Were a nonprofit's rentals of donated beds and medical equipment subject to use tax?

Plain-English summary

A redacted section 501(c)(3) nonprofit serving people with HIV/AIDS and their families asked whether it needed a sales-tax permit and whether use tax applied to proposed rentals of donated beds and medical equipment. The equipment included wheelchairs, walkers, and crutches stored in garages throughout Contra Costa County.

The organization believed it would only rent, not sell. Senior Tax Counsel Gordon P. Adelman explained that section 6006(g) included any tangible-property lease within sale. Section 6051 generally imposed sales tax on retail tangible-property sales measured by gross receipts, while the companion use tax applied to California storage, use, or other consumption of property purchased from a retailer under sections 6201 et seq. Nonprofit status supplied no general sales-and-use-tax exemption.

One lease exception covered property leased in substantially the same form as acquired when the lessor paid sales tax reimbursement or purchase-price use tax. It did not apply because the nonprofit acquired the beds and equipment by donation and paid no acquisition tax.

Section 6403 exempted California storage, use, or consumption of property donated by a seller to a California organization described in Internal Revenue Code section 170(b)(1)(A). The published PDF inserts a March 20, 1998 note: a seller could not buy for resale while intending to donate, and the exemption applied, for example, to a donation from legitimate resale inventory. The opinion treated acquisition as exempt but applied use tax to rental receipts from beds and equipment.

Regulation 1591(k) separately exempted sales—including leases treated as sales—of wheelchairs, crutches, canes, quad canes, and walkers for an individual's personal use when directed by a licensed physician. Subject to that device-specific rule, the nonprofit needed a permit and had to collect and remit use tax based on rental receipts.

Source and live-annotation limits

The official PDF does not include the request, nonprofit determination, section 170(b)(1)(A) classification, governing or service records, donor identities or seller status, proof of legitimate resale inventory, donation documents, any bed or equipment, acquisition invoices or tax records, garage or storage records, customer or family records, lease forms or rental receipts, personal-use evidence, physician directions or licenses, permit application or issuance, Pamphlet 18 enclosure, returns, tax calculations or payments, audit, assessment, claim, appeal, or later outcome. The nonprofit, donors, customers, families, physicians, equipment, storage sites, rentals, quantities, prices, receipts, and tax amounts are redacted, unidentified, proposed, or undocumented.

The March 20, 1998 text is visibly inserted into the April 22, 1993 opinion and uses the words intent is for donate. The source also prints storing, using. or otherwise consuming; the original-text section preserves those published forms.

The live annotation dates the ruling April 22, 1993 and calls the possible Regulation 1591(k) treatment an exempt medicine. The supporting opinion describes specified devices and their personal-use and licensed-physician conditions without using that label. The live annotation preserves the HIV/AIDS service, beds and medical equipment, donations from multiple sources, lease receipts, section 6403 acquisition exemption, no-acquisition-tax rationale, Regulation 1591(k), nonprofit no-general-exemption rule, date, and tax result. It omits the request and counsel, section 501(c)(3), families, listed devices and Contra Costa storage, permit question, sections 6006(g), 6051 and 6201 et seq., lease-as-sale and companion-tax explanations, substantially-same-form exception, section 170(b)(1)(A) and California-location terms, March 20, 1998 editorial limit, exact exempt devices and physician-directed personal-use conditions, permit and collection duties, Pamphlet 18, missing records, redactions and source quirks, and absent outcome.

What this means for you

Nonprofit lessors, equipment donors, customers, and tax professionals

Preserve the donor's seller status, acquisition and resale-inventory records, donation documents, organizational classification and California location, every equipment item, acquisition tax paid, lease terms, customer and personal-use records, physician directions, rental receipts, permits, returns, exemption documents, tax calculations, collections, and payments. Test the acquisition exemption, lease measure, and device exemption separately.

Common questions

Did receiving equipment by donation make later rentals tax-free?

No. The opinion generally taxed the rental receipts.

Were any listed medical devices potentially exempt?

Yes, specified mobility devices leased for personal use as directed by a licensed physician.

Why does the source also show a 1998 date?

The formal opinion date is April 22, 1993; the PDF separately incorporates a March 20, 1998 editorial clarification.

Why did the substantially-same-form lease exception fail?

The nonprofit acquired the property by donation and did not pay sales tax reimbursement or purchase-price use tax.

