When did plant growth, attached bases, or customer-directed arrangements substantially change tax-paid plants and trees for rental-tax purposes?

Plain-English summary

After discussions of an absent petition, Tax Counsel proposed sending six conclusions to the Hollywood office with a reaudit recommendation. Counsel asked the redacted recipient to respond before the reaudit so the Board could gauge whether issues might end without further proceedings. No petition, discussion record, facts or response appears.

For growth alone, a plant/tree remained in the same form unless growth increased value by more than 20%. Counsel reasoned that changed-form rent tax captured new value and borrowed the Board's long-standing “substantially” interpretation under section 6006.5(b). Section 6006(g)(5) was identified as formerly (g)(4).

A relatively simple base attached without extensive fabrication also preserved form under a 20% comparison. But the PDF literally asks whether the tree-with-base value “is more than 20 percent of” the tree-alone value, which would not state a 20% increase. Live Annotation 330.4060 changes this to “exceeds by more than 20 percent”; the live correction is used for the readable rule while the PDF conflict remains disclosed.

A temporary pattern or display did not change form when the lessee directed and controlled arrangement at its premises after the lease began, the arrangement ended with the lease, any lessor-employee help was optional and under lessee direction, and the usual rental rate did not increase.

For August 1, 1965–April 26, 1966, rent was taxable if this taxpayer paid no cost tax even when property came through a section 6006.5(b) occasional sale from a transferor that had paid. Counsel called the taxpayer's absent contrary argument debatable but followed a reportedly uniform Legal staff rule published in enclosed-but-absent Bulletin 66-15.

All ex-tax plant/tree rent was taxable from August 1, 1965 under Annotations 1535.25, 1536.29 and 1536.36. Those same absent annotations supported denying a cost-tax election for exemptly acquired property. A source editorial note initialed DJH on October 20, 1987 points to section 6094.1 for current law.

The taxpayer reportedly received no allowance during August 1, 1965–April 26, 1966 for plant/tree rent where it had paid acquisition tax after January 1, 1965. Counsel recommended an appropriate reaudit allowance, using reasonable allocation if needed. No purchases, tax proof, rent, audit, allocation, reaudit, final Board action or outcome appears.

Live Annotation 330.4060 publishes only the growth, base and temporary-arrangement findings. It omits the occasional-sale/ex-tax transition branches, taxpayer argument, bulletin/annotation authorities, tax-paid-property allowance and recommendation posture.

Common questions

Did ordinary growth automatically change form?

No. The historical indicator was a value increase greater than 20 percent.

Did adding a simple base automatically change form?

No. The same more-than-20-percent value test was proposed.

Does the PDF state that base test correctly?

Not coherently: it says the with-base value is “more than 20 percent of” the without-base value. The live annotation says it must “exceed by more than 20 percent,” matching the surrounding analysis.

Could plants be arranged into a display without changing form?

Yes under the temporary, lessee-directed, no-rent-increase conditions described.

What if a lessor employee helped arrange the plants?

Same-form treatment remained only if the help was optional, under lessee direction, and did not increase the normal separate-item rental rate.

What did the historical occasional-sale rule do?

For August 1, 1965–April 26, 1966, it taxed rent when the taxpayer paid no cost tax even though a transferor had before an occasional-sale transfer.

What allowance did Counsel recommend?

An appropriate, reasonably allocated reaudit allowance for the same transition period on property this taxpayer acquired tax-paid after January 1, 1965.

Was this the final assessment result?

No. The letter proposed rules for a reaudit and sought the taxpayer's response.

Did live Annotation 330.4060 publish all six findings?

No. It publishes only growth, base and temporary arrangement, omitting transition tax and allowance findings 4–6.

