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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
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360.0000 Miscellaneous Service Enterprises—Regulation 1506
Annotation 360.0117
360.0117 Holiday Decorations. A company decorates building lobbies for the winter holidays. It installs and decorates the Christmas tree, if one is ordered, and all additional decorations, including wreaths, lights, garland, and other décor. The wreaths are purchased pre-made and then decorated by the company who makes and attaches bows created from ribbon. The decorations are all from the company's inventory and are owned by the company. When the holiday season is over, the company removes all the decorations and returns them to the company's inventory. The company pays sales tax reimbursement to its supplier when purchasing the decorations. The client is not allowed to change the design.
The true object of the contract is the holiday decorations, not merely the design services. Moreover, since the building owner has temporary use of the holiday decorations created by the company, the transaction is considered a lease. Under these facts, there is a substantial change in form between what the company acquires and what it leases to its clients. Thus, even though the company paid sales tax reimbursement when purchasing the property, its leases of that property are continuing sales and purchases, and the company must collect and remit use tax measured by the rentals payable. The measure of the rentals payable includes all charges made by the company for the décor, except for installation charges. (Revenue and Taxation Code sections 6011 (c)(3), 6012 (c)(3).) The company would be entitled to a tax-paid purchases resold deduction for the tax reimbursement it paid, if it made no use of the property except for these taxable leases. 12/05/00. (2001–3).