Did assembling purchased scaffolding change its form for lease-tax purposes, and when were delivery, assembly, disassembly, or return charges taxable?

Plain-English summary

The PDF's first page is dated May 14, 1987, but its continuation and live Annotation 330.3990 say March 12, 1971. It answers an absent December 7, 1970 request and later identifies a December 23, 1970 determination, making the 1971 date internally coherent; the source never explains the first-page conflict.

Unassembled scaffolding assembled before rental remained in substantially the same form. If acquired ex-tax, the lessor could timely elect purchase-price or rental-receipt tax. The memo relied on California Tax Service Annotation 1535.55 and an absent May 13, 1969 memorandum.

When rent was the tax measure, the related charges did not all follow one rule:

Optional assembly was nontaxable when lease commencement preceded assembly, but taxable as lease-connected service when commencement followed it; separate statement was desirable but not decisive under section 6012(c). Optional disassembly was nontaxable only when separately stated. Return service followed neither delivery rule: it was taxable when the lessee could not rent without paying the return charge, regardless of statement.

For scaffolding combining ex-tax frames with tax-paid planks and casters, a timely purchase-price election on the frames made the whole scaffolding tax-paid and removed tax from rent. Without that election, rent was taxable with credit for the tax-paid portion. The cited March 13, 1970 memorandum is absent.

After receiving the request, the taxpayer petitioned a December 23, 1970 determination for January 1, 1967–June 30, 1970 and requested a prompt Board hearing. Counsel recommended an early preliminary hearing and deferred both taxpayer-specific lease treatment and a legal digest. The petition, determination, hearing and final outcome are absent.

Live Annotation 330.3990 publishes only assembly/same-form treatment, election and basic delivery rules. It replaces former Ruling 58 with regulation 1628 and omits the carrier distinction, optional assembly/disassembly, mandatory return, mixed-tax-property and deferred-petition branches.

Common questions

Did ordinary assembly prevent a purchase-price election?

No. The scaffolding remained in substantially the same form as acquired.

Were separately stated delivery charges always nontaxable?

No. Carrier identity, route, delivered-price terms, timing and separate statement all mattered.

How did carrier delivery differ from the lessor's own delivery?

Separately stated direct carrier delivery was excluded without regard to commencement except for a delivered price. Delivery by lessor facilities also had to occur after commencement.

Were assembly charges controlled only by separate statement?

No. Whether the lease started before or after assembly controlled under the stated optional-service facts.

Were optional disassembly and mandatory return treated the same?

No. Separately stated optional disassembly was excluded. A return charge the lessee had to pay to rent was taxable regardless of statement.

How were mixed ex-tax and tax-paid components handled?

A timely purchase-price election on ex-tax frames made the unit tax-paid. Without it, rent was taxable with credit for tax already paid on planks/casters.

Did the memorandum finally resolve the named taxpayer's petition?

No. It deferred that taxpayer-specific application because a preliminary hearing would be held.

What determination was under petition?

One dated December 23, 1970 for January 1, 1967 through June 30, 1970. No amount, petition, hearing record or outcome appears.

What does the live annotation omit?

The carrier branch, service-charge details, mixed-tax components and deferred petition. It also cites regulation 1628 rather than the PDF's former Ruling 58.

Citations and references

• California Tax Service Annotation 1535.55; May 13, 1969 Headquarters–Petition Unit memo — same form/election; memo absent
• Former Ruling 58(a)–(b); Annotation 1535.36 — delivery and optional assembly
• Revenue and Taxation Code section 6012(c) — separate statement not decisive for assembly
• July 10, 1969 San Diego–Auditing memo — mandatory return service; attachment absent
• March 13, 1970 San Jose–Auditing memo — mixed-tax scaffolding; attachment absent
• Live Annotation 330.3990; regulation 1628 — current summary's same-form/election/basic delivery rule
• Request, enclosures, transaction/charges, determination, petition, hearing, digest and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3990
• Original supporting opinion: 330.3990 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. E. V. Anderson

From:

J. Kenneth McManigal

Subject:

