Could a steel-scaffold manufacturer exclude delivery, assembly and dismantling charges when customers could rent without those services?

Plain-English summary

Certified public accountants described a client that manufactured and sold steel scaffold and contemplated renting its own production for terms of one day to two months. The February 24, 1966 request and all agreements and transaction records are absent.

Three arrangements were proposed: the lessee would pick up, assemble, disassemble and return the scaffold; the lessor would deliver and retrieve it while the lessee handled assembly and disassembly; or the lessor would provide delivery, assembly, disassembly and retrieval.

Rent was taxable under all three arrangements. The lessee bore liability, and the lessor had to collect the tax. Even if the manufacturer paid tax on materials, the finished scaffold was substantially different from those inputs.

Delivery and retrieval were nontaxable only if genuinely optional and separately stated. The same conditions applied to assembly and disassembly. Counsel did not consider assembly or disassembly fabrication of a scaffold and recommended segregating assembly, delivery and rent.

A wholly owned rental subsidiary that bought finished scaffold ex-tax would owe tax on its rent under the same rules. If the manufacturer charged and paid sales tax on the finished-scaffold sale to the subsidiary, the subsidiary's later rent would not be taxed.

Question 8 posed a different lessor corporation. The source says it was owed 10% by an outside third party, 65% by the client and 15% by an individual related by marriage to someone owning 80% of the client. Those listed interests total 90%, and neither the wording nor remaining 10% is explained. Counsel did not decide the section 6006(g)(4) result from ownership. It said to test tax-paid acquisition, same-form rental and whether a section 6006(g)(1)-(4) exemption applied; stock ownership itself was immaterial.

Live Annotation 330.3280 publishes only the separately stated optional-dismantling rule, dates it December 28, 1966 and refers to tents and scaffolding. The supporting letter repeatedly says February 28 and discusses only steel scaffold, while also covering delivery, assembly, taxable rent and subsidiary acquisition. This page follows the document body's date and does not extend its facts to tents.

Common questions

Was scaffold rent taxable even if the manufacturer paid tax on raw materials?

Yes. The letter treated the finished scaffold as substantially different from the materials on which tax might have been paid.

Could delivery be excluded?

Yes, if the lessee could genuinely rent without lessor delivery and the charge was separately stated.

Could assembly and dismantling be excluded?

Yes under the same optionality and separate-statement conditions; counsel did not treat those services as scaffold fabrication.

Did ownership of a rental subsidiary determine the answer?

No. Tax-paid acquisition, same-form rental and a possible section 6006(g) exemption controlled instead.

What was unusual about the ownership example?

It prints owed 10% and identifies interests totaling only 90%. The source neither corrects the word nor accounts for the balance.

Did the supporting letter decide tent rentals?

No. Tents appear only in the live annotation; the letter's facts concern manufactured steel scaffold.

Was this a completed rental program or audit?

No. The client contemplated rentals, and the record contains no contract, invoice, return, assessment or later outcome.

Citations and references

• Cal. Rev. & Tax. Code § 6006(g)(1)-(4) — historical taxable-lease exceptions considered in the ownership question
• Live Annotation 330.3280 — optional dismantling rule with a conflicting date and tent reference absent from the letter
• February 24 request and every agreement, scaffold, service, tax, ownership and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3280
• Original supporting opinion: 330.3280 PDF

Original ruling text

330.3280

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 28, 1966

H. K. T--- & Co.
Certified Public Accountants
XXX --- ----- ---, California XXXXX
Attention:

Mr. D--- K. T---

Gentlemen:
This refers to your letter of February 24, 1966, regarding the renting of steel scaffolding. We understand that your client manufactures and sells steel scaffold, and contemplates renting scaffold it has manufactured. The rental arrangements will be for terms ranging from one day to two months; in other words, short-term rentals. Three basic rental arrangements will be offered: (1) straight rental – lessee picks up, assembles, disassembles and returns scaffolding; (2) rental with delivery by the lessor and redelivery by the lessor – lessee will assemble and disassemble; (3) rental where lessor delivers, assembles, disassembles and redelivers. In any of the above three arrangements, rentals by the lessor, notwithstanding the fact that he is also the manufacturer, will be subject to tax. Liability is on the lessee but the lessor is liable for collecting the tax. Tax will apply to rentals of the scaffold even if the manufacturer paid tax on the cost of the materials used to manufacture them, since the property rented is rented in substantially different form than the property on which the tax was paid, i.e., the materials. Charges for delivery of the scaffold will not be subject to tax if the delivery is separately stated and if the delivery and redelivery is optional with the lessee. Your example indicates that delivery may be optional, inasmuch as one rental arrangement provides for the lessee to deliver and redeliver.

H. K. T--- & Co.

-2-

February 28, 1966
330.3280

The same applies to charges for assembly of the scaffold and the dismantling of it. If assembly and disassembly is optional and charges therefor are separately stated, there will be no tax on the assembly or disassembly. It is our opinion that assembly and disassembly is not fabrication of a scaffold within the meaning of fabrication. We recommend that your client segregate the charges for assembly, delivery, and rent. If a wholly owned corporation subsidiary of your client purchases the scaffold from your client and thereupon proceeds to rent the scaffold, tax would apply the same as stated above if the scaffold was purchased ex-tax. If your client paid sales tax on the sale to the wholly owned subsidiary, there would be no tax on the rental receipts when the subsidiary rented the scaffold. In answer to your question number 8, wherein you ask if the exception under section 6006(g)(4) would apply if the lessor corporation were owed 10% by an outside third party, 65% by your client and 15% by an individual who is related by marriage to another individual who owns 80% of your client corporation, we can only say that the question of tax on rental receipts turns on (1) whether the lessor has acquired the property being rented in a tax paid status; (2) whether the property is being rented in substantially the same form as acquired; and (3) whether the property rented comes within any of the exemptions under section 6006(g)(1), (2), (3) or (4). The manner in which a corporate entity-lessor is held as far as stock is concerned is not material to the question of tax on receipts from rentals. Very truly yours,

Robert H. Anderson
Associate Tax Counsel

RHA:dse
cc:

--- --- – District Administrator