Did a California nonprofit owe tax when it rented donated beds and medical equipment to people with HIV/AIDS?

Plain-English summary

An organization described itself as section 501(c)(3), serving people with HIV/AIDS and families. It planned to rent donated beds, wheelchairs, walkers, crutches and other equipment stored in Contra Costa County garages and asked whether it needed permit and use tax on rent. The request and underlying records are absent.

The letter rejected a general nonprofit exemption. It applied section 6403's acquisition exemption to seller-donated property for a qualifying California organization; with no acquisition tax paid, the historical same-form tax-paid lease exception did not apply. It required a sales-tax permit and collection/remittance of use tax measured by rent. The source does not identify donors or prove seller/inventory qualification.

Regulation 1591(k) separately exempted sales or leases of wheelchairs, crutches, canes, quad canes and walkers for an individual's personal use as directed by licensed physician. It did not exempt every bed or other item described, and the PDF supplies no device or direction evidence.

A March 20, 1998 note initialed DHL adds that seller cannot buy for resale when intent is donation; it gives donation from legitimate resale inventory as example. Live 330.2435 publishes the general donated-equipment/rent/medicine result dated April 22, 1993 but omits this later qualification and permit details.

Common questions

Did section 501(c)(3) status exempt all the rentals?

No. The letter expressly rejected a general nonprofit sales- and use-tax exemption.

Why were rental receipts taxable if the donation was tax-exempt?

Because the organization had not paid sales or use tax on acquiring the property, it did not satisfy the tax-paid-lease exception.

Which medical devices could be exempt?

The opinion listed wheelchairs, crutches, canes, quad canes, and walkers sold or leased for an individual's personal use as directed by a licensed physician.

Did the nonprofit need a permit?

Yes, the letter said it needed a sales tax permit and generally had to collect and remit use tax on rent.

Did the source prove every donation qualified under section 6403?

No. It identifies no donor, seller status or inventory history. The later note says buying for resale with intent to donate does not qualify and gives legitimate resale inventory as example.

Did every medical bed or item qualify as medicine?

No. The opinion lists only specified mobility devices and requires personal use directed by a licensed physician.

Is the March 20, 1998 note part of the live annotation?

No. It appears in the PDF source, initialed DHL, while live 330.2435 carries only an April 22, 1993 date and omits that qualification.

May another nonprofit rely on this result?

No. It is a taxpayer-specific historical opinion with missing qualification and transaction proof; current law and complete records must be checked.

Citations and references

• Sections 6051, 6006(g) and 6201 et seq. — retail tax, lease-as-sale and use-tax collection
• Historical same-form tax-paid lease exception — described but unnumbered
• Section 6403 and I.R.C. section 170(b)(1)(A) — qualifying seller donation to California organization
• Regulation 1591(k) — specified personal-use devices directed by licensed physician
• March 20, 1998 DHL note — purchase-with-donation-intent limit and legitimate-inventory example
• Request, eligibility/donation/device/rental/tax proof and Pamphlet 18 — absent
• Official Annotation 330.2435 — April 22, 1993 holding without later note/permit details

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2435
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2435.pdf

Original ruling text

330.2435

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 22, 1993

Dear
You requested a ruling from the State Board of Equalization as to whether the ----- --- needs a sales tax permit. You described your organization as a nonprofit 501(c) (3) organization which provides services to people with HIV/AIDS and their families. You intend to rent medical beds and equipment to these unfortunate people. Beds and medical equipment including wheelchairs, walkers, crutches, etc., have been donated to --- and are stored in garages throughout Contra Costa County. In your opinion, --- will not be "selling" any products, merely "renting" beds and equipment. You asked if use tax applies to the rentals of the beds and equipment if they are all donations to the organization. In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes a tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. A "sale" means and includes any lease of tangible personal property in any manner or by any means whatsoever. (Rev. & Tax Code § 6006 (g). ) The use tax is a companion tax to the sales tax and is imposed upon every person storing, using. or otherwise consuming tangible personal property purchased from a retailer. The retailer, if engaged in business in this state, must collect the use tax. (Rev. & Tax. Code
§§ 6201 et seq.)
Contrary to common belief, there is no general exemption from sales and use tax on sales made by nonprofit organizations. There are exceptions to the tax due on a "lease," one of which is for tangible personal property to be leased in substantially the same form as acquired by the lessor, and for which the lessor has paid sales tax reimbursement (when acquiring the property) or has paid use tax measured by the purchase price of the property. In your situation, the exception will not apply, since the equipment and beds are donated to the organization. Pursuant to Revenue and Taxation Code Section 6403, the

storage, use or other consumption in this state of property donated by any seller to any organization described in Section 170 (b) (1) (A) of the Internal Revenue Code and located in California is exempt from the use tax. A seller cannot purchase property for resale when its intent is for donate. This exemption applies, e.g., when a donation is made out of legitimate resale inventory. DHL 3/20/98

Therefore, there is no use tax on the acquisition of the property, but use tax is due based upon the rental receipts of the beds and equipment leased by you to your customer. Business Taxes Regulation 1591(k) does exempt from tax for sales, including leases that are sales, wheelchairs, crutches, canes, quad canes, and walkers, if the devices are sold [or leased] for the personal use of an individual as directed by a licensed physician. I wish I could provide a more favorable response to you. The worthwhile function of the --- is highly commendable and is one which I personally believe is needed. However, it is clear that the --- must have a sales tax permit and must collect and remit use tax based on the rental receipts of the beds and equipment. I have enclosed a copy of Pamphlet 18, Tax Tips for Volunteer and Nonprofit Fund-Raising Organizations, that may be helpful to you.

Very truly yours,

Gordon P. Adelman
Senior Tax Counsel

GPA: sr
Enc.
cc: Oakland District Administrator