When a musical-instrument lessor credited six months of rent toward a later purchase, was tax measured by the list price or the remaining cash price?

Plain-English summary

San Diego audit memo, absent here, described school-band-instrument seller/lessor. Contract allowed lessee buying instrument to deduct maximum six months' rent from list price. No contract, instrument, payments or return appears.

Example: student paid $30 monthly plus $1.50 use tax for eight months. Six-month cap produced $180 credit against $300 list price, leaving $120 to obtain title. PDF's historical Regulation 1660(c)(3)(D) already measured same-instrument purchase at $120.

Audit asked whether different result followed when student leased piano A but bought piano B. Counsel said no: seller allowed discount/price adjustment, and tax applied to $120 amount required, regardless item identity.

Live 330.2484 restates result using Regulation 1660(c)(7), but omits May 22 dependency, $30/$1.50/eight-month facts and missing proof. Source does not explain regulation renumbering.

Common questions

Were all eight months of rent credited?

No. The contract capped the purchase credit at six months, or $180.

What amount was taxed at purchase?

The $120 balance the student had to pay to obtain title.

Did student have to buy same instrument?

No. The memorandum said the tax result was unchanged if the student rented instrument A and bought instrument B.

Why was rental credit not added back to sales price?

It was treated as a seller-provided discount or price adjustment.

Had use tax already applied to monthly rent?

The example states $30 rent plus $1.50 use tax each month. It supplies no receipts or returns proving payment.

Which Regulation 1660 paragraph appears?

PDF prints historical (c)(3)(D); live annotation cites (c)(7). This page preserves both without assuming why numbering changed.

May another instrument seller rely on this result?

No. It is historical internal advice based on unproduced contract and records; actual credit, price, item and current law must be checked.

Citations and references

• Historical Regulation 1660(c)(3)(D) — PDF's same-instrument measure
• Regulation 1660(c)(7) — live annotation's numbering for option price
• May 22 audit memo and contract/instrument/payment/purchase/tax records — absent
• June 28 GLR memo — different-instrument discount holding
• Official Annotation 330.2484 — same result with later paragraph number

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2484
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2484.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Diego – Auditing (WAS)

From:

Tax Counsel (GLR) - Headquarters

330.2484

Date:

June 28, 1972

Subject:

We understand from your memorandum of May 22, 1972 that --- --- --- sells and rents school band instruments. As a part of the lease contract, they will allow a lessee to purchase an instrument and deduct a maximum of six months’ rental payments from the list price of the instrument. For example, a student rents an instrument for $30 a month plus $1.50 use tax. At the end of eight months, the student decides to buy the instrument which has a list price of $300 allowing for the maximum deduction of six months’ rental payments, this would mean that the student would pay an additional $120 to get title to the instrument ($300 less $180 rentals equals $120). Although you point out that under Regulation 1660 (c) (3) (D), if the instrument was the same one that the student had been renting tax would only be due measured by the $120, you ask our opinion as to whether our answer would be different if the instrument purchased was not the one the student had been leasing. For example, the student was leasing piano A but purchased piano B. It is our opinion that the tax consequences would be unchanged. What is happening is that the seller is allowing a discount or price adjustment to the selling price of the article and the amount required to be paid by the student is subject to tax, i.e., the $120.

GLR:lb
cc:

Mr. Robert Nunes
Mr. Jack Najarian
Mr. Dan Allen
Mr. T. P. Putnam
Mr. Gary J. Jugum