When did California treat in-place fixture transfers among landowners, lessees, successor lessees, and fixture lessors as taxable personal-property sales?

Plain-English summary

The memorandum preserved the long-standing position that a lessee's in-place sale of a fixture to the owner of the realty was not taxable unless the sales contract contemplated removal. It concluded that language in the later Standard Oil decision pointing more broadly toward tax was dictum because that case involved a different buyer.

It then summarized four transaction types:

1. A lessee's sale of a fixture to the landowner was not taxable unless either party contemplated removal.
2. A landowner's sale of a fixture to its lessee was not taxable unless either party contemplated removal.
3. A lessee's sale to a successor lessee was taxable if both had a present removal right or if either party contemplated removal under the sales contract.
4. A fixture lessor's sale to the fixture lessee was taxable under section 6016.3 when the lessor could remove the fixture upon breach or lease termination and was not also the real-property lessor. It was also taxable if either party contemplated removal.

Common questions

Was every sale by a lessee with a removal right taxable?

No. The memorandum kept the exception for an in-place sale to the landowner when removal was not contemplated.

How was a sale to a successor lessee treated?

It was taxable when both parties had present removal rights or the contract contemplated removal by either one.

Why did the identity of the buyer matter?

The memorandum distinguished a transfer to the landowner from a transfer to a lessee or other party that could remove the fixture.

Citations and references

• California Revenue and Taxation Code section 6016.3 (as cited)
• Business Taxes Law Guide Annotation 150.0360 (historical, discussed)
• 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/150-0385.pdf

Original ruling text

State of California

Memorandum

To:

Mr. Robert Nunes

From:

T. P. Putnam

Subject:

Sales of Fixtures in Place

Board of Equalization

150.0385

March 18, 1975

This is in response to your memorandum of February 13.
I have discovered that the conclusion that a sale of fixtures by the lessee of realty to the owner of the realty is not taxable as a sale of tangible personal property is in annotation 150.0360, dated in 1951. The theory behind the annotation is that under these circumstances, there is no constructive severance. Although some of the language in the subsequent case of Standard Oil Co. v. State Board of Equalization, 232 Cal. App. 2d 91, might indicate that any sale of a fixture by a lessee who has the right to remove it is taxable as a sale of tangible personal property, the language to that effect is actually dictum, since the particular facts involved a sale to a lessee who also had the right of removal, and not a sale to the lessor of the realty. The court, in fact, made some point of the circumstances of the buyer. I see no compelling reason to change the long continued practice reflected by the annotation. Following is a summary of the application of tax to various types of transactions involving sales of fixtures: 1.

Sale of fixture by lessee of realty to lessor-owner - - Not taxable unless contract of sale contemplates removal by either party.

2.

Sale of fixtures by lessor-owner of realty to lessee - - Not taxable unless contract of sale contemplates removal by either party.

3.

Sale of fixtures be lessee of realty to successor lessee of realty - - Taxable if both have present right of removal or if contract of sale contemplates removal by either party.

Mr. Robert Nunes

4.

150.0385.doc

March 18, 1975
150.0385

Sale of fixture by lessor of fixture to lessee of fixture - - Taxable as sale of tangible personal property as defined in Section 6016.3 if lessor has right to remove on breach or termination of the lease and is not the lessor of the realty. Also taxable if the contract of sale contemplates removal by either party.

TPP:lb

cc:

-2-

Mr. John H. Murray
Mr. Glenn L. Rigby
Mr. Gary J. Jugum