Were per-use ECG analysis fees taxable rent when physicians also paid a flat monthly charge for the office terminal?

Plain-English summary

Physicians rented C--- office computer terminals at a flat monthly charge. Each three-channel, ten-wire, twelve-lead ECG instrument connected directly to the patient, captured readings automatically, added age/weight/other keyboard data and included them in a printed report.

Through telephone lines, the terminal automatically dialed C---'s central computer, transmitted ECG data and printed its analysis within seconds. A board-certified cardiologist at the computer site was on call to review/assist interpretation; physicians could discuss reports by phone without a consultation charge.

Besides monthly equipment rent, the lessor charged separately each time equipment secured an analysis. Its first-quarter 1982 return deducted $1,259 of Process Fees as exempt professional services.

Former Regulation 1502(j) generally taxed automatic-data-processing equipment rent unless equipment was acquired tax-paid and leased in substantially the same form. Counsel assumed that exception did not apply only because the lessor was paying tax on monthly charges; acquisition records are absent.

The sole question was whether usage-count charges entered rent. Unidentified prior staff research in a similar context classified separately stated ECG-analysis amounts as services. Counsel therefore accepted the $1,259 deduction; flat monthly equipment rent remained taxable under the assumption.

AB 2932 had changed custom-program rules in Regulation 1502(f)(2), but the letter merely flags that change and does not use it to decide these process fees. The enclosed regulation and October 1982 notice are absent.

The live annotation publishes most operational details and the rent/service split. It omits the dollar/return result, acquisition assumption, unidentified prior research, AB 2932 materials, acknowledged response delay and missing records.

Common questions

Was the terminal's flat monthly charge exempt?

No under the facts given. The lessor was already treating that amount as taxable rent.

Why were the per-use charges different?

They paid for the central computer's ECG analysis rather than merely the physician's possession of the terminal.

What amount did the source actually decide?

$1,259 in Process Fees deducted on the first-quarter 1982 return.

Did the no-charge cardiologist consultation change the result?

The source described it as part of the service context but did not separately allocate or tax it.

Was tax-paid acquisition status established?

No. Counsel inferred the exception did not apply from the lessor's monthly-tax reporting and expressly framed it as an assumption.

Did AB 2932 decide this process-fee issue?

No. The letter mentioned the new custom-program rules but resolved the fees as separately stated ECG-analysis services.

What prior similar ruling supported the service result?

The source says staff previously researched a similar context but provides no identifier, date or document.

Were the return and process-fee records supplied?

No. The letter states the deduction but includes no return, invoice, usage log or adjusted outcome.

Citations and references

• Former Regulation 1502(j) — automatic-data-processing rent rule under an acquisition-status assumption
• Former Regulation 1502(f)(2), AB 2932 — custom-program change noted, not applied
• October 1982 Public Notice and Regulation 1502 copy — identified as enclosures; absent
• Prior similar staff research — relied on but unidentified/unavailable
• Undated requester letter/first-quarter 1982 return — referenced; absent
• Terminal/lease/acquisition/process/cardiologist records — absent
• January 17, 1983 counsel letter — $1,259 deduction acceptance without adjusted return/outcome
• Official Annotation 330.2102.750 — operational result without return/assumption/source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2102.750
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2102-750.pdf

Original ruling text

330.2102.750

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-8900

January 17, 1983

Mr. R--- E. H--XXXXX --- -----, CA XXXXX
SR -- XX-XXXXXX
Mr. H---:
Your letter to the Return Review Unit regarding your first quarter, 1982, return has been referred to this office for response. We regret that this reply has been unavoidably delayed. We understand that you rent “C---” computer terminals to physicians for use in their offices. The equipment is used to provide computer analysis of electrocardiograms (EKG’s) performed in the physician’s office. The terminal is described as a three channel, ten wire, twelve lead ECG instrument which connects directly to the patient to take readings on the twelve leads automatically. Patient age, weight and other data are entered via a keyboard and included on the printed report. The terminal is connected via telephone lines to the C--- central computer. The terminal automatically dials the computer and transmits the collected ECG data. In seconds the computer responds and the terminal prints a complete analysis of the ECG. In addition, a board-certified cardiologist is on call at the computer site to review results and assist in interpreting the report. A physician can call the computer site and discuss the report with the specialist. You charge a flat amount per month for the equipment. In addition, a separate charge is made for each time that the equipment is used to provide an ECG analysis. You make no charge for telephone consultations with the cardiologist. Your first quarter, 1982, return claimed a deduction of $1,259 for “Process Fees” which were the charges you mad, in addition to the flat monthly amounts, for usage to secure ECG analyses. You claimed the deduction on the theory that these were charges for exempt professional services. Enclosed for your reference is a copy of Regulation 1502 and a Public Notice, dated October 1982, explaining AB 2932. Please note that the tax rules applicable to custom computer programs, found in Regulation 1502(f)(2), have been changed by AB 2932.

Mr. R--- E. H---

-2-

January 17, 1983
330.2102.750

Regulation 1502(j) generally explains the application of tax to the rental or lease of automatic data processing equipment. As stated, the rental receipts from such equipment are subject to tax unless the equipment was acquired tax-paid and leased in substantially the same form as acquired. We assume that is not the case here since we understand that you are paying tax on the flat monthly charges. The sole question is, therefore, whether the separate charges, which are based upon the number of times the machine is used, are part of taxable rental receipts. Our research indicates that the staff has previously considered this question in a similar context and we have concluded that the separately stated amounts charged for ECG analysis are service fees. Therefore, the $1,259 labeled “Process Fees” on your first quarter, 1982, return is not subject to tax and was properly claimed as a deduction from taxable gross receipts. Very truly yours,

Richard H. Ochsner
Tax Counsel

RHO:jw
Enclosures
cc:

Return Review Unit (CR)