Was an analyzer and computer a free loan when the customer promised to buy at least 50 test packs daily for 180 days?

Plain-English summary

Sorensen's November 1, 1985 memo to Audit Review and Refunds classified an absent Full Service Price Per Test Plan Agreement. It says customer promised minimum 50 test packs daily for 180 days at stated price and received possession/use of automatic clinical analyzer and computer. Price, agreement and request are absent.

Sections 6006(g), 6010(e), 6006.3 and Regulation 1660(a) treated temporary equipment use for consideration as lease. Civil Code sections 1605/1925 and two cases supported promise as consideration/hiring; section 1884 required loan for use to be without reward.

The minimum-purchase promise, plus actual test-pack purchases as described, supplied reward for analyzer/computer possession and use. Result was equipment lease plus test-pack sales, not reward-free loan.

Memo says Board understood D-- reported tax on all gross receipts, making total measure proper. It nevertheless said tax theoretically should split between sales tax on packs and use tax collected on equipment rentals. No invoices, returns, amounts or allocation method appear.

Live 330.2665 and parallel 495.0376 publish same 50/180 rule but call equipment clerical analyzer; both supporting PDFs say clinical analyzer. Live text omits total-measure/apportionment conclusion. Separate 495.0376 PDF concerns same memo but redacts quantities as XX/XXX and differently redacts subject/agreement.

Common questions

Did contract need separate equipment charge to create rent?

No. The minimum-purchase promise itself was consideration for equipment use.

Why was this not loan for use?

Section 1884 definition required no reward. Memo found reward in promise and actual test-pack purchases.

Was reported total tax measure wrong?

No. Memo says all gross receipts were reported, so total measure was proper, although tax theoretically required allocation.

How should total be allocated?

Source identifies sales tax on packs and use tax collected on rentals but supplies no formula, prices, amounts or returns.

Which analyzer description controls this page?

Both supporting PDFs say clinical analyzer; live annotations say clerical analyzer. This page preserves and discloses conflict.

Why does Annotation 495.0376 cover same arrangement?

CDTFA separately publishes same legal analysis there. Its PDF uses XX/XXX instead of 50/180 and different redactions; no source explains dual classification.

May another bundled-equipment supplier rely?

No. Specific agreement and evidence are absent; enforceability, control, actual purchases, allocation, reporting and current law require independent review.

Citations and references

• Sections 6006(g), 6010(e), 6006.3; Regulation 1660(a) — lease definitions
• Civil Code sections 1605, 1925 and 1884 — consideration, hiring and no-reward loan
• Simmons, 34 Cal.2d 264; Chrisman, 83 Cal.App 249 — promise as consideration
• Full-service agreement/request/price/invoices/returns/allocation — absent
• Live Annotations 330.2665/495.0376 — clerical/clinical conflict and omitted tax result
• Separate 495.0376 PDF — same analysis with XX/XXX and different redactions

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2665
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2665.pdf
• Parallel official annotation: Annotation 495.0376
• Parallel supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0376.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
330.2665
To:

Audit Review and Refunds

From:

E. Leslie Sorensen, Jr.

Subject:

-. -. D--

Date:

November 1, 1985

SZ --- XX-XXXXXX

As requested, we have considered the issue of whether or not the agreement entitled “The D--- Automatic --- --- Computer 1 Full Service Price Per Test Plan Agreement” is a lease of equipment and sale of test packs or merely a loan of equipment and sale of test packs. Based upon the following analysis, it is our opinion that the agreement indicates a lease of equipment and sale of test packs. “Sale” and “purchase” are defined to include “any lease of tangible personal property in any manner or by any means whatsoever, for a consideration…” (Rev. & Tax. Code
§§6006(g), 6010(e)). “Lease” is defined in the code to include rental, hire and license (Rev. & Tax. Code §6006.3). Section 1925 of the Civil Code defines a hiring as “…a contract by which one gives to another the temporary possession and use of property, other than money, for reward, and the latter agrees to return the same to the former at a future time.” Regulation 1660, subsection (a) incorporates the concepts of the foregoing provisions by defining a “lease” as follows: “The term ‘lease’ includes rental, hire, and license. It includes a contract under which a person secures for a consideration the temporary use of tangible personal property which, although not on his premises, is operated by, or under the direction and control of, the person or his employees….” “Good consideration” is defined in Civil Code Section 1605 as: “Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is good consideration for a promise.”

Audit Review and Refunds

-2-

November 1, 1985
330.2665

The general rule is that any valid promise is sufficient consideration for another promise (see Simmons v. California Institute of Technology, 34 Cal.2d 264; Chrisman v. Southern Cal. Edison Co., 83 Cal.App 249). Section 1884 of the California Civil Code describes a “loan for use” as follows: “A loan for use is a contract by which one gives to another the temporary possession and use of personal property, and the latter agrees to return the same thing to him at a future time, without reward for its use.” (Emphasis added.) Applying the foregoing principles to the agreement in this matter we note that the customer promises to purchase a minimum of 50 test packs per day for 180 days at a stated price per test pack. In return, the customer is entitled, among other things, to possession and use of an automatic clinical analyzer and computer. Under such circumstances, a lease of the equipment is clearly in evidence since consideration in the form of the customer’s promise to purchase a certain quantity of the test packs is given in return for possession and use of the equipment. A “loan for use” is not in evidence since D-- realizes “reward” in the form of the promise to purchase and actual purchase of the test packs. We understand that D-- has reported tax on gross receipts from the foregoing transactions. Accordingly, tax has been reported on the proper measure. Theoretically, however, the tax should be apportioned between sales tax from sales of test packs and use tax collected based upon rentals of the equipment.

ELS:rar