Could a bank's California purchase of a heavy trailer chassis qualify for exemption when the bank immediately leased it and the lessee subleased it for interstate use?

Plain-English summary

A redacted representative's January 23, 1985 letter to Assistant Chief Counsel Gary Jugum posed three questions about a hypothetical transaction. A California bank would buy a trailer chassis from a California manufacturer for security, immediately lease it to a corporation, and have that lessee sublease it to an affiliate. The request and every transaction document are absent.

The proposed chassis would weigh at least 6,000 pounds unladen, be registered outside California, and leave California loaded within 75 days for exclusive outside, interstate or foreign-commerce use. Delivery would occur in California, and the bank would give the manufacturer section 6388.5 affidavits.

Because leases of mobile transportation equipment were not treated as sales, the manufacturer's sale to the bank was the retail sale. The opinion concluded that the historical section 6388.5 exemption could still apply: the sublessee's qualifying use was imputed to the lessee and then to the bank, assuming the required registration evidence and affidavits were provided.

The quoted historical statute required a new or remanufactured California trailer or semitrailer of the stated weight, purchase for outside use, timely removal, written proof of out-of-state licensing and registration, an affidavit identifying purchase location and exclusive qualifying use, and an affidavit confirming timely outside movement. The source supplies none of that proof.

The chassis could carry an interstate or foreign-commerce payload on its first trip out. It could later return to California or be assigned to a California depot without losing exemption only while its use remained exclusively interstate or foreign. The opinion warned that even one carton of intrastate cargo would defeat the exemption.

Counsel said the Board had previously applied section 6388.5 to lessor purchases followed by lessee use and previously allowed an interstate or foreign payload on departure, but cited no prior opinions. The source documents no completed purchase, lease, removal, cargo movement, California return or later tax outcome. The live annotation preserves all three answers but omits the request provenance, exact evidence conditions, unidentified prior positions and unapplied posture.

Common questions

Why was the manufacturer's sale to the bank the retail sale?

The cited MTE rules excluded the qualifying leases from sale and purchase, making the lessor-bank the equipment consumer.

What proof did historical section 6388.5 require?

Written out-of-state registration plus purchaser affidavits covering purchase location, exclusive qualifying use and movement outside within 75 days.

Could the chassis leave California carrying cargo?

Yes, if the payload itself was in interstate or foreign commerce.

Could it later return to a California depot?

Yes, only while its carriage remained exclusively interstate or foreign.

What would defeat the exemption after return?

Counsel said even one carton of intrastate cargo would do so.

Did the source document an actual chassis or exemption claim?

No. It expressly answers a hypothetical and supplies no transaction or later outcome.

Citations and references

• Revenue and Taxation Code sections 6023, 6006(g)(4), 6010(e)(4) and 6388.5; Regulation 1661(f) — cited historical MTE and trailer-exemption rules
• January 23 request and transaction records — hypothetical facts described; underlying documents absent
• Unidentified prior Board positions — cited for lessor eligibility and outbound payload without supporting opinions
• Official Annotation 325.0670 — publishes the three answers while omitting material proof and provenance limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0670
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0670.pdf

Original ruling text

325.0670

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

April 19, 1985

Mr. J--- H. K--F---, G--- & F--XXX --- Blvd., Suite XXXX
--- ---, CA XXXXX
Dear Mr. K---:
Your letter to Assistant Chief Counsel Gary Jugum of January 23, 1985, was assigned to me for reply. You ask about the application of California sales and use tax to a hypothetical transaction in which mobile transportation equipment is purchased, leased, and then subleased to be used in interstate or foreign commerce. The proposed transaction is as follows: 1.

A California bank purchases a trailer chassis from a California manufacturer. The bank is acquiring title for purposes of security.

2.

The bank will immediately lease the chassis to a corporation which will sublease it to an affiliate.

3.

The leases are of mobile transportation equipment within the scope of Revenue and Taxation Code sections (hereinafter all references to sections are to that code) 6006(g)(4) and 6010(e)(4).

4.

The chassis will have an unladened weight of 6,000 pounds or more, will be registered out of state, and “will be used exclusively outside California or exclusively in interstate or foreign commerce or both and will be moved, loaded with cargo, from California to a point outside the state within 75 days after delivery by the manufacturer.” The bank will provide affidavits pursuant to section 6388.5 to the manufacturer.

