Were ski rentals under $20 and under one day excluded from lease tax when customers took the equipment from an independent shop to nearby resorts?

Plain-English summary

Staff counsel held a December 7, 1993 telephone appeals conference with a partner and a district principal auditor. The protested October 1, 1989-September 30, 1992 liability was measured by $181,555 of ski-rental receipts not reported as taxable. The petitioner did not dispute that measure.

The partners operated an independent ski-rental shop two to three miles from five resorts and also sold goggles, sunglasses, hats and gloves. An earlier partnership originally owned it; one petitioner bought it in 1985, the other became equal partner in November 1988, and later bought the first petitioner's interest to become sole owner. Ownership and partnership records do not appear.

The shop purchased rental equipment ex-tax but did not collect tax reimbursement on rentals. A few demonstration packages totaled exactly $20; most packages were under $20. It paid no tax on either group.

Section 6006.3 excluded only use for less than one day, for less than $20, when use was restricted to the grantor's premises or business location. Customers used the skis at resorts, not the shop, so the transactions were leases. Because inventory was acquired ex-tax, they were continuing sales and purchases taxable on rent. The source does not separately analyze the demonstration packages that equaled rather than fell below $20; it treats their receipts as untaxed and reports no measure dispute.

Before the second petitioner joined, the first reportedly received Board-office advice that rentals under $20 were not taxable. After joining, the second visited the Nevada City office and reviewed a sales/use tax return line by line with an employee to verify that advice. He disclosed that the shop was independent and not part of a resort. No office record, employee identity, written request or written response appears.

Counsel found the petitioner credible and believed he relied on erroneous oral advice. Section 6596 nevertheless required a written request disclosing all relevant facts, a written Board response and taxpayer reliance on it. With neither written request nor written advice, no relief from tax and interest could be recommended. Staff recommended denying the petition.

Live Annotation 330.2847 publishes only the less-than-24-hour, under-$20, off-premises section 6006.3 result. It omits the audit period and $181,555 measure, exact-$20 demonstration packages, ownership sequence, ex-tax/no-reimbursement facts, two oral-advice contacts, credibility finding, section 6596 analysis and denied recommendation.

No returns, rental receipts/packages, inventory, purchase invoice/tax or resale certificate, partnership transfer, office-visit/advice, audit schedule/workpaper, assessment, written request/response, Board adoption, payment, claim, appeal or later outcome appears.

What this means for you

Document rental duration and price, exactly where the customer may use equipment, how inventory was taxed when acquired, what tax was collected and every agency-advice request/response. Credible recollection of oral advice did not satisfy the written-advice relief statute here.

Common questions

Did staying under $20 avoid tax?

No. Off-premises resort use independently failed the exclusion.

What happened to packages priced exactly at $20?

The source says a few demonstration packages totaled $20 and were untaxed, but does not separately analyze them; the statute required a charge of less than $20.

Why were the rents taxable?

Customers used ex-tax equipment away from the shop, making the transactions continuing taxable leases under the cited framework.

What amount and period were protested?

$181,555 of unreported rental receipts for October 1, 1989 through September 30, 1992.

Did the petitioner challenge that measure?

No. The source expressly says he did not.

Did counsel believe oral advice was given?

Yes. She found the petitioner credible, but section 6596 required written request and response.

Was the petition granted?

No. Staff recommended denial; the source does not provide later Board action.

Citations and references

• Sections 6051, 6201; Civil Code section 1656.1 — tax/reimbursement framework
• Sections 6006(g)(5), 6010(e)(5); Regulation 1660(c)(2)-(3) — purchase-price method
• Sections 6006(g), 6006.1, 6010(e), 6010.1; Regulation 1660(c)(1) — ex-tax continuing leases
• Section 6006.3; Regulation 1660(e)(4) — short, under-$20, restricted-location exclusion
• Section 6596 — written-advice relief requirements
• Telephone testimony and audit facts; underlying records — absent
• Live Annotation 330.2847 — location result without procedural/evidence posture

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2847
• Original supporting recommendation: 330.2847 PDF

Original ruling text

STATE OF CALIFORNIA

330.2847
BOARD OF EQUALIZATION
BUSINESS TAXES APPEALS REVIEW SECTION

In the Matter of the Petition
for Redetermination Under the )
Sales and Use Tax Law of:
E--- E. B--- AND
P--- E. F--Petitioners

)
DECISION AND RECOMMENDATION
)
)
)
No. SR -- XX-XXXXXX-010
)
)
)

The Appeals conference in the above-referenced matter was held via telephone by Elizabeth Abreu on December 7, 1993 in Sacramento, California. Appearing for Petitioners:

P--- F--Partner

Appearing for the
Sales and Use Tax Department:

Leon Adams
District Principal Auditor

Protested Item
The protested tax liability for the period October 1, 1989, through September 30, 1992, is measured by:

