Did leasing tangible property located in California require an out-of-state lessor to collect use tax on its separate interstate sales too?

Plain-English summary

California explained that historical section 6203(c) was added to make an out-of-state lessor collect use tax on leases of tangible personal property physically located in California when the lessor did not otherwise qualify as engaged in business under the office or representative provisions.

When the lease was the lessor's only California connection, collection responsibility was limited to that leased property. The mere presence of the leased property did not require the lessor to collect use tax on separate interstate sales to California customers.

Collection on those sales required another basis under the office or representative provisions. A 1999 source note updated the paragraph numbering but did not change that conclusion.

Common questions

Did a California lease create collection responsibility on the lease itself?

Yes.

Did it automatically extend to unrelated interstate sales?

No.

What would extend the duty to sales?

Another California business-presence basis under the provisions corresponding to historical section 6203(a) or (b).

Citations and references

• California Revenue and Taxation Code section 6203(a)–(c), historical lettering; the source's 1999 note identifies later paragraph numbers
• California Sales and Use Tax Ruling 73(c)
• Out-of-State Auditing's January 9 memorandum — request memorandum not reproduced in the official PDF
• March 9, 1999 DHL source notes — relabel section 6203(c) as section 6203(c)(3), subsection (a) as (c)(1), and subsection (b) as (c)(2)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/220-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/220-0140.pdf

Original ruling text

State of California

Memorandum

To:

Out-of-State - Auditing (DMA)

From:

Tax Counsel (TPP:JM)

Subject:

Section 6203(c) and Ruling 73(c)

Board of Equalization

220.0140

January 21, 1969

This is in reply to your memo of January 9 concerning Section 6203(c) [now 6203(c)(3) DHL 3/9/99] and Ruling 73(c) of the Sales and Use Tax Law. Your understanding for the above section and ruling is correct. The purpose of the addition of subsection (c) to Section 6203 was to require the collection of the use tax by an out-of-state lessor on leases of tangible personal property in this state where the lessor did not otherwise qualify as “engaged in business in this state” under Section 6203(a)
[now (c)(1)]or (b) [now (c)(2)].
The intent of the above section and ruling is to place the responsibility on the out-of-state lessor for collection of the use tax only with respect to leased property, physically located in this state when the lessor’s connection with this state is solely that of leasing tangible personal property. Under these circumstances, the lessor is not also required to collect the use tax on sales in interstate commerce to California customers. The mere presence of the leased property in this state does not constitute the requisite nexus with respect to the sales in interstate commerce to compel collection of use tax on such sales. To be responsible for the use tax on these sales to California customers, the lessor must be “engaged in business” under ther provisions of Section 6203(a) [(c)(1)] or (b) [(c)(2)].

JM:SS [1b]