Could an employer buy a car for resale and tax only the monthly fee charged when the car was leased to an employee as a benefit?

Plain-English summary

R--- proposed financing an automobile purchase for an employee's personal use as part of a benefit package. It would issue the dealer a resale certificate, lease the car to the employee for 36 months with no end-of-term title, and receive a monthly reimbursement/fee including use tax. The April 28 request and every proposed document are absent.

Counsel rejected resale treatment. An employer-employee accommodation was not a market lease. Employee services earned wages and benefits, so those services were consideration beyond the stated monthly fee.

Because no true rental price could be identified, R--- was vehicle consumer. The dealer-to-employer sale was taxable on purchase price; the employee lease was not a resale in R---'s regular course of business and tax was not measured by its lease receipts.

No compensation agreement, car invoice/title, resale certificate, lease, monthly calculation, service/benefit valuation, purchase, return, audit or outcome is supplied. The live annotation substantially publishes the result but adds unexplained (2000-1) and omits the proposal/evidence limits.

Common questions

Could the employer issue a resale certificate to the dealer?

No. The opinion treated the employer as buying the vehicle for its own consumption in furnishing an employee benefit.

Why was the monthly fee not accepted as the rental measure?

The car was part of the employee's compensation package, so employee services and the benefit's value were also relevant consideration.

Did lack of end-of-term title make it a taxable lease?

No. Despite no title transfer, the nonmarket compensation arrangement and unidentifiable rent made the employer consumer.

Where did the tax apply?

To the dealer's sale price charged to the employer, not to the employee's monthly lease fees.

Did the proposed transaction actually occur?

The source does not say and supplies no contract, payment, return, audit or later outcome.

What does the live (2000-1) mean?

The live entry adds it without explanation; it does not appear in the supporting PDF.

Citations and references

• No numbered authority cited
• April 28 request and employment/vehicle/resale/lease/payment/tax records — absent
• July 26, 1999 Jugum letter — proposed nonmarket employee-benefit/consumer result
• Official Annotation 330.2311.900 — substantive synthesis plus unexplained (2000-1)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2311.900
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2311-900.pdf

Original ruling text

330.2311.900

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

450 N STREET, SACRAMENTO, CALIFORNIA 95814
(P. O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 445-3723
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
CLAUDE PARRISH
Third District, Torrance
JOHN CHIANG
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento
_______

July 26, 1999

E. L. SORENSEN, JR.
Executive Director

Mr. H--- B--Vice President
R--- T--- Corporation
XXXX - -- --- -----, CA XXXXX
Dear Mr. B---:
This is in reply to your letter of April 28, 1999. We apologize for the delay in our response. We understand that “as a part of a benefit package for an employee” your “company intends to finance purchase of an automobile for the personal use of the employee.” Your plan is for your corporation to issue a resale certificate to an automobile dealer, then to lease the vehicle to your employee for 36 months. The employee would not receive title to the vehicle at the end of the lease term. You contemplate that the employee (lessee) would reimburse the corporation by paying a monthly lease fee, which would include use tax based upon the lease fee. In circumstances of this type, where an employer enters an accommodation transaction with an employee, the employer may not issue a resale certificate to acquire the vehicle. The sale of the vehicle from the dealer to the employer is subject to tax. For sales and use tax purposes, a lease transaction of the type in question is not regarded as a market transaction. The lease is, as you describe, a part of a benefit package. The employee performs services for the employer in exchange for which the employer furnishes the employee with wages and benefits. It cannot be said that the true rental amount is only the monthly lease fee paid by the employee. By definition, the lease transaction is a benefit to the employee. The employee has performed services to earn that benefit, and the value of the services performed should be included in the measure of tax -- reflecting the fact that the lease transaction is part of an overall compensation package.

Mr. H--- B---

-2-

July 26, 1999
330.2311.900

Since there is no way to identify the true rental price, for sales and use tax purposes we would treat the employer as the consumer of the vehicle. As stated, tax would apply to the price charged by the dealer to the employer. The “lease” transaction would not be a “resale in the regular course of the business” of the employer. Tax would be due on the purchase price, not the lease receipts. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel

GJJ:sr

Mr. H--- B---

bc:

-3-

Ms. Oveta Riffle – MIC:37
Ms. E. Louise Bertoni – MIC:37
Business Taxes Attorneys

July 26, 1999
330.2311.900