Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Bar Master, Inc. v. State Board of Equalization . . . (1976)

Furnishing of Beverage Dispensing Units Is Lease Rather Than Service

Plaintiff sued for refund of taxes paid to the Board which were based on charges to users of plaintiff's equipment and services. Plaintiff manufactured beverage dispensing units used by bartenders and others to dispense mixed drink ingredients at bars and similar business places. The contracts between plaintiff and individual users called for plaintiff to install the dispensers and to provide maintenance and repair service throughout the life of the agreement. A flat monthly charge was made to each user for the use of the dispenser and for the maintenance and repair service, regardless of the amount of service actually required. Plaintiff claimed that the charge was for services and was thus exempt from tax.

The court of appeal, relying on Culligan Water Conditioning v. State Board of Equalization (1976) 17 Cal.3d 86, reversed the trial court and upheld the Board in finding that to plaintiff's customers, the true object of the contract was to obtain the use of the dispenser. The contract, regardless of the wording, was therefore a contract for the lease of tangible personal property, rather than a contract for services, and the receipts were subject to tax. Bar Master, Inc. v. State Board of Equalization (1976) 65 Cal.App.3d 408.