Were mandatory service, technical-specialist, delivery, and round-trip mileage charges connected with leased tools taxable?

Plain-English summary

The official PDF combines two documents. The October 29, 1982 Headquarters memorandum answers an absent September 14 Out-of-State Auditing memorandum and revisits absent February 4 correspondence. The earlier advice assumed customers could rent tools without service/delivery. Audit staff corrected that all calls were mandatory.

With the corrected facts, every service/delivery charge was a taxable service forming part of the lease. A separately stated round-trip mileage line did not qualify as a transportation exclusion because it bundled the serviceman's return. Only a separately identified amount for transporting goods directly from the lessor's business to the customer site could qualify under sections 6011/6012(c)(7) and Regulation 1628(a).

The January 3, 1983 letter followed an Out-of-State referral and reviewed missing General Terms and Conditions plus pages 18, 31-34 of a November 15, 1981 pricing document. It says the first eight-hour/fraction charge, additional periods and misrun charges included a technical specialist. Because the lessee had to pay them as a condition precedent to the tool lease, all were taxable.

The different call back or retreiving charge applied only after a customer released the specialist and later requested a return. On that understanding it was an optional service, not taxable. The source preserves the misspelling and supplies no release/callback record.

Cited 295.1680 has neither current live entry nor backup PDF at exact official paths after both fetch methods. Cited 295.1690 backup is a six-page 1978 catalog-use-tax hearing recommendation with $93,027 measure; it states necessary or mandatory services remain in property price, but is not oil-tool evidence.

No prior writings, terms, price pages, request, lease, tool list, invoice, service/delivery route, mileage split, personnel time, release/callback, payment, return, audit, assessment, claim, appeal or later outcome appears. Live 330.2843 merges both documents but omits missing-source/evidence posture.

What this means for you

Separate tool delivery from personnel's return trip and itemize direct transportation. Document whether specialist/service is truly required for lease or functional use and when customer can release and later call personnel back.

Common questions

Were mandatory service calls taxable if separately stated?

Yes. They were conditions of obtaining/using leased tools.

Was the round-trip mileage fully excludable?

No. It included the personnel return, not only direct delivery of property.

Could any transport charge be excluded?

Only a qualifying direct-delivery amount separately identified on the invoice under the cited rules.

Were first eight hours, extra periods and misruns taxable?

Yes, because each charge included a required technical specialist.

Was later callback taxable?

No under the stated optional-return facts after the customer first released the specialist.

Are source contracts and invoices available?

No. Terms, selected pricing pages, lease and billing/service records are absent.

Citations and references

• Sections 6011(a)(2)/(b)(1), 6012(a)(2)/(b)(1) — mandatory services in measure
• Sections 6011(c)(7), 6012(c)(7); Regulation 1628(a) — direct transport exclusion
• Sections 6006, 6051, 6201 — later letter's general framework
• Annotation 295.1680 — cited; live entry and exact backup unavailable
• Annotation 295.1690 — cited; broader catalog hearing recommendation
• February/September writings, terms/pricing, request and transaction records — absent
• Live Annotation 330.2843 — combined result without source/evidence limits

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2843
• Original supporting documents: 330.2843 PDF
• Cited available backup: 295.1690 PDF
• Unavailable cited backup path: 295.1680 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-State – Auditing

From:

Tax Counsel (LS) - Headquarters

Subject:

B--- S--- T--- Division
B--- I--- Corporation

330.2843

Date:

October 29, 1982

SY -- XX-XXXXXX

This is in response to your memorandum of September 14, 1982. In our February 4, 1982 correspondence regarding this taxpayer, it was pointed out that a distinction should be drawn between those instances where transportation charges were made solely for a serviceman’s visit to the customer’s site and similar charges where the serviceman was delivering tools pursuant to a lease agreement. In the prior correspondence, it was assumed that these charges were not a mandatory condition of the leases, i.e., the customers could lease the tools without taking the service. In your September 14 memorandum, it was indicated that our assumption regarding the service and delivery calls was incorrect and that such calls are a mandatory condition to leasing the taxpayer’s tools. Under these circumstances, we view all charges for delivery and/or service to be taxable as services which are part of the sale (Rev. & Tax. Code §§ 6011(a)(2), 6012(a)(2); BTLG annos. 295.1680, 1690). The separate stating on the invoice of a round trip mileage charge, in those cases where tools are delivered, does not qualify those charges for exclusion from the taxable measure as separately stated transportation charges. In order to qualify for exclusion, the charge for transporting the goods from the lessor’s place of business directly to the customer’s site must be identified separately on the invoice (Rev. & Tax. Code §§ 6011(c)(7), 6012(c)(7); Reg. 1628(a)). A round trip mileage charge will not suffice since a portion of such charge is for the serviceman’s return trip.

LS:at

330.2843

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-8485

January 3, 1983

P--- I---, Inc.
O--- T-- Division
P. O. Box XXXXX
--- ---, Texas XXXXX

SZ -- XX-XXXXXX

Gentlemen:
The Board’s Out-of-State Auditing Staff has forwarded your request for a legal opinion to our attention. We have reviewed a document entitled “General Terms and Conditions” as well as pages 18, 31, 32, 33, and 34 from a November 15, 1981 pricing document of P--- I--- Inc. O--- T--Division (P---). Our opinion is requested with respect to whether or not sales and use tax is due on charges made in connection with the rental of P---’s tools. Specifically, you wished to know if certain services performed in conjunction with the rentals are subject to tax. Generally speaking, services that are part of the sale or rental of tangible personal property are subject to tax (See Rev. & Tax. Code §§ 6006, 6011(b)(1), 6012(b)(1), 6051, 6201. Such services include those which the seller or lessor must perform in order to sell or lease the property, or for which the purchaser or lessee must pay as a condition of the purchase and/or functional use of the property. Other service charges are not subject to tax. We understand that charges for the first eight hour period or fraction thereof, for “additional periods,” and the “misrun charges” include the charge for P---’s technical specialist. Clearly, under the criteria outlined above, the lessee’s agreement to pay these charges are a condition precedent to the lease of the tools and, accordingly, are taxable. On the other hand, the “call back or retreiving charge”, which we understand applies if the technical specialist is released by the customer and later returns at the customer’s request, appears to be an exempt charge for services which is not taxable.

P--- I---, Inc.

-2-

January 3, 1983
330.2843

We hope this has answered your question. If it has not, or if further assistance is needed, feel free to contact us. Very truly yours,

Les Sorensen
Tax Counsel

LS:rar