Was rent taxable when the lessor paid tax on the full price of materials and outside fabrication labor?

Plain-English summary

An absent July 30, 1965 San Francisco audit memo asked four questions. The reply supplies no taxpayer, property, amount, contract, invoice, tax proof or original question wording beyond the answers.

1. Apparently tax covered full purchase price—materials plus outside fabrication labor. If so, rent was not taxed. The conditional wording matters because no payment evidence appears.
2. For an item leased before August 1, 1965, rent was not taxed if its materials were purchased tax-paid.
3. Under former Ruling 70(b), a lessor that put property in rental service before August 1 and elected rent-based liability had to continue that method.
4. An option exercise was taxed on actual additional amount lessee paid to obtain property. The source visibly prints actual sales price raid, then clarifies additional amount paid; no correction is inserted into the preserved text.

Ruling 70(c)(2)(D)'s second paragraph barred changing tax-paid same-form property to rent basis. A lessor that had not yet acquired tax-paid property still could use a resale certificate and rent-based tax. Neither part of Ruling 70 appears.

Live Annotation 330.2960 publishes only answer one. It omits the absent-question/evidence posture, Apparently condition, three historical transition/option/method answers, source typo and missing Ruling 70.

No July 30 memo, taxpayer, property, materials/fabrication invoice, purchase price/tax, same-form evidence, acquisition/lease date, method election, return, option agreement/payment, audit, assessment, claim, appeal or later outcome appears.

What this means for you

Preserve the full materials and outside-fabrication measure and tax proof, acquisition/rental dates, same-form facts, method election/returns and option price. The headline applies only if the complete purchase price was actually tax-paid.

Common questions

What cost had to be tax-paid?

The full purchase price described as materials plus outside fabrication labor.

Was full payment proven?

No. Counsel says Apparently and conditions the answer.

Could a lessor change after tax-paid acquisition?

Not under the historical same-form rule discussed in the memorandum.

What was taxed on option exercise?

The additional amount actually paid to acquire the property.

Could method still be chosen before acquisition?

Yes. The memorandum said a lessor that had not yet acquired the property on a tax-paid basis could purchase it for resale and pay tax on rent.

Are the four questions or Ruling 70 available?

No.

Does live 330.2960 publish all four answers?

No. It publishes only full-cost tax and nontaxable rent.

Citations and references

• Former Ruling 70(b)/(c)(2)(D) — transition/method rules; text absent
• July 30 memo/questions and every property/lease/tax/election/option/outcome record — absent
• Live Annotation 330.2960 — only first conditional answer

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2960
• Original supporting memorandum: 330.2960 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Francisco - Auditing (LC:REP)

From:

Tax Counsel (EHS) - Headquarters

Subject:

Leases of Tangible Personal Property

330.2960

Date:

August 6, 1965

In reply to the four questions asked in your memo of July 30, 1965, we advise as follows:

1. Apparently tax has been paid on the full purchase price of the property consisting of the cost
   of materials and outside fabrication labor. If such is the case, no tax is due on the rental receipts from the leasing of the property.
2. If an item is leased prior to August 1, 1965, no tax applies to the rental charges if the materials
   entering into the item leased were purchased with tax paid on the purchase price.
3. As indicated by ruling 70, part (b), a lessor placing property into rental service prior to August
   1, 1965, the lessor electing to measure his tax liability by the rental charge, is required to continue to report and pay tax on the same basis.
4. In this case, the tax applies to the actual sales price raid for the property, that is, the additional
   amount paid by the lessee to obtain the property upon the exercise of the option. You will note that ruling. 70, part (c)(2)(D), second paragraph, precludes a taxpayer from changing from a taxpaid basis to a rental receipts basis as to property acquired on a tax-paid basis, and leased in substantially the same form as acquired. A lessor, however, who has not already acquired property on a tax-paid basis still has the election of purchasing the property under a resale certificate and paying tax on rental receipts. EHS: fb