Could a tuxedo lessor deduct separately stated alteration labor from taxable rental receipts?

Plain-English summary

An absent October 12, 1988 Return Review memo asked about a tuxedo lessor that collected use tax on rent but deducted alterations on its return. After an unproduced request for explanation, taxpayer said the deduction was separately stated labor on rental tuxedos. No period, amount, return, response, lease, invoice or work record appears.

Counsel expressly assumed tuxedos were not tax-paid. Regulation 1660(c)(1) then measured use tax by rent including required payments, subject to exceptions the letter does not enumerate. Based only on supplied information, none appeared relevant.

Alterations appeared necessary to lease a tuxedo in required form, so charges were taxable rent and deduction improper. The source does not decide optional tailoring independently offered under separate contract.

Live Annotation 330.3017 closely tracks necessary-alteration/rent result. It omits absent request/response, ex-tax assumption, unidentified exceptions, no period/amount/evidence and missing correction/outcome.

No memo, explanation request/response, return/period/amount, tuxedo purchase invoice/tax, lease, alteration election/work/invoice, separate contract, deduction adjustment, amended return, audit, assessment, claim, appeal or later outcome appears.

What this means for you

Preserve garment purchase-tax proof, lease/service terms, whether alteration is required or optional, work/invoice detail and return deduction. Separate statement alone did not exclude a charge necessary to deliver rented form.

Common questions

Did separate statement make labor exempt?

No. Separate statement did not change the conclusion that the service was necessary to furnish the rented tuxedo.

What fact did counsel assume?

That the lessor had not already paid tax on the tuxedos' purchase price.

Did counsel address optional independent tailoring?

No. It addressed alteration charges assessed as part of the tuxedo-rental transaction described by the taxpayer.

What return amount or period was involved?

The source does not say.

Were Regulation 1660 exceptions analyzed individually?

No. Counsel only said none appeared relevant from information supplied.

Was the deduction actually corrected?

No outcome appears.

Citations and references

• Regulation 1660(c)(1) — ex-tax lease and required rent payments
• Request/response and all return/purchase/lease/alteration/correction/outcome evidence — absent
• Live Annotation 330.3017 — same short conclusion without assumptions/evidence posture

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.3017
• Original supporting memorandum: 330.3017 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

B. H. Watson
Return Review

From:

David H. Levine
Tax Counsel

Subject:

A--- T--- J--SY -- XX-XXXXXX

330.3017

Date:

November 28, 1988

This is in response to your memorandum dated October 12, 1988. Taxpayer rents tuxedos, collecting use tax on rentals payable. Taxpayer took a deduction on its return for “alterations.” In response to our request for an explanation, taxpayer stated the deduction was for separately stated labor charges assessed on rental tuxedos. You ask whether this is a proper deduction. I assume that the rental tuxedos are not tax-paid. Leases of such tuxedos are therefore subject to use tax measured by rentals payable. Reg. 1660(c)(1).) The taxable rentals payable include any payments required by the lease with certain exceptions. (Ibid.) Based on the information provided by the taxpayer, none of those exceptions appear relevant. Rather, the alteration charge appears to be a charge necessary for the lessee to lease a tuxedo in the form required. That is, it appears that the alteration charges are part of the taxable rentals payable. If you have further questions, feel free to write again.

DHL:ss