In a chain of taxable equipment leases, who had to collect the tax when every earlier sublease was an established sale for resale?

Plain-English summary

An absent November 14, 1974 Out-of-State District Principal Auditor memo proposed an audit approach for chain leasing. No taxpayer, property, chain length, lease, rental amount or tax appears.

The auditor reasoned that a continuing-sale lease should be treated as a sale. If it was known that a lessee would sublease tangible property to a consumer or further sublessor, the original lease was a sale for resale even without a resale certificate. The source immediately conditions that on the resale nature of every intervening transaction being an established fact; it gives no proof standard or evidence.

On that premise, the auditor would first seek rent-measured tax from the final sublessor leasing to the consumer. If uncollectible there, he would look only to the consumer-lessee, not the original lessor or any earlier sublessor whose lease was a resale. Headquarters tax counsel agreed without adding authority or analysis.

Live Annotation 330.2879 closely tracks that conclusion and adds that rental receipts are the tax measure. It retains the intervening-resales condition but omits the absent request, no-certificate-if-known premise, lack of proof standard, no specific facts or cited law, and lack of any application or outcome.

No November 14 memo, property, original lessor, intermediate/final sublessor, consumer-lessee, lease/sublease, rental receipt, tax amount, resale certificate, evidence establishing resale, audit workpaper, collection attempt, assessment, claim, appeal or later outcome appears.

What this means for you

Map every party and lease in the chain, document who is the consumer, preserve certificates and independent resale evidence, and identify the taxable rent and collection efforts. This short memo shifts collection only after every earlier resale is established; it does not make that status automatic.

Common questions

Could an auditor assess the original lessor first?

No under the stated facts. The original and intermediate leases were treated as resales.

Who was primarily responsible?

The sublessor who placed the property with the consumer-lessee.

Who was next if collection from that sublessor failed?

The consumer-lessee.

Was a resale certificate always required?

The memo says no when resale was known, but only while the resale nature of every intervening transaction was established fact.

Did the memorandum automatically establish resale status?

No. It expressly assumed the resale aspect of every intervening transaction was an established fact.

What law did counsel cite?

None. The source contains no numbered authority.

Did the source apply this approach to an actual chain?

No. It supplies no transaction or outcome.

Citations and references

• No numbered authority appears.
• November 14 auditor memo — absent
• Every property/party/lease/certificate/tax/collection/outcome record — absent
• Live Annotation 330.2879 — same conditional result without evidence posture

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2879
• Original supporting memorandum: 330.2879 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-State – District Principal
Auditor (DMA)

From:

Tax Counsel (GLR) - Headquarters

Subject:

Chain Leasing

330.2879

Date:

December 5, 1974

In your memo of November 14, 1974 you ask our opinion with regard to the application of tax in “chain leasing” situations. It is your view that a lease which is a continuing sale should be treated as a sale. Thus, if it is known that a lease of tangible personal property is to a person who is subleasing it to a consumer or to a sublessor, the original lease is a sale for resale whether a resale certificate is taken or not. In your audits, you believe, you should look first to the sublessor who leases to the consumer. If uncollectible at that point, you should then look to the lessee consumer. However, you could not look to the original lessor or sublessor other than the final sublessor since all those leases (sales) were for resale. The foregoing of course assumes that the resale aspect of the transaction is an established fact. Under the foregoing facts it is your opinion that liability for collection of the tax rests only with the sublessor who leases the property to the consumer-lessee. If uncollectible at that point, you can then look only to the consumer-lessee. We agree with your conclusion.

GLR/at