Who owed tax when a licensed vehicle lessor-retailer sold a leased vehicle to its lessee, depending on whether it filed a report of sale?

Plain-English summary

The Occasional Sales Unit reported that lessor-retailers need not file DMV reports when selling to lessees, leaving lessees use tax at registration, but some voluntarily filed without tax while citing an ambiguous Regulation 1610(b) footnote. It asked who owed tax and whether the footnote validly interpreted Vehicle Code section 11615.5.

Counsel said DMV regulations did not help, based his answer solely on quoted Vehicle Code provisions and recommended asking DMV. Sections 371-373 made a lessee a person in a vehicle lease over four months, defined lessor, and treated a lessor as lessor-retailer for prior-lease sales to people other than the lessee/designated one-year driver.

He interpreted this to mean sale to own lessee did not use lessor-retailer status and should not have a section 4456 report. Without one, section 4750.5 made DMV withhold registration until lessee-purchaser paid use tax. Filing instead eliminated personal registration/DMV collection and acted under the lessor-retailer license.

Section 6282 exempted vehicle-sale gross receipts when retailer was outside specified license classes, subject to section 11615.5, but not rent. A filed report meant licensed activity, defeating the exemption and imposing seller sales tax—even though the seller would not have used that capacity without filing.

Counsel viewed the Regulation 1610(b) footnote as merely restating section 11615.5's ambiguity, not interpreting it. He proposed replacement language embodying the split, but no adoption or DMV confirmation is supplied. The PDF ends with 330.2315 (12-29-04).doc, without explaining a revision; its formal date is May 8, 1990. Live 330.2315 publishes only the bottom line.

Common questions

Who paid when no report of sale was filed?

The lessee-purchaser paid use tax when registering the vehicle.

What changed when the lessor-retailer filed the report?

The filing treated the sale as licensed activity and made it a sales-tax transaction for the seller.

Did counsel think a lessor had a free filing choice?

No. He interpreted a sale to its own lessee as outside lessor-retailer status and therefore not requiring a report, though filing one invoked the license.

Did counsel claim final authority over DMV procedure?

No. The memorandum recommended consulting DMV about its Vehicle Code interpretation.

Did the existing Regulation 1610(b) footnote settle the issue?

No. Counsel called it a virtual restatement of ambiguous section 11615.5 and proposed different wording.

Was the proposed footnote wording adopted?

The source does not say and supplies no later regulation history or outcome.

Does the 12-29-04 artifact change the issue date?

No revision text explains it; the formal body repeatedly dates the memorandum May 8, 1990.

Citations and references

• Vehicle Code sections 371-373/286(a) — lessee/lessor/lessor-retailer definitions
• Vehicle Code sections 4456/4456.1/5901 — report display, application/correction and sale reporting
• Vehicle Code section 4750.5 and licensing cross-references — registration withholding/use tax
• Vehicle Code sections 11615/11615.5 and cross-references — license limits/report-tax duties
• Revenue and Taxation Code section 6282/6451 — exemption/license tax framework
• Regulation 1610(b) footnote — ambiguous text/history absent; rewrite not shown adopted
• March 29 request, DMV regulations and all vehicle/license/report/registration/tax records — absent
• May 8, 1990 Levine memorandum — interpretation requiring DMV confirmation
• Official Annotation 330.2315 — filing/no-filing result without reasoning/source limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2315
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2315.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum
330.2315
To:

Mr. Dennis Lammerding
Occasional Sales Unit

From:

David H. Levine
Senior Tax Counsel

Subject:

Lessor-Retailers of Vehicles

Date:

May 8, 1990

This is in response to your memorandum dated March 29, 1990 regarding the application of sales or use tax to sales of vehicles by lessor-retailers to their lessees. You state: “It is our understanding that lessor-retailers are not required to complete a report-of-sale form (DMV) if the vehicle is being sold to the lessee. In this case, the lessee is responsible for the use tax which is paid to DMV at time of vehicle registration. “Apparently, the lessor-retailer can choose to file a report of sale when the vehicle is sold to the lessee. Unfortunately, some lessor-retailers who sell vehicles to the lessees are completing a report of sale but not collecting any tax, citing the footnote to Reg. 1610(b) as their reference. “The question at hand is if the lessor-retailer sells the vehicle to the lessee and completes a report-of-sale form for DMV, who is responsible for the tax, the lessor-retailer as a sales tax transaction or the lessee as a use tax transaction? “Also, your opinion would be appreciated regarding the footnote, its background and intention. Is the footnote a valid interpretation of Vehicle Code 11615.5?”

