Could a lessor exclude separately labeled interest, finance, or carrying charges from taxable payments under a true lease?

Plain-English summary

This two-paragraph internal memorandum from Tax Counsel to Van Nuys Auditing states no taxpayer or transaction. Its subject is “Finance Charges on 6006(g) Leases.”

Time, interest, finance and carrying charges could be excluded from tax measure when tangible personal property was genuinely sold on credit, including a conditional sale or lease in lieu of sale.

A true lease was different. It was not a credit sale under former Ruling 61(a), so so-called interest charged on rental payments remained in the taxable rental measure. The source visibly prints that citation as 6l(a) with a lowercase letter; no Ruling 61 text is attached.

Live Annotation 330.3400 restates the result as interest designated separately and payable in addition to designated rent. That wording is not in the supporting memorandum. No agreement, title or purchase term, option, schedule, interest calculation, payment, return, assessment or outcome is available to classify an actual arrangement.

Common questions

Were all finance charges always taxable?

No. Time, interest, finance and carrying charges could be excluded in a genuine credit or conditional sale.

What made the charges taxable here?

The rule applies only after characterizing the arrangement as a true lease rather than a financed sale; no actual agreement appears.

Did separately calling the amount interest help?

No. So-called interest charged on rental payments remained in the rental measure.

Did the memorandum examine a specific contract?

No. It gives no parties, property, payment terms, amount or document.

Where does the “in addition to rent” phrasing come from?

The live annotation adds it. The linked memorandum says the interest was “charged by the lessor on rental payments.”

Citations and references

• Former Ruling 61(a) — historical credit-sale interest rule distinguished by the memorandum
• Revenue and Taxation Code section 6006(g) — historical lease category named in the subject line
• Live Annotation 330.3400 — same true-lease rule with additional designated-payment wording
• Request and every taxpayer, agreement, property, charge, schedule, invoice, tax and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3400
• Original internal memorandum: 330.3400 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Van Nuys - Auditing (KGM)

From:

Tax Counsel (PRD)

Subject:

Finance Charges on 6006(g) Leases

330.3400

Date:

March 20, 1968

Time, interest, finance, and carrying charges may be excluded from the measure of the tax where the tangible personal property is sold on credit as under a conditional sale, or a lease in lieu of sale. A true lease is not a sale of tangible personal property on credit within the meaning of Ruling 6l(a) and the so-called "interest" charged by the lessor on rental payments must be included in the measure of rental payments subject to tax.

PRD:smk [lb]