Item

A. Ski rental receipts not reported
as taxable measure

State, Local
and County

$ 181,555

E--- E. B--- and
P--- E. F--SR -- XX-XXXXXX-010

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January 4, 1994
330.2847

Petitioner's Contentions
Petitioners reasonably relied upon erroneous oral advice given by a Board employee in the Nevada City office that rentals of ski equipment are not subject to tax if the rental receipts are less than $20. Summary During the periods in issue, petitioners formed a partnership to own and operate a ski rental shop which rented ski equipment and sold items such as goggles, sunglasses, hats, and gloves. Petitioners' business was not part of a ski resort but was located within two to three miles of five ski resorts. Petitioners purchased rental equipment ex-tax but did not charge its customers tax reimbursement on the rentals. Initially, the business was owned by another partnership in which E--- B--- was a partner. In 1985, Mr. B--- purchased the business from the partnership and became its sole owner. P--- F--became an equal partner with Mr. B--- in November 1988. Mr. F--- subsequently purchased Mr. B---'s interest in the partnership property and is currently the sole owner of the business. Hereinafter, Mr. F--- will be referred to as the "petitioner." Petitioner contends that prior to the time he became a partner, Mr. B--- visited a Board office and was told that rentals of ski equipment for less than $20 were not taxable. After petitioner became a partner, he visited the Nevada City office of the Board to obtain instructions for completing sales and use tax returns. Since filing returns was one of his responsibilities with the partnership, he wanted to verify that the advice Mr. B--- received from the Board was correct. Petitioner stated that he went through a sales and use tax return line by line with a Board employee who indicated to him that rentals for less than $20 were not subject to tax. During their conversation, the Board employee asked where the shop was located. Petitioner explained that it was an independent shop and that it was not part of a ski resort. The rentals for a few demonstration packages totalled $20, but most of petitioner's package rentals were for less than $20. Petitioner did not pay tax on the rentals for either the demonstration packages or package rentals under $20. Petitioner does not dispute the measure of tax in the audit but contends that he should be relieved from liability because he reasonably relied upon erroneous advice given by a Board employee.

E--- E. B--- and
P--- E. F--SR -- XX-XXXXXX-010

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January 4, 1994
330.2847

Analysis and Conclusions
Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. Although the sales tax is imposed upon the retailer, the retailer may collect sales tax reimbursement (usually itemized on the invoice as "sales tax") from the purchaser if the contract of sale so provides. (Civ. Code § 1656.1.) Revenue and Taxation Code section 6201 imposes a use tax on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer for storage, use, or other consumption in this state. The use tax, which complements the sales tax, is most frequently imposed upon in-state leases, use in California of property purchased out-of-state, and use of property purchased with a resale certificate. Special rules apply to the application of tax to leases of tangible personal property. A lessor of certain types of tangible personal property generally may elect to pay tax under one of two methods. Under the first method, the lessor pays tax "up front" on the purchase price of the property which the lessor will lease. That is, the lessor either pays sales tax reimbursement to his or her vendor or pays use tax measured by the purchase price of the tangible personal property. If the lessor leases such property in substantially the same form as acquired, the lease is not a sale or purchase, and the lessor does not collect and pay tax on the rentals. (Rev. & Tax. Code § 6006(g)(5) and 6010(e)(5) and Sales and Use Tax Reg. 1660(c)(2) and (3).) Alternatively, when purchasing the property, the lessor may purchase the property ex-tax by giving a resale certificate to the seller. Leases of such property are continuing sales and purchases subject to use tax which the lessor must collect from the lessee and pay to the state. The use tax is measured by rentals payable. (Rev. & Tax. Code §§ 6006(g), 6006.1, 6010(e), and 6010.1 and Sales and Use Tax Reg. 1660(c)(1).) Generally a lease is a temporary transfer of the possession of tangible personal property for consideration and includes rental, hire, and license. A lease does not include, however, a use of tangible personal property for a period of less than one day for a charge of less than twenty dollars when the privilege to use the property is restricted to use on the premises or at a business location of the grantor of the privilege. (Rev. & Tax. Code § 6006.3.) In such transactions, the grantor of the privilege is the consumer of the property, and the charges for the privilege to use the property are not subject to tax. (Sales and Use Tax Reg. 1660(e)(4).) In this case petitioner's transactions did not come within the exclusion from the definition of lease because petitioner's customers used the ski equipment at ski resorts and not on petitioner's premises. Thus, petitioner was leasing the equipment. Since petitioner purchased the equipment extax, the leases were continuing sales and purchases, and the rental receipts were subject to tax.

E--- E. B--- and
P--- E. F--SR -- XX-XXXXXX-010

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January 4, 1994
330.2847

Petitioner contends that he should be relieved from tax because he reasonably relied upon erroneous advice from an employee of the Board. Revenue and Taxation Code section 6596 provides the only basis for relief from tax and interest where a taxpayer relies upon erroneous advice from the Board. A taxpayer is not entitled to relief under this section unless the taxpayer makes a written request for advice, the request discloses all relevant facts, the Board responds in writing to the taxpayer's request, and the taxpayer relies upon the advice in the Board's written response. I found petitioner credible and believe that he was given erroneous oral advice which he relied upon. However, petitioner does not meet the requirements of section 6596 for relief from tax and interest because petitioner did not make a written request for advice and did not receive written advice from the Board. Therefore, no relief can be recommended. Recommendation It is recommended that the petition be denied.

Elizabeth I. Abreu, Staff Counsel

Date