Was printing equipment tax-paid for lease purposes when a partnership paid purchase tax, then distributed the equipment to a partner who leased it to his corporation?

Plain-English summary

An unidentified 50% partner received about half a dissolved partnership's printing equipment/assets. The partnership had bought the equipment tax-paid. He used it as a sole proprietor, later incorporated as XX, Inc., kept personal title and leased the equipment individually to the corporation.

These facts came from Board Auditor Phillip Gong after the taxpayer's incomplete inquiry produced only a March 22 general letter. None of the underlying records is supplied.

Counsel's earlier rule required you—the same statutory person later leasing—to have paid acquisition tax, except an unspecified transferor category not involved here. Section 6005 made the partnership separate from its partners. Partnership-paid tax therefore did not give the individual cost-tax status; he paid none when acquiring the distribution.

His corporate lease was a continuing sale. The corporation-lessee owed use tax measured by rent, which he collected/remitted. No lease, payment/return, audit or later outcome is supplied; the live annotation states only the ex-tax acquisition/rent-tax conclusion.

Common questions

Was the partnership's purchase tax enough?

No. The individual lessor was a different statutory person and had not paid the tax.

Did incorporation change equipment title?

No. The facts stated that the individual retained title and leased it to the corporation.

Who supplied the transaction facts?

Board Auditor Phillip Gong, after counsel said the taxpayer's own inquiry was incomplete.

Did the letter define its transferor exception?

No. It mentioned certain different transactions but supplied no authority, facts or scope.

Who owed and collected rent tax?

The corporation owed use tax measured by rent; the individual lessor had to collect/pay it to the state.

Are the dissolution and tax records available?

No. The source describes them but reproduces no purchase, tax, distribution, title, lease or return evidence.

Citations and references

• Section 6005 — partnership separate from partners
• March 22, 1990 general letter — same-lessor acquisition-tax/same-form rule quoted; source absent
• Unspecified transferor exception — scope/authority absent
• Auditor Gong transaction facts and partnership/dissolution/title/lease/tax records — absent
• May 8, 1990 Levine letter — separate-person/rent-tax result without later outcome
• Official Annotation 330.2300 — ex-tax dissolution/rent result without source branches

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2300
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2300.pdf

Original ruling text

330.2300

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

May 8, 1990

--Re:

Dear ---:
In a letter dated March 22, 1990, I responded to your inquiry regarding the application of sales or use tax to your lease of tangible personal property. Since your inquiry did not contain a complete description of the transaction, my letter was a general discussion of how tax applies to leases. Phillip Gong, an auditor in the Board’s District Office with whom you have discussed this matter, has provided me with certain information regarding the transaction about which you inquire, as follows: “Mr. --- was 50% partner in a partnership which was dissolved. “As part of the partnership dissolution, Mr. --- received approximately half of the printing equipment and other assets. The printing equipment was purchased tax paid. “Mr. --- started his own business as a sole proprietor with the printing equipment he received from the partnership dissolution. “Mr. --- later incorporated his business (XX, Inc.) “When Mr. --- incorporated, he retained title to the printing equipment he had received from the partnership. He leased the printing equipment as an individual to the corporation (XX, Inc.).

Mr. ---

-2-

May 8, 1990
330.2300

In my previous letter to you, I stated: “If you paid sales tax reimbursement when purchasing the equipment, and if you lease the property in the same form as acquired, then a true lease would not be regarded as a continuing sale and purchase. No sales or use tax would be applicable to that lease.” The “you” in this discussion means the same person who is leasing the tangible personal property (except for a transferor in certain transactions different from this one). As I understand the transaction, the partnership paid the sales tax reimbursement with respect to the property in question, but you did not when acquiring the property from the partnership. Under Revenue and Taxation Code section 6005, the partnership is a person separate from the individual partners. Thus, while the partnership paid sales tax reimbursement, you, as an individual (and separate person), did not. Since you did not pay sales tax reimbursement or use tax with respect to the property, your lease of that property is a continuing sale and is subject to use tax on the lessee, measured by rentals payable, which you must collect and pay to the state. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Tax Counsel

DHL:wak
2159C
cc:

Mr. Phillip Gong, Auditing