What did the 1998 insertion add?

It said a seller could not buy for resale while intending to donate and gave legitimate resale inventory as an example of a qualifying donation.

What conditions applied to the listed mobility devices?

The sale or lease had to be for an individual's personal use as directed by a licensed physician.

Did the organization need a permit?

Yes, under the opinion.

Did the source include Pamphlet 18?

No. It says the pamphlet was enclosed, but the published PDF omits it.

Citations and references

• California Revenue and Taxation Code §§ 6006(g), 6051, 6201 et seq., and 6403
• California Code of Regulations, title 18, § 1591(k)
• Internal Revenue Code § 170(b)(1)(A)
• Pamphlet 18, Tax Tips for Volunteer and Nonprofit Fund-Raising Organizations — described as enclosed but not included
• Request; nonprofit, donation, equipment, storage, customer, physician-direction, rental, permit, and tax records; and outcome — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel opinion:

A "sale" means and includes any lease of tangible personal property in any manner or by any means whatsoever.

A seller cannot purchase property for resale when its intent is for donate. This exemption applies, e.g., when a donation is made out of legitimate resale inventory. DHL 3/20/98

Therefore, there is no use tax on the acquisition of the property, but use tax is due based upon the rental receipts of the beds and equipment leased by you to your customer.

Business Taxes Regulation 1591(k) does exempt from tax for sales, including leases that are sales, wheelchairs, crutches, canes, quad canes, and walkers, if the devices are sold [or leased] for the personal use of an individual as directed by a licensed physician.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/390-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/390-0096.pdf

Original ruling text

390.0096

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 22, 1993

REDACTED TEXT

Dear REDACTED TEXT
You requested a ruling from the State Board of Equalization as to whether the REDACTED TEXT needs a sales tax permit. You described your organization as a nonprofit 501(c)(3) organization which provides services to people with HIV/AIDS and their families. You intend to rent medical beds and equipment to these unfortunate people. Beds and medical equipment including wheelchairs, walkers, crutches, etc., have been donated to REDACTED TEXT and are stored in garages throughout Contra Costa County. In your opinion, REDACTED TEXT will not be "selling" any products, merely "renting" beds and equipment. You asked if use tax applies to the rentals of the beds and equipment if they are all donations to the organization. In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes a tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. A "sale" means and includes any lease of tangible personal property in any manner or by any means whatsoever. (Rev. & Tax Code § 6006 (g). ) The use tax is a companion tax to the sales tax and is imposed upon every person storing, using. or otherwise consuming tangible personal property purchased from a retailer. The retailer, if engaged in business in this state, must collect the use tax. (Rev. & Tax. Code §§ 6201 et seq.) Contrary to common belief, there is no general exemption from sales and use tax on sales made by nonprofit organizations. There are exceptions to the tax due on a "lease," one of which is for tangible personal property to be leased in substantially the same form as acquired by the lessor, and for which the lessor has paid sales tax reimbursement (when acquiring the property) or has paid use tax measured by the purchase price of the property. In your situation, the exception will not apply, since the equipment and beds are donated to the organization. Pursuant to Revenue and Taxation Code Section 6403, the storage, use or other consumption in this state of property donated by any seller to any

organization described in Section 170 (b) (1) (A) of the Internal Revenue Code and located in California is exempt from the use tax. A seller cannot purchase property for resale when its intent is for donate. This exemption applies, e.g., when a donation is made out of legitimate resale inventory. DHL 3/20/98

Therefore, there is no use tax on the acquisition of the property, but use tax is due based upon the rental receipts of the beds and equipment leased by you to your customer. Business Taxes Regulation 1591(k) does exempt from tax for sales, including leases that are sales, wheelchairs, crutches, canes, quad canes, and walkers, if the devices are sold [or leased] for the personal use of an individual as directed by a licensed physician. I wish I could provide a more favorable response to you. The worthwhile function of the REDACTED TEXT is highly commendable and is one which I personally believe is needed. However, it is clear that the REDACTED TEXT must have a sales tax permit and must collect and remit use tax based on the rental receipts of the beds and equipment. I have enclosed a copy of Pamphlet 18, Tax Tips for Volunteer and Nonprofit FundRaising Organizations, that may be helpful to you. Very truly yours, Gordon P. Adelman Senior Tax Counsel GPA: sr Enc. cc: Oakland District Administrator