C--- S--- Co., Inc.
XXXX --- --- Avenue
---, CA XXXXX

330.3990

May 14, 1987

SR -- XX XXXXXX

This is in response to your December 7, 1970 memorandum wherein you requested clarification as to the application of tax in the following circumstances:

1. Does the leasing of scaffolding purchased in an unassembled form and assembled
   prior to the lease thereof constitute a change in form sufficient to require the lessor to pay tax measured by rental receipts, thus precluding him from electing to pay tax measured by the purchase price of the scaffolding? Such scaffolding is being leased in substantially the same form as acquired, and if the lessor acquired the scaffolding ex-tax, he may timely elect to pay tax measured by either the purchase price of the scaffolding or rental receipts (Cal. Tax Serv. Ann. No. 1535.55; May 13, 1969, memorandum – Tax Counsel (JKM) to Headquarters – Petition Unit).
2. When the lessor is required to pay tax measured by rental receipts, are lump-sum
   and/or separately stated charges for delivery, assembly, disassembly, and return of scaffolding includable in the taxable measure? With respect to charges for delivering scaffolding, the taxability of delivery charges is determined pursuant to ruling 58. If delivery is made by a carrier from the lessor’s place of business or other point from which shipment is made directly to a place specified by the lessee, tax does not apply to separately stated charges therefor. If the charges are not separately stated, tax does apply. The place where title passes (the lease commences) is immaterial except where the scaffolding is sold (leased) for a delivered price (ruling 58(a)). If delivery is made after the lease commences by facilities of the lessor from the lessor’s place of business or other point from which shipment is made directly to a place specified by the lessee, tax does not apply to separately stated charges therefor. If the charges are not separately stated or if delivery is made before the lease commences, tax does apply (ruling 58(b)). (See Ann. No. 1535.36).

Mr. E. V. Anderson

-2-

March 12, 1971
330.3990

With respect to assembly charges, assuming that assembly of scaffolding is optional, such charges are not taxable if the lease commences prior to assembly of the scaffolding. Such charges are taxable if the lease commences subsequent to assembly of the scaffolding. In the latter instance, assembly is a service connected with the sale (lease) of the scaffolding (Ann. No. 1535.36). While separate statement of such charges is desirable, whether the charges are or are not separately stated is not determinative (§6012(c)). With respect to disassembly charges, assuming that disassembly of scaffolding is optional, such charges are not taxable if they are separately stated (Ann. No. 1535.55). With respect to charges for returning scaffolding, the taxability of such charges is not determined pursuant to ruling 58. Rather, such charges are taxable only if that service is made in connection with the sale (lease). We regard the service as connected with the sale (lease) if the lessee may not lease the scaffolding without paying a charge for its return. In such cases, whether charges therefor are or are not separately stated is not determinative. (See attached July 10, 1969, Memorandum – Tax Counsel (JKM) to San Diego – Auditing).

3. If the lessor purchases scaffolding frames ex-tax for resale and purchases planks and
   casters tax paid and then leases the scaffolding, is tax measured by the purchase price of that portion of the scaffolding acquired ex tax, by rental receipts with credit on that portion of the scaffolding acquired tax paid, or by that portion of rental receipts attributable to the portion of the scaffolding acquired ex-tax? The lessor may timely elect to pay tax measured by the purchase price of the scaffolding frames. In this event, the scaffolding is tax paid, and tax does not apply to rental receipts. If the lessor does not timely so elect, the scaffolding is not tax paid, and tax applies to rental receipts with credit on that portion of the scaffolding acquired tax paid (see attached March 13, 1970 Memorandum – Tax Counsel (JKM) to San Jose – Auditing). Subsequent to our receipt of your memorandum, taxpayer filed a petition for redetermination regarding the December 23, 1970 determination for the period January 1, 1967 to June 30, 1970. As taxpayer therein requested a hearing before the board as soon as possible, a preliminary hearing should be scheduled at an early date. Since a preliminary hearing will be held, we have deferred our consideration of the question of how tax applies to this taxpayer’s leases of scaffolding and the inclusion of a current legal digest in the tax service. JKM:amb Enclosures cc:

Mr. R. Nunes
Mr. E. R. Kelley
Sacramento – Auditing
Petition Unit