Was a laboratory subleasing an X-ray machine when it used the machine to provide services to customers?

Plain-English summary

An X-ray-machine owner asked three questions about unspecified Sales and Use Tax Law changes operative Aug. 1, 1965. July 27 request is absent, as are machine, contracts and transaction records.

First, absent added facts, laboratory using machine to perform customer work was service provider using leased equipment, not sublessor. Owner therefore paid tax on collected rent unless it acquired property substantially same form as leased and paid sales-tax reimbursement or purchase-price use tax.

Second, lessor still could buy equipment under resale certificate for leasing and pay tax on rents.

Third, before Aug. 1, 1965, lessor electing rent instead of cost had to include payments for equipment leased to United States. Letter does not state post-Aug. 1 rule, federal lessee details or any amount.

Live Annotation 330.3120 preserves only first answer. It omits express no-additional-facts qualification, underlying effective-date context, resale-certificate election, historical federal-lease answer and every absent record.

No July 27 request, machine description, owner acquisition invoice/form/tax, lease, laboratory operations/customer agreement, possession/control evidence, resale certificate, rental receipt, United States contract/payment, return, audit, assessment, appeal or later outcome appears.

What this means for you

Separate equipment use from sublease: document who possesses/controls machine and who provides service. Then document acquisition form/tax or resale election and rent. Do not infer post-Aug. 1 federal rule from letter's pre-date statement.

Common questions

Why was laboratory not sublessor?

It used the machine itself to render services to customers rather than leasing the machine to them.

Who generally paid tax on rent?

The owner that leased the machine to the laboratory.

What same-form exception applied?

The owner could avoid tax on rent if it acquired and leased the machine in substantially the same form and paid tax measured by its purchase price.

Could lessor still use resale certificate?

Yes. Second answer says equipment for lease could be bought under resale certificate with tax paid on rents.

What did letter say about United States leases?

Only that before Aug. 1, 1965, rent-election measure included federal lease payments. It gives no later rule.

What does live annotation omit?

Second and third answers, no-additional-facts caveat, effective-date setting and absent transaction records.

Was any transaction finally assessed?

Not shown. Letter gives advice but includes no return, audit, assessment, payment, appeal or outcome.

Citations and references

• No numbered authority — none cited
• July 27, 1965 request — three questions; absent
• Unspecified law changes operative Aug. 1, 1965 — not identified
• Live Annotation 330.3120 — only first answer
• Every machine/lease/election/federal-payment/outcome record — absent

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.3120
• Original supporting opinion: 330.3120 PDF

Original ruling text

330.3120

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 4, 1965

Gentlemen:
This is in response to your letter of July 27, 1965 requesting clarification of certain changes in the Sales and Use Tax Law, operative August 1, 1965. Answering your questions in order, we advise:

1. It would not appear to us that the X-ray laboratory to whom you lease an X-ray
   machine is, in fact, a sublessor when it uses the machine in the performance of work for customers. It would be our view in the absence of additional facts that your company is leasing the machine to the laboratory, which uses the machine in rendering its services. You would then be required to pay tax upon your rental receipts collected, unless you acquired the property in substantially the same form in which you lease it, paying either sales tax reimbursement or use tax measured by the purchase price of the machine paid by you.
2. You are correct that a lessor still may elect to purchase under a resale certificate
   equipment for the purpose of leasing it and pay tax upon rental receipts.
3. Prior to August 1, 1965, whenever a lessor elected to measure his tax by rental receipts
   in lieu of cost, he was required to include lease payments on equipment leased to the United States within the measure of his tax liability.

Very truly yours,

E. H. Stetson
Tax Counsel

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