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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Law
Revenue and Taxation Code
Division 2. Other Taxes
Part 1. Sales and Use Taxes
Chapter 1. General Provisions and Definitions
Section 6006.3
6006.3. "Lease." "Lease" includes rental, hire and license. "Lease" does not include a use of tangible personal property for a period of less than one day for a charge of less than twenty dollars ($20) when the privilege to use the property is restricted to use thereof on the premises or at a business location of the grantor of the privilege. Where a contract designated as a lease binds the lessee for a fixed term and the lessee is to obtain title at the end of the term upon the completion of the required payment or has the option at that time to purchase the property for a nominal amount, the contract shall be regarded as a sale under a security agreement from its inception and not as a lease. In the case of a contract designated as a lease with any state or local governmental body, or any agency or instrumentality thereof, the lessee shall be treated as bound for a fixed term notwithstanding any right of the lessee to terminate the contract in the event that sufficient funds are not appropriated to pay amounts due under the contract.
History—Added by Stats. 1965, p. 5445, operative August 1, 1965. Stats. 1967, p. 2257, in effect November 8, 1967, deleted former subdivision (b). Stats. 1969, p. 1390, in effect November 10, 1969, added the second sentence. Stats. 1978, Ch. 1383, operative January 1, 1979, substituted "twenty dollars ($20)" for "ten dollars ($10)" in the third sentence. Stats. 1986, Ch. 825, in effect September 15, 1986, added the third and fourth sentences.
Note.—Stats. 1986, Ch. 825, Section 1.5, as amended by Stats. 1987, Ch. 38, Section 11 specified that if a transaction entered into prior to January 1, 1987 has been treated by the seller as a lease, the full term of which has not expired or has not been earlier terminated, then that transaction shall be classified as a sale on January 1, 1987, and shall be classified as a lease for all earlier periods. Any sales or use tax previously paid on a transaction described in the preceding sentence, but not interest on that sales or use tax previously paid, shall be credited against any sales or use tax due on that transaction.
Furnishing of Water Conditioning "Exchange Units."—The furnishing for a periodic charge of water conditioning "exchange units" which are replaced periodically is a lease of tangible personal property and subject to tax rather than a nontaxable service of softening water for the customer. Culligan Water Conditioning v. State Board of Equalization (1976) 17 Cal.3d 86.
Furnishing of Beverage Dispensers.—The furnishing of beverage dispensers together with maintenance and repairs for a monthly charge is a taxable lease of tangible personal property rather than a tax-exempt service, regardless of the fact that the charge was unreasonable if viewed from the standpoint of the cost of the dispensers only. Bar Master, Inc. v. State Board of Equalization (1976) 65 Cal.App.3d 408.
License feesmaster sound tapes.—Licenses are taxable leases of master tapes when recordings are reproduced from master; taxpayer did not transfer or acquire solely intangible rights in the licenses. Capitol Records, Inc. v. State Board of Equalization (1984) 158 Cal.App.3d 582.