Did listing a customer's existing equipment in a finance contract make its value part of the dealer's taxable sale of new equipment?

Plain-English summary

A dealer sold new equipment but, to satisfy a finance company, also took a bill of sale for equipment the customer already owned and listed both old and new property in the finance contract. Finance proceeds exceeding the new-equipment price were returned to the customer.

Tax counsel concluded that only the dealer's new equipment price was taxable. The customer-owned property was not realistically resold to its owner; it appeared in the contract solely as additional security.

Because the tax reporting disregarded part of the finance contract, the dealer needed detailed records and was advised to obtain affidavits from both purchaser and finance company confirming the facts.

Citations and references

• The official letter cites no statute or regulation by number.
• Requester's Nov. 13 letter to Sales Tax Administrator Harry L. Say seeking a ruling on customer-owned equipment included in a finance contract — year, request, attachments, requester identity, and taxpayer identity not reproduced in the official PDF
• Dealer's new-equipment sale, bill of sale for customer-owned equipment, combined finance contract, excess finance proceeds remitted to the customer, and tax reporting limited to the new merchandise — facts supplied; parties and equipment, bill of sale, sales and finance contracts, prices, proceeds, remittance, ledger, invoices, returns, and tax computations not reproduced in the official PDF
• Recommended purchaser and finance-company affidavits and sufficient records supporting the actual new-equipment price — recommendation supplied; affidavits, documentary evidence, and any later submission not reproduced in the official PDF
• Official Annotation 295.0200's customer bill of sale, new-equipment contract, excess-proceeds remittance, additional-security, no-realistic-resale, new-equipment-only tax, and documentary-evidence summary, dated Dec. 26, 1958 — annotation omits the Nov. 13 request provenance, Harry L. Say, the tax-reporting description, recommended affidavits, source wording defects, and missing records and supplies no additional transaction record
• Possible later execution of the bill of sale or finance contract, equipment sale, financing, remittance, affidavit or record production, return filing, audit, assessment, payment, refund claim, appeal, or other agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0200.pdf

Original ruling text

295.0200

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 26, 1958

Attention:
Gentlemen:
This is in reply to your letter of November 13 addressed to Mr. Harry L. Say, Sales Tax Administrator. We regret the delay in giving you the ruling requested. It is our opinion that the tax applies with respect to the sales price of the equipment sold by the taxpayer to the customer, exclusive of the increased amount of the contract covering customer-owned equipment. You state that in order to satisfy the finance company, the taxpayer will take a bill of sale from the customer for the customer’s own equipment and prepare a sales contract covering the new equipment, as well as the customer’s own equipment. The proceeds from the finance company that are in excess of the price of the new merchandise sold is then remitted to the customer. The taxpayer only records the sale of his own merchandise and pays the tax thereon and not on the full amount of the contract as reported to the finance company. The including in the sales contract of property already belonging to the customer in order to satisfy the finance company is apparently in order to provide the finance company with additional security and is not in any realistic sense sold by the taxpayer to the customer. The taxpayer should keep sufficient records to show the sales price or the equipment actually sold by him. We recommend that he secure from the purchaser and from the finance company affidavits stating the actual facts, in view of the circumstance that for tax purposes, one of the records; i.e., the sales contract, as reported to the finance company, is sought to be disregarded. Very truly yours,

E. H. Stetson
Tax Counsel
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Los Angeles - Administrator