Could a vehicle lessor avoid filing its own California return because a retail partner collected and reported the rental tax?

Plain-English summary

An unidentified client reportedly rented small pickup trucks/cargo vans to another retailer's customers, usually for no more than three hours, only at that retailer's outlets. Counsel assumed the vehicles were not MTE. No customer agreement or client-retailer contract was supplied, so every role/conclusion depended on the representative's descriptions.

The stated customer agreement made client and individual customer the parties, disclaimed retailer party/liability, while retailer employees handled forms/paperwork/check-in/out. Retailer collected rent and use tax, tracked them in its POS, kept tax plus an agreed fee, and sent net proceeds to client. Its contract assumed remittance responsibility for collected sales tax; counsel assumed that also meant use tax.

Retailer then included client rental receipts/tax in its own return. Client acknowledged needing a California seller's permit/returns but sought approval for that commingling. Assuming client was lessor, section 6452 required its own return; retailer could prepare/sign only as authorized agent, under client's name and separately from retailer's return.

Client's return had to show period rentals payable and tax due, delivered with remittance unless section 6479.3 applied. Counsel expressly could not confirm the characterization; actual language might show client leased vehicles to retailer, which then subleased to customers. No contracts, agency, permits, POS/tax records, returns/remittances or outcome is supplied.

Common questions

Could the retailer include the rental tax on its own return?

That did not eliminate the lessor's obligation to file a separate return.

Could the retailer help file the lessor's return?

Yes. An authorized agent could prepare and sign it for the lessor.

Could an agent combine both returns?

No. Even agent-prepared filing had to be separate under the lessor's name.

What did the lessor have to report?

The rentals payable during the reporting period and the corresponding tax due.

Was counsel certain the client was lessor?

No. Without the contracts, the opinion could not confirm the parties' characterization and warned that the partner might be a sublessor.

Did the contract clearly cover use-tax remittance?

Not as described. It said sales tax; counsel expressly assumed the language also covered collected use tax.

Are the agreements, authorization and actual returns available?

No. The letter requests them for any follow-up but reproduces none and shows no outcome.

Citations and references

• Section 6023 — MTE excluded only by assumption
• Sections 6006(g)/6006.1/6010(e)/6010.1; Regulation 1660(c)(1)/(9)(B) — assumed lease/collection/remittance
• Section 6452 — mandatory separate retailer return; authorized signature
• Sections 6457/6454/6479.3 — rentals/tax reporting and remittance
• November 26 request, all agreements and rental/permit/agency/return records — absent
• January 29, 1997 Jarvis letter — characterization-dependent separate-return answer
• Official Annotation 330.2314.920 — role labels and rule without all assumptions/source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2314.920
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2314-920.pdf

Original ruling text

330.2314.920

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 29, 1997

Dear
I am writing in response to your letter dated November 26, 1996 to Supervising Tax Counsel David H. Levine concerning your proposed method to report and pay sales and use tax due from your client, You have not included, for our review, written copies of any of the contracts which you mention, and we are, therefore, unable to determine whether we agree with your characterization of their provisions. This opinion letter is based upon your characterizations of the contract provisions rather than the actual contract provisions, If we were to review the actual contracts in question, our opinion might be different. You write that --- rents small pick-up trucks and cargo vans to customers of --- --for short terms, generally three hours or less. For purposes of this opinion letter, we assume the vehicles are not mobile transportation equipment as that term is defined in Revenue and Taxation Code section 6023.
--- has no California rental locations other than --- outlets. You indicate that the vehicle rental agreement is between --- and the individual --- customer, and it explicitly provides that --- is not a party to the contract and accepts no responsibility or liability under the contract. According to your letter, the vehicles are rented by the customers at --- service counters. You state that employees handle all facets of the rental arrangements, including assisting the customers in completing the rental forms, processing all paperwork, and checking the vehicles in and out. --- collects the rental amounts on behalf of --- and also adds and collects California use tax from the customers on the rental receipts. The transactions are recorded on point of sale computer system, which tracks revenue and use tax collected. The contract between --- and --- requires --- to remit to --- the net proceeds from the rental agreements, less the use taxes collected and an agreed fee payable by --- to ---. The contract also states that --- assumes responsibility for the remittance of collected sales tax to government authorities. (We assume for purposes of this opinion letter that the language of the contract also covers remittance of collected use tax.) The rental receipts and use taxes collected by --- for --- are included by --- in its own receipts, and the use taxes are remitted to the state by --- along with the taxes which
--- remits for its taxable sales. You indicate that. " --- understands that it must hold a

[California] seller's permit and continue to file sales tax returns in California, even though the rental receipts and use tax on rental payments is included on --- returns." You state that, " --- would like written approval from the State Board of Equalization with respect to --- including --- rental receipts and use taxes due in --- sales tax returns." Discussion Since your letter indicates that rental fees and use tax are collected on the rental of vehicles, we assume for purposes of this opinion letter that these vehicle rentals are leases of tangible personal property which are continuing sales and purchases. (See Rev. & Tax. Code §§ 6006(g), 6006.1, 6010(e), 6010.1.) As such, the lessee owes use tax on rentals and the lessor must collect the tax from the lessee at the time rentals are paid by the lessee.¹ (Reg. 1660( c)(1).) ¹of course, is obligated to assure that any amounts paid to it as tax are remitted to the Board. (cf. Reg. 1660 (c) (9) (B).)

As regards the filing of returns, Revenue and Taxation Code section 6452 requires that, "For purposes of the use tax, a return shall be filed by every retailer engaged in business in this state .... Returns shall be signed by the person required to file the return or by his or her duly authorized agent but need not be verified by oath ..." (Emphasis added.) In other words, there is a mandatory requirement that a use tax return be filed by every retailer engaged in business in California, which includes a lessor such as ---, although the return may be signed by an authorized agent of that retailer. This means that
--- must file a separate return from any return filed by ---. However, --- may authorize an agent, such as --- to prepare and sign the returns for it. As the lessor of tangible personal property, --- required to report the rentals payable by the lessees during the preceding reporting period, and show on its return the amount of the taxes for the period covered by the return. (Rev. & Tax. Code ~ 6457.) The return, together with the remittance of the amount of the tax due (unless otherwise remitted in the manner prescribed by Revenue and Taxation Code section 6479.3), shall be delivered by the person required to file the return to the State Board of Equalization. (Rev. & Tax. Code § 6454.) In conclusion, --- is required by statute to file a separate return reporting the rentals payable and the taxes due on its vehicle rentals. This return, although required to be separate from returns of ---, may be prepared and signed by --- if it is acting as --authorized agent As discussed earlier, since we do not have copies of the relevant contracts to review, we cannot determine whether we agree with your characterization of

their provisions. I note, therefore, that we cannot ascertain if we agree with your assertion that --- is not the lessor, and that if we were to review the actual language of the contracts, we might conclude that --- is in fact leasing the vehicles from --- and then subleasing them to its customers. I hope this information is of assistance. Please write again if we may answer any further questions, and include copies of the customer rental agreement, the contract between --- and ---- and any other relevant contracts.

Sincerely,

Sharon Jarvis
Senior Tax Counsel

SJ:rz
cc:
District Administrator
Mr. William D. Dunn MIC: 49
Mr Dennis Fox - MIC: 92