Were rentals taxable when a lessor built storage tanks from steel and fittings it bought tax-paid?

Plain-English summary

An unidentified tank-rental business sent an absent October 20, 1965 telegram. As restated in the next day's reply, it bought steel and fittings with sales tax paid, constructed portable 500-barrel steel storage tanks in its own shop and rented the finished tanks.

The opinion said Assembly Bill 1 from the special session had included tangible-personal-property rentals in the definition of “sale” beginning August 1, 1965, subject to four exceptions. It treated only the quoted section 6006(g)(4) exception as pertinent: substantially the same acquired form plus qualifying sales-tax reimbursement under section 6052 or use tax measured by purchase price.

That exception did not apply. The requester acquired steel but leased completed tanks, so the source treated the tank rentals as sales and the rental charges as taxable despite tax paid on the steel and fittings.

The letter also gave a transition rule: rent under a tank lease entered before August 1, 1965 was not taxable until that lease was renewed or a new lease was entered or executed on or after that date. It attributed this to paragraph (c)(2)(E) of Ruling 70, but the promised copy is absent.

No telegram, taxpayer identity, contracts, invoices or tax-payment proof, fabrication records, leases or rent, returns, audit or later outcome appears. Live Annotation 330.4160 uses the phrase “subject to use tax” and carries “Am. 2001-3”; it does not explain that amendment.

Common questions

Why did the tax-paid purchase of steel and fittings not settle the rental issue?

Because the requester acquired steel and fittings but leased finished tanks, rather than property in substantially the same form as acquired.

What did the opinion say about the rental charges?

It treated the tank rentals as sales and said the rental charges were subject to tax.

Did the letter apply the same rule immediately to every existing lease?

No. It said rent under a pre-August 1, 1965 lease stayed outside the new treatment until renewal or a new lease on or after that date.

Did the PDF include Ruling 70 or the underlying lease contracts?

No. It says a copy of Ruling 70 was enclosed, but neither that enclosure nor any contract appears.

Does the live annotation exactly repeat the PDF's tax wording?

No. The PDF says rental charges were “subject to tax”; the amended live annotation says rentals payable by lessees were “subject to use tax.”

Was the tax actually assessed or paid shown?

No. The source is an opinion without returns, an audit or a later outcome.

Citations and references

• Historical California Revenue and Taxation Code section 6006(g)(4) — quoted same-form rental exception
• Historical California Revenue and Taxation Code section 6052 — sales-tax-reimbursement condition within the quote
• Assembly Bill 1, 1965 special session — rental-as-sale change described; enactment text absent
• Historical Sales and Use Tax Ruling 70, paragraph (c)(2)(E) — transition authority cited; enclosure absent
• Live Annotation 330.4160 — October 21, 1965; amended 2001-3; “use tax” phrasing
• Telegram, identity, contracts, purchase/tax and fabrication proof, leases/rent, returns/audit/outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.4160
• Original supporting opinion: 330.4160 PDF

Original ruling text

330.4160

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 21, 1965

Gentlemen:
This is in reply to your telegram dated October 20 concerning the application of sales and use taxes to your business of renting portable 500 barrel steel storage tanks. You state that these tanks were constructed of steel in your own shop, and sales tax was paid on all steel and fittings at the time of purchase. Commencing August I, 1965, as a result of the passage of A.B. 1 by the special session of the Legislature, rentals of tangible personal property were included in the definition of "sale". Four exceptions to this classification of rentals as sales were, however, provided. The only pertinent one of these exceptions is set forth in Section 6006(g) (4) which reads as follows: "Tangible personal property leased in substantially the same form as acquired by the lessor as to which the lessor has paid sales tax reimbursement pursuant to Section 6052 or has paid use tax measured by the purchase price of the property." It would appear from your telegram that the tanks leased by you are not leased in substantially the same form as acquired because you acquired the steel from which you constructed the tanks. Accordingly, it is our opinion that your rentals of these tanks are sales and, as such, the rental charges are subject to tax. The law, however, contains a provision respecting contracts executed or entered into prior to August I, 1965. As to such contracts tax does not apply to rentals derived from the lessee until such time as the lease is renewed or a new lease entered into or executed on or after August I, 1965. In other words, if you entered into a lease of tanks prior to August I, 1965, the tax will not apply to the rentals received under that lease. This is explained in paragraph (c) (2) (E) of Ruling 70, copy enclosed.

Very truly yours,

E. H. Stetson
Tax Counsel

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