Did a vehicle lessee owe California tax on rents after moving to the state when the vehicle had been leased and used in Illinois for more than 90 days?

Plain-English summary

Individual took delivery of 1994 GMC Yukon under New Jersey-company lease in Illinois March 1994, paid Illinois lump-sum sales tax on base cost, moved vehicle to California January 1995, and lessor began about $40 monthly California sale[s] tax. Request and records absent; opinion assumed true lease.

Section 6010.1/Regulation 1660(b)(2) made lessee possession continuing purchase for every period property situated California regardless delivery time/place. For true continuing lease, lessee owed rent-measured use tax and lessor collected when rent paid.

Same-form lessor ordinarily could elect California purchase-price tax through vendor payment or timely return when first rented, irrevocably removing rent tax. Other-state tax could qualify in certain transactions, but absent specific statute election required lessor's own California use be taxable.

Historical section 6248/Regulation 1610(e)(1) presumed outside-bought vehicle purchased for California use if entered within 90 days; over-90-day outside use meant not. Here March-to-January use left lessor no California own-use liability, so no purchase-price election/credit; lease remained continuing sale/purchase and California rent taxable.

Counsel assumed Illinois payment either reimbursed lessor for acquisition tax or paid lessor's Illinois liability. Lessee could not credit tax by/for lessor on purchase price against separate California rent use tax.

Live 330.2550 adds amendments 2006-1/2008-1 and note that October 2, 2004–June 30, 2007 certain outside-purchased vehicle/vessel/aircraft brought in within 12 months was presumed California acquisition under Regulation 1620(b)(5). Temporary note postdates facts and is not in PDF.

Common questions

Did waiting more than 90 days avoid California rent tax?

No.

Why did 90-day period matter?

It prevented the lessor from being treated as buying the vehicle for California use and therefore prevented a tax-on-cost election; it did not exempt the California rents.

Could lessee credit Illinois acquisition tax?

No, because it was tax paid by or for the lessor on a different transaction.

Who owed and collected California tax?

Lessee owed use tax measured by rent; lessor collected it at rent payment.

Could lessor elect purchase-price tax after vehicle arrived?

No under stated historical facts because lessor had no California own-use liability against which election could operate.

Was reported Illinois payment definitely lessee's own tax?

No. Opinion expressly assumed it was reimbursement to lessor or payment of lessor's purchase-tax liability.

Does live twelve-month note govern 1995 facts?

No. Note expressly covers only October 2, 2004 through June 30, 2007 and postdates transaction.

May another moving lessee rely on this result?

No. It is historical assumption-based advice with missing records and later amendments; current vehicle credit/location rules must be checked.

Citations and references

• Section 6010.1; Regulation 1660(b)(2) — California-location continuing purchase
• Regulation 1660(a)(2)(A), (b)(1)(E), (c)(1)-(3), (c)(8) — true lease/rent/election/other-state tax
• Section 6094.1 — California use-liability prerequisite
• Section 6248; Regulation 1610(e)(1) — historical 90-day vehicle presumption
• Live Regulation 1620(b)(5) note — expired 2004–2007 twelve-month presumption
• Request/lease/vehicle/location/payment/acquisition evidence and enclosure — absent
• Official Annotation 330.2550 — later amendments/note beyond PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2550
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2550.pdf

Original ruling text

330.2550

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 322-2976
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

August 25, 1995

────────
BURTON W. OLIVER
Executive Director

Mr. C--- E. S--XX --- --- Lane
---, CA XXXXX
Re:

C--- E. S--No Permit Number

Dear Mr. S---:
This is in response to your letter received by us on June 15, 1995 regarding the application of tax to the lease of a vehicle. You state: "In March 1994 I took delivery of a 1994 GMC Yukon which I am leasing thru A--- R---, Inc., P.O. Box XXXX, M--- L---, New Jersey XXXXX. At the time of delivery my residence was --- ---, Il. I paid the sales tax on the base cost of the vehicle to the State of Illinois in one lump sum at the time of delivery. In January 1995 I relocated to D---, CA and the leasing company started to charge me approximately $40.00 per month for California sale[s] tax." You indicate your belief that you should not owe tax on the lease receipts because your relocation to California was more than 90 days after you began leasing the vehicle. DISCUSSION Except as explained below, the granting of possession by a lessor to a lessee is a continuing sale by the lessor, and the possession of tangible personal property by a lessee is a continuing purchase for use in this state by the lessee with respect to any period of time the leased property is situated in this state, without regard to the time or place of delivery of the property to the lessee. (Rev. & Tax. Code § 6010.1, Reg. 1660(b)(2).)

