Could equipment-rental centers advertise an April 15 'tax break' saying taxable rentals would be without tax?

Plain-English summary

An absent December 17, 1993 request came from representative of about 600 equipment-rental centers throughout United States. Clients proposed an April 15 promotion advertising all equipment rentals without tax. No ad, equipment, lease, amount or participant appears.

Counsel apologized for delay after San Diego court appearances. He also corrected an absent phone conversation where he had said clients would not seek tax reimbursement; he said he must not have known their business.

Same-form property with purchase-price tax produced nontaxable rent. Otherwise a continuing-sale lease was rent-taxed unless statutory exemption. The source prints sections 6010(c)(5) & 6011(b) for up-front versus rent method; no source correction resolves that citation form.

For taxable rent, lessor was retailer and had to collect use tax or owe equivalent state debt. Section 6205 barred direct/indirect public/customer statements that use tax would be assumed/absorbed, not added, or refunded.

Thus genuinely purchase-taxed same-form rent could be promoted without rental tax. Ex-tax or substantially modified equipment required reporting tax on each rent and could not be advertised as uncollected/absorbed. Counsel said no similar prohibition applied to sales tax.

Regulation 1660 is identified as enclosure but not reproduced. Live Annotation 330.3042 publishes only section 6205 use-tax ad rule and no-equivalent-sales-tax distinction. It omits association/promotion, prior phone correction, tax-method/property branches, source citation form, missing enclosure/evidence and later outcome.

No request, phone note, association/member list, promotion/ad, equipment, purchase invoice/tax, modification, lease/exemption, rent, customer tax collection/refund, state payment/debt, Regulation 1660 enclosure, billing, return, audit, assessment, claim, appeal or later outcome appears.

What this means for you

Determine whether each rental is actually taxable before advertising. Preserve acquisition/modification tax, lease/exemption, exact promotional wording, rent and customer/state collection. A promotion cannot convert due use tax into an absorbed retailer discount.

Common questions

Could lessor absorb tax for one day?

No.

Could genuinely nontaxable rent be advertised?

Yes, because no rental tax was due.

Did noncollection avoid liability?

No. It owed the state an equivalent amount.

What statements did section 6205 bar?

Direct/indirect claims tax would be assumed, absorbed, not added or refunded.

What earlier phone advice changed?

Counsel withdrew an apparent non-reimbursement comment because he had not understood clients' business.

Is Regulation 1660 enclosed here?

No.

Did promotion occur?

No outcome appears.

Citations and references

• Sections 6006(g)(5), 6006.1; Regulation 1660 — lease classification/method
• Sections 6203(c), 6204 — collection and state debt
• Section 6205 — advertising prohibition
• Printed sections 6010(c)(5) & 6011(b) — method citation left unresolved
• Request/phone and all ad/equipment/lease/collection/tax/outcome records — absent
• Live Annotation 330.3042 — section 6205 distinction only

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.3042
• Original supporting opinion: 330.3042 PDF

Original ruling text

330.3042

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

March 4, 1994

GRAY DAVIS
Controller, Sacramento
────────

Mr. L--- E. C--XXXX Avenue --- ---. Suite XXX
--- ---, California XXXXX

BURTON W. OLIVER
Executive Director

RE:

C--- R--- Association
"Tax Break" Promotion

Dear Mr. C--I am responding to your letter to me dated December 17, 1993 regarding your request for advice as to whether your clients could hold a "tax break" promotion. I apologize for my lateness. I have only just returned from court appearances in San Diego. You indicate that you represent the C--- R--- Association, an association of approximately 600 equipment rental centers throughout the United States. Your clients would like to hold a promotion on April 15 whereby all equipment rentals would be without tax. OPINION The lease (or rental) of tangible personal property in California is a continuing sale unless that property is leased in substantially the same form as acquired by the lessor and the lessor has paid sales tax reimbursement or use tax measured by the purchase price of the property. (Rev. & Tax. Code §§ 6006(g)(5), 6006.1; Reg. 1660.) If the lease is a continuing sale under this definition, that lease is subject to use tax measured by rentals payable unless it is specifically exempted by statute. (Reg. 1660(c)(1). Sales and Use Tax Regulations are Board promulgations which have the force and effect of law.) Where the lease is treated as a sale, but not a sale at the inception, the lessor may either pay the use tax measured by the sales price up front or may elect to purchase the item ex tax and pay use tax measured by the rental receipts as to payments are made. (§§ 6010(c)(5) & 6011(b); Reg. 1660 (c)(1).) The lessor is treated as the retailer of the property and must collect the use tax from the lessee. (§ 6203(c); Reg. 1660(c)(1).) You state that when we spoke on the phone I indicated that your clients would not be seeking tax reimbursement from their customers. I must have been unaware of the business your

Mr. L--- E. C---

-2-

March 4, 1994
330.3042

clients were in. The only tax which could apply to your clients' rental transactions is use tax which they must collect from their customers or owe a debt to the state in an equivalent amount. (§ 6204.) Section 6205 provides as follows: "It is unlawful for any retailer to advertise or hold out or state to the public or to any customer, directly or indirectly, that the [use] tax or any part thereof will be assumed or absorbed by the retailer or that it will not be added to the selling price of the property sold or that if added it or any part thereof will be refunded." Therefore, if your clients rent any equipment for which they paid sales tax reimbursement or use tax at the time that they purchased it and which they are renting in substantially the same form as acquired there is no tax on that rental at all. However, if, on a given piece of equipment, they did not pay such tax up front or have substantially modified it, they must report tax on each rental of it measured by the rental payments. Section 6205 forbids them to advertise that they will not collect or absorb the use tax if such is due. There is no such prohibition for sales tax. For your information, I have included a copy of Regulation 1660. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel

JLW:es
Enclosure:

Reg. 1660