Could a printing-press lessor undo its tax-paid-cost election a year later by issuing a resale certificate or having the seller claim a refund?

Plain-English summary

On November 12, 1969, M--- sold W--- a $1,244,460 printing press, charged sales-tax reimbursement and reported it on M---'s fourth-quarter return. W--- then leased the press in substantially the same form and collected use tax measured by rent from the start.

On November 5, 1970—about a year after the sale—W--- issued M--- a resale certificate. Both argued the acquisition had effectively been for resale and the original tax was erroneous, relying on W---'s rental-tax collection. M--- sought a $62,223 refund.

The memorandum recommended denying the claim. Former Ruling 70(c)(2)(F)2 said tax-paid property leased in substantially the same form could not later become a sale through a tax-paid-purchases-resold credit. Paying acquisition tax therefore made W---'s nonsale election irrevocable.

Counsel reasoned that allowing seller M--- to claim a refund would circumvent the same bar that prevented lessor W--- from taking the credit. The result did not change merely because W--- had collected rental use tax from the beginning.

No sale/lease records, return, certificate, claim, formal determination or outcome is supplied. The live annotation repeats the rule under Regulation 1660 but does not explain the transition from former Ruling 70 or disclose that the source only recommended denial.

Common questions

Did collecting tax on rent convert the lease into a sale?

No. The prior tax-paid acquisition had already fixed the election.

Could the buyer issue a resale certificate a year later?

Not to undo the completed tax-paid transaction on these facts.

Could the seller accomplish indirectly what the lessor could not?

No. A seller refund claim could not circumvent the bar on converting the tax-paid nonsale treatment.

What happened to the refund claim?

The memorandum recommended denying the entire $62,223 claim, but the source supplies no formal determination or later result.

Why does the live rule cite Regulation 1660?

The live annotation states the rule under Regulation 1660; the 1971 memorandum itself quotes former Ruling 70(c)(2)(F)2 and supplies no transition history.

Are the certificate and returns available here?

No. Their dates/effects are described, but the underlying certificate, fourth-quarter return, rental-tax filings and refund claim are absent.

Citations and references

• Former Ruling 70(c)(2)(F)2 — quoted anti-conversion rule; complete rule/history absent
• Regulation 1660 — current authority named only by the live annotation
• May 14, 1971 request and $62,223 claim — described but absent
• Sale/tax/return, press/lease/rent and November 5, 1970 certificate records — absent
• May 26, 1971 Rigby memorandum — denial recommendation without formal disposition
• Official Annotation 330.2176 — Regulation 1660 restatement without transaction/source posture

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2176
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2176.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. E. V. Anderson

From:

Glenn L. Rigby

Subject:

M--- G---, Inc.

330.2176
May 26, 1971

SZ -- XX XXXXXX

In your letter of May 14, 1971, you request our opinion as to whether or not M--- G---, Inc. (---) is entitled to the claim for refund of $62,223 of tax. It is my understanding that the facts giving rise to this claim basically as as follows: On November 12, 1969, M--- sold a printing press for $1,244,460 to W--- L--- Corp. (W--). M--- charged sales tax reimbursement on the sale which W--- paid. This amount was later reported to the State on M---’s fourth quarter return. Approximately a year later, November 5, 1970, W--- issued a resale certificate to M--- for the purchase of the printing press. M--- and W-- both contend that the sale was, for all intents and purposes, for resale and sales tax was paid in error. To substantiate this, they point to the fact that W--- collected tax measured by rental receipts from the time the property was put in leasing service by them. It is our opinion that the claim for refund should be denied based on the following reasoning: You will note that Ruling 70(c)(2)(F)2 provides that: “If property is acquired on a tax-paid basis and is leased in substantially the same form as acquired, the lease cannot be converted into a sale by taking a tax-paidpurchases-resold credit.” Since it is clear from this quoted section that the lessor cannot convert a transaction from a nonsale to a sale by simply taking a tax-paid-purchases-resold deduction, it would be absurd to allow the vendor to file a claim for refund and thereby circumvent the theory behing the above quoted section.

Mr. E. V. Anderson
(SZ -- XX XXXXXX)

-2-

May 26, 1971
330.2176

Summarily, it is our opinion that when a person pays sales tax reimbursement to this vendor and leases that property in substantially the same form as acquired he has made an irrevocable election to treat the lease as a nonsale. Accordingly, he cannot later, either by taking a tax-paid-purchases resold credit or having the seller file a claim for refund, convert a nonsale into a sale. This is so notwithstanding the fact that he has collected use tax measured by rental receipts from the beginning of the lease period.

GLR:lt

cc:

--- --- Dist. – Dist. Admin.
--- – Subdist. Admin.