Were missing- and damaged-equipment charges taxable sales, and could the lighting lessor recover tax paid when it bought the property?

Plain-English summary

A redacted company rented lighting equipment to the entertainment community. Its absent request asked about equipment not returned, returned with parts missing, or returned damaged. Tax Counsel assumed the company charged customers for replacement or repair and had paid sales-tax reimbursement when originally buying the equipment.

Sales tax under section 6051 required a retail sale. Section 6006(a) defined a sale as transferring title or possession of tangible personal property for consideration, and the cited Wallace Berrie and Giffen decisions supplied transfer and intent principles. A lessor's tax-paid purchase followed by a same-form lease was not a sale to the lessee under Regulation 1660; the lessee merely used the lessor's property.

Payment for lost equipment compensated the lessor for its own loss rather than buying the property. Counsel therefore found no sale and cited Annotation 495.0220. No agreement, title record, item, loss charge or replacement invoice appears to document that characterization.

Charges to repair damaged equipment likewise were nontaxable because the company repaired and reconditioned its own property, not the lessee's. Counsel added that even if the leases were taxable, post-default repair or refurbishment would be outside taxable rental payments. The next sentence visibly says leasees property, not lessor's or lessee's; this page leaves the defect unresolved rather than silently correcting it.

The company was not entitled to refund the sales taxes paid on its original purchases. Sales and Use Tax Law did not prevent charging a customer who lost equipment the lessor's full purchase price, including tax reimbursement. No refund claim, amount, payment, denial, appeal or later outcome appears.

The PDF repeatedly dates itself January 18, 1990 while saying it answers a November 16, 1990 letter. Live Annotation 330.3230 instead uses January 18, 1991 and publishes only the no-sale result, without the refund answer or source conflict. The body's formal 1990 date is retained, but the impossible sequence is unresolved.

The PDF also prints Giffen v. Selma Food Co. The cited 5 Cal.App. 50 / 89 P. 855 reporters resolve to Giffen v. Selma Fruit Co. Both case reporters were verified; the state's printed wording remains verbatim below. The enclosed Regulation 1660 copy is absent.

Common questions

Was payment for unreturned equipment treated as a purchase by the lessee?

No. The opinion characterized it as compensation for loss of the lessor's property, with no intended title transfer to the lessee.

Were charges to repair damaged rental property taxable?

No. The opinion first says the lessor repaired its own property. A later leasees property phrase is visibly defective and not silently resolved here.

Could the lessor recover the tax paid when it bought the equipment?

No. The opinion denied a refund but said the loss charge could equal the lessor's full purchase price, including tax reimbursement.

Which issue date does this page use?

January 18, 1990, printed repeatedly in the PDF. The later request date and live annotation's 1991 date are disclosed as an unresolved conflict.

Does the record show actual property, charges or a refund proceeding?

No. It supplies no request, agreement, item, title or return record, invoice, tax amount, refund claim, decision, appeal or later result.

What happened to the cited Giffen case name?

The source prints Selma Food Co.; the reporter citation resolves to Selma Fruit Co. This page records both rather than rewriting the source.

Citations and references

• Cal. Rev. & Tax. Code §§ 6006(a) and 6051 — sale definition and sales-tax imposition discussed
• Cal. Code Regs., tit. 18, reg. 1660(b)(1)(E) and (b)(2) — tax-paid lease treatment discussed
• Wallace Berrie & Co. v. State Board of Equalization, 40 Cal.3d 60 (1985) — sale inquiry; reporter citation verified
• Source-printed Giffen v. Selma Food Co., 5 Cal.App. 50 (1907) — intent and title transfer; reporter resolves to Giffen v. Selma Fruit Co.
• BTLG Annotation 495.0220 — missing-equipment loss compensation; supporting text absent
• Live Annotation 330.3230 — no-sale rule with a 1991 date and without the refund answer
• Request, enclosure and every agreement, property, title, loss, repair, tax, refund and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3230
• Original supporting opinion: 330.3230 PDF

Original ruling text

330.3230

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

January 18, 1990

Mr. R--- F--Vice President of Finance
S--- I--XXX --- ----- ---, CA XXXXX-XXXX
RE:

SR XX XX-XXXXXX

Dear Mr. F---:
I am responding to your letter of November 16, 1990 to the Board of Equalization Legal Division. You have requested guidance as to whether certain transactions are subject to sales tax. I understand that your company rents lighting equipment to the entertainment community. Occasionally, your equipment is not returned, or is returned damaged or with parts missing. From your questions, I assume you charge the customers for replacement or repair. You wish to know if these charges are subject to sales tax. You also wish to know if your company is entitled to a refund of the sales tax which was paid when the equipment was originally purchased. OPINION In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes a tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise stated, all statutory references are to the Revenue and Taxation Code.) “Whether a particular transaction within the state is subject to sales tax (6051) …depends primarily on whether the transfer at issue is a sale.” (Wallace Berrie & Co. v. State Board of Equalization (1985) 40 Cal.3d 60, 67 [219 Cal.Rptr. 142, 707 P.2d 204].)

Mr. R--- F---

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January 18, 1990
330.3230

A “sale” is a transfer of title or possession in any manner or by any means whatsoever, of tangible personal property for a consideration. (§ 6006(a).) In order to constitute a sale, there must be an intent to transfer and a transfer of title in the item being sold. Giffen v. Selma Food Co. (1907) 5 Cal.App.50, 53 [89 P. 855].) Where a lessor purchases an item of tangible personal property in a retail sale with respect to which it pays sales tax reimbursement or timely pays use tax measured by the purchase price of the property, and then leases it to a lessee in the same form as acquired, there is no “sale” for sales and use tax purposes to the lessee. The lessee is merely using the lessor’s property. (Title 18, Cal. Code Regs., Reg. 1660(b)(1)(E) and (b)(2). Sales and Use Tax Regulations are Board Promulgations which have the force and effect of law.) OPINION Your specific questions are as follows: “1) Missing items – if a client loses our equipment, or part of our equipment, is this [a] taxable charge to the client? We have paid sales tax on the original purchase.” As noted above, S--- pays sales tax reimbursement when it purchases the equipment; there is no taxable transfer to the lessee. When the lessee loses the equipment and pays the charge, we regard that it compensating S--- in damages for the loss of S---’s equipment. Compensation in this situation is not a “sale”; the charge is not subject to tax. (II Bus. Tax. L. Guide, Annot. 495.0220. Annotations are excerpts from previous Board Staff opinion letters and serve as a guide to Staff positions.) “2) Damaged Items – If a client damages our equipment, is the charge to repair the damage a taxable charge?” S--- here is repairing and reconditioning its own property, not the lessee’s property. Therefore, tax does not apply to those charges. Even if S---’s leases were taxable, charges for repairing or refurbishing the leasees property after a default would not be included in the taxable rental payments. “3) Since we paid sales tax on the missing items, are we entitled to a refund of the sales tax on the purchase?” S--- is not entitled to a refund of sales taxes which it paid when it originally purchased the equipment. The Sales and Use Tax Law does not, however, forbid it from charging the customer who lost the equipment for the total purchase price, including tax reimbursement, which S--- paid when it originally bought the equipment.

Mr. R--- F---

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January 18, 1990
330.3230

For your information, I have enclosed a copy of Regulation 1660. I hope the above discussion has answered your questions. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel

JLW:es
3684I
Enc.