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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
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330.0000 Leases of Tangible Personal Property—In General—Regulation 1660
Annotation 330.3996
(d) "Substantial Change in Form"
330.3996 Manufactured Replacement Parts—Sales Tax Paid Equipment. A lessor leased equipment to a California customer on which it had paid the vendor sales tax reimbursement. The lessor also provides replacement parts for the leased equipment, which it manufactures itself. The rental charges on the machinery are based on machine production. There is no additional charge for the replacement parts.
Under these circumstances, the rental charges remain nontaxable. The lessor should pay tax based upon the cost of the materials incorporated into the replacement parts. The machinery is regarded as having been leased in substantially the same form as it was acquired, notwithstanding the fact that the lessor may furnish replacement parts. Only if the machine were refurbished in its entirety, such that the change in the equipment was so substantial that it was effectively a different machine, would the rental charge become taxable. That is, if after a total refurbishment, the machine was in substance a different machine, it would be concluded that the property was not leased by the lessor in the same form in which it was acquired. 12/18/95.