Does section 6404 exempt a retailer's loan of automobiles to private nonprofit schools for educational purposes?

Plain-English summary

A retailer asked whether private nonprofit schools counted as “school districts,” which would make automobile loans for educational purposes exempt from use tax under section 6404.

The Board answered no. Section 6404's exemption applied only to loans to public school districts. The Education Code separately addressed public, private, and parochial schools and required the private institutions to maintain their separate identities.

The letter also relied on a court definition of a school district as an involuntary political division of the state created by or under general laws. Private schools did not meet that definition.

What this means for you

Automobile and equipment dealers

An educational or nonprofit use does not by itself satisfy an exemption written specifically for loans to school districts. Confirm the recipient's legal status.

Private nonprofit schools

The letter did not treat private-school regulation under the Education Code as making the school a public district.

Accountants and tax professionals

Apply the recipient language precisely. The Board declined to expand “school district” beyond public school districts without legislative language doing so.

Common questions

Q: Did nonprofit status make the school a district?
A: No. The opinion expressly addressed private nonprofit schools and still found the exemption unavailable.

Q: Did the educational purpose of the automobile loan control?
A: No. The recipient also had to be a qualifying public school district.

Q: Why did the Education Code not change the result?
A: It distinguished public schools from private and parochial schools and maintained their separate identities.

Q: What court definition did the letter quote?
A: It described a school district as an involuntary political division of the state created by or under general laws.

Citations and references

• California Revenue and Taxation Code § 6404
• California Education Code, Part 4, Division 21, Chapters 1-5
• Butler v. Compton Junior College Dist., 77 Cal.App.2d 719 (citation as printed in the letter)
• Retailer's February 8, 1968 letter to John T. Quick of the Pasadena office — request letter not reproduced in the official PDF

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 210.0680
• Original supporting opinion: 210.0680 PDF

Original ruling text

STATE OF CALIFORNIA

210.0680

STATE BOARD OF EQUALIZATION

March 8, 1968

Gentlemen:
Your letter of February 8, 1968 to Mr. John T. Quick of our Pasadena office has been forwarded to the undersigned for reply. You raise the question of whether private nonprofit schools are considered “school districts” so that retailers who loan automobiles to them are exempt from use tax. You correctly interpret Section 6404 in that the exemption from use tax on property loaned for educational purposes is applicable only to loans to public school districts. The Education Code does distinguish between public and private schools with Part 4, Division 21, Chapter 1 through 5 interpreting the duties and responsibilities of parochial and private schools. Numerous references are also made throughout the entire Education Code to requirements for private and parochial schools to maintain their separate identities. In addition, the courts have defined a school district in the following language: “…a school district is an involuntary political division of the state, created by or under the authority of general laws.” (Butler v. Compton Junior College Dist., 77 Cal. App. 2d 719.) Had the Legislature intended private schools to be considered school districts, it must be assumed that appropriate language would have been used. Thus, private schools are not school districts within the Sales and Use Tax Law and the exemption provided under Section 6404 for property loaned to school districts is not available when loans are made to private schools. If you have any further questions, please feel free to write. Very truly yours,

T. P. Putnam
Tax Counsel
By Burt E. Banks
BEB:smk
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