Was a bundled charge to store, clean, maintain, inspect, deliver, retrieve, and install customer-furnished parts on hospital-owned medical equipment taxable?

Plain-English summary

A company stored, cleaned, maintained, inspected, delivered, and retrieved medical equipment owned by a hospital. Its delivery and pickup charge bundled all of those services.

The company also installed individual replacement components, such as commode buckets. Tax counsel assumed the hospital supplied those parts, the equipment was used property being maintained, the company transferred no tangible property, and the work did not fabricate a new product.

On those assumptions, the entire transaction was a nontaxable service. If the company instead supplied new component parts to the hospital, those transfers probably would be taxable retail sales.

What this means for you

Medical-equipment service companies

Storage, cleaning, inspection, logistics, maintenance, and installation labor can remain service charges when the customer owns both the equipment and replacement parts.

Hospitals

Who supplies the parts matters. Hospital-furnished components supported nontaxable service treatment.

Accountants and tax professionals

Confirm equipment ownership, part ownership, whether new property is fabricated, and whether the service provider transfers any components.

Common questions

Q: Was the bundled service charge taxable?

A: No, under the stated assumptions.

Q: Did delivery and retrieval make the transaction taxable?

A: No. They were part of servicing hospital-owned equipment.

Q: Who supplied the replacement commode buckets?

A: The opinion assumed the hospital did.

Q: What if the service company supplied new parts?

A: The opinion said that would probably be a taxable retail sale.

Citations and references

• California Revenue and Taxation Code §§ 6006(a)–(b), 6051, 6201, and 6401
• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0016.200
• Original supporting opinion: 515.0016.200 PDF

Original ruling text

515.0016.200

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 324-2614
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

February 5, 1996

BURTON W. OLIVER
Executive Director

REDACTED TEXT
Dear REDACTED TEXT:
This is in response to your letter dated January 16, 1996, regarding the application of tax to certain charges made by REDACTED TEXT to REDACTED TEXT. You ask if the following transaction is subject to tax. You state: “We store, clean, maintain, add new individual components (i.e. commode bucket replacement on reuse), inspect, deliver and retrieve REDACTED TEXT owned medical equipment. We term this a delivery charge and pick-up charge; however, this is a bundled charge for all the services.” DISCUSSION Retail sales of tangible personal property in California are subject to sales tax, measured by the gross receipts, unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) The term “sale” means any transfer of title or possession of tangible personal property for consideration. (Rev. & Tax. Code § 6006(a).) The term “sale” also means the producing, fabricating, processing, printing, or imprinting of tangible personal property for consideration for consumers who furnish, either directly or indirectly, the materials used in the producing, fabricating, processing, printing, or imprinting. (Rev. & Tax. Code § 6006(b).) When sales tax does not apply, use tax, measured by the sales price, applies to the use of tangible personal property purchased from a retailer for the storage, use, or other consumption in California, unless the use is exempt from taxation by statute. (Rev. & Tax. Code §§ 6201, 6401.) Neither the sales tax nor the use tax applies to charges for services not constituting sales of tangible personal property. (Reg. 1501 (copy enclosed).) You state that REDACTED TEXT stores, cleans, maintains, inspects, delivers, and retrieves medical equipment owned by REDACTED TEXT. For purposes of this opinion, we assume that REDACTED TEXT does not transfer any tangible personal property to REDACTED TEXT when providing such services; therefore, the charges for the provision of such services are not subject to tax.

515.0016.200

-2-

February 5, 1996

You further state that REDACTED TEXT adds new individual components to medical equipment owned by REDACTED TEXT, for example, a commode bucket replacement. We assume that REDACTED TEXT is merely adding a new individual component part, provided by REDACTED TEXT, to an equipment owned by REDACTED TEXT. That is, we assume that REDACTED TEXT is not furnishing any tangible personal property. We further assume that REDACTED TEXT is maintaining used property, and that REDACTED TEXT is not fabricating any new tangible personal property. (See Rev. & Tax. Code § 6006(b).) Thus, because REDACTED TEXT is providing purely a service and is not selling any tangible personal property to REDACTED TEXT, we conclude that the transaction is not subject to tax. We note that if REDACTED TEXT is transferring new component parts to REDACTED TEXT, such transfer would probably be regarded as a retail sale of tangible personal property subject to tax. If you need any further information, please feel free to write again. Sincerely, Sophia H. Chung Staff Counsel SHC:rz Enclosure: Regulation 1501 cc: REDACTED TEXT District Administrator