Were wedding-garment alteration charges taxable differently for new and used garments when the garments were leased?

Plain-English summary

A named wedding-garment lessor altered new and used garments for lessees and asked whether the alterations were taxed differently. The January 5, 1994 internal request is absent. California said the ordinary new-versus-used clothing alteration rules did not decide this lease result.

Ordinarily, Regulation 1524 treated new-clothing alteration charges as taxable whether separate or included and whoever performed them, while used-clothing alterations generally were not sales. But those fabrication rules involved one person working on another's property. Here the lessor owned and altered its own garments, so its work was not itself a fabrication sale to a consumer.

When the lessor used the rental-receipt basis, a fitted garment was what the customer leased. Any additional alteration charge was therefore a required lease payment and part of taxable rentals, whether the garment was new or used.

If the lessor timely elected tax on purchase price and the adjustments preserved same-form treatment, neither rental payments nor alteration charges were taxable. Election could occur by paying sales-tax reimbursement or use tax to the vendor at purchase, or use tax directly to the Board on the timely return for the period when property first entered rental service. The election made the lessor the consumer rather than reseller.

On the tax-on-cost basis, the lessor was the consumer and owed tax on materials used in the alterations.

The same-form conclusion was an express assumption based on Annotation 330.4180. That 1966 source concerned tuxedos in several sizes, temporarily tacked to shorten sleeves and trousers and fit the waist and what it prints as cost, with tacks removed after rental before return to stock. The source does not explain cost; this page does not silently correct it. The current source does not describe the wedding-garment alterations, so it does not show they actually matched those narrower facts.

Live Annotation 330.3172 matches the taxable-rent and purchase-price-election conclusions and cross-references 330.4180, but omits the lessor's tax on alteration materials. No garments, alteration descriptions, purchase invoices, lease terms, customer charges, election/return records, audit, refund or later result appears.

Common questions

Were used-garment alteration fees automatically nontaxable?

No.

Why were alteration fees part of rent?

The lease implicitly promised a garment that fit the customer.

Could both rent and alteration fees be nontaxable?

Yes, after a timely tax-on-cost election for same-form garments.

How could the lessor make the purchase-price election?

By paying tax or reimbursement to its vendor at purchase, or paying use tax directly on the timely return for the first rental-service period.

Did the opinion establish that these alterations were temporary?

No. It assumed Annotation 330.4180 applied; that supporting source involved temporary tuxedo tacks removed after each rental, while this source gives no alteration details.

Who owed tax on alteration materials under the purchase-price election?

The lessor, as consumer. The live annotation omits that part of the memorandum.

Was an actual audit or refund decided?

Not shown. The source contains no transaction, return, audit, refund or outcome records.

Citations and references

• Revenue and Taxation Code sections 6006, 6006.1, 6010, and 6010.1 — continuing-sale lease framework
• Regulation 1660(c)(1)-(3) — required rental payments and tax-on-cost election
• Regulation 1524(b)(1) — general new-clothing alteration rule
• Regulation 1546 — general used-clothing repair or alteration comparison
• Annotation 330.4180 PDF — temporary tuxedo tacks removed after rental preserved same-form treatment
• Live Annotation 330.3172 — same two election results, without materials-liability discussion
• January 5 request and every garment, alteration, lease, invoice, return and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3172
• Original supporting opinion: 330.3172 PDF

Original ruling text

State of California

Board of Equalization

Telephone: 324-2608
Legal Division MIC: 85

Memorandum
330.3172
To

:

Mr. Douglas Peter
Audit Review & Refunds (MIC: 39)

From :

Rachel M. Aragon
Staff Counsel

Subject:

P--- and J--- G--SR -- XX-XXXXXX

Date: March 2, 1994

This is in response to your memorandum dated January 5, 1994. The taxpayer is in the business of leasing new and used wedding garments which it alters for the lessee. The taxpayer wants to know if alterations to new garments are taxed differently than alterations to used garments. The question raises two separate analyses. One involves repairs and the other involves leases. We will discuss how they relate to these types of transactions. Revenue and Taxation Code section 6006(b) defines "sale" to include the producing, fabricating or processing of tangible personal property for a consideration for consumers. Regulation 1524(b)(1) explains that charges for alterations to new clothing are subject to tax whether the charges are separately stated or included in the price of the garment. It is also immaterial whether the person performing the alterations is the seller of the garment or not. On the other hand, alterations to used clothing are generally not regarded as taxable sales. (See, generally, Reg. 1546.) However, this analysis applies only when one person makes the alterations or repairs to property owned by another person. In other words, when the property owner makes repairs or alterations to its own property, this is not fabrication and it is not a taxable sale. Revenue and Taxation Code sections 6006(g), 6006.1, 6010(e), 6010.1, and Regulation 1660(c)(1) are the provisions that apply to the type of transactions this lessor is making. These provisions explain that certain leases of tangible personal property are continuing sales and purchases and are subject to use tax measured by the rentals payable. The rentals subject to the use tax include any payments required by the lease. For instance, when the lessee leases a garment, the lessee wants a garment that fits. If the lessor makes an additional charge for alterations in order to provide a garment that fits, that alteration charge is a payment which is required for the lease of a fitted garment. Thus, that charge is part of the taxable rentals payable.

Mr. Douglas Peter
Penny and Jay Griebel
SR EA 24-671054

-2-

March 2, 1994
330.3172

A lessor leasing tangible personal property in substantially the same form as acquired may elect to pay California tax measured by its purchase price. A lease of such California tax-paid property is not a taxable continuing sale. The lessor may make that election by paying California sales tax reimbursement or use tax on its purchase price. The lessor can either pay the tax or tax reimbursement to its vendor when purchasing the property or by paying use tax directly to the Board with its timely return for the reporting period in which the property is first placed into rental service. When a lessor makes an election to pay tax on the purchase price, it is making an election to be treated as the consumer of the property rather than the reseller to the lessee. (Reg. 1660(c)(2)&(3).) We note that Annotation 330.4180 explains that minor temporary adjustments are not regarded as substantially changing the form of the garment. We assume the alterations the taxpayer is making to the garments are covered by this annotation. Thus, we regard the garments as being leased in substantially the same form as acquired and the taxpayer may elect to pay tax on the purchase price. If the taxpayer made a timely election to pay tax on the purchase price of the garments, neither the rentals nor the alterations (regardless of whether the garments are new or used) are subject to tax. However, as the consumer, the taxpayer is liable for any materials purchased for use in altering the garments. On the other hand, if the taxpayer did not elect to pay tax on its purchase price, the leases are treated as continuing sales and purchases and the taxpayer must collect tax on the rentals payable which includes any charges for alterations or repairs irrespective of whether the garments are new or used. If we can be of further assistance, please feel free to write again. RMA:ljt cc:

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