Citations and references

• Revenue and Taxation Code section 6006(g)(5), formerly (g)(4) — same-form rule
• Revenue and Taxation Code section 6006.5(b) — more-than-20% analogy
• Business Taxes General Bulletin 66-15 and unidentified Legal staff rulings — transition rule; bulletin absent
• California Tax Service Annotations 1535.25, 1536.29 and 1536.36 — ex-tax rent and exempt-acquisition election; absent
• Revenue and Taxation Code section 6094.1 — October 20, 1987 editorial current-law reference
• Live Annotation 330.4060 — growth/base/arrangement rules and corrected base wording dated December 6, 1967
• Petition/facts/evidence, property/tax/leases, authorities, audit/allowance/reaudit and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.4060
• Original supporting opinion: 330.4060 PDF

Original ruling text

STATE OF CALIFORNIA

330.4060

STATE BOARD OF EQUALIZATION

December 6, 1967

Dear --- ---:

Following our discussions of the petition for redetermination filed by the above taxpayer, I have reached some conclusions which I propose to communicate to our Hollywood office with a recommendation that a reaudit be conducted. I agree with you that the facts and issues have been sufficiently developed at this point to permit this approach. Before the reaudit is begun, however, I would like to have some idea of what it may accomplish in the way of disposing of issues without further proceedings. With that objective in mind, I would like to hear from you after your have considered this letter. 1. From the standpoint of growth alone, a plant or tree should be regarded as remaining in substantially the same form unless by reason of its growth its value has increased by more than 20 percent. The basis for this approach is as follows: Growing plants are constantly changing in form to some extent but it is particularly difficult to define a point at which the change is significant for purposes of Section 6006(g)(5) (formerly Section 6006(g)(4)). It appears reasonable to assume that one of the main purposes of taxing the rentals derived from property which is no longer in substantially the same form after tax has been paid on the cost of its acquisition is to capture tax on the increased value resulting from the change in form. I believe, therefore, that the criterion of value may appropriately be used as an indicator of the point at which a plant is no longer in substantially the same form. By drawing an analogy with our long-standing interpretation of the term “substantially” as used in Section 6006.5(b), it seems appropriate to consider a change of more than 20 percent in value as a substantial change. 2. A tree should be regarded as remaining in substantially the same form after a relatively simple base has been attached to it without extensive fabrication labor. An appropriate test is whether the value of the tree with the base is more than 20 percent of the value of the tree without the base. 3. Plants or trees should be regarded as remaining in substantially the same form even after they are arranged into a particular pattern when the arrangement is made under the direction and control of the lessee, on his premises, after the lease is entered into, and where the arrangement does not last beyond the term of the lease. The fact that a person who is normally employed by the lessor assists in making the arrangement under the direction of the lessee does not change this

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December 6, 1967
330.4060

result if his assistance is optional with the lessee and if the arrangement does not result in an increase in the rental rate over the usual rate for the plants and trees as separate items. 4. For the period from August 1, 1965 to April 26, 1966, rentals of plants and trees are taxable if the taxpayer has not paid tax on their cost regardless of the fact that the taxpayer acquired them in a transfer constituting an occasional sale under Section 6006.5(b) from a transferor who did pay tax on their cost. I have thoroughly considered your arguments to the contrary. The issue is admittedly arguable and you have argued it well. The rule that I have stated is supportable, however, and it is a rule that we have applied consistently to all taxpayers in the same class. It has been announced in several rulings by the legal staff and has been published in Business Taxes General Bulletin 6615, a copy of which is enclosed. Since the rule is supportable and has become so well established, I believe that we should adhere to it. 5. All rentals of plants or trees acquired without tax are taxable on and after August 1, 1965. (See California Tax Service, annotations 1535.25, 1536.29, and 1536.36.) 6. The taxpayer may not elect to pay tax on the cost of property acquired in an exempt transaction and thus avoid tax on rentals of the property. (See California Tax Service, annotations 1535.25, 1536.29, and 1536.36.) For current law see Sec. 6094.1 DJH 10/20/87. You have stated that no allowance has been made for the period from August 1, 1965 to April 26, 1966, with respect to rentals of plants and trees acquired tax paid by the taxpayer after January 1, 1965. I will recommend that an appropriate allowance be made on reaudit, based on a reasonable allocation if necessary. I believe that I have covered all of the issues that were raised. I am looking forward to hearing from you. Very truly yours,

T. P. Putnam
Tax Counsel
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