Were separate monthly charges for monitoring a personal emergency response unit taxable along with the unit's rental fee?

Plain-English summary

A local provider installed personal emergency response units in customers' homes. Pressing the portable transmitter sent a radio signal to a receiver, which dialed an out-of-state monitoring center. The center then notified one of three emergency contacts designated by the customer.

Customers paid a one-time installation fee plus separate monthly charges for renting the equipment and monitoring it. The provider acknowledged that the equipment-rental charge was taxable.

Tax counsel concluded that the monthly monitoring fee was a nontaxable service on the unique facts presented. The contract therefore combined a taxable rental of tangible equipment with a nontaxable monitoring service.

What this means for you

Emergency response providers

Separately charged monitoring did not become taxable merely because it operated through rented equipment.

Customers and care organizations

The equipment and human-response components received different treatment: rental taxable, monitoring nontaxable.

Accountants and tax professionals

Keep the charges and functions distinct. The opinion relied on a separately described remote monitoring service that notified customer-designated contacts.

Common questions

Q: Was the monthly equipment rental taxable?

A: Yes. The provider conceded that point.

Q: Was the monthly monitoring fee taxable?

A: No, under the specific facts in the memorandum.

Q: What did the monitoring center do?

A: When the unit signaled, it notified one of three contacts selected by the customer.

Q: Did frequency of use change the fee?

A: No. The customer was not charged based on how many times the system was used.

Citations and references

• California Revenue and Taxation Code §§ 6006(a), 6007, 6051, 6201, and 6401
• California Civil Code § 1656.1
• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.1181.300
• Original supporting opinion: 515.1181.300 PDF

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

515.1181.300

Memorandum
To:

Ms. L. P. Salcedo
Business Tax Representative

From:

Sophia H. Chung
Tax Counsel

Subject:

M--- A--- M---, Et al
C--- H--- A--Account No. SR -- XX-XXXXXX

Date:

July 15, 1996

This is in response to your memorandum dated April 25, 1996, asking how tax applies to charges for monitoring services provided by C--- H--- A--- (“C---”). By way of a letter dated April 12, 1996, addressed to you, Ms. S--- N--- of C--- has provided the following factual background: “C--- H--- A--- is the local service administrators of P--- M--- S--- which provides complete and expansion programs of Personal Emergency Response Systems (PERS) across the United States. Our service consists of an easy to use electronic device designed to signal a friend, relative, emergency service whenever help is needed. “We buy or lease these units from P--- M--- S--- and market the service in
[California]. We find clients, install our units at client’s homes and charge a one time installation fee and a monthly fee for the rental of the equipment (which is taxable) and a monthly fee for the monitoring service. . . . The monitoring is done through P--- M--- S---’ Monitoring Center in [out of state]. We bill our clients for rental and monitoring of the equipment and they pay us directly and C--- H--- A-- in turn pays P--- M--- S--- for the purchase or lease of the equipment and the monitoring of all units in service.” 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).) A sale at retail means a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) Although the retailer owes the sales tax, the retailer may collect sales tax reimbursement from

Ms. L. P. Salcedo

-2-

July 15, 1996
515.1181.300

the purchaser if the contract of sale so provides. (Civ. Code § 1656.1.) 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.) C--- acknowledges that the monthly fee charged to its customers for equipment rental is subject to tax. The only question presented is whether the monthly fee for monitoring the equipment is subject to tax. In a letter dated March 13, 1996, to Mr. B. H. Watson, Supervisor of Return Analysis Section, Ms. N--- explains the operation of the monitoring equipment and services. When the customer presses the button on the portable transmitter installed in the customer’s home, it sends a radio signal to the receiver, which then dials the central monitoring service located in [out of state]. The center then notifies one of three emergency contacts designated by the customer at the time of the installation of the unit. There is no charge for the number of times the system is used by the customer. Based on the unique situation presented by the specific facts provided by C---, we regard the monthly fee for monitoring the unit as a nontaxable charge for services. Thus, we conclude that the contract between C--- and its customers is for both the sale of tangible personal property and the provision of services. In other words, the monthly fee for the rental of the monitoring equipment is subject to tax, however, the monthly fee for monitoring the equipment is not subject to tax.

SHC:rz