales in all circumstances under the cited regulation.

Where had T--- reported the extra charge?

The representative said Line 6 as nontaxable labor; the return itself is absent.

What did counsel recommend for the determination?

Cancellation.

Was actual cancellation shown?

No. The source has no adjusted determination, return, payment or refund.

Was the taxpayer representative's full letter published?

No. Only numbered item 2 is reproduced, without a date.

Citations and references

• Regulation 1660(b)(1)(E), (c)(1), (d)(1) — chemical-toilet continuing-sale/rental-price treatment
• Regulation 1660(c)(1)(F) — separately stated optional service-contract exclusions
• Annotation 330.2080 — optional cleaning rule; underlying source/full text absent from this PDF
• March 14, 1991 Return Review letter and June 12 request memorandum — referenced; absent
• Representative T--- G. A--- letter — only item 2 reproduced; complete letter/date absent
• Lease, invoices, service records, return/Line 6 and determination — absent
• July 19, 1991 counsel memorandum — cancellation recommendation without implemented outcome
• Official Annotation 330.2078 — service result without reporting/procedural/source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2078
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2078.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
330.2078
To:

Ms. Jean McNeill
Return Review

From:

John L. Waid
Tax Counsel

Subject:

T---, Inc.
SR -- XX-XXXXXX

Date:

July 19, 1991

The Legal Division has assigned your memorandum to it of June 12, 1991, to me for a response. You have requested advice as to whether a Determination of Tax is proper in this case. Mr. T--- G. A---, representing the taxpayer, T---, wrote to the Department of Business Taxes, apparently in response to your letter to the taxpayer of March 14, 1991, and described the factual background of the dispute as follows:
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“2. Nontaxable labor is the charge that my client, T---, Inc. charges when the customer requires additional servicing of his portable toilets. The monthly portable rental charge includes servicing once a week as part of the charge. If the client requires two or three times a week servicing an additional charge for this service is also billed. This is the fee that is included in Line 6 as nontaxable labor.”
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We assume that the tangible personal property at issue herein are chemical toilets and that there is no dispute that the portion of the rental payment that covers the weekly servicing is included in T---’s measure of tax. We also assume, it appears likely, that the “additional service charge” to which Mr. A-- refers is separately stated from the rental payment. OPINION As you are aware, leases of chemical toilets are an exception to the general scheme whereby a lessor may elect either to pay sales tax reimbursement or use tax measured by the sales price when he purchases the item to be leased or may collect use tax measured by the rental agreement (a continuing sale and purchase). (Reg. 1660(b)(1)(E) and (c)(1). Leases of chemical

Ms. Jean McNeill

-2-

July 19, 1991
330.2078

toilets are continuing sales and purchases under all circumstances and tax applies measured by the lease or rental price. (Reg. 1660(d)(1).) The rentals subject to the tax include any payments required by the lease except, among other things, separately stated optional insurance charges, maintenance or warranty contracts. (Reg. 1660(c)(1)(F).) We believe that the rule in this case is as stated in Annotation 330.2080. Mr. A--indicates that any servicing of the leased toilets over and above that which is included with the lease is provided only at the request of the customer and the charge is separately stated from the rental payment. Thus, the separately stated payments for the optional servicing are not included in the measure of tax. We therefore concur with your assessment that this Determination should be cancelled.

JLW:es