Did attaching bindings substantially change skis, and how did mixed tax-paid and ex-tax acquisition affect rent and deductions?

Plain-English summary

An absent December 28, 1967 internal memo asked about binding attachment. As restated, an unidentified taxpayer bought skis tax-paid and bindings from other vendors—some tax-paid and some ex-tax—attached them and rented each combined unit.

The January 12, 1968 memo found no substantial form change because fabrication labor was minimal, analogizing to historical Annotation 1537.64. A March 6, 1998 DHL note limits this to “this particular circumstance.”

When both skis and bindings were tax-paid, renting the assembled unit produced no further tax. When bindings were ex-tax, the entire rent for the combined skis and bindings was taxable; the source did not apportion rent between components.

A tax-paid-purchase-resold deduction could apply for the skis, but a second March 6, 1998 note limited it to skis never previously used. The note expressly counted prior leases that were not continuing sales as use.

The first 1998 note says dollar amount is not determinative. Its example turns $1,000 of assembly-ready wood into a desk through surprisingly easy $10 work; despite low assembly value, the functional transformation makes rent taxable.

No request, taxpayer, ski/binding, invoice/tax, attachment work or cost, lease/rent, prior-use evidence, deduction claim, return, audit or later outcome appears. Live Annotation 330.4140 publishes only the 1968 date and mixed-tax result. It omits both 1998 qualifications and therefore states the ski-cost deduction without the source body's no-prior-use limit.

Common questions

Did attaching bindings change the skis' form?

No under this particular binding-installation circumstance.

Was minimal assembly cost always enough for same-form treatment?

No. The 1998 $1,000 wood/$10 desk example says functional transformation can outweigh low assembly value.

What if both components were bought tax-paid?

No additional tax was due on rent under the memorandum.

What if the bindings were acquired ex-tax?

All rental receipts for the combined unit were taxable.

Could rent be split between tax-paid skis and ex-tax bindings?

No. The source rejected apportionment, though a qualifying tax-paid-purchase deduction could apply to unused skis.

What counted as prior ski use?

The 1998 note included earlier leases that themselves were not continuing sales.

Does cheap or easy assembly always mean no form change?

No. The 1998 qualification says functional transformation can control despite low assembly value.

Does live Annotation 330.4140 include the 1998 limits?

No. It gives only the January 12, 1968 result and an unqualified ski-cost deduction.

Was an actual deduction or final tax outcome shown?

No. The source provides internal guidance without transaction or reporting records.

Citations and references

• Historical annotation 1537.64 — analogy cited for minimal binding attachment
• March 6, 1998 DHL qualification — particular-circumstance and dollar-not-determinative desk example
• March 6, 1998 DHL qualification — deduction only for never-used skis, including no prior non-continuing-sale lease
• Live Annotation 330.4140 — January 12, 1968 binding/mixed-tax result; both 1998 limits omitted
• Request, taxpayer/property/work/tax, leases/prior use, deduction/returns/audit and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.4140
• Original supporting opinion: 330.4140 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Jose – Auditing (PWS)

From:

Tax Counsel (TPP:AWP) - Headquarters

330.4140
Date:

January 12, 1968

In your memorandum of December 28, 1967, you ask whether attaching bindings to skis results in a substantial change in form. The facts, as we understand them, are that the taxpayer purchases skis and pays tax on his cost. He then purchases bindings from other vendors which, in some instances, are purchased taxpaid and in other instances ex tax. The taxpayer then attaches the bindings to the skis and rents them as a unit. The attachment of the bindings does not result in a substantial change in form. The fabrication labor in this operation is considered minimal and, therefore, this situation would be considered analogous to that set forth in annotation 1537.64. However, if bindings purchased ex tax are attached to skis, then the entire rental receipts for the skis and bindings would be subject to tax. We have not allowed apportionment between taxpaid and ex-tax property rented as a unit. The taxpayer could, of course, take a taxpaid purchase resold deduction for the amount of tax paid on the skis.

AWP/vs

This is a finding of that in this particular circumstance. Dollar amount is not determinate. E.g., person assembles a desk costing $1000. Assembly is surprisingly easy & is valued at $10. Before, a bunch of wood ready for assembly. After, a desk. This is a substantial change in form even if the value of assembly is but a small portion of the value of the assembled item. Tax applies to the lease receipts. 3/6/98 DHL

Only if the skis had never been used,
including circumstances of being leased
previously in leases which were not
continuing sales. 3/6/98 DHL.