Is a car delivered to a buyer treated as sold for California sales-tax purposes when the agreement makes the sale conditional on financing approval?

Plain-English summary

The Board treated an automobile transaction as no completed sale where the buyer received the car subject to a financing institution's credit approval and had to return it if the lender rejected the credit report.

Under that assumed contract language, possession of the car was not treated as a substitute for transfer of title. The dealer's taxable measure was instead the amount it retained for the period the customer had the vehicle.

The memorandum gave two dollar examples. If the dealer actually received $450 in one transaction, the full $450—not $432—was the taxable measure. If it received $520 in another, the measure was $520 rather than $500. The analysis expressly assumed the dealer had acquired the cars ex tax under a resale certificate or from an out-of-state retailer.

What this means for you

Automobile dealers

Clear, written financing-contingency language matters. The cited agreement made delivery conditional on lender approval and required immediate return if credit was unacceptable. Without comparable terms, the transaction may not receive the same treatment.

Dealers allowing temporary possession

If financing fails and the vehicle is returned, amounts retained for the customer's use can still be taxable even though the contemplated retail sale never closes.

Accountants and tax professionals

Check both sides of the analysis: the contract condition and the dealer's acquisition of the vehicle. The memorandum said its theory depended on the dealer having bought the cars ex tax.

Common questions

Q: Did temporary possession itself complete the sale?
A: No. With the quoted financing condition, the Board did not treat possession as a transfer in place of title.

Q: What amount was taxable after financing failed?
A: The receipts the dealer actually retained. The memorandum used $450 and $520 as the measures in its two examples.

Q: Does any failed financing arrangement qualify?
A: Not automatically. The conclusion assumed specific written language making credit approval a condition and requiring return of the car if financing was rejected.

Q: Did the memorandum cite a numbered statute or regulation?
A: No. It applied sales-tax principles to the contract and receipt facts without citing a numbered provision.

Citations and references

The memorandum cites no numbered statute or regulation. It quotes the financing-condition language that controlled its analysis.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 200.0100
• Original supporting opinion: 200.0100 PDF

Original ruling text

State of California

Board of Equalization

200.0100

Memorandum
To:

San Diego – Auditing (JHMcCl)

From:

Headquarters – Hearing Auditor

Subject:

REDACTED TEXT

Date:

December 4, 1958

We have discussed with the Sales Tax Counsel the various documents in connection with the intended sale to REDACTED TEXT, all of these documents being drawn up on the same date, May 25, 1957. The “Borrowed Car Agreement”, a photocopy of which was given to us at the recent hearing, shows the intended rental period to be from 5-25-57 to 5-28-57. Your letter of 11-28-58 states that the rental period was from May 25, 1957 to July 20, 1957. We do not believe this difference is of any special significance. The Sales Tax Counsel states that it does not appear that a sale was effected, assuming that it does not appear that a sale was effected, assuming that the signed “Automobile Agreement” contained the following language (which we have copied from petitioner’s agreement with one REDACTED TEXT): “Delivery of this automobile is accepted by purchaser subject to credit approval by a financing institution, and in the event of a credit report unacceptable to the financing institution, the purchaser will return the automobile herein described immediately to the dealer.” The transfer of possession in such circumstances is not regarded as a transfer of possession in lieu of a transfer of title, and the measure of petitioner’s tax liability will be limited to the receipts retained. With respect to the intended sale to REDACTED TEXT, we believe the measure of tax should be $450.00 not $432.00, if $450.00 was received. As you state, the books show a rental of $9 per day for 40 days, or $360.00, but petitioner received $450.00, of which he reported
$432.00 as taxable. We believe the measure of tax to consist of all the receipts retained by petitioner. Again, this entire theory is based on the presumption that petitioner bought the cars ex tax under a resale certificate, or outside the State from a retailer. In the REDACTED TEXT transaction, it would seem that the measure of tax should be
$520.00, not $500.00, if $520.00 was received by the petitioner. W. E. Williams WEW:hm