How did California tax a convention exhibit leased to a California customer for use at a Texas show and later returned for storage?

Plain-English summary

E---, a California convention-exhibit component provider, gave subcontractor builders a resale certificate and asked four lease/sale scenarios. In 1A, it leased to a California company for a Dallas show, shipped by common carrier F.O.B. its California dock, received full rent before possession, then the lessee shipped to Texas for the full lease/use term and returned the exhibit to California storage.

Because continuing-sale lease tax tracked where property was situated, sufficient proof excluded rent attributable to outside use. Any California use required in/out proration. Nonfunctional California retention could qualify under section 6009.1 when solely for later transport/use outside; once sole outside destination/use ended, prorated in-state storage or use became taxable.

In 1B, purchase after return to California was a separate retail sale taxed on discounted price, regardless of prior lease tax. The letter also stated—without authority—that out-of-state delivery to a known California resident was presumed California use, rebuttable by a signed purchaser statement retained by E---.

In 2A, E--- hired subcontractors to build for outright purchase/Dallas first use. Customer possession at the California dock made a California sale; its later Texas shipment did not change that. If the contract instead required E--- to deliver to a carrier for outside shipment, section 6396 applied. Under 2B, leaving it stored in Dallas rather than returning to California did not change the already-completed California sale.

No contract, carrier/use/storage evidence, purchaser statement, invoice, tax filing or outcome is supplied. The live annotation mainly publishes the 1A lease/proration branch, not the later purchase/outright-sale analyses.

Common questions

Did California rent prepayment tax the full lease?

No. The continuing-sale rule looked to where the property was situated and used during the lease, not just where or when rent was paid.

What proof was needed for the Texas period?

The letter required sufficient proof of out-of-state use but did not specify one exclusive form of evidence.

Was California storage always taxable?

No. Storage solely for later transportation and use outside California could fall within section 6009.1 if there was no California functional use.

What if the customer bought it after return?

Sales tax applied to the discounted purchase price, independent of the prior lease-tax treatment.

Did buyer shipment from the California dock qualify under section 6396?

No in scenario 2A. Customer possession completed a California sale; the alternative required seller delivery to a carrier under the contract.

Did later Dallas storage change that sale?

No. Scenario 2B said it did not alter tax incidence.

Was the signed out-of-state-use statement mandatory?

The letter offered it to rebut a stated California-resident presumption but did not cite the presumption's authority or reproduce a required form.

Citations and references

• Section 6006.1; Regulation 1660(b)(2) — lease location periods
• Section 6009.1 — retention solely for later outside transport/use
• Uncited California-resident use presumption/purchaser statement
• Section 6010.5 — sale location at California possession
• Section 6396 — seller-arranged interstate shipment
• January 25 request and contracts/shipping/use/storage/payment/tax records — absent
• May 24, 1993 Fillman letter — four scenarios without outcomes
• Official Annotation 330.2299.125 — scenario 1A emphasis without all sale branches

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2299.125
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2299-125.pdf

Original ruling text

330.2299.125

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

May 24, 1993

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. P--- L--E--XXXX --- Drive
--- ---, CA XXXXX
Re: Account No. SR – XX-XXXXXX
Dear Ms. L---:

This is in response to your letter of January 25, 1993. You are a California company that provides convention exhibit component systems to users who either rent or purchase from you. You provide your subcontractor component builders with a resale certificate. You request our opinion of whether a sales or use tax is applicable to certain fact situations. 1A. E--- leases the exhibit to a California company for a show in Dallas, Texas. E--ships the exhibit by common carrier F.O.B. the loading dock in California, and the rental amount is paid in full before the lessee receives possession. After receipt of the exhibit, the lessee ships it to Texas for use for the entire term of the lease, after which it is returned to California for storage. Revenue and Taxation Code section 6006.1 and Regulation 1660(b)(2) define a "continuing sale" as "[t]he granting of possession of tangible personal property by a lessor for the duration of the lease as respects any period of time the leased property is situated in this state, irrespective of the time or place of delivery...." If the lessee provides the lessor with sufficient proof of use outside of California during the lease term, no tax will be applied to the lease payment attributable to such out-of-state use. If the property is in California during any portion of the lease term, it will be necessary to prorate the lease payments between the in-state use and the out-of-state use. However, if the property is not functionally used in California, some or all of the lease payments applicable to the period of time that the property is in California may qualify for the exclusion provided for in Revenue and Taxation Code section 6009.1: "'Storage' and 'use' do not include the keeping, retaining or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside

Ms. P--- L---

-2-

May 24, 1993
330.2299.125

the state...." It appears that the initial use made in California by your lessee would qualify for this exclusion. Once it is determined that the property will not be used solely outside the state, the prorated in-state storage or other used portion of the lease is taxable in California. 1B. If the lessee chooses to purchase the property after it returns to California, sales tax will apply to the discounted sales price, without regard to whether any portion of the lease payments were subject to sales or use taxes. The out-of-state delivery of tangible personal property to a known resident of California is presumed to be for use within California. This presumption may be overcome by a written statement signed by the purchaser, and retained by Edge, that the property was purchased for use out of state. 2A. Under the next fact situation, E--- contracts with its subcontractors to build an exhibit system for a client that wants to buy the system from E---. The client's first show is in Dallas. The system is shipped F.O.B. the California loading dock and payment is made in full before the client takes possession in California. The client then ships the system to Dallas for its first show and then returns it to California for storage. Sales tax applies to the sale. The sale took place in California when the purchaser took possession at the California loading dock. Revenue and Taxation Code section 6010.5 provides that the place of sale is the place where the property was located at the time of sale. What the purchaser decides to do with the property after sale is not determinative. If the sales contract with the client provides for the property to be delivered by E--- to a carrier for shipment out of state, instead of the client taking possession within California, the interstate commerce exemption of Revenue and Taxation Code section 6396 would apply. 2B. If the client decides to leave the system in Dallas for storage instead of returning it to California, there would be no change in the incidence of tax.

If you have further questions, please contact me.
Sincerely yours,

Donald L. Fillman
Tax Counsel
DLF:sr

bc:

--- --- District Administrator