Mr. Dennis Lammerding

-2-

May 8, 1990
330.2315

Initially, I note that I have reviewed DMV regulations, and they provide no assistance. My interpretation regarding lessor-retailers’ responsibilities with respect to filing reports of sale is based solely on provisions in the Vehicle Code. You may wish to discuss my interpretation with appropriate persons in the DMV. Sections of the Vehicle Code relevant to my analysis are as follows:
§ 371.
“Lessee includes ‘bailee’ and is a person who leases, offers to lease, or is offered the lease of a motor vehicle for a term exceeding four months.”
§ 372.
“A ‘lessor’ is a person who, for a term exceeding four months, leases or offers for lease, negotiates or attempts to negotiate a lease, or induce any person to lease a motor vehicle; and who receives or expects to receive a commission, money, brokerage fees, profit or any other thing of value from the lessee of said vehicle. ‘Lessor’ includes ‘bailor’ and ‘lease’ includes ‘bailment.’”
§ 373.
“A ‘lessor-retailer’ is a lessor or renter who, except in the circumstances described in subdivision (a) of Section 286, makes a retail sale or sales of a previously leased or rented vehicle or vehicles to other than any of the following: “(a) The lessee of a vehicle, or the person who, for a period of at least one year, has been designated by the lessee as the driver of the vehicle covered by a written lease agreement. “….”
§ 4456.
“(a) When selling a vehicle, dealers and lessor-retailers shall use numbered report-of-sale forms issued by the department. The forms shall be used in accordance with the following terms and conditions: “(1) The dealer or lessor-retailer shall attach for display a copy of the report of sale on the vehicle before the vehicle is delivered to the purchaser.

Mr. Dennis Lammerding

-3-

“(2) The dealer or lessor-retailer shall submit to the department an application accompanied by all fees and penalties due for registration or transfer of registration of the vehicle within 20 days from the date of sale. Penalties for noncompliance with this paragraph shall be paid by the dealer or lessor-retailer. The dealer or lessor-retailer shall not charge the purchaser for the penalties. “(3) If the department returns an application and the application was first received by the department within 20 days of the date of sale of the vehicle, the dealer or lessor-retailer shall submit a corrected application to the department within 40 days from the date of sale of the vehicle or within 20 days from the date the application is first returned by the department, whichever is later. “(4) If the department returns an application and the application was first received by the department more than 20 days from the date of sale of the vehicle, the dealer or lessor-retailer shall submit a corrected application to the department within 40 days frorm the date of sale of the vehicle. “(5) An application first receive by the department more than 40 days from the date of sale of the vehicle is subject to the penalties specified in subdivisions (a) and (b) of Section 4456.1. “(6) The dealer or lessor-retailer shall report the sale pursuant to Section 5901. “(b) A vehicle displaying a copy of the report of sale may be operated without license plates or registration card until the license plates and registration card are received by the purchaser.”
§ 4750.5.
“(a) The department shall withhold the registration or the transfer of registration of any vehicle sold at retail to any applicant by any person other than a vehicle manufacturer or dealer holding a license and certificate issued pursuant to Chapter 4 (commencing with Section 11700) of Division 5, or an automobile dismantler holding a license and certificate issued pursuant to Chapter 3 (commencing with Section 11500) of Division 5 or a lessor-retailer holding a license issued pursuant to Chapter 3.5 (commencing with Section 11600) of Division 5, and subject to the provisions of Section 11615.5, until the applicant pays to the department the use tax measured by the sales price of the vehicle as required by the Sales and Use Tax Law (Part 1 (commencing with Section 6001) of

