Did a California video-rental store include daily late fees and an identification-substitute processing fee in taxable rental receipts?

Plain-English summary

A redacted operator's absent May 4, 1993 request followed its acquisition of California video stores. A member paid $3 for a standard two-night rental and $1.50 per day for a late return. Tax Counsel treated the late fee as rent for continued use and included it in reported gross receipts.

A person unable or unwilling to show a driver's license and major credit card could instead pay a one-time, nonrefundable $3 processing fee to become a member. The fee substituted for identification and credit evidence. Because that customer received nothing except the video rental and merely paid slightly more, counsel also included the fee in rental gross receipts.

The supporting PDF cites no numbered statute, regulation, ruling or case. Live Annotation 330.3625 adds section 6012 as authority for both fees and otherwise matches the facts and conclusions. Neither source supplies the request, acquired-store records, membership terms, document standards, rental agreements, videos, fee receipts, gross-receipts reports, return, audit or later outcome.

Common questions

Was the daily late fee a penalty outside the rental charge?

No. The opinion treated it as rent for continued possession and use of the video.

Was the membership processing fee a separate service?

No. It substituted for identification and credit evidence and gave the customer nothing except access to the video rental.

Were both amounts reported in gross receipts?

Yes.

What was the ordinary rental price and period?

The request reportedly described a $3 standard two-night rental.

Did the PDF cite section 6012?

No. The live annotation cites section 6012; the supporting letter states the gross-receipts conclusion without a numbered authority.

Were the membership rules or actual transactions published?

No. The letter only describes them through the absent request.

Citations and references

• May 4, 1993 request — described the two-night rental, daily late fee and alternative membership process; absent
• July 8, 1993 Tax Counsel response — included both charges in taxable rental gross receipts without citing a numbered authority
• Revenue and Taxation Code section 6012 — cited by live Annotation 330.3625, not the PDF
• Store, membership, rental, fee, reporting, return, audit and later-outcome records — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3625
• Original supporting opinion: 330.3625 PDF

Original ruling text

330.3625

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District, Kentfield

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

July 8, 1993

BURTON W. OLIVER
Executive Director

Ms. [M]
[W]
P. O. Box XXXX
--- ---, -- XXXXX
Re:

GRAY DAVIS
Controller, Sacramento

S- -- XX-XXXXXX

Dear Ms. [M]:
This is in response to your letter dated May 4, 1993. You acquired video stores in California and requested information on the taxability of late fees and processing fees. If a member rents a video for a standard two night rental of $3.00, but returns it late, a late fee of $1.50 per day is charged. If a person wishes to rent videos but is unable or unwilling to present a driver’s license and major credit card, they may still become a member if they pay a one-time non-refundable processing fee of $3.00. It is our opinion that both fees must be included in the gross receipts reported for tax purposes. The late fee is in reality a rental fee for a continued use of the video. The processing fee which you charge in lieu of other identification and evidence of credit, is a part of the gross receipts that you receive for renting videos. The customer paying this fee does not receive anything except the rental of a video, which costs him a small amount more than if the other documentation were provided. If you have other questions, please contact me. Sincerely yours,

Donald L. Fillman
Tax Counsel
DLF:cl