Did a lighting company lease equipment when it always supplied and controlled the operators along with the equipment?

Plain-English summary

An unidentified client provided qualified motion-picture producers lighting direction, equipment and operators. It separately billed services/equipment but never provided equipment without services. Its CPA characterized them as equipment rentals plus concurrent services and asked if client instead used equipment for qualified production services.

Section 6010.6(b)(4)/Regulation 1529(b)(2) defined those services as fabrication on film/tape/other audiovisual embodiment connected with producing a qualified motion picture. Counsel said operating lighting equipment did not itself fabricate an audiovisual embodiment, so it fell outside that definition.

That did not change tax because the arrangement also was not a lease. Staff looked to whether customer could obtain property without operator. When owner required customer to contract for owner operation, possession/control did not pass; owner used the equipment.

The client therefore was consumer of equipment used for lighting services and owed sales-tax reimbursement/use tax at acquisition. No contract, equipment/operator record, production evidence, billing, tax filing or later outcome is supplied.

The source date conflicts internally. The formal first page is May 13, 1996; its only continuation says June 3, 1997, which the live annotation uses. With no revision/reissuance explanation, the formal first-page body date controls and the conflict remains disclosed.

Common questions

Did separately stating equipment charges create a lease?

No. Control of the equipment, not the invoice labels, governed.

Why did the required operator matter?

The customer could not obtain the equipment without the provider's operators, so the provider retained possession and control.

Were the lighting activities qualified production services?

No. The opinion says operating lighting equipment did not fabricate the audiovisual embodiment required by the historical definition.

Where did tax apply?

To the lighting company's acquisition or use of the equipment as the consumer.

Was the letter issued in 1996 or 1997?

Its formal first page says May 13, 1996; the continuation/live entry say June 3, 1997 without explaining the discrepancy.

Are the contracts or bills supplied?

No. The source states the result from the requester's facts without transaction records or a later outcome.

Citations and references

• Section 6010.6(b)(4); Regulation 1529(b)(2) — historical audiovisual-fabrication definition
• Unnumbered customer-choice/owner-operator possession-control test
• April 22 request and all contract/equipment/production/billing/tax records — absent
• Formal May 13, 1996 Dick letter; continuation/live June 3, 1997 — unresolved source conflict
• Official Annotation 330.2321.500 — uses continuation date and omits conflict/source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2321.500
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2321-500.pdf

Original ruling text

330.2321.500

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION – MIC: 85
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-2653
FAX (916) 324-2618

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego

KATHLEEN CONNELL
Controller, Sacramento

May 13, 1996

JOHN CHIANG
Acting Member
Fourth District, Los Angeles

E. L. SORENSEN, JR
Executive Director

Mr. D--- M. D---, CPA
Vice President
--- --- --- --- Incorporated
XXXX --- Road, Suite XXX
---, CA XXXXX

Dear Mr. D---:
This is in reply to your April 22, 1995 letter regarding the application of sales tax to your client’s charges for providing lighting direction, lighting equipment and equipment operators to qualified motion picture producers. You note your client has treated the transactions as rentals of lighting equipment coupled with concurrent services. You explain that the charges for the services and the equipment are separately stated on billings to the producers, and in no case is the equipment provided without the services. You ask whether your client is using the equipment to provide “qualified production services” as defined in Sales and Use Tax Regulation 1529(b)(2). The definition of “qualified production services” in Regulation 1529 is based on the definition at subdivision (b)(4) of Revenue and Taxation Code section 6010.6. The term is there defined to mean any fabrication performed by any person in any capacity on film, tape, or other audio-visual embodiment in connection with the production of all or any part of any qualified motion picture. We do not believe that operating lighting equipment results in a fabrication of any audio-visual embodiment to be within the definition of “qualified production services.” That is not to say the application of tax is different, because we do not believe your client is leasing out its equipment under the facts you provide.

Mr. D--- M. D---

-2-

June 3, 1997
330.2321.500

In determining whether a person leases equipment or merely provides a service and uses his or her equipment in providing the service, we look to whether the customer could have obtained the property without the operator. When, as in the case you note, the owner of the property requires the customer to contract for the owner of the property to operate the property, we do not believe the owner transfers possession and control of the equipment to the customer. Rather, the owner makes the use of his or her equipment. We agree with your conclusion, that, given the facts you provided, your client is the consumer of equipment used to provide lighting services and should pay sales tax reimbursement or use tax at the time of acquiring the equipment used to provide the services. We hope this answers your question; however, if you need further information feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr
cc:

Sacramento District Administrator - KH