Mr. C--- E. S---

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August 25, 1995
330.2550

We assume that the lease of the vehicle to you by A--- R--- is a true lease, and not a sale at inception. (See Reg. 1660(a)(2)(A).) In the case of a true lease that is a continuing sale and purchase, the applicable tax is generally a use tax upon the use of the property in this state, and the tax, measured by rentals payable, is imposed on the lessee. (Reg. 1660(c)(1).) The lessor is required to collect the applicable use tax from the lessee at the time rentals are paid by the lessee. (Id.) A lessor leasing tangible personal property in substantially the same form as acquired may elect to pay California tax or tax reimbursement measured by its purchase price. (Reg. 1660(c)(2).) A lease of such California tax-paid property is not a taxable continuing sale or purchase. (Reg. 1660(b)(1)(E).) The lessor may make the election by either paying the tax or tax reimbursement to its vendor when purchasing the property, or by paying use tax directly to the Board with its timely return for the reporting period in which the property is first placed into rental service. (Reg. 1660(c)(2).) When a lessor makes an election to pay tax on the purchase price, it is making an irrevocable election not to pay tax on rental receipts. (Reg. 1660(c)(3).) Subdivision (c)(8) of Regulation 1660 explains that the lessor may make such an election with respect to certain transactions in which the lessor has paid sales or use tax or sales tax reimbursement to another state prior to leasing the property in that state. However, unless otherwise provided by statute, the lessor can make an election to pay tax on its purchase price only if its use in California would be subject to use tax. (Cf. Rev. & Tax. Code § 6094.1.) California use tax is imposed with respect to property purchased out of state only if the property was purchased for use in California. A vehicle purchased outside of California is presumed to have been purchased for use in California if it is brought into this state within 90 days after its purchase. (Rev. & Tax. Code § 6248, Reg. 1610(e)(1).) On the other hand, property used outside California for over 90 days prior to its entry into California is not regarded as purchased for use in California. Thus, if a lessor's property is used outside California over 90 days prior to its entry into California, the lessor owes no use tax on its use of the property; therefore, the election to pay tax on the purchase price is not available to such a lessor. Any lease of the property by such a lessor is a continuing sale and purchase in California with respect to which the lessee owes use tax, which the lessor must collect and pay to this state. Since the lessor owes no tax on its own use, the lessor has no California tax liability against which to take a credit for any tax paid by it to another state. (Reg. 1660(c)(8).) You indicate that you began leasing the vehicle in March of 1994 in Illinois, and that the vehicle did not enter California until January of 1995, when you relocated to California. Since the vehicle was used outside of California for over 90 days prior to its entry into this state, A--R--- is not regarded as having purchased the vehicle for its use in California. This means that A--- R--- would owe no California use tax on its own use of the vehicle in this state, and thus the option of paying tax on the purchase price of the vehicle is not available to it. The lease

Mr. C--- E. S---

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August 25, 1995
330.2550

constitutes a continuing sale and purchase, for which you owe, and A--- R--- must collect, use tax on the lease receipts. We assume that your payment of tax to which you refer was actually either reimbursement to A--- R--- for tax or tax reimbursement it paid, or it was a payment made to Illinois on behalf of A--- R--- for tax liability imposed upon and owed by A--- R--- on its purchase price of the vehicle. You may not take a credit against your California use tax liability for any tax paid by or paid on behalf of A--- R--- on its purchase price of the vehicle. If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel
KWC:cl

Enclosure
cc:

Oakland District Administrator
Out-of-State District Administrator
Ms. Lynn Whitaker, Senior Tax Auditor