Was heavy equipment still leased when it required a licensed operator but the customer could hire an independent operator instead of the owner's operator?

Plain-English summary

An absent October 5, 1993 letter disputed several points in an earlier Elizabeth Abreu response and argued client's transactions were not tangible-property leases. The December response describes heavy equipment operable only by licensed person; customer could hire independent licensed operator or use client's operator.

Staff reaffirmed two branches. If owner always required own operator, owner supplied equipment-and-operator service rather than property lease. If customer could obtain property with or without owner operator, transaction was lease even when customer chose owner's operator.

Letter called customer-choice treatment longstanding administrative interpretation and said leasing industry relied on it for decades. It reasoned classification often benefited lessor: service provider had purchase-price tax, while lessor of same-form property could choose purchase-price tax or rent-measured tax.

Because client had not paid purchase-price tax, existing rental transactions were leases and tax was and had been due on rent. For future newly acquired same-form equipment, client could instead pay tax up front on purchase price. The letter supplies no equipment, acquisition, contract, operator, charge, return or outcome proof.

The December letter directly cites no law; its authority chain runs through prior Abreu letter, separately preserved in official 330.2465 and 330.2307.725 PDFs. Live 330.2473 publishes customer-choice rule and tax result but omits dispute, dependency, industry rationale and missing evidence.

Common questions

Did the need for a licensed operator prevent a lease?

No.

What fact made it a lease?

The customer could obtain the equipment without using the owner's operator.

What if owner always required its own operator?

Staff described that as service rather than lease because customer lacked option.

Why did staff say lease treatment could benefit lessor?

It preserved choice between purchase-price tax and rent tax for qualifying same-form property; service treatment would require purchase-price tax.

Why were existing rents taxed?

Client had not paid tax based on equipment purchase price, so letter applied tax to rent payable.

Could future equipment be taxed on purchase price instead of rent?

Yes, if the same-form and timing requirements were met.

Did this letter itself cite Regulation 1660?

No. It cited no statute, regulation or case and instead referred back to Abreu's fuller letter.

May another lessor rely on this result?

No. It is historical advice based on unproduced correspondence and transaction facts; customer choice, property, acquisition and reporting must be verified.

Citations and references

• No statute, regulation or case — cited directly in December 9 letter
• October 5 requester letter — dispute described but source absent
• Prior Abreu letter — fuller incorporated rule, separately preserved as 330.2465/330.2307.725
• December 9 Dhanda letter — customer-choice holding, historical reliance rationale and tax election
• Equipment/acquisition/agreement/operator/charge/reporting/outcome evidence — absent
• Official Annotation 330.2473 — concise rule/result without provenance limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2473
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2473.pdf
• Prior Abreu letter as Annotation 330.2465: https://cdtfa.ca.gov/lawguides/annotations/330-2465.pdf
• Full-format Abreu copy as Annotation 330.2307.725: https://cdtfa.ca.gov/lawguides/annotations/330-2307-725.pdf

Original ruling text

330.2473

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 9, 1993
Re:
Dear:
Your letter to Elizabeth Abreu dated October 5, 1993 has been forwarded to me for a response. In your letter, you cite various points on which you disagree with Ms. Abreu concerning the application of tax to the transactions of your client. Specifically, you argue that these transactions are not subject to sales tax because they are not leases of tangible personal property. Briefly, the transactions at issue concern the rental of heavy equipment which can only be operated by a licensed operator. The person desirous of renting the equipment has the option of hiring an independent licensed operator or using one provided by your client. In Ms. Abreu's letter, you were provided with the rules applied by the Board staff with respect to tangible personal property provided by one party to another. The rule specific to your client is that if the person desiring to use the property has the option to obtain the property with or without an operator, the transaction is a lease even if the lessee elects to have the owner of the property provide the operator. When the owner of the property always requires the customer to use an operator provided by the owner (thus there is no option), then the owner is providing the service performed by the equipment and operator and is not leasing tangible personal property. This has been our longstanding administrative interpretation that when a customer has the option to obtain equipment with or without an operator provided by the owner, the customer is leasing that property. In the substantial majority of such transactions, the Board's conclusion that they are leases provides an election to the lessor that would otherwise not be available. That is, if the transaction were a service and not a lease, then the service provider would owe tax on its purchase price of the property. If, instead, the transaction is a lease of tangible personal property in substantially the same form as acquired, the lessor may pay tax up front on the purchase price (the same as if the lessor were providing a service), or may choose to instead collect tax measured by rentals payable (which choice is not available to the service provider). Your argument would eliminate this election by the lessor and would have a substantial impact on the leasing industry which has relied on our interpretation for decades.

While your letter points to several areas of Ms. Abreu's letter with which you disagree, we do not find them convincing, and it remains the position of the Board that the interpretation provided above and in Ms. Abreu's letter is correct. Because the rental transactions are leases and --- did not pay tax based on the purchase price, tax is (and was) due on the rentals payable. In future transactions, --- may decide that paying tax based on the purchase price is a better alternative and pay tax upfront on newly acquired equipment it intends to lease in substantially the same form as acquired. As noted above, if we were to accept your arguments, this would be a requirement, not an election. In light of our conclusions herein, ---, has a choice.

Sincerely,

Sukhwinder K. Dhanda
Staff Counsel

SKD:plh
bc:

Santa Ana District Administrator – EA
Mr. Glenn A. Bystrom
Mr. Raymond Harispe