Was a lessor's sale of its reversionary title interest taxable when the buyer took subject to the existing lease and kept collecting tax on rent?

Plain-English summary

An unidentified correspondent sent additional comments on April 3, 1970 about a redacted T problem. More information from F or B was expected, so Tax Counsel Glenn L. Rigby expressly limited this response to the lease question. Neither the letter, broader problem nor later information is reproduced.

The assumed transaction involved equipment leased after August 1, 1965. The original lessor collected use tax measured by rent, then transferred title to a purchaser that took the property subject to the existing lease. The new owner kept leasing to the same lessee and continued collecting use tax on rental receipts.

Counsel agreed that title transfer was not a retail sale: it was sale for resale. The correspondent separately asked whether disposition fell within lessor's regular course of business and therefore avoided treatment as use under section 6009 or former Ruling 70(c)(3)(C). Rigby's earlier conclusion had been tentative, but after further consideration he retained it.

Whether transaction covered one item or bulk sale did not change that regular-course conclusion. Transfer was neither sales- nor use-taxable under assumed continuing-lease facts.

The result reversed if new lessor acquired equipment to use itself and canceled lease. Then assignor-to-assignee sale was taxable like any other retail sale.

The PDF supplies no equipment identity, acquisition, lease, title/assignment agreement, single-item or bulk-sale terms, purchase price, rental receipts, collected tax, return, closing or buyer-use evidence. It also omits complete former Ruling 70, later information and any audit, assessment, refund claim, appeal or transaction outcome. The live annotation publishes only continuing-lease result and omits limited-request and expected-information posture.

What this means for you

Document that buyer takes subject to the same lease, same lessee remains in place, rental-tax collection continues and buyer does not cancel for its own use. Also substantiate why disposition is in lessor's regular course of business.

Common questions

Did transferring legal title alone trigger sales tax?

No under assumed facts, because buyer continued holding property for existing taxable lease.

What made title transfer a resale?

Buyer took subject to and continued same lease instead of acquiring equipment for consumption.

Did one asset versus a bulk sale change result?

No. Counsel treated either form as disposition in lessor's regular course of business.

What if buyer canceled lease and used equipment?

The transfer would become taxable retail sale under letter's stated alternative.

Did counsel decide broader T problem?

No. He limited discussion to lease question while awaiting more information from redacted parties.

Is final transaction or tax outcome known?

No. Source is advice on described facts and preserves no closing, reporting, audit or appeal record.

Citations and references

• Section 6009 — regular-course disposition versus taxable use
• Former Ruling 70(c)(3)(C) — historical parallel authority cited; complete rule/history absent
• April 3 letter, redacted T problem and expected F/B information — absent
• Equipment, acquisition, lease, assignment, price, rent, tax, business-course and buyer-use records — absent
• Live Annotation 330.2760 — continuing lease/same lessee/rent-tax and resale result only
• April 14 counsel opinion — later transaction and proceeding outcome absent

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2760
• Original supporting opinion: 330.2760 PDF

Original ruling text

330.2760

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 14, 1970
Dear Mr.
Thank you for the additional comments in your letter of April 3, 1970 regarding the "T" problem. Since you will be forwarding me some additional information which you will receive from "F" or "B", I have limited the following discussion to your lease question. The situation involved is where a lessor of equipment (leased after August 1, 1965), who had been collecting use tax on rental receipts, transfers the equipment to a purchaser who takes the property subject to the lease and who thereafter continues to lease the property to the lessee and collect use tax measured by the rentals. I agree with your conclusion that the transfer of title to the property is exempt from sales tax as not constituting a retail sale, i.e., it is a sale for resale. The question you raise is whether the sale would be regarded as being within the lessor's "regular course of business" and, therefore, not a use within the meaning of Section 6009 or Ruling 70 (c) (3) (C). As you relate, it was my tentative conclusion that the transfer of the lease property (whether it be a single item or bulk sale) would be regarded as being a sale in the lessor's regular course of business. After considering this problem further, my opinion remains the same. Accordingly, the transfer of title by the lessor will be regarded as a sale for resale and not subject to either sales or use tax. It should be noted that if the new lessor was going to use the property himself, i.e., he was going to cancel the lease, the sale between the assignor and assignee would be subject to sales tax as any other retail sale.

Very truly yours,

Glenn L. Rigby
Tax Counsel

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