Was a printing company's in-place sale of machinery and trade fixtures taxable when the lease classified them as removable personal property?

Plain-English summary

A printing company installed machinery, equipment, and trade fixtures in a building it leased. The lease expressly kept trade fixtures and equipment from becoming part of the realty and let the lessee remove them before or when the lease expired.

The company later sold the assets in place and assigned its entire leasehold to the buyer. The landlord consented and recognized the buyer as holding all of the lessee's rights.

Tax counsel treated the machinery and equipment as personal property because the lease classified them that way and supplied a removal right. The assignment and landlord consent transferred that same right to the buyer. The gross receipts from the in-place retail sale were therefore taxable.

Common questions

Did physical attachment alone make the equipment real property?

No. The agreement among the seller, buyer, and landlord treated the trade fixtures as removable personal property.

Why did the lease assignment matter?

It gave the buyer the seller's lease rights, including the right to remove the trade fixtures and equipment.

Did the landlord accept the buyer's position?

Yes. The landlord consented to the assignment and acknowledged the buyer as owner of the leasehold estate with the lessee's rights.

Citations and references

• Standard Oil Co. v. State Board of Equalization, 232 Cal. App. 2d 91 (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/150-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/150-0340.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-State – Auditing (RLH)

From:

Tax Counsel (JKM) - Headquarters

Subject:

P--- N--- - G--XXXX East XXth
--- ---, CA

150.0340

October 14, 1969

SR -- XX-XXXXXX

This is in reply to your memorandum dated August 4, 1969, in which you request our opinion as to the taxability of the sale of machinery and equipment in place by The C--- P---, Inc. (C---) to The D--- P---, Inc. (P---). By lease dated September 2, 1952, C--- leased premises in ---, California, from The O--L--- I--- Company for the purpose of carrying on therein a printing, binding, engraving, lithographing, electrotyping, publishing and rotogravure business. The lease was for a term beginning September 15, 1952, to January 14, 1986. Article 12 provided, in part: “12.01. Lessee shall have the right to place or install in said premises such trade fixtures and equipment…as it shall deem desirable for the conduct of the business…with the right to remove said trade fixtures and equipment upon or before the expiration of the lease… . “12.02 All alterations, additions and improvements…except trade fixtures and equipment placed or installed by Lessee as provided in paragraph 12.01…shall be deemed a part of the realty… .” Thereafter, by agreement dated July 24, 1968, C--- agreed, among other things, to sell its assets located at the leased premises and to assign its entire interest in the leasehold to P---. O---, as lessor of the premises, consented to the assignment of the lease to P---, and acknowledged P--as the owner of the leasehold estate under the lease with all rights of the lessee thereunder by agreement dated August 9, 1968. An agreement by the seller and buyer of affixed equipment with the lessor of the property to which the equipment is affixed that the equipment is to be regarded as personalty which the

Out-of-State – Auditing (RLH)

-2-

October 14, 1969
150.0340

buyer may remove results in the classification of the equipment as personal property and not real property for purposes of the Sales and Use Tax Law. Gross receipts from the retail sale of such equipment are subject to sales tax (Standard Oil Co. v. State Board of Equalization, 232 Cal.App.2d 91). Such is the case here. By Article 12.02 of the C--- - O--- lease, trade fixtures and equipment installed by C--- were not deemed to be part of the realty. As personalty, Article 12.01 permitted C--- to remove any trade fixtures and equipment which it installed on the lease premises. As a result of the assignment of the lease from C--- to P---, together with the consent of O---, P--- became entitled to all the rights which C--- had thereunder, including the provisions of Article 12. Thus, we would regard the gross receipts from the sale of the machinery and equipment in place as taxable.

JKM:smb

cc:

--- --- District – District Administrator
--- – Subdistrict Administrator