Was a videotape rewind fee taxable when customers could avoid it by rewinding the tape themselves?

Plain-English summary

A redacted videotape lessor's lease charged a fee when a tape came back unrewound. A March 20, 1990 letter about several charges had treated the rewind fee as taxable because the agreement required it. That earlier letter, the other charges and the lease are absent.

On March 27, Tax Counsel corrected that answer because he had overlooked the customer's actual choice. A lessee could avoid the fee by rewinding the tape, so the lessee did not have to buy the lessor's rewind service. The optional charge was not taxable.

The correction contrasted a mandatory service under a taxable lease: if the lessee must use the lessor's service, its charge is taxable. The PDF cites no numbered authority. Live Annotation 330.3628 matches the optional-service result and likewise cites none.

Neither official source supplies the fee amount, complete lease, actual rentals, customer elections, service records, receipts, returns, audit, adjustment or later outcome.

Common questions

Did placing the rewind fee in the lease automatically make it taxable?

No. The correction looked beyond the agreement's fee clause to whether the customer could avoid buying the service.

What made the service optional?

The lessee could rewind the videotape without using the lessor's service.

Would a required service charge have the same result?

No. The letter says mandatory lessor services under a taxable lease are subject to tax.

What else did the March 20 letter cover?

The correction says “several charges” but identifies only the rewind fee. The earlier letter is absent.

Did the source identify the fee amount or publish the lease?

No. It describes only the fee mechanism and customer choice.

Did either official source cite a statute or regulation?

No. The rule appears without a numbered authority in both the PDF and live annotation.

Citations and references

• No statute, regulation, ruling or case citation appears in the correction letter
• March 20, 1990 Board letter — several-charge advice and incorrect rewind-fee result, described but absent
• Videotape lease — required fee plus customer self-rewind option, described but absent
• Live Annotation 330.3628 — corrected optional-service result dated March 27, 1990
• Fee amount, rentals, elections, receipts, returns, audit, adjustment and later outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3628
• Original supporting opinion: 330.3628 PDF

Original ruling text

330.3628

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

March 27, 1990

Ms. C--- G. P--XXX- --- --- Place
--- ---, CA XXXXX
Dear Ms. P---:
In a letter dated March 20, 1990, I wrote you concerning the application of sales or use tax to several charges. One of these charges was a fee charged to lessees of video tapes if they fail to rewind the tapes. I concluded that the rewind charge was subject to tax because it was a fee required by your lease agreement. However, I overlooked the fact that the lessee can avoid paying the fee by rewinding the tape. When a lessee under a taxable lease (such as a lease of video tapes) is required to use the services of the lessor, the charges for those mandatory services are subject to tax. However, the charge for an optional service is not subject to tax. Since your lessees are not required to use your rewind services (they can rewind the tapes themselves), your rewind services are optional and your rewind charges are not subject to tax. Sincerely,

David H. Levine
Tax Counsel

DHL:wak