Could a lessee revoke its resale certificate during a prime lease and make only the later lease payments taxable?
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This page answers the general question as of 1987. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
Gary J. Jugum's May 14, 1987 internal memorandum attached—and expressly called erroneous—a June 5, 1978 Armstrong letter to R--- E. C--- that Jugum and Donald Hennessy had approved. It also attached a September 30, 1981 Hennessy memorandum to D. F. Brady. Neither attachment is included in the PDF.
The correction said a prime lease that was a continuing sale remained one throughout its agreement once the direct lessee/sublessor gave the prime lessor a resale certificate. The lessee could not revoke the certificate midterm and convert later prime-lease payments to taxable status.
Counsel warned not to analyze the lease as one sale versus a series of sales; certificate delivery fixed transaction character for the prime-lease term. An explicit exception applied if the lessee used property itself instead of subleasing it: lease payments then became taxable.
The memo also said leasing one equipment item for one term could make the lessor a seller required to hold a seller's permit when the lessor manufactured it or it was not tax-paid.
Armstrong was directed to write C--- with the corrected position. No outgoing letter or taxpayer implementation is supplied, and the memo cites no legal authority.
The live annotation assigns January 15, 1982 to the rule, a date absent from the May 1987 PDF and its referenced September 1981 memorandum. It publishes the certificate-fixes-character result but omits the corrective history, lessee-use exception, seller-permit branch and missing evidence.
Common questions
Could the lessee switch from resale treatment to taxable rent halfway through the lease?
No. The resale certificate fixed the character of the prime lease for that lease term.
Did the memorandum allow tax-free personal use by the lessee?
No. It said lease payments became taxable if the lessee used the property instead of subleasing it.
Was the 1987 memorandum consistent with the earlier advice?
No. It expressly called the earlier advice erroneous and directed staff to send the corrected position.
Could a single lease create a seller's-permit duty?
Yes under the source's stated conditions: one equipment lease for one term was enough when the lessor manufactured the property or the property was not tax-paid.
Were the earlier letter and 1981 memorandum supplied?
No. They are listed as attachments but absent from the PDF.
Was the correction actually sent to C---?
The memo directs Armstrong to send it, but no outgoing letter or receipt is supplied.
Why does the page use May 14, 1987 instead of January 15, 1982?
May 14, 1987 is the formal date on the supporting document body. January 15, 1982 appears only in the live annotation and is disclosed separately.
Did the source cite a statute or case?
No.
Is an implemented taxpayer outcome shown?
No. There is no lease, certificate, return, audit, assessment, payment, claim or appeal.
Citations and references
- No statute, regulation or case — the memorandum cites none
- June 5, 1978 Armstrong letter — declared erroneous; identified attachment absent
- September 30, 1981 Hennessy memorandum — identified attachment absent
- May 14, 1987 Jugum memorandum — corrected rule/direction without outgoing correction or outcome
- Official Annotation 330.2110 — dates rule January 15, 1982 and publishes certificate result without error/use/permit/source limits
Source
- Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
- Annotation page: Annotation 330.2110
- Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2110.pdf
Original ruling text
State of California
Memorandum
To:
Ms. Mary C. Armstrong
From:
Gary J. Jugum
Subject:
Leases
Board of Equalization
330.2110
May 14, 1987
Attached please find copy of your letter of June 5, 1978, to Mr. R--- E. C--- and Mr. Donald J. Hennessy’s memorandum of September 30, 1981 to Mr. D. F. Brady. As we are all aware, the advice which was given to Mr. C---, with my and Mr. Hennessy’s approval, was erroneous. A lease which is a continuing sale remains a continuing sale for the life of the lease agreement once the lessee has given a resale certificate to the lessor. The lessee cannot revoke the resale certificate in midterm and convert the subsequent lease payments to a taxable status. (Lease payments would become taxable, however, if the lessee at any point used the property itself rather than subleasing it.) In other words, the giving of the resale certificate fixes the character of the transaction for the period of the lease term between the prime lessor and its direct lessee. The question should not be discussed in terms of the lease being one sale or a series of sales. It may be noted that the lease of one piece of equipment for one lease term is sufficient to make the lessor a seller required to hold a seller’s permit (if the lessor is the manufacturer or if the property is not taxpaid). Please write to Mr. C--- advising him of our position on this question.
GJJ
J:alicetilton
Attachments
cc:
Mr. Donald J. Hennessy
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