May 8, 1990
330.2315

Mr. Dennis Lammerding

-4-

May 8, 1990
330.2315

Division 2 of the Revenue and Taxation Code), together with penalty, if any, unless the State Board of Equalization finds that no use tax is due…. “….”
§ 11615.
“It shall be unlawful and a violation of this code for a lessorretailer licensed under this chapter when selling at retail a vehicle in a transaction for which this license is required: “….” “(e) To sell a vehicle which has not been previously leased, bailed or rented or acquired or contracted for lease or rental by the lessorretailer.”
§ 11615.5.
“It is unlawful and a violation of this code for a person holding a license under this chapter to make a retail sale of a motor vehicle, except to the lessee of such vehicle, required to be registered pursuant to Division 3 (commencing with Section 4000) or subject to idnentification pursuant to Division 16.5 (commencing with Seciton 38000) if such person files with the department a report of sale as provided in Section 4456 with respect to such retail sale, without making the return and payment of any sales tax due and required by Section 6451 of the Revenue and Taxation Code.” These provisions show that the lessor-retailer license is a limited license. The lessor-retailer may not sell a vehicle unless that vehicle was leased or acquired for lease by the lessor-retailer. Section 373 defines lessor-retailer as a lessor who makes a retail sale of a previously leased vehicle to a person other than the lessee. I interpret this provision to mean that a lessor under section 372 who sells a leased vehicle to the lessee under section 371 is not a lessor-retailer for purposes of that sale. This would also mean that the lessor is not requireedd by section 4456 to file a report of sale when selling such a vehicle because, for purposes of that sale, the lessor is not a lessor-retailer. In light of these provisions, the menaing of section 11615.5, although not well written, becomes more clear. Although that section appears to make filing a report of sale optional because of the phrase “if such person files with the department a report of sale,” section 4456 clarifies that such filing for a sale by a lessor-retailer is mandatory. Therefore, I interpret the phrase, “except to the lessee of such vehicle,” in section 11615.5 to mean that, since such seller is not a lessor-retailer with respect to that sale, the person is not required to file a report of sale, and not to mean that the seller has an option as to whether or not to file a report of sale for that sale.

Mr. Dennis Lammerding

-5-

May 8, 1990
330.2315

Section 4750.5 provides for the withholding of registration until use tax is paid with respect to a sale of a vehicle by any person other than, as relevant here, a lessor-retailer. However, that provision is subject to the provisions of section 11615.5. I interpret this to mean that when a person holding a license as a lessor-retailer sells a vehicle to the lessee of that vehicle, the person holidng a lessor-retailer license is not required to report that sale by filing a report of sale, and the DMV will therefore withhold registration under such circumstances until the lessee-purchaser pays the appropriate use tax. Thus, it is my opinion that a lessee who purchases a vehicle from his lessor must pay use tax when registering that vehicle at the DMV. However, this is also based on the conclusion that a person licensed as a lessor-retailer does not file a report of sale for that sale. When the lessor-retailer does file a report of sale, the lessorretailer has eliminated the need for the lessee to personally register the vehicle and has therefor eliminated the ability of the DMV to collect the use tax upon registration. Revenue and Taxation Code section 6282 provides: “There are exempted from the computation of the amount of the sales tax the gross receipts from sales of mobilehomes or commercial coaches required to be annually registered under the Health and Safety Code or vehicles required to be registered under the Vehicle Code when the retailer is other than a person licensed or certificated pursuant to the Health and Safety Code or the Vehicle Code as a manufacturer, remanufacturer, dealer, dismantler, or lessor-retailer, subject to Section 11615.5 of the Vehicle Code. “This exemption does not extend to the rentals payable under a lease of tangible personal property.” Under this section, the sale of a vehicle by a person other than one licensed as a manufacturer, remanufacturer, dealer, dismantler, or lessor-retailer is exempt from sales tax (and therefore subject to use tax). As discussed above, a person licensed as a lessor-retailer is not a lessor-retailer for purposes of a sale of a leased vehicle to the lessee. Since that person is not a lessor-retailer for that sale, he should not file a report of sale (only licensed persons file reports of sale). That is, the reason a person files a report of sale is because that person holds a license for that sale. The section 6282 exemption applies only to sales by persons other than, as relevant here, licensed lessor-retailers. The filing of a report of sale by a person licensed as a lessor-retailer is an act pursuant to that license, even when the sale is to the lessee, and for that sale the seller is not a person other than a licensed lessor-retailer. The exemption of section 6282 therefore does not apply and the sale is subject to sales tax. This is true even though the seller would not have been a licensed lessor-retailer for that sale if he had not filed a report of sale. With respect to your question regarding the footnote, I do not believe that the footnote is an interpretation of section 11615.5. Rather, it is a virtual restatement. The ambiguity in section 11615.5 is simply restated in the footnote. If my interpretation is correct, I

Mr. Dennis Lammerding

-6-

May 8, 1990
330.2315

believe a more accurate statement for the footnote would be that “section 11615.5 of the Vehicle Code requires a licensed lessor-retailer to pay sales tax with respect to the retail sale of a motor vehicle, except for a sale to the lessee of that vehicle if the lessor-retailer does not file a report of sale for that sale. A lessee who purchases the leased vehicle must pay use tax when the lessee registers the vehicle. However, if a person licensed as a lessor-retailer does file a report of sale with respect to a sale to his lessee, that person treats the sale as authorized by the lessor-retailer license and the sale is therefore subject to sales tax.” If you have further questions, feel free to write again.

DHL:wak
2118C

330.2315 (12-29-04).doc