5.

In addition, we will assume that the delivery of the chassis will take place in California.

Mr. J--- H. K---

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April 19, 1985
325.0670

The following sets out your three questions and our answers to them: 1.

Since the bank is making the purchase solely for security, will the exemption available under Revenue and Taxation Code section 6388.5 apply to the purchase and immediate lease of the chassis by the bank?

California sales and use tax law imposes tax on the sale or sue of tangible personal property in this state, unless such sale or use is otherwise exempt from taxation. Section 6023 defines “mobile transportation equipment” as: “…equipment such as railroad cars and locomotive, buses, trucks (except ‘oneway rental trucks’), truck tractors, truck trailers, dollies, bogies, chassis, reuseable cargo shipping containers, aircraft and ships, and tangible personal property which is or becomes a component part of such equipment.” Section 6006 states that a sale means and includes: “(g) Any lease of tangible personal property in any manner or by any means whatsoever, for a consideration, except a lease of: (4) Mobile transportation equipment for use in transportation of persons or property as defined in Section 6023.” Section 6010 mirrors that definition by defining a “purchase as: “(e) Any lease of tangible personal property in any manner or by any means whatsoever, for consideration, except a lease of:…(4) Mobile transportation equipment for use in transportation of persons or property as defined in Section 6023.” Since the lease of mobile transportation equipment (MTE) is not a sale, Regulation 1661(f) states: “With respect to leases which fall within the scope of Sections 6006(g)(4) and 6010(e)(4) … the sale to the lessor is the retail sale and the lessor is the consumer of the equipment. Accordingly, either the sale of the equipment to the lessor or its use in this state may be subject to tax.” Thus, tax, if applicable, would apply to the sale by the manufacturer of the chassis to the bank. However, Section 6388.5 provides: “… whenever a new or remanufactured trailer or semitrailer with an unladen weight of 6,000 pounds or more which has been manufactured or remanufactured

Mr. J--- H. K---

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April 19, 1985
325.0670

in this state is purchased for use without this state and is delivered by the manufacturer, remanufacturer, or dealer to the purchaser within this state, and the purchaser drives or moves the vehicle to any point outside this state within 75 days from and after the date of delivery, there are exempted from the taxes imposed … the gross receipts from the sale of and the storage, use or other consumption of the vehicle within the state, if the purchaser furnishes the following to the manufacturer, remanufacturer, or dealer: (a) Written evidence of an out-of-state license and registration for the vehicle. (b) The purchaser’s affidavit attesting that he or she purchased the vehicle from a dealer at a specified location for use exclusively outside this state, or exclusively in interstate or foreign commerce, or both. (c) The purchaser’s affidavit that the vehicle has been moved or driven to a point outside this state within the appropriate period of … 75 days of the date of the delivery of the vehicle to him or her.” You state that the chassis are being purchased to be used in interstate or foreign commerce, or both, and that the bank is prepared to comply with sections 6388.5, subsections (a), (b) and (c). We have held in the past that section 6388.5 applies even though the sale is to a lessor and the MTE is delivered to and is thereafter used by the lessee. We believe the same result follows with use by the sublessee. Since it is the intention of the lessor to immediately sublease the chassis to an affiliate, the use in interstate or foreign commerce, or both, by the sublessee would be imputed to the lessee/sublessor which would in turn be imputed to the bank and the exemption of 6388.5 would apply to the sale by the manufacturer.

2. Assuming an affirmative answer to number 1, will the exemption of 6388.5 be
   applicable if the chassis carry a load on their initial movement out of California? We have also held in the past that the chassis may carry a payload out of the state without loss of the exemption provided it is a payload in interstate or foreign commerce, or both.
3. Can the chassis if purchased within the exemption of 6388.5 and used
   exclusively in interstate or foreign commerce be assigned to a California depot? The chassis may return to California and may be assigned to a California depot, without loss of exemption, provided, however, that the use of the chassis is exclusively the carriage of interstate or foreign commerce goods, or both. After leaving the state, the chassis my return to California, and even remain in California, as long as they are exclusively carrying interstate and foreign commerce goods, or both. However, if so much as one carton is for intrastate commerce, the exemption will be lost.

Mr. J--- H. K---

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If you have any further questions, please feel free to contact us. Very truly yours,

Vickie B. Owen
Tax Counsel

VBO:sr

April 19, 1985
325.0670