Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales And Use Tax Court Decisions
MCI Airsignal, Inc. v. State Board of Equalization . . . (1991)
Taxpayer was assessed sales tax on the sale of telephone paging devices supplied to customers of their telephone paging services. There was no separately listed charge for the devices.
The court determined that although sales and use taxes are imposed on the gross receipts from the sale of tangible personal property (Revenue and
Taxation Code Section 6051), and a "sale" includes the "leasing" of tangible personal property (Section 6006(g)), Regulation 1501 recognizes that services are exempt. It is possible to provide tangible personal property that is only incidental to the primary service agreement without incurring a sales or use tax.
The issue to be decided was whether the paging devices were only incidental. The test for determining whether a business activity is a service or whether it is a sale of tangible personal property depends upon the "true object" of the transaction. The court held that the true object of this contract was the providing of paging services. The paging devices were only incidental thereto. A major factor was that taxpayer retained ownership of the paging devices and was responsible for their maintenance and repair. The customer paid a flat fee, with no separate charge for the use of the paging device. MCI Airsignal, Inc. v. State Board of Equalization (1991) 1 Cal.App.4th 1527.