Could a lessor buy property under a resale certificate and pay tax on rent instead of the purchase price?

Plain-English summary

The official PDF combines two August 3, 1965 responses. The first is a Headquarters Tax Counsel memorandum to Marysville Compliance answering an absent July 29 memorandum. The second is E. H. Stetson's letter answering an unidentified taxpayer's absent July 28 letter. Neither underlying request, property or transaction is supplied.

The internal memorandum said amended Ruling 79, adopted August 2, required seller's permits for lessors whose leases were sales under amended section 6006(g). Those lessors could issue resale certificates and report tax on rent. Property acquired under a resale certificate before August 1 also produced taxable rentals when leased afterward.

That memorandum further said post-August 1 rentals were taxable even when the property had previously been acquired from a nonretailer, as in a trade-in. The source visibly prints lenses in its permit sentence; this page reads the rule from the full context but preserves the official text below without silently changing it.

The taxpayer letter said enclosed Ruling 70 had been adopted August 2 and amended for the new lease law, but the enclosure is absent. Its four answers treated later leases of nonretailer trade-ins as taxable, while property bought tax-paid and leased in substantially the same form continued to have nontaxable rent.

For transition, lease meant an original or renewed lease entered or executed after August 1, 1965. A pre-August 1 lease retained prior-law treatment until renewal. A lessor that had already elected rental-receipts tax under prior law had to continue that method. Once the contract renewed on or after August 1, new-law tax applied to rentals payable under the renewal.

The current live annotation compresses these answers and says resale-certificate/rental-receipts treatment was unchanged by the August amendments. It also adds that section 6094.1—enacted by Statutes of 1966 but operative July 1, 1965—allowed a qualifying purchaser in an occasional sale from a nonretailer to elect purchase-price tax and avoid tax on rent. That enactment and election do not appear in either 1965 source document.

No seller's permit, resale certificate, acquisition or trade-in record, tax-paid invoice, lease, renewal, option, rent, return or election is preserved. The PDF gives historical guidance only and supplies no audit, assessment, refund claim, appeal or later application.

What this means for you

The tax method depended on how the property was acquired, whether acquisition tax was paid, whether a resale certificate was used, whether the property stayed in substantially the same form, and when the original lease or renewal was executed. These 1965 transition rules are not a substitute for current law.

Common questions

Could a lessor choose resale-certificate treatment?

Yes. The sources allowed acquisition for resale followed by tax measured by rental receipts for leases treated as sales.

Did the internal memorandum require a seller's permit?

Yes, for lessors whose leases fell within amended section 6006(g). The underlying permit and lease facts are absent.

How were nonretailer trade-ins treated?

Both responses said later rentals were taxable under the new law, even though tax had not applied to acquisition from the nonretailer.

What if the lessor paid tax on purchase and leased property in the same form?

The taxpayer letter said rental receipts remained nontaxable; it described that respect as unchanged.

What happened to a lease signed before August 1, 1965?

Prior treatment continued until renewal. A prior rental-basis election also had to continue, and a renewal on or after August 1 brought its rents under the new law.

Were Rulings 70 and 79 preserved with the answers?

No. The source identifies their adoption and roles, and says Ruling 70 was enclosed, but neither complete rule or adoption record is reproduced.

Did the source documents apply section 6094.1?

No. Only the current annotation adds that later legislative note and its occasional-sale election.

Citations and references

• Former section 6006(g) — amended lease-as-sale provision cited by internal memorandum
• Former Ruling 79 — August 2 amended permit rule; complete text/adoption record absent
• Former Ruling 70 — August 2 amended lease rule said to be enclosed; copy absent
• Former section 6094.1 — 1966 enactment with July 1, 1965 operative date, added only by live annotation
• July 29 Compliance memorandum and July 28 taxpayer letter — answered but absent
• Permit, property/acquisition, certificate, tax-paid, lease/renewal, rent, return and election records — absent
• Live Annotation 330.2720 — combines source rules and later section 6094.1 note
• Two August 3 responses — no later transaction or proceeding outcome supplied

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2720
• Original supporting documents: 330.2720 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Marysville - Compliance

From:

Tax Counsel (EHS) - Headquarters

Subject:

Leases

330.2720

Date:

August 3, 1965

Your memo of July 29, 1965 is answered by the amended ruling 79, Permits, adopted by the board August 2. Under this ruling all lessors of property whose lenses are of a kind defined as a sale in amended § 6006(g) are required to hold seller's permits. They may issue resale certificates if they desire and pay tax on their rentals. If property has been acquired under a resale certificate prior to August 1, the subsequent leasing of that property after August 1, is a sale and tax applies to the rentals. In addition, with respect to property leased on and after August 1, the tax applies to the leases even though it had been previously acquired from a non-retailer, as in the case of a tradein.

EHS: fb

330.2720

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 3, 1965

Gentlemen:
In reply to your letter of July 28, 1965, we are enclosing a copy of Ruling 70, adopted August 2, by the Board, as amended to incorporate the provisions of the new law affecting leases of tangible personal property. Briefly answering your four questions:

1. Leases of items acquired through trade-ins are now taxable even though the person from
   whom the trade-in was acquired was a nonretailer.
2. When tangible personal property is purchased with tax paid measured by the purchase price
   and is subsequently leased in substantially the same form, tax does not apply to the lease receipts. In this respect, the law has been unchanged.
3. For purposes of the imposition of the tax on rental receipts under the new law, the term "lease"
   includes only an original lease or a renewal of an original lease entered into or executed after August 1, 1965. Thus, if property is on a lease which was executed or entered into prior to that date, such leases are taxable only to the extent that they were taxable under the prior law which gave the purchaser the option of paying tax on purchase price or rental receipts. If he elected to pay on rental receipts, he must continue to do so.
4. Once the contract is renewed, on or after August 1, 1965, the tax applies to the rentals payable
   under the renewal, as provided in the new law.

Very truly yours,

E. H. Stetson
Tax Counsel
EHS:fb [lb]