Printing companies that lease photocopying and various types of digital presses must be aware of the terms of the lease contract. The lease signifies a “base” amount to be paid to the lesser for the term of the lease (e.g., $4,000 a month). The lease often also includes a “click charge” for each impression over a specified amount (e.g., $0.03 an impression or “click”). The maintenance agreement is wrapped up in the click charge assessment.
Tax Ramifications
According to California Sales and Use Tax Law, tax is owed on the “value” of the lease. This means that tax is owed on the “base” amount to be paid to the lessor for the term of the lease (e.g., $4,000).
Moreover, if the lessee incurs addition charges under the terms of the lease (e.g., $0.03 a impression or “click”), tax is owned on these additional charges. Thus if the printer has 5,000 impressions over the “base” amount, the printer will owe tax on $150 (5,000 x $0.03).
By writing the contract as such, the lesser provides a more attractive package to the lessee.
The “click” charges are considered part of “gross receipts.”
When “Click” Charges Are Not Taxable
Tax is not charged for “click charges” under the following scenario. The “click charges” are not written into the lease; instead they would be written into a separate “optional” maintenance agreement. By optional, the Board of Equalization means the lessee can purchase the maintenance agreement for any number of vendors. This is permissible since additional “clicks” add to the “wear and tear” on the machine and thus wrapped into the maintenance agreement.
Recommendation: Review the terms of a lease or proposed lease to understand whether sales tax is assessed on “click” charges.